But maybe that's an unfair point of view. Is there a steelman case to be made for PE?
I listened to https://freakonomics.com/podcast/are-private-equity-firms-pl... but didn't come away with a rosier view of them.
Defined benefit pension plans shouldn't be a thing in the first place: they're too risky for workers, employers, and taxpayers alike. All pensions should be replaced with defined contribution plans like 401(k) where assets are safely held in individual named accounts.
And thanks to the current administration you will soon be able to direct 401k money to them.
If they fail, we suffer as those businesses we depend upon fail and disappear. Everything from big national chains to your local doctors office can be destroyed in this way.
But if private equity succeeds, we also suffer.
Private equity is… private. Normal people have our savings invested in public markets. We can’t easily invest in private equity, and we shouldn’t because it’s too risky.
But imagine a world where every strong business goes private and only failing businesses are public. The wealthy take everything private so they don’t have to share the wealth.
IMO any business over a certain size should be forced to be public and no option to go private again.
Financial entities you rely on (pension funds, insurance companies, and universities among others) invest, and you may be getting access yourself thanks to Trump!
> IMO any business over a certain size should be forced to be public and no option to go private again.
What on earth is the rationale for this policy? If you build a successful company, you're required by law to give up control?
Unfortunately, there are a lot of armchair spectators that don't understand how the economy actually functions; and they've got brigades that go after people that do actually know who speak out (based on certain keywords).
As a result, its totally not worth talking about since the point of no return has largely already come and gone and we're stuck in a hysteresis trap.
People don't see how the things we are seeing today were predictable outcomes given choices made at the money-printer level (i.e. Fed/Private Banking).
No deposit requirement, is no reserve money-printing. It always fails, but I'm sure someone will say... but this time will be different. Needless to say, any discussion on economics is basically flame bait these days with a lot of delusional people on both sides of the aisle.
Fractional Banking (RIP, Circa 2020).
That's the opposite of what happens with PE. PE firms don't buy fairly priced, well run businesses. They (typically) buy underpriced, poorly performing but cash flow heavy businesses that would benefit from leveraging up and making operations more lean.
Think about it, if a business is fairly priced and well run, PE firms have no incentive to buy it because where do they generate returns?
I don't like PE firms but there's no doubt that they force businesses to operate better, and ultimately that benefits people like you and me who have retirement savings, because PE firms aren't getting their money out of thin air.
Please keep being greedy. You know where this is going.
They're trying to sell assets bought with cheap money and a lower acceptable rate of return to buyers with higher financing costs and a higher risk free rate of return.
They're going to be holding onto those assets for a while, until they either accept that they need to eat the loss to get liquid or their paper losses are inflated away.
zerosizedweasle•2h ago