I was a lowly database admin and occassional coder for Neiman Marcus starting in 2006. At that time an "agent" of a buyout firm based in India got on the board and persuaded the 100++ year old company to sell itself to the Indians.
They replaced all us IT people with unskilled contract workers from India, paid us off, sold off all the properties and absolutely ruined the business Stanley Marcus et al built. Neiman's did a bankruptcy awhile back and I heard the gangsters are trying another IPO.
Sad that such a great service company as Neiman's was ruined by the passionate greed of others.
I worked for Sears in the 80’s and 90’s when they owned Dean Witter, Coldwell Banker, Allstate, Discover Card, Budget and a host of other real estate ventures like The Sears Tower and malls coast to coast. It didn’t take long after spinning off all those entities to find Sears being bought by Kmart and being disappeared.
Of course getting rid of catalog operations when the internet was just starting out-they were invested in Prodigy- was another strategic blunder.
Wow what a reminder and insight- I loved the Sears catalog as a kid. It seemingly had everything...like Amazon before Amazon. If they transitioned the catalog to online (and started selling books too, remember Amazon was books in the beginning) they probably could have competed if not beat them. Wild. I miss Sears. I miss K-Mart too.
"they probably could have competed if not beat them".
Nah. "Online" is more than just a different way to sell. It takes a new supply and distribution chain. It requires agility. And smarts. Sears lacked all of that. It was a buggy whip manufacturer; built for a different time.
Sears board should have seen the world changing, realized they were old world, dividended its profits instead of buying new companies (which obviously they - the board and management - were incapable of running). The world would have been a lot better. But the notion that managers think they are smarter than they really are is wide spread. It is the Dunning-Krueger effect poster child for management/
Yeah, I guess my point was if they didn't do what they did, they were otherwise positioned to take it to the next level at that point in history if they had the imagination and guts. But they were becoming stodgier by the day at that point. If those guys were in charge of Netflix they would have found themselves on a sinking ship overloaded with shiny plastic disks!
What doomed Sears was lousy management, pure and simple. With their dominant Sears catalogue business, Sears was the original “Amazon”. Instead they tries “one stop shopping”, where you could run your entire life at a Sears store. I was at Dean Witter then, and we called it “stocks and socks”. All those companies you mentioned went on to thrive, while Sears market share was replaced by the likes of Wal Mart and Target.
Eric Weinstein posits that science in American universities is being held hostage and H-1B importation of foreign nationals is destroying job opportunities and careers for American born workers.
The thing about the H1B, is you could have young educated Indian people working for high tech firms in America, or starting up high tech firms in India, and competing against American firms.
The latter is worse and here's why: there is a well documented pattern of Indian people getting into management in an American company, and replacing the entire workforce with H1B visa holders through H1B farms, which serve to lower wages. Often, they will even hire Indians specifically from their home state in India. In the short term, the company's profits increase, but in the long term, quality suffers as we import low paid foreign workers of questionable merit.
It's also well documented that these H1B farms are filling entry level positions, robbing our own college graduates.
If an Indian company can compete with Americans, good for them. Their government is extremely corrupt, so success is unlikely, though. Corrupt governments make so many regulations the only way to survive is to pay off an endless list of administrators. This keeps the biggest whales afloat while everyone else gets the crumbs.
If you have a degree, but have no job experience, you will start in an entry level position.
H1B are supposed to be for STEM fields, which typically require a degree that confers the specific skills required by the job.
Jobs that simply require any degree may not truly require one. The degree may imply more rigorous language skills, although it does not guarantee it nor does the lack of a degree preclude it.
I agree Brent. I never set any comparisons to any other country.
However, DOGE is showing us a shocking amount of corruption and collusion between federal agencies, media and NGOs/donors. And citizens as well, who have a hand in getting monies our of taxpayers.
If we cannot put a stop to the hysteria and lies about what is happening in agencies where DOGE is finding malfeasance violence will only escalate.
For example, no one is taking your Social Security payments. In fact, they are finding many fictional accounts, stolen numbers, misused numbers which in fact COULD adversely affect your SS payments. They are working within agencies, with employees to find the issues and fix them.
It's a matter of degree. Countries that still have extreme poverty are obviously the most corrupt. India made improvements in reducing bureacracy from its decolonization days, but it is still miles away from the USA. We do have too much regulation though, which serves the dominance of the biggest corporations, at least in some industries.
Regulation leads to monopolies. Once a monopoly is captured, partial deregulation can be a way to increase profits for the monopoly, of course.
"Indian scum IT workers are incompetent, bring caste prejudice, and only hire Indians. "
Much truth to this. There are lots of great, even brilliant minds in India. There are, like most places, a lot of dregs there. But they are cheap. That is Indian IT talent. Tata services is one such place. Where I once worked, the "IT" functions were outsourced to Tats folks in India. incompetence was wide spread. Kinda like Indian call centers. Worthless.
I had no idea an Indian company bought NM. I grew up in the Dallas area and remember going to the NM store in downtown Dallas with my best friend and her mother. It was too expensive for me to buy anything! What a store. So sad it's ruined.
It is great to see RACKET/Taibbi spotlighting rigged game finance. Taibbi was the first to explain the grift and expose the perps behind the '08 crash. $$$$$ and criminal finance should be the target of every subscription journalist in America for the next four years. Those interested might find the Matt Stoller/BIG substack enlightening. Its series on the "roll up" of the egg industry will leave you a little scrambled. ;)
I wasn,t aware of having voiced an opinion. I was asking you to explain your comment because I didn't understand it. You are under no obligation to explain, so why the rudeness?
Yes, I very well understand the process, but your point wasn't clear, and still isn't quite. I think you are saying that owners are greedy crooks at heart for selling to the highest bidder. I,d argue that the bottom line is the essence of capitalism. Whether capitalism is inherently immoral is another argument entirely.
Whatever happened to the Edward Lewises (see Richard Gere's character in 'Pretty Woman') in industry??? Yes, I know it's just a movie but in the end he did the right thing.' So there's that.
"The right thing", by definition, in capitalism is to increase shareholder value: whatever it takes to do that within however money can warp the field of "legality".
This kind of action goes on in government contracting too. PE firms buy small lean companies that have just landed their first *big* contract, suck off the overhead, demoralize the staff, and then either sell the remains to a much bigger government contractor or just throw the body off the back of the train when the contract ends and the company is too gutted to successfully rebid. The difference being that it's taxpayer dollars that are being hoovered up by these soulless vultures.
(I've worked on the same contract for 15 years, for a succession of six companies that have played this game to perfection.)
Money and grift are an important conversation. But the demoralization of staff and workforce and the impact of criminal finance on families and society as a whole is another conversation We the People need to have. Personal experience has led me to believe that trickle down profit first corporate finance and policy is responsible for the drop in professional courtesy and the general lack of civility in American daily life. The least investment in human potential possible, the creation of uneducated disposable labor and access to natural resources for exploitation and profit without oversight or consequence. Unchecked avaricious greed causes human damage. The walking wounded are everywhere.
Owners get to decide how much and when they get paid. If they ruin the asset then their bad and their loss. Such is capitalism. This artcle has the air of Chicken Little claiming the sky is falling in some twisted morality play. Not your best work
This is exactly the kind of reporting We the People need and $$$$$ as a topic should dominate the American national conversation for the next four years. The 750,000 drug addled homeless, the million dollar classroom that can't teach a child to read, the six decade war on the American middle class and our gutted industrial cities should be our up front concern.
Exactly - and I fail to see how the quantity of childish bickering i see on this particular site furthers anything. Comedy gets a pass though. Some of the repartee is hilarious - and probably best avoided by those not good at it.
I’m not sympathetic to Dividend Recap either, but I’m not sure what the solution is. Many Fortune 500 companies pay dividends they don’t earn with profits. Do you ban that practice? What I think you neglected to mention is that if the underlying business is healthy, a new owner will step in after a bankruptcy filing. The only losers will be the prior owners, who lose their equity investment, and the lenders who rolled the dice on a risky loan. Noisy, yes, but that’s how a marketplace works.
Agree. Dividend recap is outright fraud on the other shareholders and employees of the company. Solution: Why not make it illegal? One might retort that it's a private agreement between consenting adults, so it cannot be made illegal. Answer: Make it illegal only for public listed companies. Then it's not a private agreement, since it affects parties who may / may not know about the agreement and may not have a say in it's approval.
Yeah. Outright, blatant fraud. But my student "loans" are a fraud too. It's another securities fraud yet to bubble to the surface. I won't go into detail, but my $70k in loans went active in 2015. I have never paid one single penny on those loans, and I never will. All parties involved knows that. Yet, I've been a stellar loanholder for over 10 years. The bullshit loans actually HELP my credit score!
I’ve seen it work great, over a long period of time (15 years) to fund the growth of an excellent private company. Investors that want to exit get liquidity. New investors can invest @ set the closing price, existing investors can roll over and best of all, management can make a bundle in a tax efficient manner. Pigs get fat, hogs get slaughtered.
That is fine if it is a) a private company and b) the investors take the special dividend and exit the company. The examples given in the article imply that the original PE investors take the dividend AND remain as shareholders to enjoy the upside if the company survives and makes big profits. That's robbing the company twice over!
Maybe they should have “gone to jail”, but on what charge? Wall Street was following the rules laid down by the Federal Government, starting with the end of Glass Steagall as someone mentioned nearby. When confronted with Fannie and Freddie’s risky loan portfolio, House Finance Chair Barney Frank dismissed the warnings saying, “let’s roll the dice”. They collapsed soon thereafter. The FDIC ordered a loosening of bank underwriting standards which resulted in “liar loans” and created junk loans and a housing bubble. The SEC looked the other way as Wall Street firms were allowed to bundle these loans into atomized tranches. Rating agencies authorized by the government gave this crap AAA ratings, while smaller underwriters who warned of the risks were not authorized by the Feds and therefore not allowed to be considered in any official capacity.
We all experienced the pain that resulted from these policies, but many of you think it was Wall Street’s doing. The real villain in this story is your government and their inept policy decisions. Yes, Wall Street and the banks got greedy (and provided campaign funds to elected officials to keep the charade going), but it was government policies that created and enabled this mess. That’s the reason Wall Street types aren’t in jail. Your elected officials from that era are all comfortably retired and living off their taxpayer funded pensions.
I don’t know, if the DOJ had sharpened their prosecutor pencils with the 2008 finance sector parasites with just a fraction of the diligence they pursued the J6th protesters there would have been a boatload of tycoons in prison.
You sound like Obama who had to twist himself into a pretzel to let these scofflaws off and keep his campaign contributions intact. "Unwise. Unethical. But not illegal." Give me a break.
Every CDO prospectus issued from 2004 to 2007 was a complete fabrication and the people who wrote them knew it. Every trading floor was taking fees for selling assets to their own clients that breached fiduciary duty laws, for they had no idea what they were selling. In fact, some trading floors were shorting the long positions they were selling to their clients. Securities fraud anyone? Accounting fraud?
I won't argue with you about the role of the government played because you're 100% right. But a broker selling a security to his client, telling the client it has a AAA Moody's rating, when knowing full-well that's a complete crock because no one could possible understand how that security would behave given changing market conditions is fraud in black-and-white.
Finally, if no laws were broken, what was the premise for the $50 billion in fines levied against the banks? Fines, by the way, which should have been much, much higher, along with prison sentences for the perps.
I read those CDO prospectuses for a living, ones the SEC had to bless by the way. But investors didn’t, and few brokers - who are really just salespeople, did either. Pro Tip: if there’s a prospectus involved, be very careful.
As for firms telling their clients to buy what they were telling others to sell and vice versa, I agree that stinks. It never favored retail investors. Goldman got popped for that, and I think it was probably endemic to the industry. But regulating this is tricky. What might not be suitable for a conservative investor may be appropriate for a speculator. These firms took advantage of the fact that people buy and sell the same securities for different reasons.
Congress has been trading legally on insider information for a long time. But most people don’t know it and they have no incentive to draw attention to one of their own perks. This includes not only securities but land use decisions.
As for brokers, I think you overestimate their intelligence and certainly their motivations. The riskier the product, the higher the commission. Of my 24 weeks of brokerage training, it was almost all sales techniques, very little about economics and markets. Pro Tip #2 - stockbrokers are NOT fiduciaries. Legally, they represent the interests of their firm, not their clients. The government is fine with this. RIA’s ARE fiduciaries.
The rating agencies are paid by the firms they give ratings to. Slight conflict of interest! But an inopportune downgrade could bring a call - not from the company, but from the government. It’s a government regulated oligopoly.
The fines are just shakedowns so the public feels something is being done, and to deflect attention from the government’s role. Companies pay because it’s cheaper than fighting Uncle Sam. This happens all the time in many industries. Hank Greenberg fought back with AIG. The fight pretty much destroyed him and his company. Oh, he won, but the damage was done. Big companies notice such things.
You seem to want to pretend that "government" and "government officials" are somehow operating in isolation from the system that rewarded Wall Street for fucking over a vast number of people in a manner that looks to someone not into the nitty-gritty of legalese and "regulation" like deliberate fraud.
The notion of "of the people, by the people, for the people" applying to American state and government realities is a farce.
First they work for Wall St on Wall St. Then they go work for Wall St in Washington. Then they go back to work for Wall St on Wall St.
It was a set up of sorts. Look up Frontline "The Warning". Brookesly Born was sent by President Clinton to investigate what was going on in the banking sector. The documentary "reveals an intense battle among high-ranking members of the Clinton administration, and uncovers a concerted effort not to regulate the emerging, highly complex, and lucrative derivatives markets, which would become the ticking time-bomb within the American economy."
This shit happens every ten years or so. The banking cartels and their mafia and CIA pals rip off the citizens of this country to the tune of trillions of dollars. Read the book "Inside job" by Fricker and Pizzao about the S&L scandal, or read about BCCI. I suspect another big banking collapse within five years so they can further consolidate and merge into what they really want. One.
One bank for each hemisphere tied to other hemisphere banks through interlocking corporate directorships.
You are correct Sir. The real "moral hazard' is the failure of We the People to hold the shit-heels accountable. But that's changing. Subscription journalism and the creation of a truth/fact based American national conversation can begin to restore the healthy human reality our Republic deserves, and must demand. The rigged game rationalization of avaricious greed while ignoring the human damage it does is evil.
Probably still a very low percentage. But its growing credibility is forcing its appearance in more traditional media. Since a lot of people don't have discretionary funds to subscribe to such outlets, I wonder where they'll go for news and what that will look like.
I,m afraid at best it will look like AI, a more "respectable" version of political truth than social media, God save us. Kids are offered a steady diet of YAF and graphic novels. Very few read selectively, if they read at all. Our public schools are graduating functional illiterates.
The bailouts were a regulatory failure. Banks intentionally obscured the loans in securities. The lack of transparency violated investor protection and those bankers should have lost their licenses, barred for life, rather than received a bailout. Total regulatory capture.
Right, but because Clinton worked with conservatives to strike down Glass-Stegall, the investment and commercial banks were allowed to merge and gamble with consumers money.
The banks should not have been bailed out; they should have been nationalized, and then bailed out.
And the villains should have gone to jail.
Instead they used public bailout finds to gobble up even more assets.
Billy C. yes. But We the People should consciously recognize that the perps are a cartel operating from an international position. The DNC/Harris front fully intended the implementation of the EU/WEF/CCP Davos led repression of civil liberties now incarcerating the free citizens of Europe. Trump is reprieve not salvation. There is the American Republic, the Constitution and the free citizen. Everything else is just passing through.
I agree to disagree. Buybacks are arbitrary and elastic reductions in shares outstanding, not a material improvement in a business' fundamentals.
And re: Kurt- Do buybacks -actually- improve earnings per share? How could they? The shares still exist, but now the company owns them. How is that is that a permanent reduction in equity? It's more accurate to say, "EPS That the [Public Company] Doesn't Own", not "EPS".
Add to that that the company can just sell shares back when the price is artificially inflated by buybacks, creating more incentive for gamesmanship. Buybacks are a crutch that large corporations use to reward their largest shareholders financially instead of improving the operations of the business. My gut is that the buyback capital would go 100x further if it was diverted to operational improvement capex.
It is a debate of long standing indeed with both sides correct.
I’ll even throw in another point - many companies will commence with buybacks but instead of decreasing float, they issue the shares right back as stock options for their executives.
Earnings per share is calculated off of outstanding shares. If a company buys back shares, they are no longer outstanding. The answer is yes, buybacks do have an effect on EPS.
Capitalism has been good to me, but I very well understand that it can glorify and reward the selfish worst of human nature. That's the swamp, the murk that hides the life beneath.
The tendency of liberals to deny the reality of capitalism while always championing it "in theory" would be hilarious if it weren't fucking things up so badly.
Borrowing to pay a dividend is usually not a good sign. The classic instance of that was the Penn Central Railroad, whose bankruptcy kicked off the Rust Belt era in 1970 and marked off the starting point of the process that ultimately led to everything we’re now dealing with economically and politically.
Even with financial shenanigans like dividend recaps, PE equity investments still underperform the general market, i.e., the S&P 500, and they’re riskier. But while PE is a poor investment, it’s a great business.
Why is that? It’s because, like hedge funds, PE firms charge their investors 2 and 20, i.e., a 2% annual management fee and 20% of the upside. The PE firm puts only 1-5% of its own money in any deal. The rest comes from LP investors like pension funds, and debt.
The PE firms then roll the dice by levering up as much as they can, knowing they’ll get 20% of the leverage-juiced upside, and worst case if there’s no upside, they still get their 2% fee from the LP investors.
Your assessment of PE equity investments as underperforming the S&P is not the experience of high net worth investors. High net worth investors invest in bonds, stocks and private equity and do so over long periods of time. The returns on bonds have been low when holding them for yield for quite some time now, in the neighborhood of 5% currently; stocks (like the S&P benchmark) about 8% (total return) but returns on PE investments are in the teens (even after the "2 and 20" charge). There are simply no high net worth investors who would accept investing in PE deals that charged "2 and 20" which performed worse than stock market benchmarks over time. PE investments are riskier, but the returns are higher, which is why high net worth investors buy them.
As of 12/31/2023, the Cambridge Associates US Private Equity Index outperformed the S&P 500 by 4.5% on an annualized basis for the past 25 years. You are right and I was wrong. Thank you for correcting me.
While the merits of the transaction can be debated, please do your homework on Clarios and their business. They are not an EV battery company but a producer of all manner of batteries with the largest portion being lead acid batteries found in most vehicles. Their market share is strong and they are likely the largest and most profitable company in their space. I hope you also noted that they announced $6 billion in manufacturing initiatives in the U.S. which implies that the added debt has not hampered their investment strategy in growth. I'm not an employee or investor in the Company but I have respect for the transformation Brookfield and management have made since buying the company from Johnson Controls. Again, debate the merits of a dividend recap all day but I doubt Clarios will be the poster child for when it goes wrong. They are a strong company with a bright future.
I agree that Brookfield is a well run company but adding relatively expensive debt for the purpose of getting investment plus return back because the IPO route is closed reduces their cushion against either underlying rates (SOFR) heading higher and/or a slow down in business or worse.
Not questioning the debate but what I don't see in this discussion is what Brookfield should have done. I'm not an expert in this area so tell me what other options they had.
As a nincompoop on the subject, let me summarize as I see it. Brookfield took the opportunity found in a quality company, Clarios, with good credit to suck their equity out in the form of pretty massive borrowing so that their payout at debt repayment would be outlandishly (wasn't it 1.5x?) disproportionate to their investment. Do I have that right? And those were the terms of the loan that the company willingly agreed to? Did someone have a gun to their head or were they bigger nincompoops than I am?
I'm sure the higher-up decision-makers at Clarios got their assurances they'd get theirs. It's all the lower-downs (and society at large) that will take the hit.
Apropos of nothing in the article, but this is probably the best opportunity I'll ever have in my life to trot out the observation that for *decades* my go-to line to describe myself stumbling when trying to explain some complicated topic to a lay audience is "I sounded like my grandmother trying to explain the plot of "The Sting."
Totally missing from the context is that no one is asking why interest rates are so high. Corporations got addicted to free money when rates were super low. Corporations have to constantly borrow money mostly in the form of corporate bonds. For those unable to shift in a destabilizing economy they will meet their end. Notice a growing number of bankruptcies as this will continue. Consumers are tightening their belts. Credit card debt in the U.S. is now $1 trillion dollars, the highest it has ever been.
What we are seeing with inflation and higher rates is a result of the financial profligacy of the Biden administration that is now hitting us hard. What we are discovering with DOGE is so incredible. Our government steals our money to launder it and give it to countries that hate us and political cohorts in NGOs.
Private equity exists to buy companies that need fixing, lower the debt and then sell a more efficient company when their investment pays off. This economy makes it that much more difficult to do this with higher rates. Unfortunately companies get rewarded for high debt as it protects companies from hostile takeovers because the additional debt would kill the company. Just blaming PE firms alone is like blaming firemen for the fires they put out. That is not the whole picture.
Rates are where they are to reduce inflation, which has been done very nicely indeed.
One could argue that they should have raised rates the same second that Pelosi’s instant inflation bill was presented to the Federal Reserve in the form of an order.
Rates seem high only to the young or those who weren’t paying attention because they ran 5%-8% for many decades, i.e., we are still a point or two below average.
Yes they are low I remember the Carter years where they were double digit. The problem again is that capital was very cheap and it is now multiples of what it was and the economy has had trouble adjusting yes it helps inflation but it also hurts borrowers including corporate ones.
Not just the Carter years. In the 80s and 90s mtg interest rates hovered at 9%-9.5% and my Orlando home's appreciation at 0%. With wages generally much lower then how did we manage to afford and survive such high rates? There's something inherently wrong with the current picture. Why are people screaming in panic over 6.5% (and I just saw today's 30-yr rate is 4.31%!) with generally lots higher incomes? Somebody explain this. Ah. Maybe (no, not maybe) it's the principal that's killing them, ie, the massive appreciation in home prices over the last 25 years which I'm assuming is due to govt spending (printing money incessantly), regulations and the corruption that is built into the system. How the times have changed! It would not be a bad thing to be able to turn the clock back to a less corrupt time.
Yeah carter reagan bush clinton bush and actually long long before that era.
For the best economy I’d like interest rates to stay around 5% - 6% however I understand trump’s point of view vis a vis rates and tariffs and if he can get tariffs up and running we’ll see the greatest boom in the history of the world
More like what we are seeing is that wages were growing too quickly, and because I've of the trains that Fed exists is to guarantee enough unemployed people to make the working class desperate enough to accept low wages.
Homelessness. Human damage. Illiteracy. "Feral city" chaos, criminality and poverty. NGO forced mass illegal migration. The open war on American culture and civilization. The rewriting of history and the destruction of national myth and unity. Revolving door corporate/political graft swallowing billions in tax treasure. A surveillance bureaucracy in league with a cartel of international criminal financiers fronted by an MSM psyop willing to rationalize any atrocity in the name of profit.
This is a new age. The perps know it and it's time We the People accept it. "Ism's" are dead. Communism and Capitalism died because the Communist and Capitalists killed them. Separating ourselves from the LIE and beginning the recovery of our lives and destiny, seeing ourselves in the true light of human dignity, recapturing the human potential our founding fathers recognized and worked to enshrine in our Constitution is the way forward. Trump is reprieve not salvation. Let the usurpers fall where they may.
This is as designed by a labyrinth of regulation and intervention that benefits the blob that was neither "corporate captured" (at no point in our history has state intervention closed the economic inequality) or "corrupted" (both terms imply that state intervention represents the populace)
I think you may be making a valid point but your use of the word "neither" has driven my brain off a cliff. It seems to me that the blob has been BOTH corporate captured AND corrupted and that the "labyrinth of regulation and intervention" is completely Machiavellian in nature and only represents the populace in their gaslighting dreams. I get the point about the regulation and intervention leading to corporate capture and corruption. Perhaps (nay, definitely) excising those from the system would go a long way to eliminating the motivations for the deliterious business practices in this story.
I don't believe that any state has ever been a benevolent actor so the terms used "corporate capture", and "corruption" are inherently a diversion, and provably untrue.
Point to a time when either term DIDN'T apply in any society, and I might reconsider. If any state intervention has had a positive outcome for those they "represent" in the wider population outside of the cathedral (blob, deep state, 1%, etc.) it is incidental, and never the actual motivation for it.
Right, the original scheme was based on the time-lag of the radio announcer of the race, which was well-known, but the scammers faked the radio announcer of the race. So, a scam of a scam.
I would just like to observe that the financial tool of securitization, like most tools, is not a bad thing in and of itself. Investing in a pool of loans carries less risk than a single loan - like a stock index fund VS a single company stock. That attracts more money from a wider range of investors and thus provides more funding for the underlying asset class - mortgages, auto loans, corporate loans, etc. Of course there have been many abuses and failures where loan standards become too lax or companies are over-leveraged. But Clos and other forms of securitization are not in and of themselves bad things.
Thanks for this Eric. I experienced my first dividend recap in the very early part of the 2000's as an operator of a small business owned by private equity. This is one of the many "financial innovations" of private equity which is focused on enriching its partners and shareholders rather than taking care of the business. Lax federal monetary policy (lots of money being pumped into the financial ecosystem), abnormally low interest rates (until recently) and a cultural focus on "getting rich--quick" laid the foundation for where we are today.
My interest was always on operating the business, growing it by serving customers well and assuring its fiscal health. For almost two decades I watched the leverage applied to the business go up from 3x to 6x and ultimately beyond. I did what I had to in order for the business to be solvent but make no mistake more leverage translates into thinner margins of error should you face troubles from the general economy or in your specific market. Simply, the probability of insolvency, bankruptcy, goes up as your leverage does. For me, I ultimately had to get off this hamster wheel.
We are at the end of this period of financial excess. Many firms are leveraged up the wazoo with high probability of bankruptcy. Many can survive this and move on operationally but lets hope the Fed does not bail out the banks and financial firms that do ultimately get into trouble as a result. Been there did that in the 2008-2009 period and it just stoked the appetite for risk of the financial industry as a whole and more bad behavior from the Federal Reserve.
I was a lowly database admin and occassional coder for Neiman Marcus starting in 2006. At that time an "agent" of a buyout firm based in India got on the board and persuaded the 100++ year old company to sell itself to the Indians.
They replaced all us IT people with unskilled contract workers from India, paid us off, sold off all the properties and absolutely ruined the business Stanley Marcus et al built. Neiman's did a bankruptcy awhile back and I heard the gangsters are trying another IPO.
Sad that such a great service company as Neiman's was ruined by the passionate greed of others.
This needs more attention, your story/stories of a good company corrupted by Wall Street IS The Story!!! Thanks for sharing!
The NYT (yeah, I know…) did a great article on this topic in 2009 regarding Simmons mattress. It was broader but touched on similar issues.
I worked for Sears in the 80’s and 90’s when they owned Dean Witter, Coldwell Banker, Allstate, Discover Card, Budget and a host of other real estate ventures like The Sears Tower and malls coast to coast. It didn’t take long after spinning off all those entities to find Sears being bought by Kmart and being disappeared.
Of course getting rid of catalog operations when the internet was just starting out-they were invested in Prodigy- was another strategic blunder.
Wow what a reminder and insight- I loved the Sears catalog as a kid. It seemingly had everything...like Amazon before Amazon. If they transitioned the catalog to online (and started selling books too, remember Amazon was books in the beginning) they probably could have competed if not beat them. Wild. I miss Sears. I miss K-Mart too.
"they probably could have competed if not beat them".
Nah. "Online" is more than just a different way to sell. It takes a new supply and distribution chain. It requires agility. And smarts. Sears lacked all of that. It was a buggy whip manufacturer; built for a different time.
Sears board should have seen the world changing, realized they were old world, dividended its profits instead of buying new companies (which obviously they - the board and management - were incapable of running). The world would have been a lot better. But the notion that managers think they are smarter than they really are is wide spread. It is the Dunning-Krueger effect poster child for management/
Yeah, I guess my point was if they didn't do what they did, they were otherwise positioned to take it to the next level at that point in history if they had the imagination and guts. But they were becoming stodgier by the day at that point. If those guys were in charge of Netflix they would have found themselves on a sinking ship overloaded with shiny plastic disks!
Actually, I think your last sentence describes Blockbuster perfectly.
My mom made my brother and I wear Toughskins pants for a few years in grade school. So I don't miss Sears.
Missing K-Mart is interesting.
What doomed Sears was lousy management, pure and simple. With their dominant Sears catalogue business, Sears was the original “Amazon”. Instead they tries “one stop shopping”, where you could run your entire life at a Sears store. I was at Dean Witter then, and we called it “stocks and socks”. All those companies you mentioned went on to thrive, while Sears market share was replaced by the likes of Wal Mart and Target.
Indian scum IT workers are incompetent, bring caste prejudice, and only hire Indians. The H-1B must be abolished.
Eric Weinstein posits that science in American universities is being held hostage and H-1B importation of foreign nationals is destroying job opportunities and careers for American born workers.
The thing about the H1B, is you could have young educated Indian people working for high tech firms in America, or starting up high tech firms in India, and competing against American firms.
Which is worse?
The latter is worse and here's why: there is a well documented pattern of Indian people getting into management in an American company, and replacing the entire workforce with H1B visa holders through H1B farms, which serve to lower wages. Often, they will even hire Indians specifically from their home state in India. In the short term, the company's profits increase, but in the long term, quality suffers as we import low paid foreign workers of questionable merit.
It's also well documented that these H1B farms are filling entry level positions, robbing our own college graduates.
If an Indian company can compete with Americans, good for them. Their government is extremely corrupt, so success is unlikely, though. Corrupt governments make so many regulations the only way to survive is to pay off an endless list of administrators. This keeps the biggest whales afloat while everyone else gets the crumbs.
I love that college graduates are now entry level. Woooooof.
If you have a degree, but have no job experience, you will start in an entry level position.
H1B are supposed to be for STEM fields, which typically require a degree that confers the specific skills required by the job.
Jobs that simply require any degree may not truly require one. The degree may imply more rigorous language skills, although it does not guarantee it nor does the lack of a degree preclude it.
College graduates are a dime a dozen.
Even MBAs from top ranked schools are facing a rough job market.
Corrupt government? Now why does that ring a bell. Hmmm.....
Who is it complaining so bitterly about DOGE looking through all the accounting procedures in our own federal agencies?
Our government is not as corrupt as India's. It's not even close. Places where bribery is the norm are extremely stifling.
That said, I am extremely happy with what DOGE is doing.
I agree Brent. I never set any comparisons to any other country.
However, DOGE is showing us a shocking amount of corruption and collusion between federal agencies, media and NGOs/donors. And citizens as well, who have a hand in getting monies our of taxpayers.
If we cannot put a stop to the hysteria and lies about what is happening in agencies where DOGE is finding malfeasance violence will only escalate.
For example, no one is taking your Social Security payments. In fact, they are finding many fictional accounts, stolen numbers, misused numbers which in fact COULD adversely affect your SS payments. They are working within agencies, with employees to find the issues and fix them.
Name a gov’t that isn’t “extremely corrupt.”
Unregulating is the other avenue to corruption.
It's a matter of degree. Countries that still have extreme poverty are obviously the most corrupt. India made improvements in reducing bureacracy from its decolonization days, but it is still miles away from the USA. We do have too much regulation though, which serves the dominance of the biggest corporations, at least in some industries.
Regulation leads to monopolies. Once a monopoly is captured, partial deregulation can be a way to increase profits for the monopoly, of course.
"Indian scum IT workers are incompetent, bring caste prejudice, and only hire Indians. "
Much truth to this. There are lots of great, even brilliant minds in India. There are, like most places, a lot of dregs there. But they are cheap. That is Indian IT talent. Tata services is one such place. Where I once worked, the "IT" functions were outsourced to Tats folks in India. incompetence was wide spread. Kinda like Indian call centers. Worthless.
I had no idea an Indian company bought NM. I grew up in the Dallas area and remember going to the NM store in downtown Dallas with my best friend and her mother. It was too expensive for me to buy anything! What a store. So sad it's ruined.
It is great to see RACKET/Taibbi spotlighting rigged game finance. Taibbi was the first to explain the grift and expose the perps behind the '08 crash. $$$$$ and criminal finance should be the target of every subscription journalist in America for the next four years. Those interested might find the Matt Stoller/BIG substack enlightening. Its series on the "roll up" of the egg industry will leave you a little scrambled. ;)
It was the greed of your own.
The business owners sold out and you would have joined right along for that pay day.
Huh?
You don’t understand this subject well enough to have an opinion on it if that comment made no sense to you.
I wasn,t aware of having voiced an opinion. I was asking you to explain your comment because I didn't understand it. You are under no obligation to explain, so why the rudeness?
The sales to private equity enrich the founders and owners of the business. The business itself sells out.
Blaming private equity is ridiculous.
Yes, I very well understand the process, but your point wasn't clear, and still isn't quite. I think you are saying that owners are greedy crooks at heart for selling to the highest bidder. I,d argue that the bottom line is the essence of capitalism. Whether capitalism is inherently immoral is another argument entirely.
Thank you for your response.
I like that use of language - passionate greed - those words don’t typically go together, but it works.
I’ve wondered for years what on earth happened to NM. It was like the beginning of the end.
Whatever happened to the Edward Lewises (see Richard Gere's character in 'Pretty Woman') in industry??? Yes, I know it's just a movie but in the end he did the right thing.' So there's that.
"The right thing", by definition, in capitalism is to increase shareholder value: whatever it takes to do that within however money can warp the field of "legality".
This kind of action goes on in government contracting too. PE firms buy small lean companies that have just landed their first *big* contract, suck off the overhead, demoralize the staff, and then either sell the remains to a much bigger government contractor or just throw the body off the back of the train when the contract ends and the company is too gutted to successfully rebid. The difference being that it's taxpayer dollars that are being hoovered up by these soulless vultures.
(I've worked on the same contract for 15 years, for a succession of six companies that have played this game to perfection.)
Money and grift are an important conversation. But the demoralization of staff and workforce and the impact of criminal finance on families and society as a whole is another conversation We the People need to have. Personal experience has led me to believe that trickle down profit first corporate finance and policy is responsible for the drop in professional courtesy and the general lack of civility in American daily life. The least investment in human potential possible, the creation of uneducated disposable labor and access to natural resources for exploitation and profit without oversight or consequence. Unchecked avaricious greed causes human damage. The walking wounded are everywhere.
As one member of “We the People” and an elderly observer of the carnage, I feel demoralized too. You are exactly right. It,s so depressing.
This is a great little primer on Dividend Recapitalization
https://corporatefinanceinstitute.com/resources/management/dividend-recapitalization/?utm_source=x&utm_medium=cpc&utm_campaign=PMax_US&utm_term=&utm_content=&utm_matchtype=&utm_device=c&utm_ad=&gad_source=1&gclid=Cj0KCQjw1um-BhDtARIsABjU5x7bR5qTzrSCJu6gFTv7m1ApfUDNki4rFU-Bb_gWrfq1Tg93pOCzbxAaAolBEALw_wcB
Owners get to decide how much and when they get paid. If they ruin the asset then their bad and their loss. Such is capitalism. This artcle has the air of Chicken Little claiming the sky is falling in some twisted morality play. Not your best work
I think Dividend Recap is one step too far. Even guys I know in the business have a hard time keeping a straight face when we talk about it.
This is exactly the kind of reporting We the People need and $$$$$ as a topic should dominate the American national conversation for the next four years. The 750,000 drug addled homeless, the million dollar classroom that can't teach a child to read, the six decade war on the American middle class and our gutted industrial cities should be our up front concern.
Exactly - and I fail to see how the quantity of childish bickering i see on this particular site furthers anything. Comedy gets a pass though. Some of the repartee is hilarious - and probably best avoided by those not good at it.
I’m not sympathetic to Dividend Recap either, but I’m not sure what the solution is. Many Fortune 500 companies pay dividends they don’t earn with profits. Do you ban that practice? What I think you neglected to mention is that if the underlying business is healthy, a new owner will step in after a bankruptcy filing. The only losers will be the prior owners, who lose their equity investment, and the lenders who rolled the dice on a risky loan. Noisy, yes, but that’s how a marketplace works.
Agree. Dividend recap is outright fraud on the other shareholders and employees of the company. Solution: Why not make it illegal? One might retort that it's a private agreement between consenting adults, so it cannot be made illegal. Answer: Make it illegal only for public listed companies. Then it's not a private agreement, since it affects parties who may / may not know about the agreement and may not have a say in it's approval.
Yeah. Outright, blatant fraud. But my student "loans" are a fraud too. It's another securities fraud yet to bubble to the surface. I won't go into detail, but my $70k in loans went active in 2015. I have never paid one single penny on those loans, and I never will. All parties involved knows that. Yet, I've been a stellar loanholder for over 10 years. The bullshit loans actually HELP my credit score!
I’ve seen it work great, over a long period of time (15 years) to fund the growth of an excellent private company. Investors that want to exit get liquidity. New investors can invest @ set the closing price, existing investors can roll over and best of all, management can make a bundle in a tax efficient manner. Pigs get fat, hogs get slaughtered.
That is fine if it is a) a private company and b) the investors take the special dividend and exit the company. The examples given in the article imply that the original PE investors take the dividend AND remain as shareholders to enjoy the upside if the company survives and makes big profits. That's robbing the company twice over!
Exactly! Stunning that this is even legal!
The same people who brought us the GFC are re-running that same playbook and you think that’s a Chicken Little scenario?
If those crooks were punished the first time around instead of rewarded - yes, looking at you Jamie Dimon - this wouldn’t be happening now.
Maybe they should have “gone to jail”, but on what charge? Wall Street was following the rules laid down by the Federal Government, starting with the end of Glass Steagall as someone mentioned nearby. When confronted with Fannie and Freddie’s risky loan portfolio, House Finance Chair Barney Frank dismissed the warnings saying, “let’s roll the dice”. They collapsed soon thereafter. The FDIC ordered a loosening of bank underwriting standards which resulted in “liar loans” and created junk loans and a housing bubble. The SEC looked the other way as Wall Street firms were allowed to bundle these loans into atomized tranches. Rating agencies authorized by the government gave this crap AAA ratings, while smaller underwriters who warned of the risks were not authorized by the Feds and therefore not allowed to be considered in any official capacity.
We all experienced the pain that resulted from these policies, but many of you think it was Wall Street’s doing. The real villain in this story is your government and their inept policy decisions. Yes, Wall Street and the banks got greedy (and provided campaign funds to elected officials to keep the charade going), but it was government policies that created and enabled this mess. That’s the reason Wall Street types aren’t in jail. Your elected officials from that era are all comfortably retired and living off their taxpayer funded pensions.
I don’t know, if the DOJ had sharpened their prosecutor pencils with the 2008 finance sector parasites with just a fraction of the diligence they pursued the J6th protesters there would have been a boatload of tycoons in prison.
Both these things come back to elected officials, leading as usual.
What exactly is the crime?
You sound like Obama who had to twist himself into a pretzel to let these scofflaws off and keep his campaign contributions intact. "Unwise. Unethical. But not illegal." Give me a break.
Every CDO prospectus issued from 2004 to 2007 was a complete fabrication and the people who wrote them knew it. Every trading floor was taking fees for selling assets to their own clients that breached fiduciary duty laws, for they had no idea what they were selling. In fact, some trading floors were shorting the long positions they were selling to their clients. Securities fraud anyone? Accounting fraud?
I won't argue with you about the role of the government played because you're 100% right. But a broker selling a security to his client, telling the client it has a AAA Moody's rating, when knowing full-well that's a complete crock because no one could possible understand how that security would behave given changing market conditions is fraud in black-and-white.
Finally, if no laws were broken, what was the premise for the $50 billion in fines levied against the banks? Fines, by the way, which should have been much, much higher, along with prison sentences for the perps.
I read those CDO prospectuses for a living, ones the SEC had to bless by the way. But investors didn’t, and few brokers - who are really just salespeople, did either. Pro Tip: if there’s a prospectus involved, be very careful.
As for firms telling their clients to buy what they were telling others to sell and vice versa, I agree that stinks. It never favored retail investors. Goldman got popped for that, and I think it was probably endemic to the industry. But regulating this is tricky. What might not be suitable for a conservative investor may be appropriate for a speculator. These firms took advantage of the fact that people buy and sell the same securities for different reasons.
Congress has been trading legally on insider information for a long time. But most people don’t know it and they have no incentive to draw attention to one of their own perks. This includes not only securities but land use decisions.
As for brokers, I think you overestimate their intelligence and certainly their motivations. The riskier the product, the higher the commission. Of my 24 weeks of brokerage training, it was almost all sales techniques, very little about economics and markets. Pro Tip #2 - stockbrokers are NOT fiduciaries. Legally, they represent the interests of their firm, not their clients. The government is fine with this. RIA’s ARE fiduciaries.
The rating agencies are paid by the firms they give ratings to. Slight conflict of interest! But an inopportune downgrade could bring a call - not from the company, but from the government. It’s a government regulated oligopoly.
The fines are just shakedowns so the public feels something is being done, and to deflect attention from the government’s role. Companies pay because it’s cheaper than fighting Uncle Sam. This happens all the time in many industries. Hank Greenberg fought back with AIG. The fight pretty much destroyed him and his company. Oh, he won, but the damage was done. Big companies notice such things.
God comment-thanks.
You seem to want to pretend that "government" and "government officials" are somehow operating in isolation from the system that rewarded Wall Street for fucking over a vast number of people in a manner that looks to someone not into the nitty-gritty of legalese and "regulation" like deliberate fraud.
The notion of "of the people, by the people, for the people" applying to American state and government realities is a farce.
First they work for Wall St on Wall St. Then they go work for Wall St in Washington. Then they go back to work for Wall St on Wall St.
It's the American way.
There's definitely a symbiosis there. The government makes the rules, and we elect the government.
My vote feels like spit in the wind
It was a set up of sorts. Look up Frontline "The Warning". Brookesly Born was sent by President Clinton to investigate what was going on in the banking sector. The documentary "reveals an intense battle among high-ranking members of the Clinton administration, and uncovers a concerted effort not to regulate the emerging, highly complex, and lucrative derivatives markets, which would become the ticking time-bomb within the American economy."
https://www.pbs.org/wgbh/frontline/documentary/warning/
This shit happens every ten years or so. The banking cartels and their mafia and CIA pals rip off the citizens of this country to the tune of trillions of dollars. Read the book "Inside job" by Fricker and Pizzao about the S&L scandal, or read about BCCI. I suspect another big banking collapse within five years so they can further consolidate and merge into what they really want. One.
One bank for each hemisphere tied to other hemisphere banks through interlocking corporate directorships.
Argh
You are correct Sir. The real "moral hazard' is the failure of We the People to hold the shit-heels accountable. But that's changing. Subscription journalism and the creation of a truth/fact based American national conversation can begin to restore the healthy human reality our Republic deserves, and must demand. The rigged game rationalization of avaricious greed while ignoring the human damage it does is evil.
I agree that subscription journalism could be our salvation. The question is what proportion of the voting population is actually using it.
Probably still a very low percentage. But its growing credibility is forcing its appearance in more traditional media. Since a lot of people don't have discretionary funds to subscribe to such outlets, I wonder where they'll go for news and what that will look like.
I,m afraid at best it will look like AI, a more "respectable" version of political truth than social media, God save us. Kids are offered a steady diet of YAF and graphic novels. Very few read selectively, if they read at all. Our public schools are graduating functional illiterates.
You are a fucking moron. The private equity vultures should be taken out and shot. They have destroyed company after company.
I must have missed that during the massive bailouts.
The bailouts were a regulatory failure. Banks intentionally obscured the loans in securities. The lack of transparency violated investor protection and those bankers should have lost their licenses, barred for life, rather than received a bailout. Total regulatory capture.
Right, but because Clinton worked with conservatives to strike down Glass-Stegall, the investment and commercial banks were allowed to merge and gamble with consumers money.
The banks should not have been bailed out; they should have been nationalized, and then bailed out.
And the villains should have gone to jail.
Instead they used public bailout finds to gobble up even more assets.
Rinse, repeat.
Billy C. yes. But We the People should consciously recognize that the perps are a cartel operating from an international position. The DNC/Harris front fully intended the implementation of the EU/WEF/CCP Davos led repression of civil liberties now incarcerating the free citizens of Europe. Trump is reprieve not salvation. There is the American Republic, the Constitution and the free citizen. Everything else is just passing through.
Come on, it was more than regulatory failure. There was outright fraud committed both by investment banks and the ratings agencies.
This ^^!!!
I suppose you're a staunch defender of buybacks as a legitimate creator of value as well?
Yes, buybacks reduce the amount of equity thereby improving earnings per share
Companies that pay regular dividends are wise to buyback all the shares they can since it reduces cash outlay by just that number of shares.
I agree to disagree. Buybacks are arbitrary and elastic reductions in shares outstanding, not a material improvement in a business' fundamentals.
And re: Kurt- Do buybacks -actually- improve earnings per share? How could they? The shares still exist, but now the company owns them. How is that is that a permanent reduction in equity? It's more accurate to say, "EPS That the [Public Company] Doesn't Own", not "EPS".
Add to that that the company can just sell shares back when the price is artificially inflated by buybacks, creating more incentive for gamesmanship. Buybacks are a crutch that large corporations use to reward their largest shareholders financially instead of improving the operations of the business. My gut is that the buyback capital would go 100x further if it was diverted to operational improvement capex.
It is a debate of long standing indeed with both sides correct.
I’ll even throw in another point - many companies will commence with buybacks but instead of decreasing float, they issue the shares right back as stock options for their executives.
Earnings per share is calculated off of outstanding shares. If a company buys back shares, they are no longer outstanding. The answer is yes, buybacks do have an effect on EPS.
You might feel differently when you’re in a nursing home with no one to change your diapers and a barely thawed corn dog for dinner.
There are millions of human consequences in this financial swamp.
Capitalism has been good to me, but I very well understand that it can glorify and reward the selfish worst of human nature. That's the swamp, the murk that hides the life beneath.
Indeed.
The tendency of liberals to deny the reality of capitalism while always championing it "in theory" would be hilarious if it weren't fucking things up so badly.
Borrowing to pay a dividend is usually not a good sign. The classic instance of that was the Penn Central Railroad, whose bankruptcy kicked off the Rust Belt era in 1970 and marked off the starting point of the process that ultimately led to everything we’re now dealing with economically and politically.
Even with financial shenanigans like dividend recaps, PE equity investments still underperform the general market, i.e., the S&P 500, and they’re riskier. But while PE is a poor investment, it’s a great business.
Why is that? It’s because, like hedge funds, PE firms charge their investors 2 and 20, i.e., a 2% annual management fee and 20% of the upside. The PE firm puts only 1-5% of its own money in any deal. The rest comes from LP investors like pension funds, and debt.
The PE firms then roll the dice by levering up as much as they can, knowing they’ll get 20% of the leverage-juiced upside, and worst case if there’s no upside, they still get their 2% fee from the LP investors.
Your assessment of PE equity investments as underperforming the S&P is not the experience of high net worth investors. High net worth investors invest in bonds, stocks and private equity and do so over long periods of time. The returns on bonds have been low when holding them for yield for quite some time now, in the neighborhood of 5% currently; stocks (like the S&P benchmark) about 8% (total return) but returns on PE investments are in the teens (even after the "2 and 20" charge). There are simply no high net worth investors who would accept investing in PE deals that charged "2 and 20" which performed worse than stock market benchmarks over time. PE investments are riskier, but the returns are higher, which is why high net worth investors buy them.
As of 12/31/2023, the Cambridge Associates US Private Equity Index outperformed the S&P 500 by 4.5% on an annualized basis for the past 25 years. You are right and I was wrong. Thank you for correcting me.
https://www.cambridgeassociates.com/wp-content/uploads/2024/08/2024-08-US-PE-VC-Benchmark-Commentary-CY2023_PUBLIC-1.pdf
Never forget that our current Fed chair was a private equity guy.
"CLO investors and mutual fund managers hunger for loans"
But why? This is the part I still don't understand.
These are relatively high yielding assets, hence the attention. There is nothing wrong with this. See below
That worked out great in 2008.
Remember all those people who used their bailout money to pay massive bonuses to the people who lost all their money?
Thanks for letting me know I can immediately disregard your opinion.
It’s no surprise that brix4shoes wants to ignore the correct answer since doltishness is seldom isolated to a single incident.
Man, you sure love the taste of boot leather.
I’d rather eat boot leather than read any of your comments.
Geeezzzz--Can't we just get along. ;)
Feel free to stop following me around the comments section, bootlicker.
Nothing wrong in theory. But were high risk assets rated appropriately? I bet the answer is no.
While the merits of the transaction can be debated, please do your homework on Clarios and their business. They are not an EV battery company but a producer of all manner of batteries with the largest portion being lead acid batteries found in most vehicles. Their market share is strong and they are likely the largest and most profitable company in their space. I hope you also noted that they announced $6 billion in manufacturing initiatives in the U.S. which implies that the added debt has not hampered their investment strategy in growth. I'm not an employee or investor in the Company but I have respect for the transformation Brookfield and management have made since buying the company from Johnson Controls. Again, debate the merits of a dividend recap all day but I doubt Clarios will be the poster child for when it goes wrong. They are a strong company with a bright future.
I agree that Brookfield is a well run company but adding relatively expensive debt for the purpose of getting investment plus return back because the IPO route is closed reduces their cushion against either underlying rates (SOFR) heading higher and/or a slow down in business or worse.
sorry...meant Clarios not Brookfield
Isn’t Brookfield a well run company of grifters, as in a previous article written by Matt? Or are they a different Brookfield?
In other words, an unforced error.
Not questioning the debate but what I don't see in this discussion is what Brookfield should have done. I'm not an expert in this area so tell me what other options they had.
As a nincompoop on the subject, let me summarize as I see it. Brookfield took the opportunity found in a quality company, Clarios, with good credit to suck their equity out in the form of pretty massive borrowing so that their payout at debt repayment would be outlandishly (wasn't it 1.5x?) disproportionate to their investment. Do I have that right? And those were the terms of the loan that the company willingly agreed to? Did someone have a gun to their head or were they bigger nincompoops than I am?
I'm sure the higher-up decision-makers at Clarios got their assurances they'd get theirs. It's all the lower-downs (and society at large) that will take the hit.
Was Clarios a quality company if it determined to sell itself to Brookfield?
Apropos of nothing in the article, but this is probably the best opportunity I'll ever have in my life to trot out the observation that for *decades* my go-to line to describe myself stumbling when trying to explain some complicated topic to a lay audience is "I sounded like my grandmother trying to explain the plot of "The Sting."
Four nines.
Four 𝑗𝑎𝑐𝑘𝑠.
**DRAMATIC CAMERA ZOOM**
Robert Shaw's goon's reaction sitting behind Newman
is classic
Money
It's a crime
Share it fairly, but don't take a slice of my pie
Money
So they say
Is the root of all evil today
Totally missing from the context is that no one is asking why interest rates are so high. Corporations got addicted to free money when rates were super low. Corporations have to constantly borrow money mostly in the form of corporate bonds. For those unable to shift in a destabilizing economy they will meet their end. Notice a growing number of bankruptcies as this will continue. Consumers are tightening their belts. Credit card debt in the U.S. is now $1 trillion dollars, the highest it has ever been.
What we are seeing with inflation and higher rates is a result of the financial profligacy of the Biden administration that is now hitting us hard. What we are discovering with DOGE is so incredible. Our government steals our money to launder it and give it to countries that hate us and political cohorts in NGOs.
Private equity exists to buy companies that need fixing, lower the debt and then sell a more efficient company when their investment pays off. This economy makes it that much more difficult to do this with higher rates. Unfortunately companies get rewarded for high debt as it protects companies from hostile takeovers because the additional debt would kill the company. Just blaming PE firms alone is like blaming firemen for the fires they put out. That is not the whole picture.
Rates are where they are to reduce inflation, which has been done very nicely indeed.
One could argue that they should have raised rates the same second that Pelosi’s instant inflation bill was presented to the Federal Reserve in the form of an order.
Rates seem high only to the young or those who weren’t paying attention because they ran 5%-8% for many decades, i.e., we are still a point or two below average.
Yes they are low I remember the Carter years where they were double digit. The problem again is that capital was very cheap and it is now multiples of what it was and the economy has had trouble adjusting yes it helps inflation but it also hurts borrowers including corporate ones.
Not just the Carter years. In the 80s and 90s mtg interest rates hovered at 9%-9.5% and my Orlando home's appreciation at 0%. With wages generally much lower then how did we manage to afford and survive such high rates? There's something inherently wrong with the current picture. Why are people screaming in panic over 6.5% (and I just saw today's 30-yr rate is 4.31%!) with generally lots higher incomes? Somebody explain this. Ah. Maybe (no, not maybe) it's the principal that's killing them, ie, the massive appreciation in home prices over the last 25 years which I'm assuming is due to govt spending (printing money incessantly), regulations and the corruption that is built into the system. How the times have changed! It would not be a bad thing to be able to turn the clock back to a less corrupt time.
Yeah carter reagan bush clinton bush and actually long long before that era.
For the best economy I’d like interest rates to stay around 5% - 6% however I understand trump’s point of view vis a vis rates and tariffs and if he can get tariffs up and running we’ll see the greatest boom in the history of the world
More like what we are seeing is that wages were growing too quickly, and because I've of the trains that Fed exists is to guarantee enough unemployed people to make the working class desperate enough to accept low wages.
Homelessness. Human damage. Illiteracy. "Feral city" chaos, criminality and poverty. NGO forced mass illegal migration. The open war on American culture and civilization. The rewriting of history and the destruction of national myth and unity. Revolving door corporate/political graft swallowing billions in tax treasure. A surveillance bureaucracy in league with a cartel of international criminal financiers fronted by an MSM psyop willing to rationalize any atrocity in the name of profit.
This is a new age. The perps know it and it's time We the People accept it. "Ism's" are dead. Communism and Capitalism died because the Communist and Capitalists killed them. Separating ourselves from the LIE and beginning the recovery of our lives and destiny, seeing ourselves in the true light of human dignity, recapturing the human potential our founding fathers recognized and worked to enshrine in our Constitution is the way forward. Trump is reprieve not salvation. Let the usurpers fall where they may.
This is as designed by a labyrinth of regulation and intervention that benefits the blob that was neither "corporate captured" (at no point in our history has state intervention closed the economic inequality) or "corrupted" (both terms imply that state intervention represents the populace)
This is working as designed....
I think you may be making a valid point but your use of the word "neither" has driven my brain off a cliff. It seems to me that the blob has been BOTH corporate captured AND corrupted and that the "labyrinth of regulation and intervention" is completely Machiavellian in nature and only represents the populace in their gaslighting dreams. I get the point about the regulation and intervention leading to corporate capture and corruption. Perhaps (nay, definitely) excising those from the system would go a long way to eliminating the motivations for the deliterious business practices in this story.
I don't believe that any state has ever been a benevolent actor so the terms used "corporate capture", and "corruption" are inherently a diversion, and provably untrue.
Point to a time when either term DIDN'T apply in any society, and I might reconsider. If any state intervention has had a positive outcome for those they "represent" in the wider population outside of the cathedral (blob, deep state, 1%, etc.) it is incidental, and never the actual motivation for it.
I always wondered why my insurance company keeps selling my policy without my consent and same with our mortgage lender.
Thank you for the education. We need the “stingers” to get “stung.”
That’s not how I remember the hustle in The Sting. Something about a fake horse race.
Right, the original scheme was based on the time-lag of the radio announcer of the race, which was well-known, but the scammers faked the radio announcer of the race. So, a scam of a scam.
Horse race was 3rd act. Poker in 2nd.
Right. At the end of the movie. The card game was early and part of the set up.
Exactly, Mr Salzman needs to press replay.
I would just like to observe that the financial tool of securitization, like most tools, is not a bad thing in and of itself. Investing in a pool of loans carries less risk than a single loan - like a stock index fund VS a single company stock. That attracts more money from a wider range of investors and thus provides more funding for the underlying asset class - mortgages, auto loans, corporate loans, etc. Of course there have been many abuses and failures where loan standards become too lax or companies are over-leveraged. But Clos and other forms of securitization are not in and of themselves bad things.
Thanks for this Eric. I experienced my first dividend recap in the very early part of the 2000's as an operator of a small business owned by private equity. This is one of the many "financial innovations" of private equity which is focused on enriching its partners and shareholders rather than taking care of the business. Lax federal monetary policy (lots of money being pumped into the financial ecosystem), abnormally low interest rates (until recently) and a cultural focus on "getting rich--quick" laid the foundation for where we are today.
My interest was always on operating the business, growing it by serving customers well and assuring its fiscal health. For almost two decades I watched the leverage applied to the business go up from 3x to 6x and ultimately beyond. I did what I had to in order for the business to be solvent but make no mistake more leverage translates into thinner margins of error should you face troubles from the general economy or in your specific market. Simply, the probability of insolvency, bankruptcy, goes up as your leverage does. For me, I ultimately had to get off this hamster wheel.
We are at the end of this period of financial excess. Many firms are leveraged up the wazoo with high probability of bankruptcy. Many can survive this and move on operationally but lets hope the Fed does not bail out the banks and financial firms that do ultimately get into trouble as a result. Been there did that in the 2008-2009 period and it just stoked the appetite for risk of the financial industry as a whole and more bad behavior from the Federal Reserve.