Comments on: More on Private Equity Firms: What Are they Good For?

By: Michael

Michael — Mon, 28 May 2012 20:28:14 +0000

Nah, it’s just vampire/vulture. A symptom of the end of Fordism.

By: Paul Papanek

Paul Papanek — Fri, 25 May 2012 16:01:19 +0000

So — a possible society benefit from PE (private equity) ventures is an additional “discipline” on company management, beyond what the market or a Board of Directors might otherwise impose.

That’s IT? That’s ALL? . . . as if the market, with its own discipline of supply-and-demand, isn’t enough?

(And, frankly, Professor, I think you’re right — that really IS all there is on the benefit side.)

So — in your analysis above, PE (private equity) ventures provides very little benefit to society as a whole. But they do bring huge risks of job loss and dislocation. The fact is that concentrated capital makes contracting inherently unsymmetric, and therefore in need of regulation as a matter of fair play.

Furthermore, we have also seen that concentrated capital can make mincemeat out of what previously seem to be well guaranteed contract rights, such as pensioners’ benefits. Must good companies spend more money on lawyers to make such worker benefits secure from the future predations of concentrated capital? More pay for lawyers, to protect against future PE predators? That’s not good for society.

So, in sum — there is plenty bad with the Bains of the world, and not much that’s good for the society as a whole. The next step for principled leaders is obvious: major constraints on the predations of venture capitalists.

We really do not need the Romneys of the world as our political leaders.

By: perplexed

perplexed — Fri, 25 May 2012 00:39:26 +0000

BTW, here’s just one excerpt from that study:
“In the case of Friendly’s, Sun Capital sought to use the bankruptcy proceedings to write off debt and to rid itself of the company’s pension obligations to its nearly 6,000 employees and retirees, while continuing to own the restaurant chain. Immediately after Friendly’s entered bankruptcy, another Sun Capital affiliate announced its intention to acquire Friendly’s. With less than two months between the bankruptcy announcement and the date set for the auction of Friendly’s, no other bidders came forward. Sun Capital was allowed to “buy” Friendly’s in a “credit-bid” sale – that is, Sun Capital could hold onto ownership of Friendly’s by wiping out a $75 million loan it had previously made to Friendly’s (Brickley 2011) and assuming some of Friendly’s liabilities. A key part of Sun Capital’s restructuring plan is to shift liability for Friendly’s pension plan to the federal government’s Pension Benefit Guaranty Corporation (PBGC). Generally, PBGC does not require companies to make good on pension plans they can no longer afford. But in an unusual move, PBGC announced that it will fight Sun Capital’s attempt to stick U.S. taxpayers with the bill. PBGC objects to what appears to be a transparent effort by Sun Capital to take advantage of the bankruptcy process to abandon pension obligations while continuing to keep its ownership of Friendly’s (U.S. Bankruptcy Court 2011, Abelson 2011).”

It looks like we really need an accounting of what the “efficiencies” behind PE deals are costing the PBGC & the pensioners that now take the reduced amounts for the pensions they worked for so many years to accrue. Possibly some of these pensioners could have used the extra cash to make loans to their children to fund their educations like Romney suggests.

By: perplexed

perplexed — Fri, 25 May 2012 00:03:46 +0000

Dean Baker posted a link to this recent CEPR paper on PE: http://www.cepr.net/documents/publications/private-equity-2012-02.pdf

Data causes so many problems for these myths. Its no wonder the republicans hate all this science stuff.

By: Jill SH

Jill SH — Thu, 24 May 2012 21:27:07 +0000

Would it be possible to regulate how much a PE firm could finance in a PE deal? Bain stories on NPR cite two cases where Bain put in $5million down and financed $35million, and another 6.5 million down and 43 million financed.

What if regulation required that a PE firm put up minimum 50%? Or maybe not get the tax break on financed funds that exceed that?