How private equity firms make billions by driving companies into bankruptcy

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22 Responses to “How private equity firms make billions by driving companies into bankruptcy”

  1. noen says:

    “Is this what political theorists mean by “late stage capitalism”?”

    Why, yes it is. Can you guess what comes next? Sadly, the only “new economic model” around is the Chinese model of totalitarianism plus capitalism.

  2. Anonymous says:

    While I can’t condone this activity, the fault lies with whomever is dumb enough to loan money to these people.

  3. ill lich says:

    “Well, I lost my job, but at least somebody got to maximize their profits, so that’s good, right?”

  4. chris says:

    uggh I woke up to the new format, and I hate it!

  5. yer_maw says:

    see:

    Manchester united
    Liverpool FC

    Borrowing money to buy a company then transferring the borrowed money to the company you just bought doesnt seem like a very risky endeavour.

  6. wil9000 says:

    Oh for christ’s sake! Nothing about the scumbags at the top surprises me anymore. None of it makes sense, none of it can make sense. If people actually knew what was going on in the “financial services industry”, there would be an awful lot of guys in suits being tarred and feathered and run out of town on a rail. I don’t mean to be alarmist, but these people are getting paid obscene amounts of OUR money for robbing US all blind.

  7. bcsizemo says:

    You know it’s times like these that I wouldn’t mind my government sticking it’s finger into the money pie if you will. As a peon, how am I suppose to challenge such corporate take overs or they subsequent pillaging of them? This is one of the few areas that I could see big government actually helping the economy. It’s this kind of mentality that needs to be contained and destroyed. A company should fail from it’s own doing, not from the greed of the new owners.

  8. noen says:

    Somehow, this seems appropriate:

    Corporate Cannibal

  9. phisrow says:

    I eagerly await an otherworldly explanation of how this mechanism actually represents efficient capital allocation, rather than a subtler variation on classic smash_and_grab.

  10. gollux says:

    An additional thought, Alan Greenspan put it so well:

    I made a mistake in presuming that the self-interest of organizations, specifically banks and others, was capable of protecting their own shareholders and the equity in the firms…

    Self-interest splays out in so many different ways, in the end, remember that it is the self-interest of those wielding the power, not the shareholder, the customer or the worker that counts…

  11. gollux says:

    Heh, the American people are pretty stupid and put up with this stuff. Had it happen to a local industry that actually was doing quite well, but you don’t want that to happen to your company because it makes for easier takeover. Asset rich, average stock price, low liabilities, all things that a company with a good long-term market for their product might think are good management practice also make them easy to be acquired. Killed off 220+ jobs as the plant was closed, assets and standing stock sold off for maximal short term profit. Hey, hey, it’s the American Way!

  12. avraamov says:

    Frog: ‘Why did you sting me? now we’ll both drown’

    Scorpion: ‘Because I’m a scorpion.’

  13. dr.hypercube says:

    @phisrow – I think the proper nomencature is bustout – http://www.youtube.com/watch?v=5ydqjqZ_3oc – there is zero diff between Paulie and the PE criminals, as far as I can see – other than the risk of doing time.

  14. Omir The Storyteller says:

    Wow, I used to do this all the time in Railroad Tycoon. Who knew you could do it in real life? (Well, besides Jay Gould, James J. Hill and THL)

  15. millionpoems says:

    An island. As if that would be enough protection from the zombies!

  16. mmechanic says:

    Things get even worse when you combine private equity with something like affordable housing… here’s a piece Mother Jones ran recently on that very thing:

    http://bit.ly/liyI1

  17. DWittSF says:

    I suggest we trade Goldman Sachs to the Chinese to pay down our debt. They know how to deal with business criminals over there.

  18. zikzak says:

    Is this what political theorists mean by “late stage capitalism”? It seems like the free market has gotten to a point where the best opportunities for profit involve destroying value, rather than creating it. Time for a new economic model?

  19. Pooky tha quant says:

    “the fault lies with whomever is dumb enough to loan money to these people.”

    Never was a truer word said, one of the myriad of problems was that the people writting loans were paid based on how much they gave away meaning. They had no vested interest in the quality or probabilty of repayment. People respond to incentives.

  20. tp1024 says:

    Oh well, nothing that you couldn’t have seen a thousand times over in East Germany, after West German companies took over about 85% of East German companies (and subsequently shut them down, serving the consumers from West Germany instead – job losses were horrific, about ~80% of jobs were lost).

    But of course, that was aaallll because Communist companies were all not viable and people in the east too lazy to work …

    When will people start to learn that sometimes the obvious is just obvious?

  21. WalterBillington says:

    This happens because of the cash that individual deal-makers can pull from the deals. They work on a “carry” system, which rewards them for the increase in the value of the funds they represent. That’s a purely financial measure, which makes it liable to manipulation.

    As indicated, the game is to convert an asset to cash.

    Some firms do, some firms don’t. Private Equity is powerful and greedy, but is in second place to the investment bankers in terms of financial societal impact – they’re the bankers’ clients.

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