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None of the dismissive comments here are addressing the actual points raised by @doctorow. The scam is that people on wall street who know nothing about buildi

None of the dismissive comments here are addressing the actual points raised by @doctorow. The scam is that people on wall street who know nothing about building or running a business have used their political connections and existing cash to become even richer and more powerful through government bailouts, selling off assets whose long-term value they don't understand and defaulting on pensions -- in other words, without actually creating any new wealth. Blackstone/Schwarzman is abusing the fact that starting a new hospital is difficult, even if the only one in the city is incompetently managed. They are not creating new value, and so should not be getting so rich. The people who do the actual work of starting and running successful businesses should be. EDIT: Specifically, Schwarzman et al are abusing what economists call short-term "stickiness." It is not economically productive, as the firms with artificially high profit margins are not competitive and so a new equilibrium will eventually be established, putting them out of business. (That's why so many ultimately do) This property makes Schwarzman's behavior a form of rent-seeking, and not capital investment as he would probably have you believe. Anti-trust law is designed to limit the abuse of stickiness in the economy, but as rent seeking becomes the source of wealth for an increasing percentage of western elites, anti-trust and other financial regulations designed to combat abuses have become increasingly difficult to enforce.

nojvek 7y ago
The problem is anti-trust is sleeping with PE folks. Our government has people coming in and out of corporations with conflict of interests. Here is Matt Stroller’s take on Private Equity. https://mattstoller.substack.com/ https://mattstoller.substack.com/ The reason why US is being decimated by COVID-19 is we’ve lost a ton of our competitive edge by offshoring and the rich wankers want to profit at any cost. Even if it means other people die.
- valuearb 7y ago
  Off-shoring has greatly increased the wealth of the United States by allowing us to focus on higher value work, while at the same time providing poorer countries higher value work themselves. It's the law of comparative advantage in action. U.S. workers might be better at assembling iPhones than Chinese people, but if we let them assemble while we design iPhones, build it's software systems and apps, and accessories both countries come out far ahead. Chinese get paid far more while escaping brutal rural labor jobs, we develop far more software developers and designers, who get to work remotely during COVID-19 and are in higher demand than ever.
  - etrabroline 7y ago
    That is a false dichotomy. Americans used to both design and manufacture computers in the US. IBM and Apple both did until into the 2000's. Jobs for both engineers and blue collier factory workers are possible if this cult of GDP is put to rest. Tell the "total wealth has increased" shtick to the millions of American workers who are poorer because of offshoring, or the thousands who will die of the novel corona virus because we can't manufacture enough masks to give them to health care workers, let alone ordinary people.
    - valuearb 7y ago
      American median incomes continue to climb, and unemployment was at record lows at the beginning of the year. Paying someone $30k a year to assemble computers isn’t a good job, nor is it good business decision when it would be a great job for workers in other countries at $10,000 per year. The law of comparative advantage tells us the path to Greater wealth is to specialize at what you do best. Imagine if you were a lawyer and an amazing typist and you want to make as much money as possible. You could spend 20 hours a week typing up your own documents because you do it twice as fast as any secretary you could hire. But you make $200 an hour for legal work and the secretary costs $20 per hour. You can do everything yourself, and make $4000 a week, or hire a full time secretary and make $7,200 a week. Apple saves money assembling iPhones in China, which helps them to price more competitively and sell more iPhones, creating more engineering, marketing, app developer, designer, tester, and manager jobs here. I’d rather have those jobs here instead of assembly work.
      - nojvek 7y ago
        The problem is that we are slowly losing our specialization. China is learning how to manufacture better than us. Then they learn how to assemble better than us, they copy + improve. China could destroy Apple in a heartbeat by ordering FoxConn to charge a much higher premium for Apple phones than their own local brand.
      - etrabroline 7y ago
        So you think having all the fastest growing smart phone companies in China is creating more high skilled jobs the US than if those new companies were American? Sounds implausible. Your argument boils down to: "well they haven't outsourced my job yet!" With all the manufacturing happening in China, it's only a matter of time before Alibaba and Oppo dislodge Apple and Google.
valuearb 7y ago
You are tossing out a bunch of weakly connected arguments that don't make a lot of sense. Everyone can agree that using political connections to produce economic advantages are bad, but what does that have to do with PE firms in general? Most PE firms are just investment funds run by people trying to make the best decisions they can. They provide very important liquidity to entrepreneurs and early stage investors so they can actually be rich. Few are great operators, but the successful ones understand value and capital structures very well. To quote Tommy Boy, "Sometimes you have to take a few companies behind the shed and bash them on the head with a shovel". Warren Buffett took control of Berkshire Hathaway through a hostile takeover, threw out the management and drained it of all it's operating capital and profits until the original business died. He did that because the original business was dying, and management was destroying investment capital trying to keep it alive. Warren didn't know how to run a successful US based textile firm, but he was smart enough to know at the time it was almost impossible and that the management couldn't do it and would kill the company trying. Today Berkshire Hathaway employs hundreds of times more employees at far higher income levels than it did then. Successful PE firms are good at separating productive assets from failing businesses, and funding good businesses that need scale, and those are things that create a lot of value.
- etrabroline 7y ago
  It's not an issue with the theoretical concept of private equity, it's an issue with what these vehicles are being used to do in the real world. https://www.counterpunch.org/2020/04/03/hospital-bailouts-begin-for-those-owned-by-private-equity-firms/ https://www.counterpunch.org/2020/04/03/hospital-bailouts-be... https://www.bing.com/search?form=MOZLBR&pc=MOZI&q=private+equity+bailouts https://www.bing.com/search?form=MOZLBR&pc=MOZI&q=private+eq... Outside of a your theoretical framework that is not what creating new wealth means to any normal person. If some businesses fail then so be it. You are trying to conflate that with what is being discussed by @doctorow. How about this. In turn, explain to me how these three activities create wealth instead of just redistribute it upwards: - government bailouts - selling off assets whose long-term value PE doesn't understand or care about - defaulting on pensions Those are the points I'm making, if you want to discuss something else, go ahead. >PE firms are good at separating productive assets from failing businesses Good for whom, and no, many of these businesses are not failing when PE sells off all their assets. Boeing did the same thing with much of the 787 production line and weren't in any financial trouble at all. EBITDA is just a short sighted power grab by finance capital. >provide very important liquidity The banks are just middle men for the Fed at this point, and stingy ones at that. The banks are so bad, it would be better for the Fed to just give the money to businesses directly. >funding good businesses that need scale This is more a critique of leverage in general, but this is how amazon put profitable competitors out of business by not turning a profit and is now cranking up profits probably beyond the point of sustainability. Also see https://qz.com/1250772/didi-vs-meituan-vs-ele-me-chinas-food-delivery-app-battle-means-basically-free-meals-for-users/ https://qz.com/1250772/didi-vs-meituan-vs-ele-me-chinas-food... and https://supchina.com/2018/01/09/didis-war-century/ https://supchina.com/2018/01/09/didis-war-century/

nojvek 7y ago

The problem is anti-trust is sleeping with PE folks. Our government has people coming in and out of corporations with conflict of interests. Here is Matt Stroller’s take on Private Equity. https://mattstoller.substack.com/ https://mattstoller.substack.com/ The reason why US is being decimated by COVID-19 is we’ve lost a ton of our competitive edge by offshoring and the rich wankers want to profit at any cost. Even if it means other people die.

valuearb 7y ago
Off-shoring has greatly increased the wealth of the United States by allowing us to focus on higher value work, while at the same time providing poorer countries higher value work themselves. It's the law of comparative advantage in action. U.S. workers might be better at assembling iPhones than Chinese people, but if we let them assemble while we design iPhones, build it's software systems and apps, and accessories both countries come out far ahead. Chinese get paid far more while escaping brutal rural labor jobs, we develop far more software developers and designers, who get to work remotely during COVID-19 and are in higher demand than ever.
- etrabroline 7y ago
  That is a false dichotomy. Americans used to both design and manufacture computers in the US. IBM and Apple both did until into the 2000's. Jobs for both engineers and blue collier factory workers are possible if this cult of GDP is put to rest. Tell the "total wealth has increased" shtick to the millions of American workers who are poorer because of offshoring, or the thousands who will die of the novel corona virus because we can't manufacture enough masks to give them to health care workers, let alone ordinary people.
  - valuearb 7y ago
    American median incomes continue to climb, and unemployment was at record lows at the beginning of the year. Paying someone $30k a year to assemble computers isn’t a good job, nor is it good business decision when it would be a great job for workers in other countries at $10,000 per year. The law of comparative advantage tells us the path to Greater wealth is to specialize at what you do best. Imagine if you were a lawyer and an amazing typist and you want to make as much money as possible. You could spend 20 hours a week typing up your own documents because you do it twice as fast as any secretary you could hire. But you make $200 an hour for legal work and the secretary costs $20 per hour. You can do everything yourself, and make $4000 a week, or hire a full time secretary and make $7,200 a week. Apple saves money assembling iPhones in China, which helps them to price more competitively and sell more iPhones, creating more engineering, marketing, app developer, designer, tester, and manager jobs here. I’d rather have those jobs here instead of assembly work.
    - nojvek 7y ago
      The problem is that we are slowly losing our specialization. China is learning how to manufacture better than us. Then they learn how to assemble better than us, they copy + improve. China could destroy Apple in a heartbeat by ordering FoxConn to charge a much higher premium for Apple phones than their own local brand.
    - etrabroline 7y ago
      So you think having all the fastest growing smart phone companies in China is creating more high skilled jobs the US than if those new companies were American? Sounds implausible. Your argument boils down to: "well they haven't outsourced my job yet!" With all the manufacturing happening in China, it's only a matter of time before Alibaba and Oppo dislodge Apple and Google.

valuearb 7y ago

You are tossing out a bunch of weakly connected arguments that don't make a lot of sense. Everyone can agree that using political connections to produce economic advantages are bad, but what does that have to do with PE firms in general? Most PE firms are just investment funds run by people trying to make the best decisions they can. They provide very important liquidity to entrepreneurs and early stage investors so they can actually be rich. Few are great operators, but the successful ones understand value and capital structures very well. To quote Tommy Boy, "Sometimes you have to take a few companies behind the shed and bash them on the head with a shovel". Warren Buffett took control of Berkshire Hathaway through a hostile takeover, threw out the management and drained it of all it's operating capital and profits until the original business died. He did that because the original business was dying, and management was destroying investment capital trying to keep it alive. Warren didn't know how to run a successful US based textile firm, but he was smart enough to know at the time it was almost impossible and that the management couldn't do it and would kill the company trying. Today Berkshire Hathaway employs hundreds of times more employees at far higher income levels than it did then. Successful PE firms are good at separating productive assets from failing businesses, and funding good businesses that need scale, and those are things that create a lot of value.

etrabroline 7y ago
It's not an issue with the theoretical concept of private equity, it's an issue with what these vehicles are being used to do in the real world. https://www.counterpunch.org/2020/04/03/hospital-bailouts-begin-for-those-owned-by-private-equity-firms/ https://www.counterpunch.org/2020/04/03/hospital-bailouts-be... https://www.bing.com/search?form=MOZLBR&pc=MOZI&q=private+equity+bailouts https://www.bing.com/search?form=MOZLBR&pc=MOZI&q=private+eq... Outside of a your theoretical framework that is not what creating new wealth means to any normal person. If some businesses fail then so be it. You are trying to conflate that with what is being discussed by @doctorow. How about this. In turn, explain to me how these three activities create wealth instead of just redistribute it upwards: - government bailouts - selling off assets whose long-term value PE doesn't understand or care about - defaulting on pensions Those are the points I'm making, if you want to discuss something else, go ahead. >PE firms are good at separating productive assets from failing businesses Good for whom, and no, many of these businesses are not failing when PE sells off all their assets. Boeing did the same thing with much of the 787 production line and weren't in any financial trouble at all. EBITDA is just a short sighted power grab by finance capital. >provide very important liquidity The banks are just middle men for the Fed at this point, and stingy ones at that. The banks are so bad, it would be better for the Fed to just give the money to businesses directly. >funding good businesses that need scale This is more a critique of leverage in general, but this is how amazon put profitable competitors out of business by not turning a profit and is now cranking up profits probably beyond the point of sustainability. Also see https://qz.com/1250772/didi-vs-meituan-vs-ele-me-chinas-food-delivery-app-battle-means-basically-free-meals-for-users/ https://qz.com/1250772/didi-vs-meituan-vs-ele-me-chinas-food... and https://supchina.com/2018/01/09/didis-war-century/ https://supchina.com/2018/01/09/didis-war-century/