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Private equity bought America's essential services

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Re: Private equity bought America's essential services

#531

Post by missedthecue »

sega_sai wrote: post #3

I simply don't understand why leveraged buy-out(LBO) is allowed in the first place. It is like paying for the company with the money from the company you are buying.

That's the exact same concept as a mortgage. But instead of securing the loan with the equity value of the house, you are securing the loan with the cash flows of the business. It's hard to see what's wrong with this.

In an analysis of "European companies around their buyout event in the period 2000 - 2008," private equity was found to "select companies which are less financially distressed than comparable companies prior to the transaction and that the distress risks increase after the buyout" [1]. Critically, however, "the distress risk in private equity-backed companies does not exceed the distress risk in comparable companies three years after the buyout," and, "despite this risk increase, private equity-backed companies do not suffer from higher bankruptcy rates than the control group."

More broadly, an analysis of "17,171 worldwide leveraged buyout transactions that include every transaction with a financial sponsor in the CapitalIQ database announced between 1/1/1970 and 6/30/2007" found bankruptcy rates around 6% [2]. This isn't exceptionally high.

[1] https://madoc.bib.uni-mannheim.de/31366/1/dp11076.pdf

[2] https://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.23.1.121 Table 2

Re: Private equity bought America's essential services

#532

Post by cogman10 »

kokanee wrote: post #471
BirAdam wrote: post #459

All of the oldest folks I knew were wrong about many things, but they were right to say that morality must be at the center of all public discourse. Pensions were part of the contract of employment for many old companies. As those companies became more interested in ever higher rates of return without offering higher value to customers, the companies became fragile. Becoming fragile, they were eventually broken. Then…

We need to figure out how to effectively organize boycotts, and find a way to actually incentivize participation. I'm spitballing here, but what if we created a browser extension that gives users the option to block various monopolistic/oligarchic tech platforms. If the browser navigates to a blocked platform, we show a "consider these alternatives" page instead. Competitors to the monopolies could offer incentives (…

While I'm ok with the notion of boycotts, they aren't effective in a world dominated by monopolies.

It's basically impossible to boycott amazon completely because of AWS which powers everything.

The hard thing needed is better politicians. And to get better politicians we need a better and more politically literate voting public. To get that, we need better journalism.

It's a real hard battle to win especially since a huge portion of the electorate will vote for the incumbent and the incumbents will deploy every dirty trick in the book to stay in power. Including getting people to run to split tickets.

But that's ultimately what must happen. The thing Amazon or Walmart actually fear is a government willing to regulate them or their employees unionizing. And the only way to get regulations is voting for politicians that do that and voting out politicians unwilling to do that. For unions, you have to convince people that even though it may cost them their jobs, it's worth it to drive the likes of Walmart out of town to support more local businesses. It helps to get union friendly politicians into office.

(Un)fortunately, there's a pretty big generational divide. As boomers expire, I have hope that Gen X and Millennials will make things better. The question is how bad things will get before that happens.

Re: Private equity bought America's essential services

#534

Post by cameronh90 »

mcphage wrote: post #356
cameronh90 wrote: post #310

Earlier quoted context omitted.

That's only possible if the financial system is valuing things systematically incorrectly. IFF a company is truly, honest to god, less valuable than the sum of its parts, then it (or the subset that would have more value to someone else) SHOULD be dismantled, and those resources sold and reallocated to more productive use. You probably make these sorts of decisions in the capacity of your own personal finances withou…

> That's only possible if the financial system is valuing things systematically incorrectly. Well… yeah. I mean, it seems clear that the market is pretty bad at valuing companies. At the very least, valuations are based on a combination of (a) measurable attributes, and (b) vibes. (a) will always be incomplete, and runs into all of the same measurement problems that everything else does. And (b) is really unreliable.…

> PE companies are not especially interested in long timelines, whereas companies can eventually provide a lot more value that they’re worth right now.

The value of a company does include the value of future returns. The standard model is net present value. In theory, if the market is valuing those future returns correctly, a PE fund would probably just do the value maximisation through investment and genuine business rationalisation, and skip the financial engineering phase of the cycle. I believe this is actually what most PE managers would prefer to do. They generally don’t actually want to burn their efforts for a short term fake valuation boost. They are still people after all. It just seems to be what the market wants them to do, and they prefer money.

> the market is pretty bad at valuing companies

The market has always been bad, but probably more randomly bad, historically. Different people had their own finger-in-the-air methodologies and an estimated market value of a company had a lot more random noise around it.

The issue is now that ~every large institutional investor is valuing companies in the same wrong way, which creates opportunities for, essentially, an arbitrage between reality and their dumb models which these types of PE funds are exploiting.

It also creates systemic risk to the financial system. When everyone is making the same mistake, “independent” market participants aren’t really independent. This is in essence what any bubble is, but usually isolated to people misreading the fundamentals of a particular sector. If the techniques behind financialisation are themselves a bubble, however, we could be in for one hell of a pop if the market realises. Like when the market realised they’d been valuing subprime mortgage books wrong in 2008.

Re: Private equity bought America's essential services

#535

Post by michaelteter »

Unregulated capitalism eats everything, including eventually itself.

There are other greed-based systems which also eat themselves, but we live in the era of capitalism as the vehicle of self-destruction.

Many of us won’t be alive to see it, but it will result in the fall of the US. Maybe it will be 50 years from now, but I suspect sooner.

Once enough safeguards get systematically removed, the rate of growth of the beast becomes unstoppable.

Eventually the few who have not been crushed and who have the (illusion of) control will have to wall themselves off in heavily guarded compounds to prevent the masses of desperate poor from overrunning them. It will be like so many dystopian stories that have already been written.

I see no way to correct it now, at least not in the US. Moneyed interests clearly have control of the government. The few good civil servants and elected officials are increasingly under pressure to give up their principles and accept pay-to-play, lest they lose their jobs or what little power they had to do good.

This isn’t just a right wing problem (US right), because the same money flows to the left. At the end of the day, one side may indeed be more cruel, but they both support the same system.

Re: Private equity bought America's essential services

#536

Post by 4b11b4 »

Fuck private equity practicioners at every end of the spectrum, I don't care what role you play and how big or small the firm is. I heard some crazy anecdote a few months ago about them buying up firefighting software and then just charging fire fighting departments higher prices while the software still sucked and basically holding it hostage while doing no maintenance. Fuck these motherfuckers, can't they have some fucking dignity to do what's right. How are people so lost.

Another anecdote is private equity buying up psychologist firms providing therapy to people. The dude told me people walk in with their chat gipity transcripts. The goal of the PE firm was to buy out and make money and then somehow offer some software to give these people a "productive" chat gipity conversation

Just get the fuck out of here already? How many fingers up your own ass do you gotta have to keep up that kind of work?

Re: Private equity bought America's essential services

#537

Post by Saline9515 »

marcus_holmes wrote: post #527
throwforfeds wrote: post #388

Earlier quoted context omitted.

At least here in NYC, a large part of a NYPD officer's pension is calculated based on a 3-year look back from their retirement date, so there is a huge incentive to work as much overtime as possible in order to bump that number in your last few years of service. There are lots of stories of NYPD handing out easy overtime in massive numbers for each other, particularly when they are about to retire. Teachers are the e…

Why are we mad at someone who has worked their whole life and is getting a decent retirement, when the article is talking about PE management fees being extracted from essential services at enormous rates? And yes, pensions are a major part of the PE funding, but not all of it. There are a bunch of incredibly rich people who are also profiting from all of this at exorbitant rates. Can we be mad at them instead?

Public pensions and PE used to pay retirements are exactly the same thing : they are extracted from value added by workers.

Re: Private equity bought America's essential services

#538

Post by sieabahlpark »

alistairSH wrote: post #210
nemomarx wrote: post #153

Earlier quoted context omitted.

Why don't pensions just invest in index funds generally? High required rate of returns or?

Yes, underfunded relative to future payout promises, so higher rates of return required to remain solvent.

[dead]

Re: Private equity bought America's essential services

#539

Post by samat »

cameronh90 wrote: post #310
mcphage wrote: post #269

Earlier quoted context omitted.

> how successful they have become at aggressively optimising for market value They use money to turn value into money, which they then use to turn more value, into more money. And in the end, they have a lot of money, and all of the value is gone.

That's only possible if the financial system is valuing things systematically incorrectly. IFF a company is truly, honest to god, less valuable than the sum of its parts, then it (or the subset that would have more value to someone else) SHOULD be dismantled, and those resources sold and reallocated to more productive use. You probably make these sorts of decisions in the capacity of your own personal finances withou…

Language is the house of the being

I believe you are using the wrong language

> some institutional sucker will buy

They are committing fraud in the high trust society. Literally sucking blood from our kids and grandkids who would have to rebuild, if that’s even possible

Re: Private equity bought America's essential services

#540

Post by dmitrygr »

freejazz wrote: post #395
throwforfeds wrote: post #388

Earlier quoted context omitted.

At least here in NYC, a large part of a NYPD officer's pension is calculated based on a 3-year look back from their retirement date, so there is a huge incentive to work as much overtime as possible in order to bump that number in your last few years of service. There are lots of stories of NYPD handing out easy overtime in massive numbers for each other, particularly when they are about to retire. Teachers are the e…

All seem trivial compared to the money sucked up by billionaires, who seem to do little good for society. I'm not going to get angry at a police officer trying to maximize their retirement when we live in a society that celebrates people like Elon Musk, Jeff Bezos and Mark Zuckerberg.

Yeah. How dare they… give you one-day delivery of anything you might want like magic for the first time in human history and help use fewer fossil fuels to prolong your planet’s life while also providing ubiquitous connectivity anywhere on the planet’s surface. The selfish scoundrels.
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