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Private Equity Wants in on the Bailout? Spare Me

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Re: Private Equity Wants in on the Bailout? Spare Me

#51

Post by smabie »

arcticfox wrote: post #30
bdcravens wrote: post #28

Earlier quoted context omitted.

Couldn't the same be said for highly-leveraged workers?

What is a highly leveraged worker? Is it someone that has no savings account? If so, what does letting them fail look like to you? To me, letting an over-leveraged worker 'fail' (starve, die, become homeless, whatever it is) is categorically different than letting an over-leveraged business fail.

I mean, an over-leveraged business failing is gonna create over-leveraged workers failing. I don't really see the material difference, anyways.

Re: Private Equity Wants in on the Bailout? Spare Me

#52

Post by smabie »

rmrfstar wrote: post #19
downrightmike wrote: post #14

Earlier quoted context omitted.

Buy companies, layoff and outsource staff. Over work those that are left. PE is already bad for employees.

You can make money robbing little old ladies on their way to the grocery store. Doesn't make it a socially useful activity or one that should be permitted in a civilized society.

Are you saying that buying a company and having it take on debt should be illegal?

Re: Private Equity Wants in on the Bailout? Spare Me

#53

Post by cmrdporcupine »

brenden2 wrote: post #29

What I learned in school growing up was that if I lose a bunch of money gambling at the casino with my credit card, I don't get a free bailout from the government. But maybe things have changed?

Marx said it 174 years ago... "The executive of the modern state is nothing but a committee for managing the common affairs of the whole bourgeoisie"

The state is created by the class of people who own capital, in order to mediate, protect, justify and manage a world in which they continue to own and profit from their ownership of capital.

Re: Private Equity Wants in on the Bailout? Spare Me

#54

Post by smabie »

Pfhreak wrote: post #27
socalnate1 wrote: post #2

If the real goal here is to save jobs, this is all completely irrelevant.

Has PE had a history of net job gain, or at the very least saving the jobs that were already there? My impression, without any data on hand, is that PE firms tend to reduce the number of jobs overall.

The point of a business isn't to employ people, it's to make money. Often times PE firms are buying companies that are going to go out of business unless dramatic changes are made (like newspaper companies). I think we can all agree that cutting half the staff of a company is better than the company going out of business and everyone losing their jobs.

Re: Private Equity Wants in on the Bailout? Spare Me

#55

Post by abakker »

TomMckenny wrote: post #40
Havoc wrote: post #4

>But do they really deserve any part in a bailout? Do any of these companies? The whole concept of bailouts create bad incentives - to me that's more the crux of the issue. But if you're gonna do them anyway then I see little justification for including/excl some just because they're listed vs private. Plus it makes way more sense to "save" the economy at grass roots level anyway. I'd prefer more of a suddenly expand…

These two options for saving the economy: corporate bailout vs social safety net essentially correspond with belief in trickle down vs Keynesian stimulus. Stated even more bluntly, it is essentially whether you believe customers or assets are most important for business. It is why the current path begins to resemble 1929 where consumer buying power spiraled downward. If the social isolation period ends with millions…

ideally, there would be a 3rd path, which would be direct forgiveness of those debts for a small period. All creditors would take the haircut, instead of the debtors. this means that incoming money would go back into the productive economy.

The odd thing about bailouts is that if you bailout businesses, they can't really spur consumer demand, and if you give it to individuals it tends to end up re-concentrated in the financial economy. If you want to ensure cashflow into the open economy, you need to ensure that the money that people have gets spent on goods, not financing.

Re: Private Equity Wants in on the Bailout? Spare Me

#56

Post by Retric »

cs702 wrote: post #46

Buffett on private equity:[a] > For some years, these purchasers accurately called themselves “leveraged buyout firms.” When that term got a bad name in the early 1990s – remember RJR and Barbarians at the Gate? – these buyers hastily relabeled themselves “private-equity.” The name may have changed but that was all: Equity is dramatically reduced and debt is piled on in virtually all private-equity purchases. Indeed,…

> majority of leveraged firms into bankruptcy.

I am unsure how this is different from the normal failure of leveraged firms. When so many are failing within 3 years in normal times, this just seems to be more of the same.

Re: Private Equity Wants in on the Bailout? Spare Me

#57

Post by freeopinion »

thebean11 wrote: post #43
pnutjam wrote: post #34

Earlier quoted context omitted.

The whole point of shareholders is to dilute the investment so much that nobody really has a voice. Pick up some of the books by Frederick Lewis Allen, he wrote some great financial history books.

I haven't read any of his work..but surely there is some aggregate voice made up of the shareholders right? Do you think the shareholder votes are meaningless?

I don't think you and I know each other, but I'm going to guess that you own shares in hundreds of companies. I'm also guessing that you have never voted at the shareholder meeting of most or all of those companies. Again, just guessing, but I'm guessing that the same is true for most of the people who read this site. And this is YC--all about founders and funders.

Re: Private Equity Wants in on the Bailout? Spare Me

#58

Post by FireBeyond »

leveredequity wrote: post #26
TuringNYC wrote: post #24

Earlier quoted context omitted.

>> It's disingenuous to say PE doesn't care. They have every incentive to preserve and generate equity value. That is literally their business. This might be the headline intent for the public, but in practice has often not been the primary intent. PE firms often extract massive fees from the companies to recover their initial investment -- long before they realize equity based gains. I'd say VCs are more aligned on…

That is simply not true. Management fees are such a small percentage of contributed capital. And, typically doesn't count towards your returns calculation.

Toys R Us. $1.8B in debts prior to PE involvement. Immediately following the deal signing that ballooned to $5B+.

Interest fees now encompassed 97% of operating profits.

PE firm only paid about 1.3% of the equity for the leveraged buyout, Toys contributed the rest (hence the increased debt load).

KKR and Bain stated that management fees, transaction fees and interest entirely covered, and more, the losses from the deal. $128M in transaction fees, $800M in management fees, and so on.

Re: Private Equity Wants in on the Bailout? Spare Me

#59

Post by leveredequity »

majormajor wrote: post #37
leveredequity wrote: post #17

Earlier quoted context omitted.

I work at a PE firm. There are multiple strategies employed, but the name of the game is not to lose money. Disagree with the term "value creation" - fine - but my point is there is zero incentive to lose money. Otherwise, they would be out of business in the long term. I am arguing for worker protection. Not protection of equity value. You inherently take on risk by deploying it, and should accept the realities of t…

> Otherwise, they would be out of business in the long term. ... that would be a fine incentive if we don't bail them out. Otherwise...

Totally agree, I thought we were arguing to bail out employees here. That's what I'm aware of based on what I've seen going on in the industry

Re: Private Equity Wants in on the Bailout? Spare Me

#60

Post by thebean11 »

freeopinion wrote: post #57
thebean11 wrote: post #43

Earlier quoted context omitted.

I haven't read any of his work..but surely there is some aggregate voice made up of the shareholders right? Do you think the shareholder votes are meaningless?

I don't think you and I know each other, but I'm going to guess that you own shares in hundreds of companies. I'm also guessing that you have never voted at the shareholder meeting of most or all of those companies. Again, just guessing, but I'm guessing that the same is true for most of the people who read this site. And this is YC--all about founders and funders.

> but I'm going to guess that you own shares in hundreds of companies

If you count index funds sure

> I'm also guessing that you have never voted at the shareholder meeting of most or all of those companies.

I generally don't vote, but that isn't because I don't believe in the efficacy of shareholder voting. Just because MY (insignificant) vote wouldn't matter doesn't mean shareholder votes in general don't matter, or that shareholders as a whole don't have control over the company.

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