Tag: business

Cross posted from The Stars Hollow Gazette

Naked capitalism‘s Yves Smith appeared in RT news Boom/Bust to discuss the risky business and abuses of private equity in the real estate rental market. Her segment starts at 3:45.

In her article, Yves also noted this piece from an article on private equity from Friday’s Bloomberg News:

PE Slump

Private-equity transactions overall have fallen 22 percent to $53 billion through April, data compiled by Bloomberg show, led by the drop in buyouts of public companies. The value of those leveraged buyouts declined to $3.2 billion compared with an average of $34 billion in the 10 years through 2013.

The peak for buyouts came before the financial crisis, when U.S. funds struck $659 billion of deals from 2005 through 2007, including the purchases of HCA Inc., Hilton Worldwide Inc. and Biomet Inc., the data show. Buying inexpensive public companies was generally easier for the funds than carve-outs are, said Raymond Lin, a mergers and acquisitions attorney at Latham & Watkins LLP.

“The easy days for private-equity buyers are over when they profited from buying undervalued companies,” he said. “Carve-out deals require a lot of up-front work that would incur additional costs and could affect returns.”

The Standard & Poor’s 500 Index, which reached a record this week, trades at 17.4 times reported profit, the highest level since 2010, according to data compiled by Bloomberg.

PE’s Limits

While high valuations haven’t scared off dealmaking between companies, buyout firms are motivated by different factors, said Gordon Caplan, chairman of the private-equity practice group at law firm Willkie Farr & Gallagher LLP.

“If business growth slows, companies have to buy things,” he said. “Private-equity buyers can’t create synergies like company mergers can in most cases.”

Corporations are more willing to spin off divisions as management continues to clean up underperforming businesses and pay down debt following the financial crisis, said Tom Franco, a partner at Clayton Dubilier.

SEC Official Describes Widespread Lawbreaking and Material Weakness in Controls in Private Equity Industry

Posted on May 8, 2014 by Yves Smith

At a private equity conference this week, Drew Bowden, a senior SEC official, told private equity fund managers and their investors in considerable detail about how the agency had found widespread stealing and other serious infractions in its audits of private equity firms.

In the years that I’ve been reading speeches from regulators, I’ve never seen anything remotely like Bowden’s talk. I’ve embedded it at the end of this post and strongly encourage you to read it in full.

Despite the at times disconcertingly polite tone, the SEC has now announced that more than 50 percent of private equity firms it has audited have engaged in serious infractions of securities laws. These abuses were detected thanks to to Dodd Frank. Private equity general partners had been unregulated until early 2012, when they were required to SEC regulation as investment advisers. [..]

Bowden pointed out that private equity is unique among the investment advisers the SEC supervises. The general partners’ control of portfolio companies gives them access to their cash flows, which the GPs can divert into their own pockets in numerous ways. Naked Capitalism readers may recognize that this arrangement is similar to the position mortgage servicers are in: they control the relationship with the funds source, and they are also responsible for records-keeping and remitting money to investors. And as we’ve chronicled at considerable length, servicers have shown remarkable creativity in lining their wallets and investors have been unable to discipline them. [..]

Needless to say, this overly cozy arrangement has proven to be a ripe breeding ground for illegal conduct.

“Nothing differentiates people as much as their respective attitudes to the circumstances in which they live. Those who opt to make history and change the course of events themselves have an advantage over those who decide to wait passively for the results of the change.”

Over and over, I see commentary asserting we are stuck with our current cultural norms. The “rational” people of the world patiently explain to me how I am too idealistic. I am naïve and believe too deeply in the good nature of most people. Yet, the rational people only have their assertions to stand on. History is fraught with examples of people who fought for and won real change. People like the Basques in Mondragon. They created lasting change under deplorable conditions. Even a cursory review of history shows change occurs when and where people decide to change. You don’t live in a feudal monarchy rife with slaves and infanticide-all well ingrained institutions the Ancient Greeks considered necessary evils of civilization-because people decided to change.

In the first part of this series, I described how a Jesuit priest named Don Jose created a Basque cooperative–Mondragon. He could hardly have started from a more impossible position. Basque was severely oppressed, poor and under a harsh dictatorship. His Church considered him a pariah, and he was a poor speaker and sermon writer. Yet, he refused to dwell on his disadvantages, concentrating on finding Basque strengths, instead.

In part two, we examined Don Jose’s unique genius in organizing his local society. He felt it was never necessary for someone to win while someone else lost. That scenario showed a lack of ingenuity. He examined problems until he saw a solution allowing the common good for everyone.

Some argue Mondragon arose from Basque because a specific set of non-reproducible circumstances existed. To me, that sounds like rationalization to let ourselves off the hook for not seeking to better our world. While I agree Mondragon originated in Basque due to a specific set of circumstances, clearly those factors are not needed to reproduce cooperative society.

What may be necessary is a certain environment in order to affect positive change. This post will look at some of the factors influencing people’s willingness to change during the creation of Mondragon and how to use those factors to enable change in our own culture.

It’s been a rather tough week for capitalists. With people waking up from the illusion of money and riots erupting in otherwise reserved England, I almost feel a little sorry for the advocates of Milton Friedman. Almost.

As you scrape together your last dollars to exchange for gold and throw another bucket of water on your burning London flat, have you considered abandoning this system? There is a choice, you know. We choose to have this system and all the pain that comes with it. Not offering opposition to a bad system is making a choice to continue with the dysfunction.

What’s that? You didn’t know you had choices? No one has explained to you the alternatives? Well, if you don’t feel obligated to ride this sinking ship to the bottom of the ocean, come along with us as we start talking solutions.

In Part I of this three part series, we discussed the history of a little known cooperative venture called Mondragon. This company went from a twelve-man paraffin stove manufacturing plant to a conglomerate that holds Wal-mart at bay in miniscule country of Basque, and employs 130,000 people. The cooperative has a remarkable 80% success rate in business ventures, far outstripping the typical success rate of 20% (less in this market). It has consistently helped the Basque people strengthen their communities with education, health care, housing and a robust social safety net.  It creates jobs where none existed before, stabilizing their economy while nearby Spain and Portugal flounder.

How could this one company achieve such miraculous results? Well, it may actually be a divine intervention–through a Jesuit priest named Don Jose. In this segment, I delve deeper into Don Jose’s unique genius in devising the Mondragon system.

1941, Office of the Archbishop of Spain:

“They just released you?” Archbishop Balbino Oliver eyed the priest standing before his desk with suspicion. Something about the young man unsettled him.

“I believe it was in error. They did not realize I had written so much against Franco. When God spared my life, I enrolled in the seminary.”

He possessed humility. Good. Yet something about the eyes… “Even under the care of the church, Franco may not let you go so easily.”

“Yes, it is best if I left Spain. I could continue my writing in Belgium. I think I can…”

“God granted you a precious gift, my son.” The Bishop leaned back, considering. His left eye. That was it. “It would be unwise to waste the gift with further agitation of forces beyond your control.” Yes, his left eye stared back slightly wider, giving him a permanently quizzical expression. Father Bertolli had mentioned him losing his eye in an accident.

“But the work I’ve been doing…”

“Is against Church official policy.” The Archbishop leaned forward to study the documents the priest had presented him. “You are Basque, no?”

“Yes, but in Belgium…”

“Father Tillous requested an assistant in Mondragon, only 50 miles from where you grew up. Franco is unlikely to bother you, there.”

“Out there, he is unlikely to need to.” The young man bowed his head curtly, murmuring the obligatory goodbye.

The bishop’s gaze followed his receding figure. Even with his back turned, the young man disturbed him. Perhaps something other than his eye then…

Balbino had no way to know, he had just set Don Jose on course to change the world.

A Press conference was held at the National Press Club on 11 January 2011 at 10AM and lasted a little over an hour with statements at the beginning and refreshingly, considering what we usually get in our so called political discourse and from the journalism profession, intelligent questions and answers following.

Cross-posted many places including DailyKos.

On Thursday afternoon the AFL-CIO held a rally to protest the banking bailout and demand a peoples’ bailout. There was a call for not just regulating the banks that almost took this nation down but also doing an about face and forcing the bankers to bailout the people.

Do you think Wall Street should pay for the jobs they destroyed?

“People in New York and across the country who did nothing wrong and want to work have paid for the misdeeds of the big banks with their jobs, homes and retirement savings,” said Richard Trumka, the A.F.L.-C.I.O. president.

Do the elected officials of this nation think Wall Street should pay for the jobs they destroyed?

See a few photos and read some people’s stories below.  

Our favorite irascible media tyrant is in the news once again, and once again it’s time for me to bring you a story of doing one thing while wishing for another.

In a November 6th interview, Sky News Australia’s David Speers spent about 35 minutes with the CEO of NewsCorp, Rupert Murdoch; the conversation covering topics as diverse as software piracy, world economics, the role of Fox News (and Fox NewsPinion©) in American politics, a strange defense of Glenn Beck, and, not very long afterwards, an even stranger defense of immigration.

We have heard a lot about the…how can I put this politely…challenges Murdoch seems to face associating factual reality with his reality, and we could have lots of fun going through his factual misstatements-but instead, I want to take on one specific issue today:

Rupert Murdoch says he hates it when people steal his content from the Internet to draw readers to their sites…which is funny, if you think about it, because he has no problem at all stealing my content (and lots of yours, as well) for his sites.

The Parables of Jesus were spoken in symbolic language which lends them to a variety of different, though often interrelated interpretations.  Indeed, the very structure of the words which form them make any one sole meaning impossible.  It is this fact in particular that has made me skeptical of any church or any faith which stakes a claim to the “real” way.  Biblical scholarship has revealed nuance and even irony in the original text itself, both of which must be taken into account before forming any one-sided reading.  Jesus often spoke indirectly to avoid persecution by both Roman and Jewish authorities, but beyond the obvious, I have always seen the Parables much as I would an excellent work of poetry, one which provides a new, helpful, before unseen resonance with every subsequent reading.  The intrinsic thread remains constant, but new permutations arise as I age and depending on what frame of mind I am in at that particular juncture in my life, I always glean something brand new.

When we talk about our own complicity in a system where those at the top dictate the course of action for those subservient to them, I return to the Parable of the Talents.  In this day and age where we often believe that our own power, income, and sphere of influence owes its existence to making compromises with unethical major players, this Parable address our messy moral dilemmas.  Here, the version in the Gospel of Matthew, which is cited most frequently.    

According to this Huffington Post by Tom D’Antoni, the reason Paulson was rushing to put the bailout deal through — and the reason Democrats are supporting the basic need for the bill — is because hedge funds come up for renewal on October 1st.  

Without a shoring up of that market, D’Antoni explains, there would have been (and may still be) a run to pull out money from hedge funds that could have (and may still) spur a worldwide collapse:

During the White House meeting, it appears that Sen. John McCain had an agenda. He brought up alternative proposals, surprising and angering Democrats. He did not, according to someone briefed on the meeting, provide specifics.  One of the proposals — favored by House Republicans — would relax regulation and temporarily get rid of certain taxes in order to lure private industry into the market for these distressed assets.

(snip)

The real reason why there is such a [Democratic] clamor for [Paulson’s) bill, and a rush to get it passed is that there may be billions of dollars pulled out of the hedge funds…money that is due on October 1. This may be the famed October surprise, but one that nobody figured was coming. If that money is due and the hedge funds can’t pay, they will collapse.

But Paulson’s [Republican] Wall Street pals are clamoring for help to clean up the mess that their irresponsible lending and greedy practices brought us, with McCain only pouring fuel on the fire he and his GOP deregulatory cronies helped start.

More at this link:

http://www.huffingtonpost.com/…