The Private-Equity Industry

[Dub]

Are any of our members following this? If so, are you concerned?

The Secretive Industry Devouring the U.S. Economy

[Cornflake]

I haven't been following this but yes, it's cause for concern.

[Russell Letson]

Private equity is of a piece with the whole financialization of the economy--making money by moving it around, depending on ultra-high-speed trading to get an edge, dealing in abstractions rather than actual value-adding. Not that the financial machinery isn't necessary, nor that those who operate it should not be compensated--but it has become a dog-wagging tail. When ownership is uncoupled from function--when, say, a hedge fund buys up undervalued housing and becomes a widely-distributed absentee landlord--the abuses and pathologies are pretty obvious. The metaphor that comes to mind is strip-mining: extract, refine, monetize, and abandon the slag for someone else to clean up or be poisoned by.

[majorminor]

I wish one of them would come along and devour me.

[TKennedy]

I have decided not to worry about stuff I can’t change, well I am trying to decide -

[PaulKay]

There are so many examples of private equity making leveraged buys of firms then saddling them with the debt until they collapse from it.
They may not have intended to do it, but they did none-the-less and that makes them despicable scavengers.

[Dub]

Feb 7, 2024 19:27:33 GMT -5 PaulKay said:

There are so many examples of private equity making leveraged buys of firms then saddling them with the debt until they collapse from it.
They may not have intended to do it, but they did none-the-less and that makes them despicable scavengers.

Guitar Center comes to mind.

When one's job is to make profits by moving money around, no part of that necessarily involves manufacturing anything or providing any tangible service.

[Rob Hanesworth]

The General Motors division I worked for, Allison Gas Turbine, was bought by vulture capitalists in 1993. GM got some cash needed for some project. The buyers got an undervalued asset from which they extracted cash. Barely a year later the buyers sold to Rolls-Royce, an actual turbine engine manufacturer, for a 100 million dollar profit which was split among a very small number of principals in the financial firm. My retirement suffered.

Romney's Bain Capital operated on a similar model.

[millring]

“When you see that in order to produce, you need to obtain permission from men who produce nothing - When you see that money is flowing to those who deal, not in goods, but in favors - When you see that men get richer by graft and by pull than by work, and your laws don’t protect you against them, but protect them against you - When you see corruption being rewarded and honesty becoming a self-sacrifice - You may know that your society is doomed.”

[John B]

Feb 11, 2024 6:09:02 GMT -5 millring said:

“When you see that in order to produce, you need to obtain permission from men who produce nothing - When you see that money is flowing to those who deal, not in goods, but in favors - When you see that men get richer by graft and by pull than by work, and your laws don’t protect you against them, but protect them against you - When you see corruption being rewarded and honesty becoming a self-sacrifice - You may know that your society is doomed.”

I like that quote - who said it? Just wondering if this is "ancient" wisdom (like, from someone in the mid-20th century) or something more recent.

[james]

Google sez Ayn Rand in Atlas Shrugged.

(Francisco d’Anconia’s “money speech”)

[John B]

Feb 11, 2024 10:29:56 GMT -5 james said:

Google sez Ayn Rand in Atlas Shrugged.

(Francisco d’Anconia’s “money speech”)

Oh. Can't say I know anything much about her or her books, but this particular character's quote rings true. Although I might say "needs to change" instead of "is doomed" - but then again, I didn't say it, did I?

[Marshall]

Ayn Rand - I read Fountainhead and Atlas Shrugged, a long long time ago. I liked Fountainhead better; about architecture. Patterned after FLW fictitiously. Atlas Shrugged was more way out there. Praising selfishness really.

From some search comment: theconversation.com/who-is-john-galt-ayn-rand-libertarians-and-the-gop-40033

Rand did not invent libertarianism. The thinking, sans the name, had been around since at least the 1920s. And her contemporaries, economists such as Milton Friedman and the so-called Austrian School, gave the set of ideas academic standing and respectability. In Rand’s truculent fiction, however, an abstract theory effectively took on flesh via dashing heroes and unabashed hero worship, vivid myths and technological magic, page-turning suspense and torrid, violent sex. For every studious reader of economist Friedrich von Hayek, there are dozens, perhaps hundreds of eager devourers of Rand.

Who is John Galt?

[millring]

You read something and it really hits home. Wow. That's sorta spot on. And sorta scary.

Then you find out who said it.


phew.

[John B]

Feb 12, 2024 5:36:57 GMT -5 millring said:

You read something and it really hits home. Wow. That's sorta spot on. And sorta scary.

Then you find out who said it.


phew.

I knew it was a risk when I posted There were so many other writers who could have authored it that would have made me feel a whole lot worse.

[Marshall]

Cancel Culture (millring's favorite term du jour) lives on both sides of the great divide.

Milton Freedman has a reverend place in my ethos more than Ayn Rand. I've read them both.

[millring]

Feb 12, 2024 9:36:57 GMT -5 Marshall said:

Cancel Culture (millring's favorite term du jour) lives on both sides of the great divide.

Not really, but it would go nowhere to try to explain why and how. Of course both/all sides try to ignore the other (or define the opposition for them). But by definition the conservative/right is not the culture. It doesn't have the power to cancel in any meaningful way. It can sure explain your views away for you in hopes that nobody will come straight to you to get your story "straight from the horse's mouth" so to speak. But there is no right wing entertainment, and cultural institutions (like universities) are almost non-existent, and the few that do don't survive by cancelling so much as they survive by giving cancelled voices a hearing.

Sadly, it used to be that the right understood the left far better than the left understood the right. The right lives in the left's world. But the cloistering is so complete now that the right is becoming (it still lives in the left's world far more than the opposite. The left still has to go looking for the alternate point of view while the right still mostly lives in the left's world) as ignorant of what the left means by what it says as the left is of the right. And the cussedness of the situation is that both sides are factual. They simply observe those facts through the lenses of differing presuppositions.

[Cornflake]

When anyone starts generalizing about the left and right, or any similar categories, they're reducing very large numbers of people to stereotypes. Any such generalization is likely to be far more wrong than right. It doesn't help matters and all the dangers of stereotyping come into play.

[Marshall]

The stereo type I have is a nice old Onkyo

[Marshall]

Back to the subject at hand:

I have a friend that is a venture capitalist. He worked in advertising for decades. Ran Weather.com for a while in the early days. Retired and became a venture capitalist. He works hard. He plays hard. He's a pretty nice guy as a friend. In business, I don't know. Once on a golf trip I was driving him somewhere and he got a call on his cell and I got to hear his schpeel to a prospective investor. - He's smooth.

Occasionally we talk biz. He gets a bunch of people to invest in his group. He takes that $$ and they buy into a smaller company with plans to take it bigger and sell. They set up a program for the original owners to run the more robust company. If the guy/gal doesn't get with the new program, they step in and take over and manage it to get it to the level they want. He hasn't had a failure yet. He and his investors make a minimum of 2x their investment in a couple years. Usually it's 5x or 6x in 5 or 6 years.

My point (if I ever have one) is that business is a dog eat dog world. And if you've got a new start-up idea, the market will take it over (steal?) your idea and run you over, if you're not willing to scale up and stave off the competition.

It's very different than my background of hanging out a shingle and servicing some repeat clients. I don't think I'd want to be in business these days.

We musician types love to trot out the GC case as the posterboy for venture capitalist ills. But the 2007 market crash did that project in as much as anything.