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May 25, 2012

krugman on pe firms

Yes I can manage to be all Private Equity all the time (or at least for the better part of a week).

So for those of you who do not read Paul Krugman as a matter of course, treat yourself to today's version, which adds to the chorus of criticism of the practice, and then goes one step further to identify the motive behind the defense:

So, no, financial wheeling and dealing did not do wonders for the American economy, and there are real questions about why, exactly, the wheeler-dealers have made so much money while generating such dubious results.

Those are, however, questions that the wheeler-dealers don’t want asked — and not, I think, just because they want to defend their tax breaks and other privileges. It’s also an ego thing. Vast wealth isn’t enough; they want deference, too, and they’re doing their best to buy it. It has been amazing to read about erstwhile Democrats on Wall Street going all in for Mitt Romney, not because they believe that he has good policy ideas, but because they’re taking President Obama’s very mild criticism of financial excesses as a personal insult.

The circling of the wagons around some of the practices of the financial services industry is not just a response to questions over the practices — it's also an effort to convince themselves (and everyone else) that bottomless greed is somehow virtuous.

The titans of the financial services industry are not interested in talking to reporters; rather, they're in the market for hagiographers.  (Which might explain the success of Andrew Ross Sorkin.)

Posted by mrbrent at 9:42 AM

May 24, 2012

more private equity

On the odd chance that you are as obsessed with the Private Equity hullaballoo as I am, here's some more good reading, written by people who know a whole lot more about this topic than I do.

First, from The New Republic's Timothy Noah is a direct refutation of the David Brooks argument for the heroic nature of PE firms entitled "Private Equity Ain't No Reform Movement," illustrated with a photo of a particularly sour-looking David Brooks:

...The company was in terminal decline before Bain entered the picture,” Brooks writes. “Bain held onto the company for eight years, hardly the pattern of a looter.”

That misstates the problem. Of course private equity firms don’t buy companies with the intent of making them fail. They aren’t like Bialystock and Bloom in Mel Brooks’s The Producers, scheming to succeed by failing. The problem, as [Joe] Nocera noted, is that when private equity firms manage their acquisitions incompetently, then the pain is felt exclusively by laid-off workers. The private-equity suits don’t suffer at all. This is what economists call “moral hazard” and everybody else calls a rigged game.

Noah also brings up the point that the profits that PE films make off these investments are taxed at fifteen percent as capital gains.  A whole other issue, sure, but the more knowledge the better.

And Josh Kosman, the author of The Buyout of America: How Private Equity Is Destroying Jobs and Killing The American Economy, posts on how, if you unpack some of the complexity of PE transactions, the so-called moral hazard becomes clearer in focus:

Here’s what private equity is really about: A firm like Bain obtains cheap credit and uses it to acquire a company in a "leveraged buyout." "Leverage" refers to the fact that that the company being purchased is forced to pay for about 70 percent of its own acquisition, by taking out loans. If this sounds like an odd arrangement, that's because it is. Imagine a homebuyer purchasing a house and making the bank responsible for repaying its own loan, and you start to get the picture.

Kosman also looks very directly at Bain's actual record over the years.

It might be a stretch, but the thesis I'm working under (which of course is subject to revision and even rejection) is that private equity as a practice is an example of the ways that the ascendancy of the financial services industry has hurt the economy and the country in general, specifically in the erosion of the middle class and the growing inequalities in wealth and income.

And good day to you, as well.

Posted by mrbrent at 10:15 AM

May 23, 2012

david brooks and private equity

Predictably, David Brooks is aghast that the field of private equity is now up for public discussion vis a vis the presidential race.  Private equity firms, you see, engage in the creative destruction that "forced a renaissance that revived American capitalism" (which is most certainly a redundancy to come off the David Brooks keyboard, 'American capitalism').  Sage financiers scour the business world, leading weak firms by the hand to become more efficient and prosperous.

So then since private equity firms are such American heroes, why is the president being all like that, Brooks asks.

A couple points I'd like to make.  First, David Brooks is painting a picture of an economy in which businesses did not know how to transform/evolve before private equity firms came on the scene forty years ago.  That's just dumb-assery.  But the bigger question is whether the resulting version of the economy as created by forty years of private equity firms is an actual good version.  I'm sure there are a bunch of financiers out there that would tell you that it is, but I'd wager that they are vastly outnumbered by what used to be called the middle class, who got shoved down a flight of stairs by this Renaissance of American capitalism.

Remember: you start a business, you fail, then you lose your shirt.  But if your business gets gobbled up by private equity, the firm gets paid no matter what, succeed, fail or otherwise.

That is why this is a discussion worth having.  The successes of private equity firms benefit primarily themselves, and the failure of private equity firms benefit only themselves.  And I wouldn't want one of those conscience-less assholes running my book club, let alone my country.

Posted by mrbrent at 9:29 AM

May 22, 2012

silly birther no luau for you

This is a fabulous bit of Catch-22 red tape kung fu that is actually being wielded for good.

So there's that thing you might have heard about where the Secretary of State of Arizona is threatening to keep Obama off the ballot this November.  Birther nonsense, right?  Well, TPM filed public records requests and obtained the email correspondence between the SecState, Ken Bennett, and the State of Hawaii.  And they're hilarious.

Basically, Bennett is all like, "Gimme the original birth certificate," but Hawaii recently passed laws specifically to deal with Birther time-wasters, and so the Attorney General's office answered politely and in detail, citing the laws in effect, and ending with:

As the Secretary and I initially discussed, it appears that you might be eligible for verification of the record based on subparagraph (2), but we need to see what your authority is “to update official lists of persons in the ordinary course of your activities.” Will you send me a copy of your law that allows this, and will you send me information that shows:

(1) What list are you updating?
(2) Is it your normal procedure to update all entries on your list by requiring birth data verification?
(3) Are you requiring birth data verification of all entries on your list, rather than just targeting one name on your list? (please provide evidence that you are doing so)

If you are unaccustomed to legalese, that's a pretty straightforward FU.  Bennett did respond by asserting his authority as "elections official" and ignoring the three questions above.  Which was met, naturally, by a Sorry But Thanks For Playing from the Hawaii AG's office.  Really, you should click and read them all.

It's just a great example of making the law work for you, and an earnest lesson in the reading comprehension abilities of Birther public office-holders.

Posted by mrbrent at 9:39 AM

May 21, 2012

chicago? nato?

I'm totally waiting for Choire Sicha to explain this to me (Sicha's quick five paragraph commentaries on current events are pretty much my favorite flash analysis out there), but in the meantime what exactly are the protesters in Chicago protesting?  And I'm not trying to be glib or faux-blithe, I am actually IRL having a hard time understanding what the hell?

So it's a NATO summit, right?  I'm sure that each of us has our own least-favorite NATO member, but NATO's not exactly the Axis of Evil (or S.M.E.R.S.H., even), and what on earth is the defining quality of NATO that's worth taking to the streets about?

From what I read (and inevitably in the ninth or tenth paragraph), the protests are against the war in Afghanistan.  You know, the war that we're pulling out of (maybe sooner than we think  And the war that (NATO member) France is pulling out of now, since Hollande got elected?

I'm not taking the protests lightly, as it's yet another occasion for the Chicago Police Department to live up to its 1968 legacy, but I am puzzled.  It almost seems as if we are developing a nearly-professional protester class that waits for high-profile events like international summits as an opportunity for practice.  (Because how can you ever get good at anything without practice?)

Having said that, interrogating journalists and driving vans into crowds are two things that we can all agree should be discouraged.

Posted by mrbrent at 9:07 AM

May 20, 2012

andy gipson is a predictable moron

Finally something from Huffington Post that is worth making fun of for some reason other than business practices — this is from a story about some nutzo State Representative's refusal to disavow his support for Leviticus 20:13 (which is the one about killing gay dudes):
On Facebook at least, Gipson has received overwhelming support for his original comments and his refusal to apologize. Eighty-three people have "liked" his post, and he's received dozens of supportive comments, including praise for supporting God and sticking to his original message.

To say that the bar for overwhelming support is "dozens" of likes and comments is witheringly stupid.  Seriously, there has to be a better way to force a jejune story about another Bapist espousing Baptist doctrine into "viral" success then quoting the dude's Facebook friends.

(And not to excuse the dude, BTW, whose name is Andy Gipson in case he's the type to Google himself.  If Gipson really wants to get Old Testament maybe he should familiarize himself with all the other things that carry the death penalty in that little book.)

Posted by mrbrent at 8:16 AM