[Terez]

In that case, there was a very odd slant in the article, don't you think? It's less vulture capitalists Bain preying on poor unsuspecting companies and more Bain + management/major shareholders being partners in crime. And also, if the excuse is that thin, how could anyone possibly fall for it? Private equity is always presented as an option for troubled companies who want to turn around the business. But it's more like taking a risk-free bet on whether the company can survive all that debt on top of their previous problems. If the company busts, everyone in on the deal wins because they got their money out before they killed the business; if the company recovers, they win even more because there are continuing returns. Also, who gets the money from the sale of the business? Who all has to consent? Just management? Major shareholders? Board of Directors?

[Vengeance]

Terez, on 30 August 2012 - 03:02 PM, said:

In that case, there was a very odd slant in the article, don't you think? It's less vulture capitalists Bain preying on poor unsuspecting companies and more Bain + management/major shareholders being partners in crime. And also, if the excuse is that thin, how could anyone possibly fall for it? Private equity is always presented as an option for troubled companies who want to turn around the business. But it's more like taking a risk-free bet on whether the company can survive all that debt on top of their previous problems. If the company busts, everyone in on the deal wins because they got their money out before they killed the business; if the company recovers, they win even more because there are continuing returns. Also, who gets the money from the sale of the business? Who all has to consent? Just management? Major shareholders? Board of Directors?

350 mil will usually buy off the management and the board. If the company is public then they just took the company private so the share holders where satisfied as they got paid out. In serveral of the Bain deals after loading the company with debt they took the company public again. Taking more fees of course so then the new share holders get to own the stock for a year or two before the company folds. Meaning that they and the workers take the shit show. The other thing that VC will do is to raid the workers pension plan for part of the div pay out.

[masan's saddle]

That Rolling Stone article was an eye opener, I knew Mittens was a crook but that bit about the takeover of the 2 dept stores, junk bonds and the investigating judge being married to one of the board execs positively reeked. One nitpick I had with it though was that I would have liked the author to have provided sources for some of the quotes and statements from the wall street types.

Anyhoo in other news the world is about to end.

Integrity and Fox are not 2 words that normally go together.

http://www.huffingto...action_ref_map=[]

[Vengeance]

What the story also didn't go into was that KB had already been through a previous leverage buyout in 1996 which had resulted in a lot of nonprofitable stores being closed. Due to that restructuring KB had became profitable and had started to open freestanding stores in the late 1990's. There profit increased by 51% from 98 to 99. Which was considered a down time for toy stores. In 1999 they were named as one of the 10 best online stores. Which the kbkids.com profits up 400%. None of that is reflective of a depressed company. Rather it is reflective of a company with a good profit margin that was in the middle of positioning itself as a serious online and store company. Thus the reasoning of purchasing the company to turn it around is itself false. Also KB was owned by a bigger company the same company that owned Box stores Consolidated Stores Corporation. So selling the KB division for 305 million was for them a good deal. Now there is nothing wrong with consolidated selling the company for a profit or with Bain purchasing a profitable company. The issue is that Bain did not increase the companies profits or make it leaner rather they used the cash flow to increase the debt and then used that debt to pay themselves and as a direct result the company went bankrupt. Now there where market conditions that Bain blamed for the bankruptcy. However KB had already survived several changes in the toy market and had set themselves up to move to the internet age and survive. Would they have been able to have done so regardless of the amount of debt that Bain saddled them with is unknown but saddling them with the debt prevented them from being able to make flexible changes. It is a prime example of Job destruction not Job creation with is what the article is trying to point out.

[cerveza_fiesta]

Terez, on 30 August 2012 - 03:02 PM, said:

In that case, there was a very odd slant in the article, don't you think? It's less vulture capitalists Bain preying on poor unsuspecting companies and more Bain + management/major shareholders being partners in crime. And also, if the excuse is that thin, how could anyone possibly fall for it? Private equity is always presented as an option for troubled companies who want to turn around the business. But it's more like taking a risk-free bet on whether the company can survive all that debt on top of their previous problems. If the company busts, everyone in on the deal wins because they got their money out before they killed the business; if the company recovers, they win even more because there are continuing returns. Also, who gets the money from the sale of the business? Who all has to consent? Just management? Major shareholders? Board of Directors?

A private equity firm would not have to convince everybody that it's a good idea. THere is also a big distinction between shareholder, board member and management. Management is appointed by the board to run the day-to-day business of the company. The board is voted in by the shareholders to guide the corporation in broad strokes. Large shareholders often are members of the board or management, or both. Any shareholder (or group of shareholders) that owns more than 50% of shares can vote in whoever the hell they want to the board, including themselves. So really, all a PE firm needs to do is convince more than 1/2 of the shareholders that the whole deal is a good idea and they get control over the company - which by extension means control over board members and by further extension - control over management.

So take a hypothetical company that is doing well, has positive cashflow, has decent management, but isn't doing as well as they did in previous years due to some outside circumstance....like a cassette manufacturer doing business in the early 1990s when CDs were becoming a dangerously popular music media. Management of hypothetical cassette co. sees the way things are going, the shareholders see the way things are going, the board sees the same, and they all know they need to re-tool and start manufacturing CDs or kiss their company goodbye. They need at least 50 million bucks to finance their retooling, but the bank will only lend them 30 million. In swoops the PE firm and says "we'll give you your 50 million, but here are the conditions..."

In the case of a friendly takeover, the PE firm just makes an offer which management approves, giving the PE firm controlling stake either through issuance of new shares with aggregate stake of more than 50% or sale of existing shares. At this point the PE can do whatever they want with regards to borrowing, collecting fees, or anything else needed to recoup their investment. After the deal, dissenters are simply replaced. In the case of hostile takeover, management and the board refuse to sell and the PE firm essentially convinces the shareholders to replace the board with a team that will approve the deal. This is accomplished usually with a bit of a PR campaign and by making a very generous offer on shares in the company. Hostile or friendly, the PE firm gets controlling stake and gets to do what they want with the company, its debts and and its assets. The rest flows from there. The only instance where it can't work is where you have a board member that is also a 51% shareholder and refuses to sell. The PE firm, knowing this, wouldn't bother making an offer.

The reason it all works (to answer Terez's question directly) is because of self interest. Any sophisticated PE firm probably has a reputation for the way they operate and all the management of the hypothetical cassette tape co. probably knows (or has been outright told) that they will make a sweet pot of cash on the deal if they go along with the sale, and thus are given incentive to make the deal sound appealing to shareholders. Shareholders are likewise given incentive to sell out because they are offered a generous premium on shares they know are going to lose value once CDs become the popular music medium.

Now comes the self interest of the PE firm. They know that hypothetical cassette co. has no choice in the matter. They can't retool for under 50 million and they are sunk if they don't retool. If the PE firm is ethical and acts in the best interests of hypothetical cassette co. then they get the needed money. The PE firm *only* collects a nominal fee, shifts *only* the debt burden of retooling onto the company, and both thrive as a result. People keep their jobs, the company survives until mp3s are invented, and everybody is happy. Money is made for the PE firm through growth in the company they've invested in - HOW IT SHOULD BE-

If the PE firm is unethical and concerned only with making a quick buck, then they put in place a management team of well-paid yes-men. They charge exorbitant fees, shift excessive debt load to the company, exploit every loophole possible to pay themselves bonuses and dividends out of that debt pool, and wait for hypothetical cassette co. to fail. The PE firm doesn't make as much total cash as the "growth" model above but they make it very quickly before anybody has a chance to react. The biggest difference is that instead of *creating* wealth that didn't exist before, the PE firm has *stolen* wealth from the bank through a complex money-laundering scheme.

I hope that explains it and that I didn't make any egregious errors. It's definitely simplified, but that's how I understand it all.

[Vengeance]

cerveza_fiesta, on 30 August 2012 - 07:06 PM, said:

Terez, on 30 August 2012 - 03:02 PM, said:

In that case, there was a very odd slant in the article, don't you think? It's less vulture capitalists Bain preying on poor unsuspecting companies and more Bain + management/major shareholders being partners in crime. And also, if the excuse is that thin, how could anyone possibly fall for it? Private equity is always presented as an option for troubled companies who want to turn around the business. But it's more like taking a risk-free bet on whether the company can survive all that debt on top of their previous problems. If the company busts, everyone in on the deal wins because they got their money out before they killed the business; if the company recovers, they win even more because there are continuing returns. Also, who gets the money from the sale of the business? Who all has to consent? Just management? Major shareholders? Board of Directors?

A private equity firm would not have to convince everybody that it's a good idea. THere is also a big distinction between shareholder, board member and management. Management is appointed by the board to run the day-to-day business of the company. The board is voted in by the shareholders to guide the corporation in broad strokes. Large shareholders often are members of the board or management, or both. Any shareholder (or group of shareholders) that owns more than 50% of shares can vote in whoever the hell they want to the board, including themselves. So really, all a PE firm needs to do is convince more than 1/2 of the shareholders that the whole deal is a good idea and they get control over the company - which by extension means control over board members and by further extension - control over management.

So take a hypothetical company that is doing well, has positive cashflow, has decent management, but isn't doing as well as they did in previous years due to some outside circumstance....like a cassette manufacturer doing business in the early 1990s when CDs were becoming a dangerously popular music media. Management of hypothetical cassette co. sees the way things are going, the shareholders see the way things are going, the board sees the same, and they all know they need to re-tool and start manufacturing CDs or kiss their company goodbye. They need at least 50 million bucks to finance their retooling, but the bank will only lend them 30 million. In swoops the PE firm and says "we'll give you your 50 million, but here are the conditions..."

In the case of a friendly takeover, the PE firm just makes an offer which management approves, giving the PE firm controlling stake either through issuance of new shares with aggregate stake of more than 50% or sale of existing shares. At this point the PE can do whatever they want with regards to borrowing, collecting fees, or anything else needed to recoup their investment. After the deal, dissenters are simply replaced. In the case of hostile takeover, management and the board refuse to sell and the PE firm essentially convinces the shareholders to replace the board with a team that will approve the deal. This is accomplished usually with a bit of a PR campaign and by making a very generous offer on shares in the company. Hostile or friendly, the PE firm gets controlling stake and gets to do what they want with the company, its debts and and its assets. The rest flows from there. The only instance where it can't work is where you have a board member that is also a 51% shareholder and refuses to sell. The PE firm, knowing this, wouldn't bother making an offer.

The reason it all works (to answer Terez's question directly) is because of self interest. Any sophisticated PE firm probably has a reputation for the way they operate and all the management of the hypothetical cassette tape co. probably knows (or has been outright told) that they will make a sweet pot of cash on the deal if they go along with the sale, and thus are given incentive to make the deal sound appealing to shareholders. Shareholders are likewise given incentive to sell out because they are offered a generous premium on shares they know are going to lose value once CDs become the popular music medium.

Now comes the self interest of the PE firm. They know that hypothetical cassette co. has no choice in the matter. They can't retool for under 50 million and they are sunk if they don't retool. If the PE firm is ethical and acts in the best interests of hypothetical cassette co. then they get the needed money. The PE firm *only* collects a nominal fee, shifts *only* the debt burden of retooling onto the company, and both thrive as a result. People keep their jobs, the company survives until mp3s are invented, and everybody is happy. Money is made for the PE firm through growth in the company they've invested in - HOW IT SHOULD BE-

If the PE firm is unethical and concerned only with making a quick buck, then they put in place a management team of well-paid yes-men. They charge exorbitant fees, shift excessive debt load to the company, exploit every loophole possible to pay themselves bonuses and dividends out of that debt pool, and wait for hypothetical cassette co. to fail. The PE firm doesn't make as much total cash as the "growth" model above but they make it very quickly before anybody has a chance to react. The biggest difference is that instead of *creating* wealth that didn't exist before, the PE firm has *stolen* wealth from the bank through a complex money-laundering scheme.

I hope that explains it and that I didn't make any egregious errors. It's definitely simplified, but that's how I understand it all.

You understand it just fine.

[worry]

http://thinkprogress...icans-presence/

I know, "it's the economy, stupid", but let's not forget the numerous (countless?) non-economic ways these folks would Dementor-ize the country.

[Malaclypse]

Bible-banging crazyland! Sooo glad to have an ocean between me and you! *whisper* GET OUT* Good luck!

[Terez]

cerveza_fiesta, on 30 August 2012 - 07:06 PM, said:

Terez, on 30 August 2012 - 03:02 PM, said:

In that case, there was a very odd slant in the article, don't you think? It's less vulture capitalists Bain preying on poor unsuspecting companies and more Bain + management/major shareholders being partners in crime. And also, if the excuse is that thin, how could anyone possibly fall for it? Private equity is always presented as an option for troubled companies who want to turn around the business. But it's more like taking a risk-free bet on whether the company can survive all that debt on top of their previous problems. If the company busts, everyone in on the deal wins because they got their money out before they killed the business; if the company recovers, they win even more because there are continuing returns. Also, who gets the money from the sale of the business? Who all has to consent? Just management? Major shareholders? Board of Directors?

A private equity firm would not have to convince everybody that it's a good idea. There is also a big distinction between shareholder, board member and management. Management is appointed by the board to run the day-to-day business of the company. The board is voted in by the shareholders to guide the corporation in broad strokes. Large shareholders often are members of the board or management, or both. Any shareholder (or group of shareholders) that owns more than 50% of shares can vote in whoever the hell they want to the board, including themselves. So really, all a PE firm needs to do is convince more than 1/2 of the shareholders that the whole deal is a good idea and they get control over the company - which by extension means control over board members and by further extension - control over management.

It would be interesting, I think, if there was some kind of law preventing 50% control of a company from ending up in the hands of anyone but the non-management and lowest levels of management combined. Does that make me a socialist?

I have only gotten to know one corporation well, the one I worked at for 14 years and was practically raised in (Waffle House), but it was private. And a smart company with a no-debt policy. Self-insured and survived Hurricane Katrina with profits despite millions of dollars in property damage along the coastline. Known in the field for impressive entry-level stock options and good insurance. When I think of 'true economic conservatism' I think of WH, but there's a bit of liberalism in the benefits package for grunts. Just a bit (and they've been slacking on it since 2008). There's definitely a streak of stereotypical corporatism in their practice of recruiting management primarily from college graduates with no experience with anything like WH and a sort of sociopathic tendency to gain as little experience as possible. It's not because the entry-level grunts are lacking in appropriate candidates, either; there are a lot of really smart people who ended up working at WH for various reasons and would like nothing more than a feasible career path. And while purchasing options are good for entry-level shareholders, the grunts are not encouraged to take an interest, and that includes lower-level management.

Upper levels make huge bonuses, and even lower-level management can grift bonuses (for themselves and for their bosses) by juggling profits. At WH it's really easy and I was able to observe it closely for many years as a relief manager working unit (bottom-level) managers' days off. I had to take over their books and do audits on the morning of the first day to check in and audits the next evening to check out, covering 2-3 managers per week. I did that for dozens of managers over the years, including district (2nd level) managers who had to work vacations, emergencies, etc. I know all about 'creative' solutions to business problems. The computer system at WH was designed in the 80s to keep track of numbers and even now the system serves that sole purpose. You can't even send an email with it unless it's to corporate office (unless you are good with computers and can get around the set-up). I was known for using my division (3rd level) managers' PINs to access upper-level numbers reports just so I could figure out the patterns; I never really got in trouble for it and I learned a lot.

I only bring it up because I think it's just an example of the larger problem that includes vulture capitalism, the way everything is designed to trickle up to what Taibbi calls the grifter class. From what I've seen, the logic often goes like this: a lot of money does not necessarily go a long way in a big business, but it goes a long way for the execs getting bonuses. Theoretically everyone prefers actually healthy profits to bonus-grifting techniques because the bonuses are larger with real profits, but achieving true healthy profits requires a lot of work, and there's a huge margin of error programmed into the bonus system that keeps the wheels greased and the business chugging along. And who pays for that margin of error? The grunts, of course...but there are grifters even among the grunts. Weeding them out is part of the real work required for real profits, and why bother when they are accounted for in the margin of error? Most people put forth just enough effort to keep making bonuses, which means not allowing theft on a grand scale basically. Since I quit I hear the unit managers only get one bonus now (which cuts down on the creative ways to get the other bonuses): the 'profit quality' bonus which is supposed to measure that hypothetical healthy profit-making method. The bonus requirement is based on the PBB or 'profit before bonus' number, the profit before any management bonuses are paid out. If your store made 100% of the target PBB, you got 100% of the bonus (which is 10% for units), and so on (but below a certain percentage you get nothing). I was only a unit manager for one quarter, but I got up to 120% PBB in one period and over 100% for the quarter, and that's far from unusual among smart managers. I've seen it as high as 140% for a quarter, and over 100% for a fiscal year. Usually when you see numbers like that there is a backlash in the next quarter, but not always.

cerveza_fiesta, on 30 August 2012 - 07:06 PM, said:

In the case of a friendly takeover, the PE firm just makes an offer which management approves, giving the PE firm controlling stake either through issuance of new shares with aggregate stake of more than 50% or sale of existing shares. At this point the PE can do whatever they want with regards to borrowing, collecting fees, or anything else needed to recoup their investment. After the deal, dissenters are simply replaced. In the case of hostile takeover, management and the board refuse to sell and the PE firm essentially convinces the shareholders to replace the board with a team that will approve the deal. This is accomplished usually with a bit of a PR campaign and by making a very generous offer on shares in the company. Hostile or friendly, the PE firm gets controlling stake and gets to do what they want with the company, its debts and and its assets. The rest flows from there. The only instance where it can't work is where you have a board member that is also a 51% shareholder and refuses to sell. The PE firm, knowing this, wouldn't bother making an offer.

This sort of reminds me of selling credit default swaps without actually having to have the capital to back them up. But really, it's worse. At least with a credit default swap you're actually legally obligated to pay for defaults if they occur; with this you get to take out a loan, pocket half the money, and stick the entire bill with a struggling business. It's insane; like I said, little in the article was actually new to me, but I think before I was convinced that I just didn't understand it properly and it couldn't possibly be as bad as it seemed. Now I'm going to have to search for WSJ-type articles defending private equity and see if anyone has any sensical arguments because when it's that insane I start worrying that maybe I'm in an echo chamber or something. I think that the distinction that maybe Taibbi could have harped on more is the distinction between 'the business' and 'the management', because one suffers the consequences and the other does not, really.

cerveza_fiesta, on 30 August 2012 - 07:06 PM, said:

The reason it all works (to answer Terez's question directly) is because of self interest. Any sophisticated PE firm probably has a reputation for the way they operate and all the management of the hypothetical cassette tape co. probably knows (or has been outright told) that they will make a sweet pot of cash on the deal if they go along with the sale, and thus are given incentive to make the deal sound appealing to shareholders. Shareholders are likewise given incentive to sell out because they are offered a generous premium on shares they know are going to lose value once CDs become the popular music medium.

Now comes the self interest of the PE firm. They know that hypothetical cassette co. has no choice in the matter. They can't retool for under 50 million and they are sunk if they don't retool. If the PE firm is ethical and acts in the best interests of hypothetical cassette co. then they get the needed money. The PE firm *only* collects a nominal fee, shifts *only* the debt burden of retooling onto the company, and both thrive as a result. People keep their jobs, the company survives until mp3s are invented, and everybody is happy. Money is made for the PE firm through growth in the company they've invested in - HOW IT SHOULD BE-

If the PE firm is unethical and concerned only with making a quick buck, then they put in place a management team of well-paid yes-men. They charge exorbitant fees, shift excessive debt load to the company, exploit every loophole possible to pay themselves bonuses and dividends out of that debt pool, and wait for hypothetical cassette co. to fail. The PE firm doesn't make as much total cash as the "growth" model above but they make it very quickly before anybody has a chance to react. The biggest difference is that instead of *creating* wealth that didn't exist before, the PE firm has *stolen* wealth from the bank through a complex money-laundering scheme.

I hope that explains it and that I didn't make any egregious errors. It's definitely simplified, but that's how I understand it all.

So (and maybe I missed this somewhere) where does Bain fall on the ethics continuum? Taibbi pointed out that they didn't really have impressive returns...does that mean that they were more ethical or less? It seems like being less ethical would make them more money. I think I need to reread the article; I'm forgetting a lot of what he said.

This post has been edited by Terez: 31 August 2012 - 07:30 AM

[cerveza_fiesta]

Terez, on 31 August 2012 - 07:26 AM, said:

It would be interesting, I think, if there was some kind of law preventing 50% control of a company from ending up in the hands of anyone but the non-management and lowest levels of management combined. Does that make me a socialist?

[deleted the bit about bonusing at waffle house]

RE your first question, that model has definitely been shown to work on a small scale. There are many examples of companies where the employees banded together and outright bought the company from the original shareholders. Often it happens when, say, a 100% stake owner of a family run business retires. Employees don't want to see corporate interests come in and ruin their good time, so they purchase and divide up the company shares between them and continue to run the company themselves. At this point the system becomes vulnerable to the typical vulnerabilities of a democracy (eg. outside money) but it has been known to work.

RE bonusing: As a corporation manager (a very small one) I'm just wading into the mire of bonusing. It's an effective tool when the corp is small to keep good employees around and to make sure that your competent managers don't flake out on you, but even with just a few employees it's extremely difficult to come up with something fair and sustainable. I can see how a corp the size of WH would have a terrible time sorting out a system that was even remotely fair. As for employee stock options, it's still regarded as a pretty "progressive" thing for a corporation to do. Normally they set aside a small pool from among the total corp shares for employees and continue to offer them to new employees until the pool is used up. I know in small corps it's a second effective tool for dedicated employees to gain more stake in the company and feel like they're part of the team...which has positive effects on productivity and all that good stuff. I mean, for my company, we've decided to allow early employees to own up to 1/4 of the total shares, which is a lot, but when you think about the career risk we're asking them to take I think it's a pretty just reward.

I've wondered about the effect of employee share ownership in larger corps where you're buying into such a miniscule piece of such a massive pie that the idea of "ownership" is kind of lost. I guess it's just an easy way to get preferred price on private stock, but when there are so many outside factors deciding how that stock does, there's no way it has the productivity benefits that the same share ownership would have in a small company.

Terez, on 31 August 2012 - 07:26 AM, said:

cerveza_fiesta, on 30 August 2012 - 07:06 PM, said:

In the case of a friendly takeover, the PE firm just makes an offer which management approves, giving the PE firm controlling stake either through issuance of new shares with aggregate stake of more than 50% or sale of existing shares. At this point the PE can do whatever they want with regards to borrowing, collecting fees, or anything else needed to recoup their investment. After the deal, dissenters are simply replaced. In the case of hostile takeover, management and the board refuse to sell and the PE firm essentially convinces the shareholders to replace the board with a team that will approve the deal. This is accomplished usually with a bit of a PR campaign and by making a very generous offer on shares in the company. Hostile or friendly, the PE firm gets controlling stake and gets to do what they want with the company, its debts and and its assets. The rest flows from there. The only instance where it can't work is where you have a board member that is also a 51% shareholder and refuses to sell. The PE firm, knowing this, wouldn't bother making an offer.

This sort of reminds me of selling credit default swaps without actually having to have the capital to back them up. But really, it's worse. At least with a credit default swap you're actually legally obligated to pay for defaults if they occur; with this you get to take out a loan, pocket half the money, and stick the entire bill with a struggling business. It's insane; like I said, little in the article was actually new to me, but I think before I was convinced that I just didn't understand it properly and it couldn't possibly be as bad as it seemed. Now I'm going to have to search for WSJ-type articles defending private equity and see if anyone has any sensical arguments because when it's that insane I start worrying that maybe I'm in an echo chamber or something. I think that the distinction that maybe Taibbi could have harped on more is the distinction between 'the business' and 'the management', because one suffers the consequences and the other does not, really.

Your assessment is exactly correct in my view. The only difference between the PE firm and the company is their borrowing power. The PE firm has access to 50 million while the company can only access 30 million. Either way the company gets saddled with it...it's what comes after that's important. How much do they charge the company in fees? How much do those fees subtract from the bottom line? How many people do you have to fire to service the debt over the payback term?

Terez, on 31 August 2012 - 07:26 AM, said:

cerveza_fiesta, on 30 August 2012 - 07:06 PM, said:

The reason it all works (to answer Terez's question directly) is because of self interest. Any sophisticated PE firm probably has a reputation for the way they operate and all the management of the hypothetical cassette tape co. probably knows (or has been outright told) that they will make a sweet pot of cash on the deal if they go along with the sale, and thus are given incentive to make the deal sound appealing to shareholders. Shareholders are likewise given incentive to sell out because they are offered a generous premium on shares they know are going to lose value once CDs become the popular music medium.

Now comes the self interest of the PE firm. They know that hypothetical cassette co. has no choice in the matter. They can't retool for under 50 million and they are sunk if they don't retool. If the PE firm is ethical and acts in the best interests of hypothetical cassette co. then they get the needed money. The PE firm *only* collects a nominal fee, shifts *only* the debt burden of retooling onto the company, and both thrive as a result. People keep their jobs, the company survives until mp3s are invented, and everybody is happy. Money is made for the PE firm through growth in the company they've invested in - HOW IT SHOULD BE-

If the PE firm is unethical and concerned only with making a quick buck, then they put in place a management team of well-paid yes-men. They charge exorbitant fees, shift excessive debt load to the company, exploit every loophole possible to pay themselves bonuses and dividends out of that debt pool, and wait for hypothetical cassette co. to fail. The PE firm doesn't make as much total cash as the "growth" model above but they make it very quickly before anybody has a chance to react. The biggest difference is that instead of *creating* wealth that didn't exist before, the PE firm has *stolen* wealth from the bank through a complex money-laundering scheme.

I hope that explains it and that I didn't make any egregious errors. It's definitely simplified, but that's how I understand it all.

So (and maybe I missed this somewhere) where does Bain fall on the ethics continuum? Taibbi pointed out that they didn't really have impressive returns...does that mean that they were more ethical or less? It seems like being less ethical would make them more money. I think I need to reread the article; I'm forgetting a lot of what he said.

Maybe ethical was the wrong word to choose. It's more about whose interest they're acting in, and from whose perspective the ethics are evaluated.

It's not necessarily a bad thing that PE would become involved and ideally the PE firm would always act in the best interest of the company after taking it over so that they can grow and make a bunch of cash over time. This also serves the the best interest of the greater economy, grunt workers, and everybody else involved. I stayed away from characterizing Bain as one or the other because they sit on both ends of that ethics spectrum. In a basic sense they have both helped to grow companies (something libs are unwilling to admit) and have acted to destroy companies (something conservatives are happy to gloss over).

If you think about business ethics spectrum from the perspective of a PE firm manager the shades of grey shift a lot. The manager of the PE firm is ethically bound to maximize profits for his own shareholders by whatever means at his disposal. Often the best way to do that is to shut down a company using the aforementioned distasteful tactics and basically operating under the "money now" > "money later" concept. It is a low risk way for the manager to fulfill his duty to the PE firm's shareholders, and he can rest easy in the knowledge that he has done nothing wrong. If the same manager judges that there are greater profits to be made in allowing the company to continue operations - enough to justify the risk - then he has again acted in a such a way that his ethical obligation is fulfilled. The only way for the manager to violate his ethics is to *not* act to maximize profits when the opportunity presents itself.

And that, I realize, is the critical difference between the Mitt Romneys and the Joe Bluecollars of the world. In Romney's view, he doesn't *need* to care whether a taken-over company succeeds or fails. He has done the ethical thing no matter what! In Joe Bluecollar's view, Romney and Bain are a giant company-devouring monster that exists to make itself richer at the expense of all else. It's inconceivable to Joe B. that Romney could show such careless disregard for the livelihood of so many hundreds of people...but its all a matter of perspective in the end.

==================

Now when it comes to which slant of media is discussing the issue, it's very easy for leftmedia to speak from Joe's perspective and demonize Romney and Bain. It's an argument that every worker in America can relate to. It's much harder for rightmedia to argue the opposite perspective because the majority of media consumers are not sophisticated investment firm executives. It almost makes me think the republican party might actually be as naive as they seem in their discussion of the issue, since the party leadership (and funding block) is made up of exactly those types of executives. With the collective republican back-patting over Romney's record at Bain, the man always seems outright baffled why any in the media (or on the left) would use that same record against him. It might not actually be a front...maybe he really doesn't get why people think it's a bad thing to gut the country's manufacturing sector for personal gain. Maybe he's so insulated from the opposite ethical perspective that he actually thinks he's doing the right thing all the time!

I dunno. The whole thing makes my head spin sometimes.

This post has been edited by cerveza_fiesta: 31 August 2012 - 11:59 AM

[Abyss]

re the RNC... Oh wtf Clint??? WTF?

Which idiot thought THAT was a good idea?

Yeah, let's ruin a film icon and remind the world that the reps are top-heavy with senile rich old white men while we're at it. GOOD PLAN.

[worry]

It was a truly jaw-dropping moment.

[Vengeance]

Abyss, on 31 August 2012 - 04:13 PM, said:

re the RNC... Oh wtf Clint??? WTF?

Which idiot thought THAT was a good idea?

Yeah, let's ruin a film icon and remind the world that the reps are top-heavy with senile rich old white men while we're at it. GOOD PLAN.

To me it just fit in with everything else that the RNC has done so far. Throw peanuts at black camera women, Boo RNC committy women from Puerto Rico, have Clint go on stage and talk nonsense at a empty chair.

See completely fits with their base. Rich old white men and Southern white KKK members.


The KKK bit is meant as a joke. I know a Majority of Republicans are not racists.

This post has been edited by Vengeance: 31 August 2012 - 04:32 PM

[Abyss]

Clint is actually fairly left leaning as southern republicans go.
It's just sad to see something that accomplished and lauded stand up and embarass themselves so badly.

[Terez]

Abyss, on 31 August 2012 - 04:13 PM, said:

re the RNC... Oh wtf Clint??? WTF?

Which idiot thought THAT was a good idea?

Yeah, let's ruin a film icon and remind the world that the reps are top-heavy with senile rich old white men while we're at it. GOOD PLAN.

1) They had to make up for the fact that his Super Bowl ads were taken as an Obama endorsement. The fact that Eastwood didn't realize it would come off that way is just hilarious, but this is the result.

2) Would you (or another mod) mind moving the Bain article posts to another thread? I think it's thread-worthy, and this thread has a verging-on-Inn-esque character that should probably be preserved for the general happiness of all.

[Abyss]

Terez, on 31 August 2012 - 05:07 PM, said:

2) Would you (or another mod) mind moving the Bain article posts to another thread? I think it's thread-worthy, and this thread has a verging-on-Inn-esque character that should probably be preserved for the general happiness of all.

which posts?

[worry]

Here's Eric Cantor's thoughtful take on the Medicare-related attacks on Obama: http://tpmdc.talking...on-medicare.php

[Terez]

Abyss, on 31 August 2012 - 05:36 PM, said:

Terez, on 31 August 2012 - 05:07 PM, said:

2) Would you (or another mod) mind moving the Bain article posts to another thread? I think it's thread-worthy, and this thread has a verging-on-Inn-esque character that should probably be preserved for the general happiness of all.

which posts?

Eh, dunno if you can do it, because two posts would have to be split. But if you can do that:

391-393
396-397 (split 397)
402-411 (split 408)
414-415

[Abyss]

I'd suggest you create a multi-quote reply with just the parts you want and then cutpaste into a new thread and post a link.
I'll clean up the old posts after if necessary.

[amphibian]

I think this thread is a sufficiently big catchall (issues relating to the US presidential election) that the Bain stuff can stay. I think just about everything has been discussed about it, so it's a dead topic.

Terez can separate out whatever she wants though. And I almost wrote "catchass" instead of catchall there...