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Dissent in the 1%
January 16, 2012 8:48 AM   Subscribe

Last week, three founders of private equity fund The Carlyle Group shared a year's pay of $413M. They didn't do the private equity industry any favours as there has already been additional interest from the government for greater taxation of this elite subcategory of the 1%.

The following day, in You're so Bain, Bloomberg looked more deeply at the issues facing PE:
Private equity is a rapacious destroyer of the middle class. No, it renews American industry by infusing old companies with capital and ideas.

Well, which is it?
On the heels of the financial crisis and Occupy Wall Street movements, Mitt Romney's campaign for President is bringing an increasing level of attention to his past -- including, by the numbers, a very successful stint at leading PE house Bain Capital

One of the key pieces of research cited by Bloomberg is a paper released in late 2011 by research faculty from UVA, Oxford, and University of Chicago: Private Equity Performance: What Do We Know?"

This is the latest in a line of academic research showing that for investors, PE routinely provides better returns than public markets.

The ubiquitous Oracle of Omaha thinks private equity is both "Orwellian" and "dangerous" in the way those market-beating returns are generated.

Newt Gingrich supporters have acted quickly to exploit the private equity past as a potentially mortal weakness for Romney: "King of Bain: When Mitt Romney Came to Town," a dark tale casting Romney as a rapacious profiteer

Similarly, The New York Times asserts there are different kinds of the 1%.

Regardless, this dissent within the 1% is bringing an intentionally low-profile sector of the global financial system out of the shadows. BusinessWeek offered the following dramatic take on the conversation:
Private equity does not raise corn, build cars, or teach children. What it does, when it works, is make the economy more efficient—while enriching the likes of Mitt Romney. That’s what the facts show. Whether America’s next President should come from the privileged precinct of private equity is something only the voters can decide.
posted by nickrussell (63 comments total) 9 users marked this as a favorite

 
What it does, when it works, is make the economy more efficient...

"Efficiency" is a flexible term and needs to be defined/measured against what the desired outcome is. Unfortunately, in our current system, the outcome of "efficiency" does not include maximized job creation or a maximized distribution of benefits/wealth across socioeconomic tiers. Just the opposite, I'm afraid.
posted by Thorzdad at 9:00 AM on January 16, 2012 [15 favorites]


"What it does, when it works, is make the economy more efficient—while enriching the likes of Mitt Romney."

Well all shenanigans aside, the one part of that sentence that can't be argued is that PE enriches the likes of Mitt Romney. The level of compensation is WILDLY out of proportion with the work that PE firms actually do. The reason they are paid so well is because they control fucking huge sums of money. It gives them leverage to TAKE more. And it's not only morally wrong, but it's absolutely disgusting and poisonous.
posted by pwally at 9:07 AM on January 16, 2012 [6 favorites]


I predict (wrongly, probably) that Romney will get the nomination not in spite of his PE past but because of it.

I think that the Powers That Be will feel that placing Entitled Corporatism back on the throne is more important than beating down gay rights, and will run a corporate cheerleader to take on OWS and anti-corporate sentiment head-on, Karl Rove style. The Chamber of Commerce is already telling the GOP to knock it off.
posted by Legomancer at 9:08 AM on January 16, 2012


including, by the numbers, a very successful stint at leading PE house Bain Capital

'by the numbers' means that he was successful in masterminding a huge transfer of wealth from the companies that Bain took over, and the investors/creditors they sucked in, to the coffers of Bain itself. The companies themselves inevitably went bankrupt, with the loss of all the jobs and productive capacity that implies.

In terms of net benefit to society, in terms of jobs, quality of life or net economic benefit, not so much.
posted by unSane at 9:10 AM on January 16, 2012 [4 favorites]


I see a large chunk of the money was for "distributions" and the article implies that these are taxed differently then personal income. What is the definition of distribution, what is the tax rate, and what is the rationale for making it different then income? Inquiring minds would like to understand.
posted by Bovine Love at 9:26 AM on January 16, 2012


"Efficiency" is a flexible term and needs to be defined/measured against what the desired outcome is.

A while ago, I heard an excellent segment on Fresh Air regarding PE firms. The interviewee, Josh Kosman, had written a book detailing some of the "efficiencies" that PE firms have enacted. Specifically, a major mattress company had been acquired by a PE firm that went about degrading the mattress product while touting new "features" like not having to flip the mattress to preserve them (in fact the mattresses were just one-sided to save money).
posted by Hypnotic Chick at 9:27 AM on January 16, 2012 [3 favorites]


Private equity makes money by selling the blocks used to build the road we're all standing on. The road will be more "efficient" if it is built of the absolute minimum number of blocks needed to carry the load. But no one in private equity knows or cares what that load is likely to be, how many blocks will be needed to carry it, or who will clean up the mess when the damned thing collapses. Why? Because they all fly around in private jets. Roads are for plebes.
posted by 1adam12 at 9:29 AM on January 16, 2012 [6 favorites]


Its like borrowing money from all your friends and skipping town. Much more efficient than those life-long friendships that often have little or no money exchanging hands.
posted by CautionToTheWind at 9:36 AM on January 16, 2012 [4 favorites]


I think MeFi needs a hedge fund.
posted by humanfont at 9:36 AM on January 16, 2012


I see a large chunk of the money was for "distributions" and the article implies that these are taxed differently then personal income. What is the definition of distribution, what is the tax rate, and what is the rationale for making it different then income? Inquiring minds would like to understand.

Distributions are capital gains and dividends.
posted by slkinsey at 9:37 AM on January 16, 2012


Distributions are capital gains and dividends.

But also management fees for fund managers who have no capital at risk. EG Romney's $29m a year for doing fuck all. Taxed at 15% I believe.
posted by unSane at 9:42 AM on January 16, 2012 [2 favorites]


Specifically, a major mattress company had been acquired by a PE firm that went about degrading the mattress product

There are differing levels of mattress quality, to meet different markets -- some people don't want to buy, or perhaps cannot afford, the top of the line pillow top. Perhaps the company felt they'd be more profitable by not competing in certain market segments?

Are we going to ding Toyota now for not making cars as good as Mercedes and BMW. Fucking Honda and their cheap cars! Fuck those money-grubbers. We should all be driving Formula One cars for free!

This is the kind of thing that rankles me about journalism in general, and not so much about the 1 percent movement, because yes, they need to pay more. But let's point fingers at the right villains, who are not necessarily the guys looking at ledgers thinking, "How can I make more money in this business of mine?"

If you want to point fingers, I can think of 400-plus federal legislators. Craven cowards. All of them.
posted by Cool Papa Bell at 9:47 AM on January 16, 2012 [2 favorites]


One would think that if you are in charge of how much dividend and salary is paid to yourself, then it could hardly really be considered a dividend since you'll just not take much salary, pump up the profit and then pay yourself a dividend at a lower tax rate. This is such an obvious idiotic tax dodge for companies with only a few shareholders that it belies belief that such a loophole remains open.
posted by Bovine Love at 9:55 AM on January 16, 2012 [3 favorites]


When I read PE I understand through two decades of spam that it means penis enlargement. And that's really all anyone needs to know about private equity anyway.
posted by seanmpuckett at 9:55 AM on January 16, 2012 [1 favorite]


Nobody is saying there shouldn't be different products for different market segments. However, degrading the product directly leads to poor outcomes for the company and any workers they might employ (I'm thinking of the article about the lawnmower company that refused to sell to Wal-Mart, here). Basically, the PE firm sold off the good reputation of the company, and any skilled labor that they were employing, for their management fees. I don't think that's a laudable way to run a company and I'm glad journalists are writing these types of stories.
posted by ofthestrait at 9:58 AM on January 16, 2012 [3 favorites]


One would think that if you are in charge of how much dividend and salary is paid to yourself, then it could hardly really be considered a dividend since you'll just not take much salary, pump up the profit and then pay yourself a dividend at a lower tax rate.

In sensible tax regimes these things are balanced out. For example, I run my own company and my effective tax rate is basically the same whether I dividend stuff out or pay it as wages. If I do the former, it's a profit so the company pays corporate tax and I pay personal tax on the dividend. If the latter, it's an expense to there's no corporate tax but it's taxed at a higher personal rate.
posted by unSane at 10:00 AM on January 16, 2012


Keep voting for Republicans and you will get more and more of these abuses. Next up? How about your religous beliefs or your partiotism?
posted by Sparkticus at 10:02 AM on January 16, 2012


There are differing levels of mattress quality, to meet different markets -- some people don't want to buy, or perhaps cannot afford, the top of the line pillow top. Perhaps the company felt they'd be more profitable by not competing in certain market segments?

Are we going to ding Toyota now for not making cars as good as Mercedes and BMW. Fucking Honda and their cheap cars! Fuck those money-grubbers. We should all be driving Formula One cars for free!
There are different levels of car quality, to meet different markets -- some people don't want to buy, or perhaps cannot afford, cars that don't suddenly and uncontrollably accelerate. Perhaps the company felt they'd be more profitable by not meeting certain safety segments?

This is called efficiency.
posted by fartron at 10:09 AM on January 16, 2012 [1 favorite]


That Times article was unreadably nauseatingly cock sucking. Gag.
posted by latkes at 10:23 AM on January 16, 2012 [1 favorite]


Are there any stats on what proportion of the 1% inherited wealth instead of making/stealing it?
posted by unSane at 10:26 AM on January 16, 2012


...more important than beating down gay rights...

I've said this before, but gay rights (along with abortion and the TSA abuses) is a sideshow distraction to keep people from noticing the money. Nobody who matters gives a fuck about any of that; it's just an easy way to keep people distracted while you raid the till. The more people argue, the better cover it provides.
posted by spacewrench at 10:28 AM on January 16, 2012 [12 favorites]


There are differing levels of mattress quality, to meet different markets -- some people don't want to buy, or perhaps cannot afford, the top of the line

Do you know for a fact that they reduced prices, or did they just plunder the product line's previously earned reputation by continuing to sell product with the same name on it but inferior quality for a short term profit? Raiders do that: they pocket equity, and in this case was it brand equity?

We should all be driving Formula One cars for free!

Yes, that's exactly what people are saying here. And by the way, ludicrous straw man aside, how do you think a Formula One car would rank in consumer auto quality ratings?
posted by George_Spiggott at 10:30 AM on January 16, 2012 [4 favorites]


Are we going to ding Toyota now for not making cars as good as Mercedes and BMW.

I'd take a Toyota over either any day, particularly Mercedes. More reliable and much more efficient in terms of return on investment. However, if you're into groundless prestige, you won't get that with Toyota.

If a company that is acquired for it's value and then changed to remove that value is not even remotely like saying we should have free F1 cars.
posted by juiceCake at 10:59 AM on January 16, 2012 [1 favorite]


Aww, they finally learned how to share!
posted by LordSludge at 11:19 AM on January 16, 2012 [1 favorite]


latkes: "That Times article was unreadably nauseatingly cock sucking. Gag."

Yea, that may have been the worst thing that I've ever read in the Times.
posted by octothorpe at 11:42 AM on January 16, 2012 [1 favorite]


Enough with the homophobic cock sucking references!
posted by PigAlien at 11:48 AM on January 16, 2012


I have met one of them, Bill Conway, on several occasions, as he bought one of the companies I used to work at. He'd show up twice a year to meet new employees, press the flesh, and have a "no-holds-barred" Q&A with the employees at large.

Pretty hugely charismatic guy.

When he eventually sold the company, he gave out checks to every employee who'd been with the company at least a month (on date of sale), based on how many months they'd worked there... rounded up. No legal reason to do so; the PR factor wasn't worth the $tens of thousands we estimated it cost him; he was just making good on a vague promise to "share the company's prosperity with us." Up until then we'd interpreted that as "profit-based bonuses."

Cool story bro. That's all.
posted by IAmBroom at 11:48 AM on January 16, 2012 [1 favorite]


The level of compensation is WILDLY out of proportion with the work that PE firms actually do. The reason they are paid so well is because they control fucking huge sums of money.
I'm not sure I agree with this. PE funds invest other investors' money, for the most part. They are compensated with a fee that's normally a percentage of total invested money (which is taxed as ordinary income, not capital gains), plus a percentage of profits, if any (which retains the tax character of the underlying investment).

The investors who invest in PE funds tend to be extremely sophisticated and able to make pretty much any sort of investment that there is. They put money in PE funds because they've historically provided attractive returns and the investors expect them to continue to do so in the future. I don't know what basis there is to conclude that compensation is wildly out of proportion to the work done when extremely sophisticated investors keep willingly paying this compensation.

This isn't like, for example, an investment bank giving city official a kickback in exchange for an outsized underwriting fee on municipal bonds. In a situation like that, the persons agreeing to the fee are paying with it with other people's money and don't expect to be held accountable for the overall return on the bonds. I think that happens a lot less in the PE context.
posted by planet at 11:51 AM on January 16, 2012 [1 favorite]


Yea, that may have been the worst thing that I've ever read in the Times.

Well, then you're going to absolutely love this: What Does Wall Street Do for You?...
posted by BobbyVan at 11:51 AM on January 16, 2012


Since when was cock sucking restricted to homosexuals?
posted by Bovine Love at 11:55 AM on January 16, 2012 [2 favorites]


Yea, that may have been the worst thing that I've ever read in the Times.

You might also enjoy this twitter feed: https://twitter.com/#!/TimesPublicEdit
posted by latkes at 11:56 AM on January 16, 2012


Uh, don't know why I forgot how to link there.
posted by latkes at 11:57 AM on January 16, 2012


Well, then you're going to absolutely love this: What Does Wall Street Do for You?...

Arrrgghh! Planet Money is such a let down.
posted by latkes at 11:58 AM on January 16, 2012 [2 favorites]


So, according to the article, their net income rose 347 mil, so they paid themselves 413 mil. I wish my bank account worked that way.

Oink!
posted by Benny Andajetz at 12:11 PM on January 16, 2012 [2 favorites]


BTW, when you make it more than TWICE as profitable to make money off money than it is to make money off labor, how do you not end up with a plutocracy?
posted by Benny Andajetz at 12:15 PM on January 16, 2012 [9 favorites]


for investors, PE routinely provides better returns than public markets

My mom was here today, and as we scrapped wallpaper and discussed Bain, she told me the following story.

My mom worked for A Large Trucking company here in the Northeast for more than 20 years. It was a profitable, family owned, well-regarded company. In the early 90's, the founder died, and none of his children wanted to take over the business, so it was sold to a large corporation. The corporation, in turn, bundled it with another regional trucking company in the Pacific Northwest, and then, in turn, somehow sold it to a VC firm, who ran it for a few years before declaring that they would be closing it down because it was "not profitable".

However, my mom, and her counterpart in the Pacific Northwest, knew the real reason. You see, a large number of the truck terminals owned (owned outright) by the company in the PNW were on prime coastal land. Both companies (now one combined entity) were still profitable, but in looking over the forecast for the next 15-20 years, the VC folks had found that they could make more money by selling the coastal land at high prices and liquidating the rest than they could make in profits over 20 years. So they put several thousand people out of work so they could sell the property and line their own pockets. (Oh, and somehow the employee pension fund vanished around the same time, but that's another story for another day).

My mom says that she's pretty sure all those big mortgages are now underwater, and that's the only thing that makes her feel better when she looks back on the whole sordid tale.
posted by anastasiav at 2:06 PM on January 16, 2012 [7 favorites]


It may surprise y'all, but picking good investments at arm's length is hard and most of you would lose money and possibly get sued by your investors. Private equity offers more control over the investment at the expense of having to actually run the company, and if the company fails, the investors are usually small enough to lose a lot of their portfolio.

Also, there is a demand for the services private equity provides. For example, Dane Miller formed a PE group to buy back Biomet from its public shareholders because he founded it. A lot of people were happy to have him back but he couldn't have done it without private equity. It's important to note in in many buyouts of public companies, the public shareholders (regular folks) usually receive a nice risk-free premium for their shares.

All in all they're soulless scoundrels but I'd say they're fairly paid for being willing to do it, just like people who flip cars (mathowie #1), houses or websites. If I were to name a culprit for the excesses, it would be whoever sets these silly low interest rates that make the bad, unsettling investments temporarily profitable.
posted by michaelh at 2:09 PM on January 16, 2012 [2 favorites]


the VC folks had found that they could make more money by selling the coastal land at high prices

Setting aside the pension shenanigans ... What do you think your Mom's reaction would have been if the founder himself went through this exercise and decided to make the same move, without VC intervention? "The best thing I can do is give my children a giant pile of cash to do with as they please, so they can enjoy the full fruit of my decades of work and luck, and not be burdened with any mistakes I may have made. My employees will be laid off, true, but they have been paid for their time and effort, and I will offer a severance. But my family is out of this game."
posted by Cool Papa Bell at 2:30 PM on January 16, 2012


What do you think your Mom's reaction would have been

Dunno about that, but my reaction would have been, "what a complete shit". YMMV.
posted by unSane at 3:02 PM on January 16, 2012


Perish the thought, CPB! The "job creators" are the job creators of this country!
posted by Talez at 3:04 PM on January 16, 2012


The "job creators" are the job creators of this country!

I don't buy into the "leave the job creators" alone rhetoric. I just see a lot of un-critical thinking in media portrayals all around, on every side.

Look at it this way ... I used to be a sportswriter, and would occasionally get to ask very young men about very big contracts. Why are you holding out for more money? Don't you see what that's doing to the team and to your fans?

Most of the answers were banal. Millionaires bitching about "respect." But one time, I was pretty floored when an athlete you've heard of said, essentially, my family is dirt-poor, and worse, we don't have good traditions. Go to college and be a doctor? Never heard of the idea. I'm not asking for money because it feels good. I'm asking for more money because my zillions of cousins will have kids and I can give them a a good chance to break out of a cycle and stay broken out of that cycle forever. The good traditions start with me.

One of the few times any one of these athletes made me think about anything other than their batting averages.

So, grubbing for money isn't all bad.

Except for Peter Thiel. That guy can go fuck himself with a solid-gold explosive dildo.
posted by Cool Papa Bell at 3:24 PM on January 16, 2012 [4 favorites]


What do you think your Mom's reaction would have been if the founder himself went through this exercise and decided to make the same move, without VC intervention?

He wouldn't have, because the East Coast operation was bundled in with the West Coast (with coastal land) operation as part of the sale to the VC. Without that bundle, the East Coast portion would have continued to be small and profitable. With the bundle it made more sense to liquidate the whole thing.

It's really the liquidation that pisses her off. They could have sold the (profitable) company to someone else (the employees actually offered to buy it but their offer was not good enough) and made some money and kept people employed. Instead they decided the pitch the entire thing, jobs and all, in the bin, simply because it made the most sense in the short term.
posted by anastasiav at 3:28 PM on January 16, 2012


Bain Capital took over KB Toys (the 2nd oldest operating toy store in the US) in 2000; now KB Toys is now so "efficient" that they have Toys.com do all of the work. From Wikipedia:
KB Toys was purchased and taken private in 2000 by the leveraged buyout firm of Bain Capital for $305 million, Bain announced the purchase on Dec. 8th, 2000. Only $18 million of the purchase money was cash, the rest was borrowed against the assets of the company. Sixteen months after the buyout, Bain Capital paid itself $85 million in dividends in early 2002. Two years later, due to increasing competition from national discount chains such as Wal-Mart and Target and its enormous debt, on January 14, 2004, K·B Toys filed for Chapter 11 bankruptcy protection and closed 365 stores.

Except for torching the place at the end this sounds suspiciously like the restaurant takeover scene in Goodfellas.
posted by Challahtronix at 3:42 PM on January 16, 2012 [3 favorites]


The last sentence was mine and not from Wikipedia; apparently if you close a blockquote with "/block" it will appear properly in the preview, but not in the post.
posted by Challahtronix at 3:51 PM on January 16, 2012


A friend of a friend is a clerical worker at a private equity firm, and she invited my friend to accompany her to the annual holiday party a couple of years ago.

All non-employee guests-- a fair number-- received a gift.

My friend got a $5000 handbag.

Employees got things at least several times more expensive.
posted by jamjam at 4:47 PM on January 16, 2012


The name of the game is Pure Profit. Why pay salaries, overhead, pensions etc. when you can just buy and liquidate at a Pure 100% or more Profit?

I've been on both ends of this kind of "business". In the instance when I stood to make a giant profit by literally ruining a few lives, I had to cut out. Didn't make it to the big time with the big dogs.

In the other instance a very profitable company I worked for was bought and liquidated for the real estate holdings. It was ugly business.

I could never go through with it and I think people who do must be sociopaths. They have no problem taking away peoples means of self support or personal liberties like drugs and sex. They have theirs, fuck you.
posted by snsranch at 4:47 PM on January 16, 2012


Instead they decided the pitch the entire thing, jobs and all, in the bin, simply because it made the most sense in the short term.

Not to be a dick, but you didn't answer the question. To be more specific, what would your mother think if the original owner had liquidated the entire thing in a similar manner as the VC-backed owner(s)?

There seems to be this notion that family ownership = good and VC ownership = bad, but would the reaction be the same if the outcomes were identical?
posted by Cool Papa Bell at 6:06 PM on January 16, 2012 [1 favorite]


Well, she's gone home so I can't ask her, and I wouldn't want to speak for her.

From a certain viewpoint, though, I think it's instructional that the family, when confronted with the desire to no longer run the business, decided to sell it intact rather than simply liquidate it. So, they had (I'm sure) the choice on the table, but (for whatever reasons) made the decision to sell vs. liquidate.

Family owned businesses have a sense of the real lives of their employees in a way that VC firms simply don't. To the VC folks, it's a cold calculation of numbers only and "how do I get the absolute most profit" vs. a family-owned business where, by necessity, you know a significant percentage of the people who work for you.
posted by anastasiav at 6:13 PM on January 16, 2012


Your answer really gets at overall point, which is that there's a lot of in-critical thinking going on here, which culminates in the collective WTF reaction when Mitt Romney says "Corporations are people." He's both right and wrong for, like, four different reasons, but there's so much good-guy-bad-guy thinking going on, you can't have a discussion about reality.

For example, family-owned businesses have a sense of real lives more than VC firms?

Dude, Wal-Mart is a family owned business. Cargill is family owned. News Corp is family owned. No one's fitting these guys for halos. So, who's the bad guy again?
posted by Cool Papa Bell at 7:49 PM on January 16, 2012 [2 favorites]


* Un-critical
posted by Cool Papa Bell at 7:50 PM on January 16, 2012


Oh great I have an excuse to post this:
If corporations are people, then Mitt Romney is a Serial Killer
Brought to you by mysterious political group known as "Americans for a better Tomorrow, Tomorrow"
posted by delmoi at 8:43 PM on January 16, 2012


Dude, Wal-Mart is a family owned business. Cargill is family owned. News Corp is family owned. No one's fitting these guys for halos. So, who's the bad guy again?
uh, what?
posted by delmoi at 8:45 PM on January 16, 2012


There are differing levels of mattress quality, to meet different markets -- some people don't want to buy, or perhaps cannot afford, the top of the line pillow top. Perhaps the company felt they'd be more profitable by not competing in certain market segments?
If that's really what they thought they could have started a new company, without buying out the old investors. But, what you can do instead is buy a quality brand, degrade it, and continue to sell for premium prices for a few years until people realize what happened. And, if you're doing your job well by that point you will have divested yourself, IPO'd or whatever while showing awesome returns to other investors who may not be as savvy.

It's often called "vulture capitalism", and it makes money.
Are we going to ding Toyota now for not making cars as good as Mercedes and BMW. Fucking Honda and their cheap cars! Fuck those money-grubbers. We should all be driving Formula One cars for free!
Depends on how you measure good. But this would be more like Bain or someone buying BMW, outsourcing the production to Yugo, and continuing to sell them for the same price while reaping massive profits. Maybe you sell the company later, or maybe the profits are enough for you to have made back your investment without doing so. (Plus Mercedes is crap anyway -- gaudy nonsense)

---

Here's the thing. A lot of people buy Ayn Rand style bullshit about how you only create wealth by creation. It's absurd of course, you make money by taking a piece of the change in value. That change can be positive or negative. It's like stealing a million dollar statue and melting it down for scrap. You're slightly richer, but the total amount of wealth has gone way down.

Or you could make money by creating something using a highly polluting factory, or a Hog factory that stinks up the county. You make money, but the value of the land nearby has plummeted. Those costs are born by other people.

As you get more esoteric in terms of what the real 'value'. In the examples I gave, the 'value' destroyed was the value of the brand.

Of course, it's entirely possible for a PE company to build value. Depends on what they feel like doing, or how profitable each course of action is. And in fact the same people could do both things with different things.
Most of the answers were banal. Millionaires bitching about "respect." But one time, I was pretty floored when an athlete you've heard of said, essentially, my family is dirt-poor, and worse, we don't have good traditions. Go to college and be a doctor? Never heard of the idea. I'm not asking for money because it feels good. I'm asking for more money because my zillions of cousins will have kids and I can give them a a good chance to break out of a cycle and stay broken out of that cycle forever. The good traditions start with me.
Yeah but with an athlete, the athlete does all the work, and creates most of the value. It also blows my mind that you could defend PE firms but bitch about athletes (the ones you said whined about respect) wanting to make as much money as possible.
There seems to be this notion that family ownership = good and VC ownership = bad, but would the reaction be the same if the outcomes were identical?
What difference does it make? It didn't happen, so why is it relevant. That's like saying "Well, if FDR killed six million Jews, wouldn't he be just as bad as Hitler? Therefore, how is it fair to call the Nazis bad guys?"

If you assume that "X" is a "bad thing" And "group Y" consistently does "X" that makes "group Y" "bad". If other people do Y as well, then they may also be bad, or at least have bad aspects. Hypotheticals don't change that.

The trucking company is an example of wealth destruction. Close the company and sell the lands it's on. Maybe they could re-invest the money from those sales into more profitable ventures, maybe it will just be used to buy themselves Bugatti Veyron filled with coke and hookers. Maybe their new company will use Chinese slave labor in coal-fired factories selling rhino-horn infused iPhones to the jetset.

But the point is the same: They made money by taking a piece of the change in wealth, which in this case was negative.

the whole "They make more money in the long run reinvesting elsewhere" argument does not imply they are actually improving the world by doing so.

---
KB Toys was purchased and taken private in 2000 by the leveraged buyout firm of Bain Capital for $305 million, Bain announced the purchase on Dec. 8th, 2000. Only $18 million of the purchase money was cash, the rest was borrowed against the assets of the company. Sixteen months after the buyout, Bain Capital paid itself $85 million in dividends in early 2002. Two years later, due to increasing competition from national discount chains such as Wal-Mart and Target and its enormous debt, on January 14, 2004, K·B Toys filed for Chapter 11 bankruptcy protection and closed 365 stores.
CPB: How would you feel if you lent someone $100k to start a business, backed by bonds from said business, and two years later they'd paid themselves $2 million dollars in salary and the company went bankrupt leaving you with nothing?
posted by delmoi at 9:14 PM on January 16, 2012 [3 favorites]


Or more typically: how would you feel if you worked for a business worth $3m, and a bunch of PE guys came along with $180,000 and bought your company with loans secured against the business itself, then proceeded to drive the business into the ground while asset-stripping it, sucking the cash out of the company via dividends, then leaving it to twist in the wind and go bankrupt?
posted by unSane at 9:26 PM on January 16, 2012 [4 favorites]


uh, what?

The Walton family owns the majority share -- something like 48 percent. The Murdoch family owns the majority share, and Rupert is the Chairman and CEO. "Uh, what" yourself, nimrod.
posted by Cool Papa Bell at 9:26 PM on January 16, 2012


Those companies are to 'family companies' what cancer is to the common cold.
posted by unSane at 9:29 PM on January 16, 2012 [2 favorites]


48 percent is not a majority share.
posted by Bokononist at 9:59 PM on January 16, 2012 [2 favorites]


The Walton family owns the majority share -- something like 48 percent ... "Uh, what" yourself, nimrod.

LOL, 'nimrod' really?

1) 48% is not a majority.

2) The Murdochs own a big share of the voting stock in newscorp, but only about 34% of Newscorp assuming they got an proportional distribution of the directv buyback deal. Not really sure what your random blogspam link was supposed to prove.

3) You'll note that 34%, like 48% is not a majority.
posted by delmoi at 10:03 PM on January 16, 2012 [2 favorites]


You know the interesting thing though about the 1%. Wealth inequality is actually bad for 'entrepreneurial' rich guys. People like Zuckerburg, Jobs, anyone doing a start-up that sells to the middle class needs the middle class to have disposable income.

A millionaire facebook user won't spend much more on Zynga coins then someone making $30k.

Of course, if you just inherited your wealth and want to sit on your ass, it's great. Means you can higher cheaper and higher quality personal servants!
posted by delmoi at 11:19 PM on January 16, 2012


Are we going to ding Toyota now for not making cars as good as Mercedes and BMW.

They do; Lexus is the luxury vehicle division of Toyota Motor Corporation.
posted by ceribus peribus at 11:37 PM on January 16, 2012


They do; Lexus is the luxury vehicle division of Toyota Motor Corporation.

Tangent #50 (but still applicable to how the corporate mind works):

Lexus (Toyota) and Infiniti (Nissan) were, originally, simply scams to get around importation quotas.
posted by Benny Andajetz at 5:10 AM on January 17, 2012


Dude, Wal-Mart is a family owned business.

Just to be clear: a publicly held company (like Wal-Mart) that happens to have a lot of shareholders who are "in the family" is a very different animal than a true privately held business, that isn't beholden to stockholders. A privately held business has much more freedom to prioritize long term goals over short term profit, because they don't have an mob of shareholders clamoring for profit profit profit every quarter.

A great illustration of this is Land's End (publicly held, as a part of the Sears empire) vs. L.L.Bean (a privately owned, family owned company). Land's End/Sears continues to struggle with profitability, primarily because over the past ten years they've been forced to do things in the name of short term profits that have had long term repercussions. Bean's, on the other hand, while in the exact same business (and selling pretty much exactly the same stuff) remains stable and profitable while able to grow slowly, at a sensible pace, and even pull back when need be.

The fact that you don't understand the difference between the two types of ownership makes your assertion that there isn't a lot of critical thinking going on here suspect.
posted by anastasiav at 5:53 AM on January 17, 2012 [3 favorites]


Bean's, on the other hand, while in the exact same business (and selling pretty much exactly the same stuff) remains stable and profitable while able to grow slowly, at a sensible pace, and even pull back when need be

Unfortunately the heiress to the family fortune is an anti-gay right-wing kook who hates Canada, so I can't shop there.
posted by longdaysjourney at 6:31 PM on January 17, 2012


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