It was either Mark Twain or Rod Stewart who once said that every picture tells a story … don’t it? But while a picture is still worth 1,000 words and all that other good stuff, sometimes that actual story isn’t exactly what we think it is.
The farther capital is managed from its investments the more fucked up the investments will be. (I use this routinely as an axiom.) If local economies could develop local currencies that would run parallel to broader currencies, such as US dollars, they could potentially hold the line against remote vulture opportunism facilitated by the fungibility of broad currencies. Local currencies would preclude Wall Street mavens from sacking local markets because the spoils of such activities could only be reinvested in that locale. There would certainly be issues to addressed, the primary one that comes to mind is that of exchange rates–but these would only apply at the local market scale. Maybe a bit of protectionism would be a good hedge against the hedge fund bandits.
“Vulture Hedge-Fund Capitalism Still Devouring U.S. Jobs. Will We Ever Do Something?”
That is an easy one…Nope.
They are more likely to do something to protect the Vultures from you, then the other way around. We are the sheep and our whole purpose is to be fleeced.
Ewe may be a sheep, but me? Nahahahah.
These Hedge fund managers put a whole different meaning on the old Biblical expression to “beware of false prophets”. Anything for a buck when Capital is deemed all but sacred.
We can’t even muster up enough steam to throw the Trump crime syndicate out of the White House. Doing anything about Vulture hedge-fund capitalism is a long way down the road.
I’m not sure I completely understand the chain of events in a leveraged buyout. Do the stockholders have to approve the sale? What happens to the stock value after the sale? What happens to the stock value when the business can’t service the debt? Is this a phenomenon that can only be exploited with stock held businesses? What “real” business owner would ever intentionally take on more debt than they knew they could service and risk losing their business?
There needs to be a strong movement in the US towards local ownership and financing of everything. Many economic problems will be solved. Would the US banking crisis have occurred in 2008 if all mortgage loans were underwritten and managed locally by local banks? Don’t think so. We have a nation where all excess capital is sucked out of local communities by pensions, IRAs and 401K funds and sent to Wall Street. They send us back corporate stores with corporate management. There is no capital for local owner/operators. Main Street - where most of us live - has been virtually destroyed. We live in a world of big box wall street stores from Walmart to Target to Walgreens. Local culture has basically been destroyed by a mono-culture. Manhattan can be little distinguished from Chicago’s Loop or Houston or St. Louis.
The East Bay Express recently ran an article on the vulture capital journalism which is worth reading: https://www.eastbayexpress.com/oakland/feeding-on-local-newspapers/Content?oid=14130474
Leveraged means some portion of the purchasing price was raised by borrowing. The amount of borrowed money can actually be up to four times the amount of equity money put up by the buyers. This debt is then generally placed on the balance sheet of the company after it is acquired.
“Do the stockholders have to approve the sale?”
No. If the board of the target company approves (which generally means it is sufficiently bought off) that is enough. If the board does not approve, then the prospective buyers can buy enough shares and/or obtain enough shareholder votes to replace the board with one that is more cooperative.
“What happens to the stock value after the sale?”
It can go up, down, or stay the same, and there are different advantages to each, and different ways of manipulating the price to push towards the desired outcome.
“What happens to the stock value when the business can’t service the debt?”
It usually goes down by that point. But many leveraged buyouts have already turned a big profit for investors before then, and they can be insulated from the ultimate crash by selling off the company or its parts and passing the bad debt onto someone else, or through bankruptcy protections. Al Dunlap, for example, excelled at the pump and dump, where he’d get a group to buy a weakened company that still had a solid reputation, then he’d put himself in charge, and give himself a fat stock package of the company he was managing. Then he’d cut quality and coast on reputation, and engage in mass firings and asset sales to make the company “lean”, and this would temporarily produce a bump in the stock price because the market knew proceeds from the liquified assets, reduced quality, and reduced salary costs would increase dividend payouts. Then Al would sell his stock at the artificially inflated price, and then turn the company around for a quick sale as soon as he could and cut himself loose from the subsequent implosion from all the layoffs, productive asset losses, and the crash in reputation. And then he’d point to his record of company stocks jumping when he took over and crashing after he left as evidence of how valuable his managerial talents were as part of his pitch when putting together a new group of investors to take over another company.
“Is this a phenomenon that can only be exploited with stock held businesses?”
It only works with publicly traded companies. Cooperatives and privately held companies can have stocks without being vulnerable to the vultures.
“What “real” business owner would ever intentionally take on more debt than they knew they could service and risk losing their business?”
For vultures, the only measure of “real” is profit. And if they have a profitable practice of taking over companies on borrowed money, cashing out the assets, and cutting the carcass loose, that, for them, is real business.
Thanks for that, very informative.
I have to disagree a little with the writers take on newspapers. I don’t doubt they would have lost some of the younger generation readers.That loss would have been lessened with all generations with good honest objective reporting. Even small town newspapers were downgraded, I called mine a “mullet wrapper”. Mullet being a abundant fish where I live.
Reader, In addition, the average citizen ought to have thought twice before abandoning local business in favor of big box warehouse stores. It is worth it to pay a little more for goods to earn a vibrant local economy and interesting unique community, and also not let all the money be funneled out and up to large impersonal corporations. Universal healthcare would also help some of the hardship of local business to thrive. Shoppers have some responsibilities especially refraining from buying everything online through Amazon, with lots more transport and packaging waste and pollution.
No, we won’t - too much apathy.
You don’t think that killing 60 million potential customers by way of en utero termination had anything to do with Toys R Us’s demise, do you? Kind of ironic that TRU supported an organization whose sole goal was to liquidate potential customers.
Meaaah…let’s not go there, shall we?
Correct. I don’t think that. Because that would be dumb. The heyday for Toys R Us was actually back when the abortion rate was much higher than it is now. Their fortunes have been falling as the abortion rate falls, so the correlation runs the opposite direction from what you suggest. (Or rather, what the pro-life groups have been suggesting, and you are just repeating here.)
I’d also note, tots and children are not customers. They are end users. The customers are the people who pay for their toys, and having more kids doesn’t magically increase the amount of discretionary income that can be spent on luxuries like toys. If anything, it more often reduces the budget for luxury items. If more babies equaled more wealth, then Haiti ought to be a lot richer than the Dominican Republic, on the other side of the same island, because they have nearly double the population density. And yet, of the two, it is Haiti which is far more afflicted with rampant poverty.
Also, Toys R Us online sales have been increasing, year after year, and the overall toy industry revenues are up. It is only their brick and mortar stores which have been in decline, and even then, they still had revenues of around $10 billion last year. They are doing something very wrong if they can’t make a go of it with that much income, and I would guess the restructuring is grounded in recognition of that fact.
“Kind of ironic that TRU supported an organization whose sole goal was to liquidate potential customers.”
The potential customers are the parents and nobody is liquidating them. And it is mostly the babies born to people who are able to afford them who are likely to wind up as Toys R Us end users, so it actually makes sense that Toys R Us would support an organization that helps to increase the proportion of babies who are born to people who want them and can afford them.
“Meaaah…let’s not go there, shall we?”
That would have been the smart choice.
No the addendum to thee 10 commandments instructs all true believers not to interfere with the Market for it is Wise in mysterious ways.
Thanks for a great article, Will. There should be much more attention paid to this topic. Vulture capitalism has steadily been hollowing out the American middle-class for years now, while getting away with paying a much lower tax rate than working people. They extract billions from our economy without putting anything back in.
They have done more damage to our well-being than Russia will ever do. They are the real enemy!