Realist, not conformist analysis of the latest financial, business and political news

Vox Is Employing A Right One Here

I’ve always thought it so wondrous that the very people who critique free market capitalism know so little about it. Or even about logic really. Take this from Vox:

Private equity firms are, as their name suggests, private — meaning they’re owned by their founders, managers, or a limited group of investors — and not public — as in traded on the stock market. These organizations buy companies that are struggling or have growth potential and then try to repackage them, speed up their growth, and — theoretically — make them work better. Then, they sell them to another firm, take them public, or find some other way to offload them.

Generally, an ordinary investor isn’t putting their money directly into a private equity fund. Instead, private equity’s investors are institutional ones — meaning pension funds, sovereign governments, and endowments — or accredited investors who meet a certain set of criteria that allow them to make riskier bets (i.e., rich people).

You’ve probably heard of some big-name examples, such as the Carlyle Group (called out by Taylor Swift), Bain Capital (where Mitt Romney spent part of his career, and which was involved in the Toys R Us bankruptcy), KKR (which was reportedly considering taking over Walgreens and was also involved in Toys R Us), and the Blackstone Group (run by Donald Trump ally Stephen Schwarzman). If private equity firms get big enough, they sometimes start to issue stock that’s publicly traded on the broader market — shares of Blackstone, for example, have been trading on the New York Stock Exchange since 2007.

I have not elided, cut or added anything there. But don;t you think it’s wonderful that in only three paragraphs we get from private equity companies aren’t public companies on stock markets to private equity companies are public companies on stock markets?

Sure, I contradict myself often enough but my attention span usually lasts long enough that it takes me more than three paras to do so.

This is also remarkably stupid:

To explain leveraged buyouts in easier-to-understand terms, let’s say you buy a house. Under normal circumstances, if you can’t pay for the mortgage, you would be in trouble. But by the LBO rules, you’re only responsible for a portion. If you pay for 30 percent of the house, the other 70 percent of the asking price is debt placed on the house. The house owes that money to the bank or creditor who lent it, not you. Of course, a house can’t owe money. But under the private equity model, it does, and its assets — its factories, stores, equipment, etc. — are collateral.

On a non-recourse market that’s exactly how a mortgage does work. Don’t pay the vigorish? They come and take the house, not you.

And, err, this is the site that claims to explain the world.


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