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The business isn’t “buying itself” any more than a house does when you purchase it. The debt is just placed against the assets (real assets and cash flow). The

The business isn’t “buying itself” any more than a house does when you purchase it. The debt is just placed against the assets (real assets and cash flow). The business has owners. It doesn’t “own itself”. I don’t think it is predatory at all. A leveraged buyout is a pretty fundamental and common strategy across all business types and sizes. Don’t hate the strategy of buying a business with debt, hate the players that execute it like assholes.

KerrAvon 3y ago
It's literally the legality of the strategy that enables the players to behave like assholes in this particular incredibly destructive way. The use of debt financing needs to be made illegal or have stronger constraints, for the health of the country in general.
IX-103 3y ago
When I buy a house, the house serves as collateral on the mortgage, but ultimately I'm responsible for the loan. So I'm liable for the loan amount and am legally obligated to pay. A leveraged buyout is similar except the "house" is responsible for the mortgage and will suffer reputational damage if it fails to pay. But no person or collection of people are obligated to pay (ignoring the collateral). One of the benefits of corporations is that the limitations is liabilities allow them to take risks that would be prohibitive for individuals. Originally corporate charters required direct intervention by the government chief executive or legislature. Corporations were limited to tasks that served a public benefit as that government wanted to incentivize. Leveraged buyouts where the buyer doesn't intend to continue the business long term or true to drain value from the company instead of focusing on it's main business seem like an abuse of the trust the public has invested in these companies when it gave them a corporate charters. Of course, nowadays you can get a corporation with little to no documentation at low cost, so maybe the government doesn't actually give a shit what they do...
klabb3 3y ago
> Don’t hate the strategy of buying a business with debt, hate the players that execute it like assholes. The purpose of a system is what it does. Players take whatever they can get away with, in this case a good old mafia bust-out, but laundered legal. In the shadowy world of PE, there’s even less transparency and accountability than the usual near-zero amount. I mean, you could just wait for the mob justice of a fully fledged revolution to do its magic but I think most of us would prefer toothful regulation.

KerrAvon 3y ago

It's literally the legality of the strategy that enables the players to behave like assholes in this particular incredibly destructive way. The use of debt financing needs to be made illegal or have stronger constraints, for the health of the country in general.

IX-103 3y ago

When I buy a house, the house serves as collateral on the mortgage, but ultimately I'm responsible for the loan. So I'm liable for the loan amount and am legally obligated to pay. A leveraged buyout is similar except the "house" is responsible for the mortgage and will suffer reputational damage if it fails to pay. But no person or collection of people are obligated to pay (ignoring the collateral). One of the benefits of corporations is that the limitations is liabilities allow them to take risks that would be prohibitive for individuals. Originally corporate charters required direct intervention by the government chief executive or legislature. Corporations were limited to tasks that served a public benefit as that government wanted to incentivize. Leveraged buyouts where the buyer doesn't intend to continue the business long term or true to drain value from the company instead of focusing on it's main business seem like an abuse of the trust the public has invested in these companies when it gave them a corporate charters. Of course, nowadays you can get a corporation with little to no documentation at low cost, so maybe the government doesn't actually give a shit what they do...

klabb3 3y ago

> Don’t hate the strategy of buying a business with debt, hate the players that execute it like assholes. The purpose of a system is what it does. Players take whatever they can get away with, in this case a good old mafia bust-out, but laundered legal. In the shadowy world of PE, there’s even less transparency and accountability than the usual near-zero amount. I mean, you could just wait for the mob justice of a fully fledged revolution to do its magic but I think most of us would prefer toothful regulation.