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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

#111

Post by [deleted] »

bhupy wrote: post #110
TomMckenny wrote: post #40

Earlier quoted context omitted.

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…

"trickle down" isn't a real thing, it's just a pejorative used against supply side economics, which is a mainstream economic view. The basic account of "trickle-down economics", goes something like this. When you give a tax cut to a rich guy, he uses the money to buy party supplies for a celebratory yacht party. The guy who owns the yacht party supply store sees an influx of cash from rich guys spending their trickle…

[deleted]

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

#112

Post by siruncledrew »

kitotik wrote: post #65
HashThis wrote: post #32

Earlier quoted context omitted.

The privileged class knows that congress sells us out. The privileged class are just again working to rob the masses to wealth transfer more to the privileged classes. Happens every year, some more visible than others. Hopefully this is one time congress won't sell us out.

> Hopefully this is one time > congress won't sell us out. Uh, didn’t it already happen, again? Propping up aerospace and banks again with taxpayer money, sending only a fraction (call it a “token”) to SMBs, with near unchecked disbursement powers, seems like they’ve continued on their same general strategy of wealth consolidation.

When the first tweets from the executive branch were “OMG we need to save Boeing!!!!” instead of “We need doctors and supplies!!!” that kinda summed up where the priorities were.

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

#113

Post by zamfi »

cmrdporcupine wrote: post #53
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.

> 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.

In the US, at least, this is a very large class.

Is it a problem that the government disproportionately benefits the top 40%? Yes, absolutely.

But you’re making it sound like the state is a conspiracy of the 1%...sure those folks get disproportionate benefits even above the other 39%, but the state doesn’t only exist because of the 1% — it benefits a much greater collection of people!

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

#114

Post by clairity »

dcolkitt wrote: post #100
Decathect wrote: post #88

Earlier quoted context omitted.

I'm really curious what your point is, since the willingness of capital markets to extend financing seems like it'd be very related to a company's capital structure and leverage. Like, were the businesses in question not over leveraged, they'd find it much easier to find the capital to continue operations during a downturn.

> extend financing seems like it'd be very related to a company's capital structure and leverage This seems intuitively appealing, but is misleading. The Nobel-prize winning work of the Modigliani-Miller Theorem[1] that a firm's capital or leverage ratio does not prima facie have any impact on its weighted-average cost of capital. [1] https://en.wikipedia.org/wiki/Modigliani–Miller_theorem

but a firm's WACC doesn't tell you what the marginal cost of capital is. marginal capital costs generally correlate with the leverage ratio (not necessarily linearly). at some point those costs are prohibitive (greater than free cash flow).

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

#115

Post by TuringNYC »

smabie wrote: post #52
rmrfstar wrote: post #19

Earlier quoted context omitted.

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?

I think they are saying that some things are lower in the line of requiring publicly funded bailouts. Like, say, perhaps we should spend the money on longer unemployment checks for the poor and middle class before we consider giant checks to risky business ventures.

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

#116

Post by TuringNYC »

leveredequity wrote: post #17
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.

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…

>> I am arguing for worker protection.

Why not simply fund unemployment checks, direct cash, food stamps, student loan deferrals, or more direct means of worker protection than handing the money to PE Firms (which by the way operate by design to squeeze workers) and hoping they protect workers?

We've seen this in 2009-2010 -- giving the money to banks doesn't magically make the money trickle down to workers. Perhaps some of it does, but why not make all of it trickle down by skipping the middlemen? What are the odds the middlemen will conveniently issue a giant dividend to themselves or do a stock buy-back or any other number of tricks that will achieve nothing for the workers.

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

#117

Post by a9h74j »

abakker wrote: post #55
TomMckenny wrote: post #40

Earlier quoted context omitted.

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…

A ridiculously improbable thought here: What if, in some regime, interest, rent etc. accrued only on "business days", and business days could be cancelled in a crisis?? Jigger the time metric????

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

#118

Post by xiaosun »

dcolkitt wrote: post #71
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,…

> Saddled with as much debt as possible, the business by design has been put in a position such that it cannot survive even a modest decline in revenue without raising significant additional capital. I agree, but I think it's important to qualify what you mean when you say the "business can't survive". Because this implies that if a company can't meet its debt obligations that it will cease operations. As long as ope…

>As long as operational cash flow is positive, then no amount of leverage or debt distress will halt the continued operations. The business might "fail" in the sense that the entity is legally re-structured and the equity owners, or even junior debt owners, are zeroed. But there's no reason in a country with well-developed bankruptcy law for this to have any impact on the employees, customers or operations of the business.

You're naively assuming the equity owners meekly turnover the operations to the debtholders in bankruptcy when business performance suffers but cash flow is positive.

Equity holders are going to inflict a ton of pain on the employees and customers of the company first. They are going to layoff employees to the bare bones, sell otherwise performant assets, play games with vendors/receivables, and otherwise do anything else they can do to squeeze more runway before giving things up in bankruptcy.

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

#119

Post by cmrdporcupine »

SpicyLemonZest wrote: post #109
danharaj wrote: post #99

Earlier quoted context omitted.

I know that you know this is a stupid point that can only be reached by reading Marx in the most obtuse way possible.

I don't know that. I'm aware that a lot of modern people do take Marxism to be a kind of vague position that wealth is bad and poor people are great, but I think they're wrong. What I've read of Marx makes it very clear that he's talking about the industrial labor class of his time, which really was terribly exploited in ways we've since eliminated.

Wealth bad, poor good is certainly not the reading I have of Marx. If anything Marx was entranced by wealth and despaired its concentration and waste. How autocratic narcissitic tyrants like Stalin and Mao and Pol Pot made use of some of his words is another story entirely.

I also think the definition of "industrial labour class" has changed significantly. The analysis still applies.

In the Anglo-American world we get caught up with Marx's use of the word "class"; because to us it has the connotations of social class; aristocracy, gentry, etc. But Marx had a very specific technical economic meaning, and it had to do with proximity to economic power and control. I don't think that's substantially changed, though it has become more subtle. In large part because of the post-WWII settlement between labour and capital in the west that created the 'middle class', which was really just a prosperous section of the working class.

That segment of society is shrinking though.

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

#120

Post by close04 »

lowdose wrote: post #69
close04 wrote: post #31

Earlier quoted context omitted.

Companies get a bailout based on how big the fallout is if they fail (lost jobs, lost value for the economy, etc.) or how much value is expected they'll bring if they're saved. Like investing in Tesla even when they constantly lost money because you expect it to recover and bring you a profit. I am not considering any other interests involved, lobbying, bribes, etc. While important I'm sure the first part is already…

No all these companies in need of a bailout are suits without skin in the game. Elon took a big risk with his own money which means you as shareholder of Tesla are shielded from the classic agency problem. Suits empty the company in good times and when shit hits the fan they put their hands in the air and say "well I did my best".

> No all these companies in need of a bailout are suits without skin in the game.

You may be replying to the wrong comment. I explained the reasoning for bailouts in general. Your characterization is besides the point. I only gave Tesla as an example of investing based on future expectation of value, similar to the reasoning behind some bailouts.

I wish people would stop getting so riled up at the mere mention of Tesla, so much so that reading comprehension flies out the window.

This being said, at times Elon has also gone to great lengths to mislead the general public and the shareholders in order to pump up that value in critical moments ("funding secured", "virtually certain") or bailout family with other people's money (SolarCity). Court decisions already stand to confirm this. I guess everybody's "a suit" when it suits them.

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