While we wait for new information on the main subject of this blog, consider the wisdom of this brilliant essay by one of America’s most famous Supreme Court justices. The Columbia College Class Book of 1889 states that this was delivered as Cardozo’s commencement oration on June 12, 1889. It has laid buried and largely forgotten for 100 years, but now, in the age of the internet, it must not be allowed to die. Please spread this around. If you read nothing else, read the final paragraph!
There comes not seldom a crisis in the life of men, of nations, and of worlds, when the old forms seem ready to decay, and the old rules of action have lost their binding force. The evils of existing systems obscure the blessings that attend them; and, where reform is needed, the cry is raised for subversion. The cause of such phenomena is not far to seek. “It used to appear to me,” writes Count Tolstoi, in a significant passage, “it used to appear to me that the small number of cultivated, rich, and idle men, of whom I was one, composed the whole of humanity, and that the millions and millions of other men who had lived and are still living were not in reality men at all.” It is this spirit — the spirit that sees the whole of humanity in the few, and throws into the background the millions and millions of other men — it is this spirit that has aroused the antagonism of reformers, and made the decay of the old forms, the rupture of the old restrictions, the ideal of them and of their followers. When wealth and poverty meet each other face to face, the one master and the other dependent, the one exalted and the other debased, it is perhaps hardly matter for surprise that the dependent and debased and powerless faction, in envy of their opponents’ supremacy, should demand, not simple reform, but absolute community and equality of wealth. That cry for communism is no new one in the history of mankind. Thousands of years ago it was heard and acted on: and, in the lapse of centuries, its reverberations have but swelled in volume. Again and again, the altruist has arisen in politics, has bidden us share with others the product of our toil, and has proclaimed the communistic dogma as the panacea for our social ills. So today, amid the buried hopes and buried projects of the past, the doctrine of communism still lives in the minds of men. Under stress of misfortune, or in dread of tyranny, it still is preached in modern times as Plato preached it in the world of the Greeks. Read the rest of this entry »
Peter Morici: “How Would Romney Fix Capital Markets So That Investing Is About Creating Jobs, Not Pirating Profits?”
Peter Morici, Professor at Smith School of Business at the University of Maryland and former Chief Economist of the US International Trade Commission, writes the following on the FoxNews web site. Note: Investing is not accurately described as “about creating jobs,” but nonetheless Morici makes valid points about the way private equity operates.
Banking and capital markets have become a rigged game, making private equity executives and investment bankers rich and denying ordinary Americans jobs and a decent retirement.
In the wake of Dodd-Frank, more than 60 percent of all U.S. bank deposits are controlled by a handful of Wall Street financial houses; hence, depositors get less than one percent interest, while banks charge 4 percent or more for low risk loans—if you can get one.
Most Americans are watching their retirement accounts wither, even as corporate profits and executive bonuses soar.
In February 1998, the S&P 500 first closed above 1,000. Since then, corporate profits are up more than 240 percent, while stocks have risen 31 percent—less than required to keep pace with inflation. Read the rest of this entry »
[This is a slightly edited submission by reader DYNAMISM. All opinions here are commentary by the writer on a matter of important public interest, and are not submitted as statements of definite fact or law. Any inaccuracies in matters referred to in this or other posts will be corrected immediately upon request. Indeed, since this post is directed at the PE method which is in issue, any responses which indicate why the method referred to here is described incorrectly are encouraged.]
I also landed here via Professor Jacobson’s Legal Insurrection blog.
Glad to see a site on this topic. I figured I’d share a response:
Too many people are defending Romney as just being a good little capitalist, when this isn’t really the case—rather, it appears that he was a private equity manager playing shell games with investors. I think most would agree that there should be restraints against somebody selling watered-down gas… so why not against dishonest debt instruments? I think most agree that if a minority shareholder uses company money to issue himself a big paycheck, this is embezzlement from the other shareholders. But when Private Equity firms do this via multi-million dollar consulting fees, is the result different? (Note: These are rhetorical points on the business ethics involved—I’m not advocating that the government should step in and regulate any of this. I’d rather prefer they didn’t, and that such matters be resolved in civil courts as common law disputes, etc.)
Now the crux of this problem is of course the government. Their corporate limited liability laws unfairly rip up contracts between creditors and debtors. Making debt financing tax deductible, but not equity financing, has seriously skewed the corporate structure. And lastly, the Federal Reserve issuing so much debt (largely indirectly) and then bailing out said debt (→ moral hazard) is a significant problem in aiding and abetting the private equity craziness of reckless LBOs, etc. Read the rest of this entry »
Once again today Rush Limbaugh avoided anything that sounded like an endorsement of Newt Gingrich, preferring to categorize the South Carolina results as a message to everyone rather than an endorsement of Newt. And he made a point of repeating his concerns that Newt engages in “anti-capitalist” rhetoric.
Here’s an observation and prediction: Just like the recent article by Daniel Henninger in the Wall Street Journal, which repeated nothing but generalities and platitudes in contending absurdly that Bain Capital “saved America,” the regular tactic of the anti-Newtonians has been to distort Newt’s words and imply that his allegations go far beyond, and are much different from, what Newt actually said. (See the sidebar to this website for a clear statement of Newt’s argument).
Just as Rush (and Drudge) continued to repeat the incorrect report that Newt was backing down from the Bain charges, even after it should have been clear that the original sources were misreporting Newt’s words, what we have here is a failure to communicate. A large part of the problem is that Rush has been focusing on what the Establishment has said ABOUT what Newt said, instead of Newt’s own very focused comments.
To this day Rush has yet to articulate the the full and legitimate criticism: that private equity in many cases does NOT act as venture capitalists or turnaround specialists, but in fact engages in a conscious business plan of immense borrowing, immediate capital withdrawal, and little or no re-investment, followed shortly by bankruptcy or sale of the hobbled shell of a company that is left behind. And the fact that Rush has NOT articulated Newt’s argument is very telling.
So here’s the prediction: Rush has for many years been a stalwart defender on conservative values, but he has rarely devoted much time to studying the details of how some of the arcane dealmaking on Wall Street really works. The time will soon come when SOMEONE will get to Rush and explain to him in full detail what the allegations against Private Equity are all about, and at that point a light will go off in the half his brain not tied behind his back, and Rush will say to himself “So THAT’s what Newt was talking about!”
Newt has the allegiance of some of the best economic minds in the country, not the least of which is Arthur Laffer. It’s long past time someone gave Rush the details he needs to put this story in perspective. We have one too many Ann Coulters already.
I am expecting at least one significant new article to hit the press in the very near future on Private Equity in general and Bain in particular, and that will be posted here immediately. While we wait for that, here’s a link to an interview with David Stockman on the issue of crony capitalism. This link comes from Mike Shedlock’s Global Economic Analysis blog, one of the best on the internet. Confession: I haven’t had the opportunity to watch the full video before posting this, and I’m relying on Mish’s excerpts. Generally this blog isn’t a fan of Bill Moyers, and one has to be very careful in making statements aout what is good for “society as a whole.” If there’s too much that is objectionable embedded here this post may disappear from this blog! Nevertheless I expect the background information provided here will be helpful in evaluating Private Capital.
DAVID STOCKMAN: A massive amount of resources are being devoted, being allocated or being channeled into pure financial speculation that has no gain to society as a whole, has no real economic contribution to the process by which GNP is created, GDP is created and growth occurs.
By 2007 40 percent of all the profits in the American economy were coming from finance companies. 40 percent. Historically it was 15 percent.
So the financialization means that as we attracted more and more resources and capital, and we made speculation easier and easier, and we funded it with almost free overnight money, managed and manipulated by the Fed, that’s how the economy got financialized. But that is a casino. Casinos — they’re, you know, places for people to go if they want to speculate and wager. But they’re not part of a healthy, constructive economy.
In 1964 Ayn Rand published in Cosmopolitan Magazine an essay entitled “The Money-Making Personality.” That essay is available on Google Books as part of the book “Why Businessmen Need Philosophy”
This article contains tremendous insight into the difference between the difference been the Money-Maker and the Money-Appropriator, of which the following is a taste:
Read the rest of this entry »
One of the leading books currently on the market that explains the details of “Private Equity” and Bain Capital’s involvement in it is Josh Kosman’s “The Buyout of America.
Kosman examines the history of Private Equity and the techniques that distinguish it from “venture capitalism” in chapters one through five, and then in chapter six focuses directly on Bain Capital and Mitt Romney.
Excellent reading and essential for anyone who wishes to understand the Private Equity controversy.