[Home]  [Headlines]  [Latest Articles]  [Latest Comments]  [Post]  [Sign-in]  [Mail]  [Setup]  [Help]  [Register] 

Status: Not Logged In; Sign In

Democrats Suddenly Change Slogan To 'Orange Man Good'

America in SHOCK as New Footage of Jill Biden's 'ELDER ABUSE' Emerges | Dems FURIOUS: 'Jill is EVIL'

Executions, reprisals and counter-executions - SS Polizei Regiment 19 versus the French Resistance

Paratrooper kills german soldier and returns wedding photos to his family after 68 years

AMeRiKaN GULaG...

'Christian Warrior Training' explodes as churches put faith in guns

Major insurer gives brutal ultimatum to entire state: Let us put up prices by 50 percent or we will leave

Biden Admin Issues Order Blocking Haitian Illegal Immigrants From Deportation

Murder Rate in Socialist Venezuela Falls to 22-Year Low

ISRAEL IS DESTROYING GAZA TO CONTROL THE WORLD'S MOST IMPORTANT SHIPPING LANE

Denmark to tax livestock farts and burps starting in 2030

Woman to serve longer prison time for offending migrant men who gang-raped a minor

IDF says murder is okay after statistics show that Israel killed 75% of all journalists who died in 2023

Boeing to be criminally INDICTED for fraud

0:35 / 10:02 Nigel Farage Embarrasses Rishi Sunak & Keir Starmer AGAIN in New Speech!

Norway to stockpile 82,500 tons of grain to prepare for famine and war

Almost 200 Pages of Epstein Grand Jury Documents Released

UK To Install Defibrillators in EVERY School Due to Sudden Rise in Heart Problems

Pfizer purchased companies that produce drugs to treat the same conditions caused by covid vaccines

It Now Takes An Annual Income Of $186,000 A Year For Americans To Feel Financially Secure

Houthis Unleash 'Attacks' On Israeli, U.S. And UK Ships; 'Trio Of Evil Hit' | Full Detail

Gaza hospital chief says he was severely tortured in Israeli prisons

I'd like to thank Congress for using my Tax money to buy Zelenskys wife a Bugatti.

Cancer-causing radium detected in US city's groundwater due to landfill teeming with nuclear waste from WWII-era atomic bomb efforts

Tennessee Law Allowing Death Penalty For Pedophiles Goes Into Effect - Only Democrats Oppose It

Meet the NEW Joe Biden! 😂

Bovine Collagen Benefits

Milk Thistle Benefits for the Liver, Gut & More

Anthocyanin Benefits for Health

Rep. Matt Gaetz Points Out CNN’s Dana Bash Used Hand Signals During Debate (VIDEO)


Editorial
See other Editorial Articles

Title: Felix Salmon: How Capitalism Kills Companies
Source: [None]
URL Source: [None]
Published: Jan 14, 2012
Author: Felix Salmon: How Capitalism Kills Compa
Post Date: 2012-01-14 11:53:45 by tom007
Keywords: None
Views: 35
Comments: 2

As Mitt Romney cruises to his inevitable coronation as the Republican presidential candidate, increasing amounts of attention are being focused on his history at Bain Capital, where he made his fortune. Did he create 100,000 jobs, as he claims? Or is he a vulture and asset stripper?

Glenn Kessler has the definitive take on the job-creation claim, which he says is “untenable”; as he says, Romney’s method of counting jobs created when he wasn’t at Bain or when Bain wasn’t managing the companies in question doesn’t even pass the laugh test. Meanwhile, as Mark Maremont documents, Bain-run companies — even the successful ones — have an alarming tendency to end up in bankruptcy. And I think it’s fair to say that bankruptcy never creates jobs, except perhaps among bankruptcy lawyers. Few senior executives, when debating options for a technology company in decline, admit defeat and run it modestly. Instead, they cast around for businesses to buy, or try to hurdle the chasm with what they have got.

The reality is that Romney would have been in violation of his fiduciary duty to his investors had he concentrated on creating jobs, rather than extracting as much money as he possibly could from the companies he bought. For instance, Worldwide Grinding Systems was a win for Bain, where it made $12 million on its initial $8 million investment, plus another $4.5 million in consulting fees. But the firm ended up in bankruptcy, 750 people lost their jobs, and the US government had to bail out the company’s pension plan to the tune of $44 million. There’s no sense in which that is just.

Romney’s company, Bain Capital, was a “private equity” firm — the friendly, focus-grouped phrase which replaced “leveraged buy-outs” after Mike Milken blew up. But at heart it’s the same thing: you buy companies with an enormous amount of borrowed money, and then dividend as much money out of them as you can. If they still manage to grow, you can make a fortune; if they don’t grow, they’ll likely fail, but even then you might well have made a profit anyway.

Private equity companies need growth, because they’re built on the idea of buying, restructuring, and then selling. They’re never in any business for the long haul: instead, they want to make as much money as they can as quickly as possible, sell out, and keep all the profits for themselves and their investors. When you sell, you want to maximize the price you can ask — and the way to do that is to show healthy growth. No one will pay top dollar for a company which isn’t growing.

Private equity is by no means unique in this respect: it happens at pretty much every public company, too. John Gapper had a column this week about the way it destroys values at struggling technology companies:

Most public companies are run by people who hate folding ’em, and instead keep returning to the shareholders and bondholders for more chips…

Few senior executives, when debating options for a technology company in decline, admit defeat and run it modestly. Instead, they cast around for businesses to buy, or try to hurdle the chasm with what they have got. Sometimes they succeed but often they don’t, wasting a lot of money along the way.

It goes against their instincts to concede that the odds are so stacked against them that it is not worth the gamble. Mr. (Chairman/CEO Antonio M.) Perez would have faced a hostile audience if he’d admitted it to the citizens of Rochester, Kodak’s company town in New York, but its investors would have benefited.

At many companies, then, both public and private, the optimal course of action is a modest one — run the business so that it makes a reasonable profit, and can continue to operate indefinitely. If you chase after growth, you often end up in bankruptcy: that’s one reason why the oldest companies in the world are all family-run. Families, unlike public companies or private-equity shops, don’t need growth: they’re more interested in looking after their business over the very, very long run.

There’s no limit at all to the amount of growth that the public companies will demand: in 2007, for instance, after a year when Citigroup made an astonishing $21.5 billion in net income, Fortune was complaining about its “less-than-stellar earnings”, and saying — quite accurately — that if they didn’t improve, the CEO would soon be out of a job. We now know, of course, that most if not all of those earnings were illusory, a product of the housing bubble which was shortly to burst and bring the bank to the brink of insolvency. But even bubblicious illusory earnings aren’t good enough for the stock market.

If you want to be fair to Mitt Romney, you could make the point that many of the companies he bought were highly risky, and would probably have gone bust anyway; in that sense he can’t be blamed if they eventually did just that. If a company is going to fail, you might as well squeeze the maximum amount of money out of it before it does.

But doing that, at the margin, means more job losses, quicker job losses, and — as we saw at that steel company — a willingness to underfund staff pension plans and stiff the government with the bill. Mitt Romney turns out to have a personality which is highly suited to that kind of ruthlessly callous behavior; that’s how he became so incredibly wealthy. It’s an ugly part of capitalism; it might even be a necessary part of capitalism. But the one thing you can’t do is spin it as a great way of creating jobs.

You Might Like Related Links by Contextly

Keep Your Computer Bug-Free

Post Comment   Private Reply   Ignore Thread  


TopPage UpFull ThreadPage DownBottom/Latest

#1. To: tom007 (#0)

Willard won't do.

Break the Conventions - Keep the Commandments - G.K.Chesterson

Lod  posted on  2012-01-14   13:11:24 ET  Reply   Trace   Private Reply  


#2. To: Lod (#1)

Willard won't do.

I agree, but he is winning these fake polls.

Lod who would u go for Perry or Willard?

"Satan / Cheney in "08" Just Foreign Policy Iraqi Death Estimator

tom007  posted on  2012-01-15   0:03:10 ET  Reply   Trace   Private Reply  


TopPage UpFull ThreadPage DownBottom/Latest


[Home]  [Headlines]  [Latest Articles]  [Latest Comments]  [Post]  [Sign-in]  [Mail]  [Setup]  [Help]  [Register]