Private equity: A fee too far [pdf] • Hacker News Board

Re: Private equity: A fee too far [pdf]

#11

Post by LatteLazy » Fri, Aug 11, 2023, 12:52 PM UTC

game_the0ry wrote: post #10

LatteLazy wrote: post #5

If someone wants to buy a company and liquidate it, that's up to them. If they make a profit then they're actually adding value. If they don't they will soon stop. Doing it via fees and loans is no different to just a straight liquidation as far as I can see. And since all the owners/investors are willingly taking part of they lose their money, that's on them. It's sad that people's jobs get eliminated. But we have a…

You fail to see how parasitic modern US capitalism has become. US capitalism has been extremely productive but the gains in productivity have disproportionally distributed to shareholders, and employees got the short end of the stick. [1] And this isn't capitalism problem btw. This is a corporate culture problem. [1] https://www.epi.org/productivity-pay-gap/

I don't fail to see that, I just think it's an entirely different problem, with a solution unrelated to this issue. I agree about the current corpocracy.

If people want a nonparasitic system, they need to implement a tax system that supports that.

Permitting or banning or any other restriction on private equity won't solve inequality. Redistribution of capital, education and healthcare, proper infrastructure and more opportunity in general will.

Re: Private equity: A fee too far [pdf]

#12

Post by boppo1 » Fri, Aug 11, 2023, 1:06 PM UTC

DarkNova6 wrote: post #4

throwawayqqq11 wrote: post #3

I am sorry but this bothers me to no end. (Why is nobody seeing it as i do :) > One issue the regulatory agency raised was conflict of interest [… between managers and stakeholders] combined with > Mr Sudarskis argues that the most vulnerable parties are not the investors, who recieve a share of the fees and willingly sign a contract with their fund managers, _but portfolio companies._ This conflict of interest goes…

Some people even claim that this is a natural process. But this phenomenon is most visible in the US and UK. It is the logical result of privatization and market liberalization from past decades. Power and wealth has shifted from the commons to private ownership and this is only going to continue. Of course this would be a different story if private actors had to play by the same rules, but if you amass enough capita…

>you are „too big to fail“ for capitalism

Isn't market intervention more like corporate socialism though? I mean that's literally not capitalism.

Re: Private equity: A fee too far [pdf]

#13

Post by ceejayoz » Fri, Aug 11, 2023, 1:19 PM UTC

boppo1 wrote: post #12

DarkNova6 wrote: post #4

Earlier quoted context omitted.

Some people even claim that this is a natural process. But this phenomenon is most visible in the US and UK. It is the logical result of privatization and market liberalization from past decades. Power and wealth has shifted from the commons to private ownership and this is only going to continue. Of course this would be a different story if private actors had to play by the same rules, but if you amass enough capita…

>you are „too big to fail“ for capitalism Isn't market intervention more like corporate socialism though? I mean that's literally not capitalism.

If the market intervention is driven by and for the benefit of the people, you might call it socialism.

"Too big to fail" is crony capitalism.

Re: Private equity: A fee too far [pdf]

#14

Post by boppo1 » Fri, Aug 11, 2023, 1:19 PM UTC

LatteLazy wrote: post #8

throwawayqqq11 wrote: post #7

Earlier quoted context omitted.

The main point of this article is the conflicting interests of greedy managers. > If they make a profit then they're actually adding value. Martin Skrelli. [0] Please tell me what and where his added value is. And please no fear mongering about the rich getting poorer. [0] https://en.m.wikipedia.org/wiki/Martin_Shkreli

The value is in the resources of the company being liquidated. Right now, those resources are being used to produce $X per year in profit. But if we sold them all, and just put the cash in a bank we could get $Y in interest. Make sense? If Y>X then the best thing to do is liquidate the company. An example might help: imagine you have a steel mill, and it makes just $1000 a year. Someone from Canada comes to you and s…

Yeah, but this fell apart when the FOMC killed price discovery for 15 odd years. 'Profit' is not helpful to society, the goods and services it reflects is.

When you tilt the pinball table so companies that make nothing and promise the future are valuable (theranos, wework, TSLA for a long time, anything Kathy Wood buys) while under-valuing companies that make and do stuff now, you wind up hollowing out the use of resources on real things people need and spending it on stuff like NFTs.

How many billions has google spent on projects that never saw the light of day? How many hospitals and bridge repairs could we have had for that money?

Benchmark rate intervention is hailed as saving the economy from crises, but all it did was prop up the paper-value of people's retirement funds while suffocating businesses that actually make and do useful stuff.

Re: Private equity: A fee too far [pdf]

#15

Post by ceejayoz » Fri, Aug 11, 2023, 1:21 PM UTC

LatteLazy wrote: post #8

throwawayqqq11 wrote: post #7

Earlier quoted context omitted.

The main point of this article is the conflicting interests of greedy managers. > If they make a profit then they're actually adding value. Martin Skrelli. [0] Please tell me what and where his added value is. And please no fear mongering about the rich getting poorer. [0] https://en.m.wikipedia.org/wiki/Martin_Shkreli

The value is in the resources of the company being liquidated. Right now, those resources are being used to produce $X per year in profit. But if we sold them all, and just put the cash in a bank we could get $Y in interest. Make sense? If Y>X then the best thing to do is liquidate the company. An example might help: imagine you have a steel mill, and it makes just $1000 a year. Someone from Canada comes to you and s…

> An example might help: imagine you have a steel mill, and it makes just $1000 a year. Someone from Canada comes to you and says "I'll give you 50m for the mill, I want to take all the equipment to Canada where there is a shortage of steel". He will fulfil more demand at a better price by doing that (hence he will offer 50m for a steel mill that only makes a pittance in the USA). And you can't ake the 50mil and build something people actually need (like a refinery since gas prices are really high etc).

Except maybe there's a need for steel where the $1,000 plant is, too, and now they have to buy it more expensively from the moved plant. (Maybe it was a co-op.) The assumption that breaking even always means no demand is incorrect.

Re: Private equity: A fee too far [pdf]

#16

Post by whall6 » Fri, Aug 11, 2023, 1:23 PM UTC

throwawayqqq11 wrote: post #3

I am sorry but this bothers me to no end. (Why is nobody seeing it as i do :) > One issue the regulatory agency raised was conflict of interest [… between managers and stakeholders] combined with > Mr Sudarskis argues that the most vulnerable parties are not the investors, who recieve a share of the fees and willingly sign a contract with their fund managers, _but portfolio companies._ This conflict of interest goes…

What exactly is the issue you’re seeing?

Re: Private equity: A fee too far [pdf]

#17

Post by throwawayqqq11 » Fri, Aug 11, 2023, 1:28 PM UTC

LatteLazy wrote: post #8

throwawayqqq11 wrote: post #7

Earlier quoted context omitted.

The main point of this article is the conflicting interests of greedy managers. > If they make a profit then they're actually adding value. Martin Skrelli. [0] Please tell me what and where his added value is. And please no fear mongering about the rich getting poorer. [0] https://en.m.wikipedia.org/wiki/Martin_Shkreli

The value is in the resources of the company being liquidated. Right now, those resources are being used to produce $X per year in profit. But if we sold them all, and just put the cash in a bank we could get $Y in interest. Make sense? If Y>X then the best thing to do is liquidate the company. An example might help: imagine you have a steel mill, and it makes just $1000 a year. Someone from Canada comes to you and s…

What you say makes sense, but it still misses the main point: Market mechanism fail because of conflicting interests. Your example describes a functioning market, the article describes only one symptom (!) of the opposite.

It's true, resource allocation is very important. But is the free market more important than for example the declining life expectancy in the US?

I don't think, you will find a solution besides regulation or education to my example problem. I think you have to realize, that the market incentives are causing it, that the free market should be exempt from certain basic needs, where better resource allocation (a free market) will only degrade in a race to the bottom, and will not (as you described) find a better optima for the required resources (because there might be none).

I will call it market mongering.

EDIT: To refine your mill example: What if the steel buyer does not do anything with the steel, except driving price up?

Re: Private equity: A fee too far [pdf]

#18

Post by throwawayqqq11 » Fri, Aug 11, 2023, 1:42 PM UTC

whall6 wrote: post #16

throwawayqqq11 wrote: post #3

I am sorry but this bothers me to no end. (Why is nobody seeing it as i do :) > One issue the regulatory agency raised was conflict of interest [… between managers and stakeholders] combined with > Mr Sudarskis argues that the most vulnerable parties are not the investors, who recieve a share of the fees and willingly sign a contract with their fund managers, _but portfolio companies._ This conflict of interest goes…

What exactly is the issue you’re seeing?

Ignorance. You can only solve problems that you see and with my conspiratorial hat on, i would say it is deliberate.

Re: Private equity: A fee too far [pdf]

#19

Post by LatteLazy » Fri, Aug 11, 2023, 2:16 PM UTC

boppo1 wrote: post #14

LatteLazy wrote: post #8

Earlier quoted context omitted.

The value is in the resources of the company being liquidated. Right now, those resources are being used to produce $X per year in profit. But if we sold them all, and just put the cash in a bank we could get $Y in interest. Make sense? If Y>X then the best thing to do is liquidate the company. An example might help: imagine you have a steel mill, and it makes just $1000 a year. Someone from Canada comes to you and s…

Yeah, but this fell apart when the FOMC killed price discovery for 15 odd years. 'Profit' is not helpful to society, the goods and services it reflects is. When you tilt the pinball table so companies that make nothing and promise the future are valuable (theranos, wework, TSLA for a long time, anything Kathy Wood buys) while under-valuing companies that make and do stuff now, you wind up hollowing out the use of res…

I don't necessarily disagree with a lot of what you say. I think it just fails to see the wider system.

For instance when you said "profit is not helpful to society" you were correct. But profit is the reward people get for doing things useful to society. It's the signal that the things they are doing ARE useful. And profit pays to continue and expand those actions.

A more general theme is your distinction between "real" things and the alternative. You're not wrong an NFT is a total waste of time in my opinion. But if people actually want NFTs more than steel, that is ok. Give them NFTs. And many many people DO want those things. (There is something ironic that we have ended up here as the ussr concentrated on metrics like steel production while people grew more and more discontented because they wanted vacuous things like jeans and washing machines, not steel...).

That is not the fault of the profit motive or the market or capitalism. That's people wanting the "wrong" things. That won't change under any other system...

Re: Private equity: A fee too far [pdf]

#20

Post by LatteLazy » Fri, Aug 11, 2023, 2:20 PM UTC

ceejayoz wrote: post #15

LatteLazy wrote: post #8

Earlier quoted context omitted.

The value is in the resources of the company being liquidated. Right now, those resources are being used to produce $X per year in profit. But if we sold them all, and just put the cash in a bank we could get $Y in interest. Make sense? If Y>X then the best thing to do is liquidate the company. An example might help: imagine you have a steel mill, and it makes just $1000 a year. Someone from Canada comes to you and s…

> An example might help: imagine you have a steel mill, and it makes just $1000 a year. Someone from Canada comes to you and says "I'll give you 50m for the mill, I want to take all the equipment to Canada where there is a shortage of steel". He will fulfil more demand at a better price by doing that (hence he will offer 50m for a steel mill that only makes a pittance in the USA). And you can't ake the 50mil and buil…

No, actually. The fact people won't pay for X is exactly how you know that people don't want X. So a prolonged, less than cost of production, price for something DOES mean you should stop making it. That's sort of the whole point of prices...

This sometimes forces us to confront hard truths (people want perfume and hamburgers and NFTs, not ever larger amounts of steel). But that's actually the big strength of capitalism: people get what they want not what people think they SHOULD want...