Stupid Republicans.

I’m no Romney fan, of course, but suddenly he’s under attack for being a capitalist?  From Republicans?  Yes, the “I like being able to fire people” comment was unwise.  And thanks for that slip, Mitt.  There’s an audio that’ll play a million times between now and November.  But other candidates attacking him for success in the free market?  Oh, the horror!      

Still, I actually like the GOP circular firing squad.  Hopefully it’ll work.  Let the Elephants convene in Tampa Bay with all the candidates riddled with holes.  Then forget who wants to be President and draft who is needed.  The Ryan/Rubio ticket. 

(Allen West is also acceptable.) 

Obviously this can’t happen, because I’ve stated thatAmericais dead.  AU.S.that elects Ryan and Rubio hasn’t given up the ghost.  Which would mean I was wrong, so…it must be impossible.

Allahpundit doesn’t think Ryan could win because he’s not well-known.  Bah.  That works both ways; the Ruling Class and its attack gerbils would have only ten weeks for lies and deceit.  And debates with Obama?  Total annihilation of the Whiny One.  Ryan would politely destroy Barack by contrasting his words and deeds vis-à-vis the economy.  Ryan knows what’s important.  I doubt he’d let himself be distracted from that.

UPDATE—These guys are maddening.  Rick Perry imitates Occupy Wall Street with his Romney attacks, then issues libertarian screeds:

 I will eliminate the Departments of Commerce, Energy and Education, gut the activist EPA, freeze bureaucrat salaries and make Congress part-time.

I’ve got a vested interest in a threatened Department, yet that’s still music to my ears.  It’s not nearly enough to save America, but it would be a good start.

Advertisements

About wormme

I've accepted that all of you are socially superior to me. But no pretending that any of you are rational.
This entry was posted in Uncategorized. Bookmark the permalink.

21 Responses to Stupid Republicans.

  1. midwest bill says:

    not for being a capitalist … just questioned over the practices of Bain. Was he more corporate raider, squeezing out assets and borrowing against them to fund Bain, then leaving the company weak or bankrupt? In many cases, yes. Is that a good quality for a president?

    Say Bain used a company to borrow $180 million to pay Bain high fees, then leave the company without assets and the creditor gets stiffed. Even if legal … is that “capitalism” … or is it what Romney is bragging about?

    http://legalinsurrection.com/2012/01/selling-out-capitalism-in-the-defense-of-romney-and-bain/#comments

    • wormme says:

      Well, I knew the specifics of the attacks had to be like that. “Questionable” tactics. But people in American government shouldn’t be permitted to advance that argument. If it’s wrong, they can make it illegal. If it isn’t…they can shut the face up. Or at least join the Democrats, where they belong.

      That Republicans are doing this just more proof that America, the land of the free, is deader than a Norwegian Blue parrot.

      • midwest bill says:

        Corzine took a billion from private accounts and still hasn’t answered where it went. Most of the financial destruction from Fannie/Freddie was “illegal”, just not prosecuted. There is selective enforcement of white collar crime.

        Loans were made to people with no money to generate the fees. Junk bonds were fraudulently rebundled as AAA to transfer risk. Raines and Gorelick manipulated numbers to collect tens of millions in bonuses. Investment banks leveraged 300:1 then demand a bailout.

        Much of that is fraud and illegal … but they are connected. But even if Romney did not break the law, was he moral? That really IS a question we should ask of a potential president.

        This business guy sums it up even better … in taking on Rush.

        “I’m sorry. Greed is a sin for a reason. God blesses people to be rich undeniably. He also condemns those who are “greedy for ill-gotten gain.” I’m not suggesting to outlaw it or regulate it – but as conservatives we must realize that as Tocqueville saw, capitalism will NOT succeed without Judeo/Christian virtue. And Limbaugh makes the same fundamental mistake liberals do in selling their philosophy without an equal measure of personal responsibility for our culture. Not in the form of socialistic communism, but as an individual responsibility to TEACH that capitalism only works with a majority of people who want to do good.”

        http://www.politijim.com/2012/01/limbaugh-is-liberal-not-newt.html

        • MG says:

          You know, people are really not remembering the other side of the math in this…and they’re missing the forest for the trees.

          Mitt Romney was not immoral in this. Let’s look at Perry’s attack to know why:

          The Romney that bankrupted 22% of the companies he bought?

          Think about the flip side of that: For 22% to fail… 78% succeeded.
          Again: 78 Percent, more than 3 quarters of the restructures succeeded.
          That is actually, to me, an impressive success rate. Not to mention, we certainly aren’t hearing anything about how many jobs and wealth those 78% represent (after all, they’re small companies, like Staples *cough*).

          In Romney’s case, he was tremendously successful overall, helping to grow businesses such as Domino’s and Staples that now employ tens of thousands of workers. In the process, he produced huge returns for his investors, who in turn had more money to invest elsewhere. However tragic the displacement of some workers was, on a net basis, companies like Bain help fuel economic growth. And there’s also no reason to believe that jobs that were lost – in steel investments, for instance – would have survived anyway.

          Even if you add the 8% on top, which isn’t clearly delineated in my reading of the WSJ article as on top of or part of the 22%, the success rate sits at 70/30.

          The pursuit of profits by creating value benefits the rest of society through higher incomes, more jobs, and better products and services. This isn’t “destructive creation”—like, say, crippling U.S. fossil fuel production before “clean energy” sources are viable—but “creative destruction” where innovation and efficiency sweep away the old and replace it with a more productive and wealthier society.

          Far from “looting,” this is a vital contribution to capitalism and corporate governance. One of the persistent gripes of the left is that too many CEOs make too much money even as their companies flounder. Private-equity firms target such companies or subsidiaries, replace their management, and try to unlock the underlying value in the enterprise.

          I’ve also noticed that people aren’t realizing what a long time frame we’re talking about; this is all about an 8 year timeframe from when investment first occurred. That’s 5 years more history of management than the President has been in office…

          If the Journal analysis were limited to bankruptcies and closures occurring by the end of the fifth year after Bain first invested, the rate would move down to 12%. That measure would exclude several cases that have brought Mr. Romney political criticism, where businesses filed for bankruptcy seven or eight years after Bain’s investment.

          There is a world of difference between all of that and Corzine illegally transferring money, without consent, from investor accounts to the general fund to use on personal bets on European debt.
          And a world of difference from all that to intentionally issuing bad mortgages because they thought the housing inflation made the speculation more profitable.

          • midwest bill says:

            I’m hearing 45% failed in time … and if the others “survived” the Bain expensive surgery, it does not necessarily mean Bain “saved” them.

            The smart guy I read is no fan of the “LBO artists” saying they abuse the tax code … and I’m not sure eight years is such a long time, if Bain leveraged them up so it took a little more time to fail.

            Actually, it only seems Corzine acted illegally .. he may have a loophole. Same with Fannie/Freddie and GS … took advantage but not quite “illegal” … unless it was examined with a microscope.

            Financialization is a good word to look at on wikipedia

            http://en.wikipedia.org/wiki/Financialization

            Do we want establishment weasels taking over .. or should we confront Romney on his job creation experience … and expose him as a charlatan? It is not a question of legality … though I’d bet there was a ton of influence peddling and dishonesty in pushing those deals through. In any case, a closer look at a corporate raider style job creator is in order, since that is Mitt’s only claim to fame, other than running for office for 20 years and mostly failing.

          • MG says:

            Uh… The failure rate on everything is 100% when viewed with a long enough lens….

            The WSJ was plenty specific:

            22% either filed for bankruptcy reorganization or closed their doors by the end of the eighth year after Bain first invested, sometimes with substantial job losses.

            You could add:

            An additional 8% ran into so much trouble that all of the money Bain invested was lost.

            on top, which leaves you with only 30%. Also, ‘failure’ and ‘bankruptcy’ do not mean what they do for individuals. One of these ‘bankrupt failures’ sold for 7 billion dollars ultimately, and is still making products despite the name not being used now…

            The medical-equipment maker once known as Dade International is now much larger than it was when Bain bought it in the 1990s. But Mr. Romney’s company later sold its stake, and heavy debts taken on during the Bain years forced Dade to spend two months in bankruptcy in 2002 and cost 2,000 jobs. The company later resumed its rapid growth, and Siemens bought it in 2007 for $7 billion.

            That’s more than Bain’s entire profit!

            The Journal analysis shows that in total, Bain produced about $2.5 billion in gains for its investors in the 77 deals, on about $1.1 billion invested. Overall, Bain recorded roughly 50% to 80% annual gains in this period, which experts said was among the best track records for buyout firms in that era.

            So you could say Romney didn’t hold the company long enough! But, that wasn’t the point of it all, so they didn’t.

            They were taking high-risk, in-trouble and mostly new companies over and trying to rebuild them. The odds of even 10% of those being around without a reorganizer like Bain stepping in are virtually nil. Credit is simply part of how it all works; no credit, no paychecks, at all.

            Releasing a company from management is done for one of two reasons:
            1: The company is currently stable, making margin at least but probably profit, and projected, with the current plan, to continue or better.
            2: The company is not stable and is not projected to recover to competitiveness.
            The one’s a profit turn, the other a death sentence from the management point of view; both ultimately involve the investing interests doing their best to recover as much monetary value as possible (and 8% of the time they lost everything). At the end of the day, more of the investments, many more, turned out well.

            People are confusing Bain with a conglomerate wanting to possess the companies indefinitely. Bain wanted to minimize their time involved, taking things with an expected value that they felt was not recognized and rushing to get the company functional and competitive with that value. Once the company was stable and projecting well they would divest and realize whatever gains they could. In pure technicality they can not be responsible for what happened after the management changed, they kept control and responsibility up to the moment they fully released. The only way to really ‘stick’ this to Romney, as a technically, is to prove that every success happened in companies who changed the model and strategies after divestment and every failure happened in those that didn’t.

            This has been a pretty political attack from my point of view, based in the microcosm view. Sure, it can seem really nasty, you know, like a vulture picking on the weak. But in the big picture this vulture did help and wasn’t actually a scavenger. It was a symbiont that preferred its pickups succeeding. Romney was no magic investor, but he wasn’t a cheap hack either.

            I’m guessing we’re going to agree to disagree here. I don’t view reorganization ventures as negatives. Every reorganization requires layoffs, debt discharges and taking on debt, in one form or another; but without the attempt the company was dead meat. If anything, the more hawkish a reorganizer he is, the better he is for a government needing to be cut down. Now there’s an idea to push: “We want corporate raider Mitt who will axe the Fed and send us all a fat return. Cut it out with the nice guy Mitt.”

            As far as Corzine, yeah, he broke the law, if any normal person did what he did their ass would be in jail. Embezzlement is embezzlement. Now there’s a case of painfully questionable ‘leveraging’! He couldn’t even make the FIRST payment on the corporate bonds he insisted on putting out.

          • midwest bill says:

            well, I like that Romney has some business experience .. but I don’t find him honest or conservative. He claims questions about his Bain actions are questioning the free market system. That’s not honest … he knows people are questioning whether he really created jobs. The WSJ says the 22% rate was actually high, but high because he took on younger companies. The idea that they all would have failed without Bain doesn’t seem accurate. Some may have actually failed BECAUSE of Bain. But Bain did make a lot of money.

            The Corzine loophole seems to be the same one Madoff used … rehypothecation through Great Britain … where there is no limit on how many times it can be done. Supposedly some of this BS was signed by Bush and company to save us from the last meltdown … so the banks and leveraged players can now hypothetically take all our investments. I wouldn’t be surprised if that is what our Goldman Sachs overlords pushed through while they were in one of their manufactured crisis modes.

          • MG says:

            I wasn’t really saying that they all would have failed without; it’s that a 10% rate of success, without something like Bain stepping in, would have surprised me because of who normally gets caught in the reorganization net.

            It’s cheap and high risk because many of these types have debtors trying to put them into forced bankruptcy already, or a clear timeline when that occurs. Frankly, yeah, I’d expect some did fail because of the reorganization; that’s the business, not everything bends the way you expect it to…it breaks. Ideas can and do fail or don’t meet the economies of scale to actually be viable.

          • midwest bill says:

            This book seems to think Bain and other PE companies loaded up companies with debt and extracted fees and dividends. That was the point … profit .. not so much “saving” the company. Any company with assets was vulnerable. The more I read, the more deceitful it seems. They don’t capitalize companies .. they (generally) DEcapitalize them.

            http://legalinsurrection.com/2012/01/did-king-of-bain-deserve-4-pinnochios/comment-page-1/#comment-301103

          • MG says:

            Healthy companies aren’t usually involved in this type of thing. This is really those already in debt, and trouble. Since this is really premised on the company being weak already, people need to remember it’s not a free lunch, you wouldn’t get any help for most companies in these situations if they required 100% cost coverage. They’re already failing, no one should be stupid enough to pay all their bills. The goal is to buy time for people to make viable frameworks which succeed; if they succeed the debt finagling is nothing, it’s business. If they don’t, the people who bought them time lose their cash, that’s the 8% from before.

            The point is of course profit, no one founded the company being taken over as a non-profit either. Saving the company has several potential forms; saving the company is likely to make more money. No one I have seen is claiming any drastic fail rate, except in this ethereal ‘sometime in the future’ idea, which of course, on a long enough timeline…but that’s not really relevant now.

            If they were really just after the pieces of companies they had much cheaper opportunities if they let things rot until bankruptcy and then bought from the receivership (there are people who do that); that isn’t what anyone is saying they did.

            To reinforce the start, any company with assets isn’t vulnerable. Healthy companies with balanced books, solid markets, developed products and expected performance aren’t going to see the keys to this kind of takeover. This type of thing happens to over-indebted companies overwhelmingly, their employees might not know they are but that’s what does it.

            Functionally, it’s exceedingly unlikely they could ‘extract’ dividends; that there were dividends means the company they came from was succeeding in the timeframe they originated from.

            Ampad, interestingly, is an argument against saying it was merely a ‘looting’: I can’t imagine any looter being stupid enough to buy more companies in that product, for an economics of scale, just to loot the company. That’s ludicrous on its face. If you’re gonna loot a whole product segment you’d do it in pieces and not spend a fortune linking them all.

            If they were really just out for the cash of a company the failure rate would have been 100%. It wasn’t.

            Private equity firms are by their very nature risk-takers that invest in companies that have no other place to turn to for capital. There are many reasons why a company cannot obtain capital from other sources, but generally speaking they are not profitable or are trending rapidly downward.

            As a rule, private equity takes on the most troubled companies because turning them around offers the biggest profit opportunities. That’s why private equity tends to generate more than its share of traumatic headlines.

          • wormme says:

            Very informative, thank you!

          • MG says:

            For the record; the following from my posts have mistaken word use:

            It’s cheap and high risk because many of these types have debtors trying to put them into forced bankruptcy already, or a clear timeline when that occurs.

            If the asset is already encumbered the prior debtor has to allow the other to take priority

            They should read:

            It’s cheap and high risk because many of these types have creditors trying to put them into forced bankruptcy already, or a clear timeline when that occurs.

            If the asset is already encumbered the prior creditor has to allow the other to take priority

          • midwest bill says:

            another point to remember … MG’s decisions for his business may be more rational than the market was back then. Greenspan mentioned “irrational exuberance” way back in ’94 or so. Dot coms would go public a few years later with no business plan, and run from 10 to 100 just because everyone loved the sector.

            The investment firms would make their money on the trading, so in a sense they were like used car salesmen. Goldman Sachs was pushing stocks on their customers at the same time they were shorting them internally. Fannie/Freddie sorta played the same game … deceiving buyers of junk bonds into thinking they were getting AAA.

            I don’t know about Bain in particular, but I day traded full time a couple years, and that was always the chatter. Trading momentum was the game for many. Laws were probably technically broken, but enforcement was overlooked. Traders play against the giant mutual funds that were always throwing money into the market. Now we have the ultra low interest rates to keep the market juiced as much as possible … and to keep the party going. The recent collapse of the market show the perils we are dealing with.

            I think MG is arguing for and describing how a legitimate PE company would work, but the whole thing about our markets is how many shams there were. If leverage and easy money ever had to come out of the equity market, we’d see another collapse … so they have to keep the easy money coming.

            btw I found Romney got his 100,000 + jobs count by counting all jobs of companies Bain was involved in, even if most of those jobs came much later than Bain’s involvement, and even if Bain only ever had a 10% share. That strikes me as very dishonest. But as Obama has demonstrated, it’s all about getting away with the lie for the news cycle. Bain played in the market when junk bond credit was easy, and people loved a hot stock that could show a couple good numbers. It was not rational … still isn’t.

        • midwest bill says:

          MG said”If they were really just after the pieces of companies they had much cheaper opportunities if they let things rot until bankruptcy and then bought from the receivership (there are people who do that); that isn’t what anyone is saying they did.

          I don’t think you get what I’m saying … or what the whole leveraged buyout era was about. They didn’t want to buy the actual assets.

          They want to put the leveraged debt on the company, give it a spit shine, then move on. Here is from Zero Hedge:

          “Lately, Bain founder and GOP presidential candidate Mitt Romney has found himself in a spirited defense of the private equity industry, doing all he can to spin decades of data which confirm, without failure, that PE Leveraged Buy Outs are nothing but “efficiency maximizing” transactions whose only goal is the “maximization” of EBITDA in the pursuit of dividend recap deals, IPOs or outright sales, while loading up the company with untenable amounts of leverage. All this with a 3-5 year investment horizon, which ignores the long-term viability of a company and seeks to streamline (read fire as many as possible) operations as quickly as possible in the goal of maximizing short-term returns.

          http://www.zerohedge.com/news/mitt-romneys-defense-bain-capital-and-private-equity-industry-here-are-some-facts

          Mitt claimed 100,000 jobs created, now he is backing that down to ten thousand, or is it just “thousands”? He was claiming all the Staples jobs, but they only had a 10% investment. He just isn’t honest. But I may well end up voting for him over Obama, not that it will matter here in Illinois.

          • MG says:

            I don’t think you get what I’m saying … or what the whole leveraged buyout era was about. They didn’t want to buy the actual assets.

            I agree that we’re crossing word definitions somewhere, but… what?

            Me: Healthy companies aren’t usually involved in this type of thing. This is really those already in debt, and trouble.

            Me: People are confusing Bain with a conglomerate wanting to possess the companies indefinitely. Bain wanted to minimize their time involved,

            Your posts said:

            You: Was he more corporate raider, squeezing out assets and borrowing against them to fund Bain, then leaving the company weak or bankrupt? In many cases, yes.

            You: then leave the company without assets and the creditor gets stiffed.

            You: Any company with assets was vulnerable.

            Buying healthy companies costs far more than these types of firms can really afford. They’re helping sick companies have a chance to get healthy. Companies facing the real prospect of bankruptcy have a very different standard of ‘assets’; you can’t ride in at the last moment and replace existing creditor’s rights to those assets without their written consent. (We’re not talking about Solyndra, where the Fed did actually do that :P) If someone knows of actual fraud, fine, show it, but no one is doing that.
            Again; these target companies are overwhelmingly up to their eyeballs in debt; what attachable assets are there…? Healthy companies, which generally cost too much for these types to take over, are the ones with bindable assets.
            Private Equity is being misunderstood in all of this:

            providing working capital to a target company to nurture expansion, new product development, or restructuring of the company’s operations, management, or ownership.

            If they had capital/assets to obtain capital for such a project they wouldn’t have been dealing with Bain.

            They want to put the leveraged debt on the company, give it a spit shine, then move on.

            The leverage part is being misunderstood by a lot of people. It’s a magnifier, not a vacuum, we’re not talking about the super questionable stock leveraging practices here. They have to promise real money, early on; it’s just happening in private, between the PE and the existing creditors very often, so it’s left out of discussions like this. It is very possible that investors in Bain offered, and the company used, financial documents (stocks/bonds) as a leverage-able instrument to forward that investment; they have that right, unless we’re going to cross into telling people what’s acceptable and isn’t with their investments (and in such an event, that document is forfeit if things go bad; that’s why it’s leverage).
            So, let’s think about it another way: PE is, in effect, a lender of last resort, offering a last minute second chance.
            Looking at what you quoted, Tyler is completely right in this:

            nothing but “efficiency maximizing” transactions

            Of course, these companies already had structural issues and, usually, untenable debt. If you’re not trying to make them efficient you’re wasting your time and money.
            Then he starts to wander:

            whose only goal is the “maximization” of EBITDA in the pursuit

            Well, you have to pick a metric to say the company is getting better; that metric could well be wrong; any metric can easily be wrong. You could argue what a better metric might be, but again, why did the use of this metric, (which many, including the government, use for projections and expectations,) turn into allegations of wrongdoing while lacking any actual evidence of wrongdoing? EBITDA does not directly turn into dividends unless you are committing securities fraud; you have to take the expenses and costs out before profit occurs. EBITDA can be/is used to project future performance; why is that wrong? With that said, don’t think that EBITDA would never be used to make decisions about the viability of a company; even if someone makes a better metric, EBITDA will remain a part such decisions.
            Then where I do have a problem with what he said:

            while loading up the company with untenable amounts of leverage.

            The companies were already untenable. Why do we keep hearing about vultures, and similar comparative imagery, but forgetting that vultures target the weak and dead, not the healthy?
            Also:

            All this with a 3-5 year investment horizon, which ignores the long-term viability of a company

            Obviously: PE is not corporate welfare, it’s a chance to succeed, with a time limitation; why’s that wrong? Again, they’re not a massive conglomerate trying to own everything. Also, we’re not talking about the oil conglomerates here; few other industries have solid, long term plans in the way people are imagining.

            and seeks to streamline (read fire as many as possible) operations as quickly as possible in the goal of maximizing short-term returns.

            When did we turn companies into jobs programs?

            Me: The point is of course profit, no one founded the company being taken over as a non-profit either.

            Should these companies be given a far better chance to succeed, or none and just pray? That’s the choice. PE analysts thought there was a viable product/company, which was not being served by its old management/direction; they gave it a shot. Are we really so ready to surrender that pro-market concept?

            Mitt claimed 100,000 jobs created, now he is backing that down to ten thousand, or is it just “thousands”?

            IIRC Romney increased the jobs created claim to 120k during the SC debate. Now, for clarity, I’m not addressing Romney, for or against, as a candidate. I’m not asking people to support Romney over this; I’m saying: Lay off demonizing a market practice because you don’t like a candidate who was involved in it in the past.
            My biggest issue in all of this thread has been what I’ve seen as a misunderstanding of a moderately modern capitalist undertaking. One which I can see some people’s queasiness over, but I don’t think it’s warranted.

            There are ups and downs with investments and systems like this, there is no fundamental good or evil. I have never said all specific Venture Capital undertakings are above board or ended well. It would be, and is, just as wrong to brand them all as ‘looters’, ‘immoral’ and everything else that’s been painted with an over broad brush during this public discussion.
            There was enough success that you can not rationally say it was just to steal value; there was enough failure to show that it was done in the real world where shit happens.

            Do private equity buyouts hurt workers?
            Yes, then no. More workers get fired in the aftermath. Then more get hired.

            Do private equity firms drive companies into bankruptcy?
            The data isn’t complete, but some indicators say no.

            Does private equity make the whole economy more efficient?
            Possibly. Industries with lots of private equity activity actually see faster growth.

          • wormme says:

            I should probably already know this, but…is this your field of endeavor? You seem so insanely knowledgable I want to withdrawn money from my bank account and shove it at you, sobbing, “Save me. SAVE ME!”

          • MG says:

            Starting companies is a kind of family tradition; one I am currently engaged in.
            I’m not personally doing Venture Capital at this point.

        • midwest bill says:

          I haven’t gone through all your post in detail .. thanks for your time.

          When I say they raid, and that the assets aren’t left for the original creditors, I don’t mean they take the asset, they borrow against them, so someone else has seniority over assets. Of course I’m no expert, just saying it often wasn’t pure “capitalism”. It was a lot of junk bond debt, the players including fiduciaries for the company came out good, and things were ok as long as the bubble was blowing bigger, not popping.

          And you keep saying these companies were not tenable. But the WSJ article said a 28% failure rate was actually HIGH. They don’t really want to invest in failing companies. A decent company might be juiced up on steroids by firing people and adding debt … that might be part of improving the EBITDA to make it look good for other investors. I don’t know about the dividends, except that is what I read was a preferred means of extracting capital.

          Some companies that were asset rich would put in poison pills to spoil corporate raider attempts. I don’t think I said “vulture” … Perry did. I get the concept of creative destruction … but there is also destructive destruction.

          But I don’t know details about Bain. But not recognizing some of the capitalism malpractice seems like a big mistake. Just look at the markets around the world, our currency issues … etc.

          • MG says:

            Sure, and thanks for talking it through.

            You can’t borrow again against an encumbered asset. If the asset is already encumbered the prior debtor has to allow the other to take priority (that’s why I mentioned Solyndra, the Fed deliberately lowered their/our position so that other investors, coming in later, were higher priority in bankruptcy). If the debt is simple revolving, without collateral, then that’s just the risks of that type of credit issuance; the guy who gets collateral promises goes first in court.
            The original creditor has to agree to be moved down the food chain in a collapse. I think people are mistaking a step which can occur in these deals to get to this interpretation: The PE will at times negotiate with existing creditors to delay them filing action against the company, or to delay some future debt payments. It’s to keep bankruptcy from happening until the company can be worked with, or free up capital. Sometimes one creditor says no but another says yes and debt is moved from one to the other. Sometimes a bank known to the PE will agree to take the risk when none of the original creditors will. The result is a debt shuffling that can look back room, but in that same room the PE is betting investor money that would be lost if there’s a default, in order to get the agreement.

            As to the failure rate, the WSJ article self explained:

            Mr. Mehran, a researcher at the Federal Reserve Bank of New York, said the rate at which Bain’s target companies ran into trouble at some stage “seems large.”

            He said it could be explained by the preponderance, among Bain investments, of small companies, which tend to fail at a higher rate.

            Marc Wolpow, a former Bain Capital executive, said the frequency of trouble did indeed stem largely from the firm’s strategy early on of investing in smaller, troubled firms it hoped to turn around.

            Regarding failing companies: Failure, as a word, regarding companies, is more problematic than what we’d use about a person. Failure is that the math just isn’t working, and as it stands, the company needs to change or bankrupt/go out of business. Buggy whips are a failure that went out of business. Xerox personal computing from the 80’s is a failure that can’t stand as a company division but still holds valuable patents that generate worth. The art of Venture Capital is to find things like Xerox personal computing and figure out what their niche is, keeping them in market long enough to have a market or converting them to match their market, while letting things like buggy whips die.
            A balanced, decent company, isn’t easily taken over; it’s investors expect to be paid for their stable investments. If any premium has to be paid it becomes very hard to envision being able to borrow enough to offset the purchase; that’s crossing into conglomerate purchasing where you need considerably more time to actually profit from the possession.
            From one of my previous links:

            As equity investors PE firms are last in line, so to speak, and they only make money if the company performs profitably or at a higher level of profit than the company was previously.
            PE firms, as well as all equity investors, come behind employees and all other creditors and are prohibited from receiving funds until all others are provided for appropriately.
            It is illegal for a company’s board of directors to issue dividends of any kind if the company is insolvent or if the payment of such dividends would render the company insolvent.
            The members of the board of directors can be held personally liable for any violation of proper dividend practices so they are extremely careful about the payment of such.

            Any company has to watch being too ‘wealthy’; the government alone is brutal if you have too much cash around. With too many hard assets and a moderate/low stock price PE is the last of your worries. You have to balance the worth of a company so that its products/services are the purpose of the stock.

            You’re correct, you did not say vulture; it’s been shouted enough by others it has gotten under my skin.

            I agree that there are perversions of capitalism, I don’t feel that this specific thing is that, however. There are, most likely, specific deals in the broad range of PE that have been wrong; the field isn’t.

            I find it sad that the other side of PE is left out of all this. The side where companies come to PE looking for help, and get it; to grow, to bridge over a changing market, what have you. There’s just so much we have that has at some point been positively helped by someone taking that 12th hour shot when other roads were closing.

  2. Saul Schimek says:

    Sadly, it appears both parties are hip deep in corruption. It’s just now whe have to go with the Republican corruption as it is marginally less statist than The Full blow Crony Facsism of O’Gabe and company

  3. midwest bill says:

    The Republican establishment, even FOX, seems to have deemed Mittney “The One”.

    Gingrich has issues, but seems to at least be willing to fight the establishment at times, even on the right. I think that is part of the animus against him now …

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s