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Post by millring on Feb 5, 2015 18:09:33 GMT -5
Anybody familiar with the term "choke point"? Sure, I saw enough of the original Star Trek to catch your Spock reference. First of all, I don't know what that has to do with the discussion. Second, I never really believed Spock could actually paralyze a foe with just a pinch. Call me a skeptic.
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Post by fauxmaha on Feb 5, 2015 18:16:35 GMT -5
It was all just theatrics.
The neck pinch was a bit of misdirection. It was never about the pinch. Spock was actually disabling his opponents with his mind.
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Post by lar on Feb 7, 2015 18:21:32 GMT -5
My comments weren't meant to paint Bain as being lily-white. In a leveraged buyout the guy who puts the deal together gets a nice payday in the form of fees. It would be naive to think there wasn't some self-interest involved.
One of the articles I read mentioned that Bain put together a company, I think it was called Giraffe, as the purchasing entity. I would expect that company was wholly owned by Bain. When that happens technically the buyout is structured as a sale of selected assets. The new company does not take on any remaining obligations of the company that is being acquired. The cash came in the form of a bond sale. I didn't see the numbers but it could be that Bain also took a position in the the buyout. At the very least they would have had to provide the funds to capitalize the new company. Now that things look like they are going south Bain does stand to lose. The bondholders will get paid before the holders of the capital. If one considers that the reason for the buyout was to turn Gymboree around so it could be resold at a profit, Bain stands to lose even more, in terms of potential future earnings, if the company is liquidated at a fire sale price. They have plenty of incentive to try to save the company.
One of the things I've never quite understood is how some of these deals make it past the SEC. I realize that it's all hindsight but there were some considerable red flags that Bain either missed or thought they could deal with. By law the prospectus has to contain a discussion of the risks. Unfortunately, the law also requires a disclaimer that says that there are no guarantees and that the investor is taking a risk. When everything falls apart the bondholders have no recourse unless they can prove fraud.
I've been in a position to be knowledgeable about a few deals like this, although nothing on this scale. I have never seen a prospectus that contained what I thought was a fair discussion of the risks. The message is pretty clear, "Sure there's some risk. But trust us." And the SEC passes on nearly everything. In fact, to the extent that I'm aware, the SEC never looks at the deals unless there is some kind of complaint. By then it's too late.
I don't mind so much when Warren Buffett is investing. But when Aunt Harriet is trying to figure out how to safely invest Uncle Fred's life insurance proceeds, the last thing she needs is advice from an investment broker who is already counting up his commission.
Is there a danger when capital makes all the rules? Yes. But it's just as dangerous when government makes the rules. There was a time when lenders had almost complete control of he credit granting apparatus. There were excesses. Government stepped in to protect the consumer. And the government didn't know when to stop. Today, it has become much more difficult for a lender to reject a loan application. Every day there are loans made that a prudent lender can predict are not going to be repaid. But the lender will run afoul of the relations if the application is turned down.
Those laws only apply to consumer debt and they have taken away a lot of the power that capital previously had. So far there are few regulations regarding commercial lending. An exception is when a project is financed through public sale of bonds. But the regulations are applied in such a lax manner that they might as well not exist.
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