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Kevin Wolf

It's nice to see such a plain statement of fact re the right wing attack on, well, virtually everybody (whether people realize they're a target or not). I'm so full of rage these days I can barely comment cogently, let alone write a good post.

J. Dvorak

John Sununu has the gall to make a comment on anything? I thought he was still hiding out from taking an Air Force jet from Washington to wherever his local dentist practiced....

Papertissue

Here is an honest question for LM readers. No trolling and no shilling.

Is there a place for thoughtful, long term-focused investors who take over troubled companies and turn them around through smart strategies that include repositioning, creation of better products and yes, cost cutting?

There is a lot of slime in the industry, like in all sectors, and private equity gets a lot of criticism, deservedly so. But I don't think I have read a positive story on an ethical PE firm that took over a company, made difficult decisions but ultimately turned it around for the benefit of the PE firm and the employees.

Please, don't give me additional links and stories of private equity horrors, I've had enough. I am genuinely interested in hearing about the positive side of the industry.

Sherri

Papertissue, there may be a place for thoughtful, long term investors who take over troubled companies and turn them around, but it's not private equity. PE, like its earlier incarnation the leveraged buyout, is not long term; it uses other people's money to buy companies, then takes advantage of our tax code's favorable treatment of debt to get that money back out of the company. They cut costs and sell the company and move on. If they happen to create a better company along the way, that's a happy accident, but it's not a strategy.

Long term investing to improve troubled companies is more along the lines of what Warren Buffett and Berkshire Hathaway does.

Papertissue

Thanks Sherri.

I am confused why using other people's money keeps getting brought up. Ford has a lot of debt as does Microsoft. Other people willingly lent them money with an expectation that they'll get more back. Is that evil?

Many companies are very aggressive in looking for tax code loopholes. That has been brought up recently but I feel like they don't get as much slack for it as PE groups. Every one of us tries to find legal ways to pay less taxes. Is that evil?

Again, I am not defending the industry. It confuses me that we focus on arguments that don't seem to matter as much.

Sherri

Debt is not evil per se. Nobody builds a factory without debt. The difference is in what you use the debt for.

What I mean by other people's money is that PE firms take money that other people have invested with them and use that to buy companies. Those people expect a return on their money. After the PE firm has bought the company, they use the company to borrow money to return money to their investors, while getting a tax break on the interest on the debt. Generally, the reason our tax code gives breaks on debt is to encourage investment in the company, which is not what is going on in the PE world.

It's also not quite what's going on with a company like Microsoft, either, but in a different way. Microsoft has a ton of cash in the bank, but also has a credit rating better than the US government right now. It's cheaper for Microsoft to borrow money than to invest it. But Microsoft's not borrowing money to pay back investors (not much, anyway; money is fungible, but Microsoft doesn't pay much of a dividend on its stock.)

And Microsoft (and Apple and other companies) do get flack for avoiding taxes. They keep a lot of profits out of the country, to avoid US taxes. Apple has a little office in Reno, NV for the express purpose of moving money to avoid California taxes. All legal, but at some point, you're shirking responsibility.

KeithB

We can always let the firefighters burn books...

xulon

Most people don't have simply economic conceptions of those terms though. Work, purpose, usefulness aren't merely matters of making money.

The modern idea is that people's investment in their jobs is paid in full on Friday. That is so far from the truth.

Also, "Employees are expenses", said the Vice President of American Airlines, "They are not assets like planes or computers." If you don't mind, I attempt here ( http://xulonjam.wordpress.com/2011/05/25/capitalism-and-the-attack-on-the-imago-dei/ ) to address from a Christian theological perspective the dehumanizing of employees, even as they justify Millions per year for themselves "to attract the best people".

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