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How To Succeed in Business Without Adding Value

Thu, 08/23/2012 - 18:36 — Dave Culver
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  • Private equity firms claim they help create jobs and improve businesses, but that is not the whole truth.
  • When a private equity firm "succeeds" (usually after buying an above-average business), much of their gains are reaped simply by transferring large amounts of wealth to themselves.
  • Who Exactly is Mitt Romney Lying to?

David Moberg, In These Times

Bain's founders, including Mitt Romney, made "creating value" part of the company's 1984 mission. But it hasn't really worked out that way. (Getty Images)

(August 20, 2012) Private equity funds first emerged in the late '70s and '80s as part of an ideological shift toward making the most for shareholders, giving momentum to an early wave of banking deregulation and to changes in the tax code that made financial engineering more profitable. Firms like Bain Capital, spun off in 1984 from the consulting firm Bain & Company, benefited both from the elimination of old controls and from the new rules encouraging globalization and financialization.

Here's how it works: The managers of private equity firms create big investment funds in which they are “general partners.” They pool unregulated private money from a variety of “limited partners,” ranging from public pension funds to rich individuals (including, in the case of Bain, dubious Central American plutocrats operating out of tax havens such as Panama). The general partners then buy a business in what is called a “leveraged buyout,” using more limited-partner capital and a huge loan, but very little of their own money.

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Related:

Who Exactly is Mitt Romney Lying to? Progress Report, ThinkProgress

  • Mitt Romney has either been lying to the public about his role at Bain Capital or filing false documents with the SEC.
  • It’s Time for Mitt Romney to Come Clean
  • Mitt’s real insult to the NAACP
     

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