How private equity firms make money

[dre]

Really? Provide a link, please.

Just read my post about LBOs on the previous page.

[Wilber]

So Wilber, you now blame "theft" - whether legal or not.

Again, I ask you, why would someone break up a valuable asset for parts? To compare this to real estate, why would someone buy a furnished duplex, sell the furniture/plumbing/white goods, knock down the building and then sell only the land?

Maybe because the location is more valuable than the dishwasher and the new roof.

Because they are not into running companies, they are about getting the most out of them for as little effort as possible and moving on.

Edited November 19, 2012 by Wilber

[blueblood]

Because they are not into running companies, they are about getting the most out of them for as little effort as possible and moving on.

Isn't that the name of the game? The founders and the financiers of those companies aren't going to live together. It's the end part of a business, selling out when done.

[Pliny]

Ok, glad you changed your position and agree that debt-money and fiat money are two completely different concepts.

No. They are quite similar in function and purpose. Their method of creation is the only distinction.

[Pliny]

Debt and money are different? Really? I create "money" every time I write a cheque or use my credit card. Most money in the world is created privately.

No money is created when you write a check. You either have the money on account or you don't write the check. As for your credit card, the bank actually authorizes its use and determines whether it will loan you the money.

[dre]

No. They are quite similar in function and purpose. Their method of creation is the only distinction.

So youre being intentionally and purposely obtuse then... I explained the difference pretty damn clearly.

Edited November 28, 2012 by dre

[Argus]

This is the crux of the problem in the West, imo. People rely on the social safety net (everyone, not just the poor or struggling), but they don't want to give enough money to the government to run them effectively.

Mostly, the poor rely on it, the middle class less so, the rich not at all.

The crux of the problem is that the wealthy elites have been using their money to influence government to change taxes in their favour for the past forty years, and government has been doing that. Thus the money earned by the wealthy, like Mitt Romney, and large corporations, like Google and General Electric, are subject to all sorts of tax loopholes and adjustments which alter their taxation rate. The middle class gets very little assistance in that regard. Thus the burden of taxation has fallen squarely on the middle class (the poor pay few taxes). The elites are getting richer, and the middle class is getting poorer.

[Argus]

What would you do? Tax the rich and remove entitlements?

I would start by taxing corporations properly, and that includes removing the ability of corporations to transfer money abroad to avoid taxation, or to declare their headquarters to be in a post office box in Bermuda to avoid taxation. Money earned in the country (in this case in the US) should be taxed at a reasonable rate. I would remove the special dispensations to the rich by taxing dividends and capital gains in full after income reaches a certain point (say $250K). The only 'entitlement' I would remove would be mortgage interest destructibility.

[Argus]

dre, if you thought about it for a second you would see that what you suggest is what doesn't make sense. Why would someone destroy a profitable business, basically take apart a reliable late model Mercedes Benz, sell the parts and just before the wheels fall off sell it. As if someone in the market would unwittingly buy something where the the wheels are about to fall off.

Kimmy already explained that.

[Argus]

Risk?

Wait, you go further. Like a lawyer, you consider some of the worst-case scenarios:Risk!

What a concept!

I'm not sure what you're on about here, August. Do you invest in the stock market? I do. And like most in these times, one of my primary considerations each time I think about putting money into a particular stock is the risk involved. There are no sure things on the market. What these groups have done is found a reasonably sure thing. They loot a company with the help of clever lawyers and bad law, dump it, and move on to the next one.

[cybercoma]

Mostly, the poor rely on it, the middle class less so, the rich not at all.

The crux of the problem is that the wealthy elites have been using their money to influence government to change taxes in their favour for the past forty years, and government has been doing that. Thus the money earned by the wealthy, like Mitt Romney, and large corporations, like Google and General Electric, are subject to all sorts of tax loopholes and adjustments which alter their taxation rate. The middle class gets very little assistance in that regard. Thus the burden of taxation has fallen squarely on the middle class (the poor pay few taxes). The elites are getting richer, and the middle class is getting poorer.

The elites rely on it just as much, only in a different way.

They rely on it to keep the rabble at bay. The social safety net keeps people comfortable enough that they don't get any wise ideas to vote in a socialist or worse a communist government that will take the vast majority of their wealth from them. Social welfare ensures they can do business in our society because it's healthy, educated, and orderly. They benefit greatly from social services.

[dre]

Mostly, the poor rely on it, the middle class less so, the rich not at all.

Not at all its the rich that rely on it the most. Who stands to lose the most if you allow a large and impoverished and desperate underclass to emerge? In a democracy that underclass can vote away the private property rights of the wealthy and elect governments that nationalize industries etc. We saw this in Cuba with Chavez. In other cases things can get even worse, as in the case of the French and Russian revolutions.

The REAL purpose of the social safety net is to provide political stability, and to protect private property rights, and the wealthy benefit from this the most by far.

[Pliny]

The elites rely on it just as much, only in a different way.

They rely on it to keep the rabble at bay. The social safety net keeps people comfortable enough that they don't get any wise ideas to vote in a socialist or worse a communist government that will take the vast majority of their wealth from them. Social welfare ensures they can do business in our society because it's healthy, educated, and orderly. They benefit greatly from social services.

How's that working out? The general populace would not vote in a communist government. Communists seize power through revolution. Socialists can get voted in as socialism is evolutionary in nature progressively growing the State. The rabble, as you call it, are not held at bay by the social safety net. They vote to increase it and as the social safety net expands into the middle class the vote becomes more progressive in demanding entitlements.

A democracy where the people can vote themselves entitlement, does not favour the rich in the long run.

[Pliny]

Not at all its the rich that rely on it the most. Who stands to lose the most if you allow a large and impoverished and desperate underclass to emerge? In a democracy that underclass can vote away the private property rights of the wealthy and elect governments that nationalize industries etc. We saw this in Cuba with Chavez. In other cases things can get even worse, as in the case of the French and Russian revolutions.

The REAL purpose of the social safety net is to provide political stability, and to protect private property rights, and the wealthy benefit from this the most by far.

Not at all its the rich that rely on it the most. Who stands to lose the most if you allow a large and impoverished and desperate underclass to emerge? In a democracy that underclass can vote away the private property rights of the wealthy and elect governments that nationalize industries etc. We saw this in Cuba with Chavez. In other cases things can get even worse, as in the case of the French and Russian revolutions.

The REAL purpose of the social safety net is to provide political stability, and to protect private property rights, and the wealthy benefit from this the most by far.

You mean the social safety net is not about compassion?

Your premise works only if the numbers who benefit from the social safety net do not grow as a percentage of the populace but democracy will ensure it does as the vote goes to the progressive growth of the social safety net. It's a death knell for private property rights and the rich.

[dre]

You mean the social safety net is not about compassion?

No its about political stability.

Your premise works only if the numbers who benefit from the social safety net do not grow as a percentage of the populace but democracy will ensure it does as the vote goes to the progressive growth of the social safety net. It's a death knell for private property rights and the rich.

No its the exact opposite. The private propertry rights of the wealthy are intact, and its easier than every before in history for them to keep their money, and grow it.

[dre]

How's that working out? The general populace would not vote in a communist government. Communists seize power through revolution. Socialists can get voted in as socialism is evolutionary in nature progressively growing the State. The rabble, as you call it, are not held at bay by the social safety net. They vote to increase it and as the social safety net expands into the middle class the vote becomes more progressive in demanding entitlements.

A democracy where the people can vote themselves entitlement, does not favour the rich in the long run.

That might make sense if you live in the middle of deep space. But here on earth where your assertions can be validated against reality it just comes off as silly.

[Pliny]

That might make sense if you live in the middle of deep space. But here on earth where your assertions can be validated against reality it just comes off as silly.

......As we drop off the fiscal cliff.

It looks like we live in the middle of deep space. The rich will indeed hide their assets in the safest spot. But the social safety net gradually infringes upon them as well which will require some shuffling.....if you haven't heard the rhetoric from Obama lately.....it is that the rich have to pay their fair share and I believe he thinks he has a mandate to do just that....even though 47% of the working population is not paying any federal income tax. I guess a fair share is 100% of the taxes paid by the 1%.

We do, as you say, "have a democracy that the underclass can vote away private property rights and elect governments that nationalize industries"...Chavez is only a few steps ahead of Obama but in Obama's third term he will have caught up to Chavez.

[kimmy]

......As we drop off the fiscal cliff.

It looks like we live in the middle of deep space. The rich will indeed hide their assets in the safest spot. But the social safety net gradually infringes upon them as well which will require some shuffling.....if you haven't heard the rhetoric from Obama lately.....it is that the rich have to pay their fair share and I believe he thinks he has a mandate to do just that....even though 47% of the working population is not paying any federal income tax. I guess a fair share is 100% of the taxes paid by the 1%.

That is not "47% of the working population". It's 47% of "tax units." As shown on this chart under the heading Tax units with zero or negative income tax.

That includes low income workers, but it also includes seniors and students and the unemployed. Interestingly, contrary to the hype coming from the right wing, that number is *decreasing*. 46.4% in 2011 was down from 49.5% in 2010 which was down from 50.8% in 2009 which was unchanged from the all-time high of 50.8% which was established in 2008 while George Walker Bush was still president.

So hopefully that brings some perspective to this notion that "Obama wants to grow the number of takers and reduce the number of makers!"

We do, as you say, "have a democracy that the underclass can vote away private property rights and elect governments that nationalize industries"...Chavez is only a few steps ahead of Obama but in Obama's third term he will have caught up to Chavez.

Mindless partisan hype.

-k

[dre]

But the social safety net gradually infringes upon them as well which will require some shuffling

No it doesnt. They have the lowest tax rates on both earned and investment income in modern history. Most of them taxed at a lower rate than their employees and servants.

You are completely failing to see the economic trend in society over the last few decades. Things have swung in favor of the rich not against them.

[cybercoma]

Pliny, you live in a fantasy world. In Canada we protect private property rights. A social safety net is not "voting away private property rights." It's protecting your private property by ensuring there isn't rampant poverty, which really would cause people to vote in a government that would actually take away your property rights.

[blueblood]

Pliny, you live in a fantasy world. In Canada we protect private property rights. A social safety net is not "voting away private property rights." It's protecting your private property by ensuring there isn't rampant poverty, which really would cause people to vote in a government that would actually take away your property rights.

Yet property rights aren't in the constitution...

The best way to prevent poverty is providing a strong economy and encouraging business growth. Going after rich people doesn't do that.

How big does this net have to be?

[dre]

Yet property rights aren't in the constitution...

The best way to prevent poverty is providing a strong economy and encouraging business growth. Going after rich people doesn't do that.

How big does this net have to be?

No the best way to prevent poverty ever discovered so far is whats practiced in western social democracies, which is basically a hybrid of capitalism and social programs.

[cybercoma]

Yet property rights aren't in the constitution...

The best way to prevent poverty is providing a strong economy and encouraging business growth. Going after rich people doesn't do that.

How big does this net have to be?

We have a fundamentally different view of what encourages business growth. I say it's demand. You seem to believe they'll provide the supply, if given enough tax-breaks and incentives, even if we make it more difficult on those that would provide the demand. I completely disagree with that view. I believe that if businesses and the top earners paid a small bit more, but relief was given to the middle-class that generates the most demand for goods and services, business and the economy will grow. In other words, you don't create a greater supply ahead of the demand that doesn't make any economic sense. Business is only grown after the demand increases. You can't encourage business to grow in order to stimulate demand.

Edited December 2, 2012 by cybercoma

[Wilber]

Isn't that the name of the game? The founders and the financiers of those companies aren't going to live together. It's the end part of a business, selling out when done.

It's the name of their game. Thing is, often it doesn't need to mean the end of a business but running a business takes work and the kind of talent these people don't have. Their talent is dismantling, not building or maintaining.

[Bonam]

We have a fundamentally different view of what encourages business growth. I say it's demand. You seem to believe they'll provide the supply, if given enough tax-breaks and incentives, even if we make it more difficult on those that would provide the demand. I completely disagree with that view. I believe that if businesses and the top earners paid a small bit more, but relief was given to the middle-class that generates the most demand for goods and services, business and the economy will grow. In other words, you don't create a greater supply ahead of the demand that doesn't make any economic sense. Business is only grown after the demand increases. You can't encourage business to grow in order to stimulate demand.

This is true, but assumes that demand originates from middle-class consumers that are affected by your policies. In fact, demand can also come from many other sources: consumers in other nations outside the reach of your policies, government programs and projects, the upper and lower classes, universities and other research institutions, and of course other corporations who have various motives that include but are not limited to satisfying consumer demand.

Edited December 3, 2012 by Bonam