Saturday, October 20, 2012
Vulture Capitalists
Private Equity Funds
These exist to hunt for public
companies which are performing poorly in the marketplace, buy them out, close
unprofitable operations, layoff employees, recapitalize the companies, and
bring them out public again. In doing, so they keep a majority share in the
companies but recoup their original investment through issue of shares to the
public. Then in due course they will repeat this process with other companies.
The investment banks help them in this process by floating the reshaped
companies go public again. The private equity companies make a killing and the
investment banks get a hefty commission. Ultimately, the gullible retail
investor is the one who is left holding the bag. All this is legal but the
mechanism is heavily geared to benefit the vulture capitalists.
There is another operation which
has been taking place in the last few years which is not very widely known.
When a public company is controlled by one or more private equity funds, the
management adds debt at a decent interest rate to attract funds from debt
investors, especially in the current environment of low interest rates. Then
they use the money raised to pay hefty dividends to the shareholders, the
majority of the distribution going to the private equity investors. This
activity reduces the risk of the private equity owners but saddles the company
with unwanted debt. In due course when things go wrong, the vulture investors
will resort to restructuring the company,
closing certain operations, causing layoffs, and walking away with their
loot. The vicious cycle goes on.
Two recent happenings: BJ’s
wholesale club (controlled by private equity investors) raised $643 million of
debt in order to pay dividends to the owners. Likewise, HCA Holdings Inc., (a
hospital chain operator) raised $2.5 billion in debt this year to pay $2
billion in dividends to the shareholders.
HCA Holdings Inc., was taken private in 2006 and went public in 2011
after some reshaping. Private equity funds Bain Capital and KKR each owns 20%
of the company. They justify the issue of debt citing similar debt-holding by
other companies. But should they issue debt just to pay themselves hefty
dividends? That is the big $64,000 question. Money makes more money---doesn’t
it? In that process when one makes money someone else loses because many times
there is no wealth creation but only reshaping. The losers are past employees,
and new individual shareholders.
Tuesday, October 16, 2012
Koch Brothers want to amass more wealth
The Power of Money over People
The Koch Brothers duo controlling Koch Industries, a private business conglomerate, are running scared about a possible Obama reelection. They are warning their employees (about 50,000) that if Obama is reelected many of them would suffer "consequences' (read it as "layoffs"). This is an implied threat and a coercion that the employees should vote for Romney. Where is democracy in this country? Is it that money-can-buy-the-votes situation prevailing now? I am sure many of the employees would vote the way they feel--not the way the management wants since it is not open voting where your choice is made public. Some employees would, however, believe the admonition and vote Republican. So be it. But what is this country coming to? Money is beating democracy?
The Koch Brothers duo controlling Koch Industries, a private business conglomerate, are running scared about a possible Obama reelection. They are warning their employees (about 50,000) that if Obama is reelected many of them would suffer "consequences' (read it as "layoffs"). This is an implied threat and a coercion that the employees should vote for Romney. Where is democracy in this country? Is it that money-can-buy-the-votes situation prevailing now? I am sure many of the employees would vote the way they feel--not the way the management wants since it is not open voting where your choice is made public. Some employees would, however, believe the admonition and vote Republican. So be it. But what is this country coming to? Money is beating democracy?
The greedy are greedier now!
Are you better off now? YES, of course!
The question posed by candidate Romney “Are you better off now than you were four years ago?” can be answered with a simple “YES”. Let me explain. Most of the working people who have 401k accounts and the retirees who have the rollover accounts saw their “wealth” double now from March 2009 (although they lost lot of their money in Wall Street held before the recession). Look at the Wall Street index numbers. If you left your money in the market in March 2009, it has doubled now. So you heave a sigh of relief that you are not going to the poorhouse. These are the people (either registered Republicans or Democrats) who should decide the outcome of the elections this November. The 47% of the folks cited by Romney did not lose at all in the recent past nor would they gain significantly in the immediate future whoever is elected President. Forget the fatcats who made a killing in the market if they invested in the post-crash market in 2009. If they had $1 billion in March 2009 they have more than $2 billion today. What more do they want?
Those who did not have any investment in 2009 did not gain any nor did they lose any. The Great Recession was brought on due to the excesses and shenanigans from the financial industry. It will take time to recover from those damages. Sure the unemployed folks are hurting. But given time, that situation will change for the better. The natural business cycle will take care of it. The Republicans aren’t going to be able to accelerate that nor will the democrats make it worse. Wait and watch!
The question posed by candidate Romney “Are you better off now than you were four years ago?” can be answered with a simple “YES”. Let me explain. Most of the working people who have 401k accounts and the retirees who have the rollover accounts saw their “wealth” double now from March 2009 (although they lost lot of their money in Wall Street held before the recession). Look at the Wall Street index numbers. If you left your money in the market in March 2009, it has doubled now. So you heave a sigh of relief that you are not going to the poorhouse. These are the people (either registered Republicans or Democrats) who should decide the outcome of the elections this November. The 47% of the folks cited by Romney did not lose at all in the recent past nor would they gain significantly in the immediate future whoever is elected President. Forget the fatcats who made a killing in the market if they invested in the post-crash market in 2009. If they had $1 billion in March 2009 they have more than $2 billion today. What more do they want?
Those who did not have any investment in 2009 did not gain any nor did they lose any. The Great Recession was brought on due to the excesses and shenanigans from the financial industry. It will take time to recover from those damages. Sure the unemployed folks are hurting. But given time, that situation will change for the better. The natural business cycle will take care of it. The Republicans aren’t going to be able to accelerate that nor will the democrats make it worse. Wait and watch!
