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The thing that demands growth is private equity investors. They demand that growth because they borrowed a ton of money and have to pay it back. No one demanded
by sclarisse 3y ago
The thing that demands growth is private equity investors. They demand that growth because they borrowed a ton of money and have to pay it back. No one demanded they borrow the money. No one demanded the bank lend them the money. They could have used half the leverage (and made half the profits per dollar invested if it succeeded.)
No one demanded they enter this line of business at all. It’s a risk game. It’s optional. If they had won, they’d be welcome to the cash; they didn’t, so, the banks that own the loan are welcome to ownership of the company. The real problem here is that if the bank had failed badly enough, the taxpayers might end up on the hook, which is why bailouts are bad, but that’s another matter, because the current wave of failures is more about interest rates on Treasuries than anything else. Maybe that will change. But with interest rates normalizing after 15 years, we’re liable to see less of this nonsense, not more.
- jacknews 3y agoPE is just the most egregious example of capitalism, where they can extract all the future value of a company immediately by swapping in debt. But almost by definition, capitalism requires growth, else why would anyone place capital in a business.
- Malowne 3y agoDividends
- sclarisse 3y agoIf this were true “by definition”, no bank would issue loans, no pension fund would buy bonds, and the only place you’d find landlords renting out homes are in cities with massive price appreciation. There would be absolutely no business occurring in Japan and “value investing” strategies would never have been imagined. Growth is lucrative, but capitalism can put a price on finitude just fine.
- jacknews 3y agooh, so where do loans come from? They compare to govt money, which is constantly inflating, aka growing. growth is baked into the system.
- sclarisse 3y agoBank loans are tied to US government interest rates because borrowers are competing with the government to borrow money, not because the banks are relying on it in some economically fundamental way. (It might be fundamental to some bank’s business plan, especially in the moment, I’ll grant that.) Although I will admit, the only story in which the US government debt is anything other than insanely irresponsible, destined to become a millstone around our necks for decades to come? That one involves growth, and lots of it.