6 ms·

I wonder if we’ll ever get the guts to outlaw PE somehow, or at least make it so unprofitable it’s very rare. Nothing good ever seems to come from it, despite

by MBCook 3y ago

I wonder if we’ll ever get the guts to outlaw PE somehow, or at least make it so unprofitable it’s very rare. Nothing good ever seems to come from it, despite their claims.

candiddevmike 3y ago
It makes a lot of rich people more rich at the expense of workers and retail investors. I don't think you'll ever be able to get rid of it.
- DrScientist 3y ago
  One solution is to make sure the owners pay the social costs of company destruction. Don't let them avoid pension commitments - force them to pay decent redundancy or support employees in finding new jobs. Stop them splitting off liabilities and then having that part go bankrupt etc etc.
ryandamm 3y ago
Ended the carried interest deduction would be low hanging fruit if we want to discourage purely rent-seeking financial behavior.
milesvp 3y ago
Would be nice. I think the main fix would be making sure that debt used to buy companies can never be transferred to the company purchased. I understand that money is fungible, but accounting is often there to deal with the most egregious abuses of fungibility. It would at least make leveraged buyouts much more expensive. Especially since now, the purchased company needs to maintain some kind of profitability over several years to be able to service this debt. Oh, and make it so the purchased company cannot borrow money for several years after purchase. If the purchaser wants to borrow money and infuse it into the company that's fine. I know there's still all kinds of accounting shenanigans that can be played to payout to PE purchasers, but that'd be a good first step I think.
Aurornis 3y ago
> I wonder if we’ll ever get the guts to outlaw PE somehow PE is just a type of company that participates in the act of buying and selling businesses. You can't outlaw buying and selling businesses. You can't outlaw people working together to buy companies with financing. Yes, there are a lot of PE horror stories, but there are also 100X more invisible private equity style buyups that you never hear or think about because nothing is going wrong. Many of them actually improve when they roll up the company. My local eye doctor was bought out by a PE firm. They came in and installed all new diagnostic equipment that was standardized across their locations. They now nail my prescription on the first try and it's faster than ever before. The service is also more streamlined. This is the kind of thing that nobody ever thinks twice about, but it happens all over the place.
- kibwen 3y ago
  > You can't outlaw buying and selling businesses. Sure you can, and I'll argue that we should. Competition is the only thing that keeps businesses honest, and acquisition is the antithesis of competition. Shut it down and force companies to compete rather than for the richest to snap up their competitors, and to force startups to dream of sustainability rather than a fat exit.
  - ribosometronome 3y ago
    So companies should live and die with the founder? Or only be able to be transferred to their heirs? That's going to be amazingly unstable compared to a system that allows businesses to change ownership.
  - dehrmann 3y ago
    You haven't thought about how bizarre this would be. All growth and declines would have to be organic, so rather than the obvious winner just buying the market loser and cutting 20% of staff, the loser would bleed-out over years. Companies also couldn't sell divisions they're not interested in, so rather than finding someone who cares, they'd have to go through the motions to not lose money while letting it slowly die. It'd be a lot of zombie companies.
zeroCalories 3y ago
Outlawing PE would be incredibly difficult. Instead we should focus on punishing individual executives, board members, and even share holders that cause harm from cutting costs. It could be a criminal case, or even a culture of directly naming, shaming, and tracking people so that they can't get involved in another company without the share price instantly tanking.
- ericmay 3y ago
  It would also be an incredibly bad idea. As usual, the underlying issue is a lack of government regulation and enforcement (and thus the fault of the people). And, frankly, most people don't care about these problems because they're abstract (to them) and the price of goods on the local multinational corporation's shelves are what they really care about. I personally spend an awful lot of time being careful about what I buy and who I buy it from. Most people even if they have the resources to do so and spend 2x-5x the low price will just refuse to do any research in the first place.
- daniel-cussen 3y ago
  [dead]
- MBCook 3y ago
  There a lot of people willing to trash a company for $20 who won’t care.
hnthrowaway0328 3y ago
I feel a lot of similar recommendations on HN are to ask the left hand to slap the right or even slap the mouth that feeds them. The point is, they don't care about us. We are just clogs on a machines and we are one type of resources just like coal and iron. The only way to struck fear is by some collective methods but then everyone got spooked by "Socialism", so the whole thing becomes a perfect loop for the aristocratics.
- MBCook 3y ago
  Why would a law preventing the purchase of a struggling company through raising large amounts of debt which is immediately stuck on their books so that they those same investors can immediately sell everything of value for profit off the scraps leaving a dead shell of a company that has to fire all their employees a bad thing? If things are so bad just let the company go bankrupt and sell off their assets. If things are recoverable then PE isn’t going to help because they’re going to put on too much debt. It doesn’t make anything better. It doesn’t fix the companies that are too far gone. It doesn’t fix the companies that could still be saved. All it does is make the investors a bunch of money at the expense of everyone else.
g9yuayon 3y ago
I don't think it will be effective. The root cause is not PE, but human nature: greed, complacency, myopia, and etc. We can outlaw PE, but Boeing can simply invent another way to maximize their profit at the cost of product quality. It looks to me the only cure is to encourage competitors, so that long before Boeing becomes this rotting organization, their talented employees can join another competitor to beat the shit of Boeing. Unfortunately there's so much regulatory capture and intertwined interests between Boeing and governments that I don't think we will see any meaningful competition for years to come.
- MBCook 3y ago
  I wasn’t thinking of Boeing specifically. Plenty of companies that seem like they should have been able to survive, at some scale, were destroyed by PE. Like Toys R Us.

by MBCook 3y ago

I wonder if we’ll ever get the guts to outlaw PE somehow, or at least make it so unprofitable it’s very rare. Nothing good ever seems to come from it, despite their claims.

candiddevmike 3y ago

It makes a lot of rich people more rich at the expense of workers and retail investors. I don't think you'll ever be able to get rid of it.

DrScientist 3y ago
One solution is to make sure the owners pay the social costs of company destruction. Don't let them avoid pension commitments - force them to pay decent redundancy or support employees in finding new jobs. Stop them splitting off liabilities and then having that part go bankrupt etc etc.

ryandamm 3y ago

Ended the carried interest deduction would be low hanging fruit if we want to discourage purely rent-seeking financial behavior.

milesvp 3y ago

Would be nice. I think the main fix would be making sure that debt used to buy companies can never be transferred to the company purchased. I understand that money is fungible, but accounting is often there to deal with the most egregious abuses of fungibility. It would at least make leveraged buyouts much more expensive. Especially since now, the purchased company needs to maintain some kind of profitability over several years to be able to service this debt. Oh, and make it so the purchased company cannot borrow money for several years after purchase. If the purchaser wants to borrow money and infuse it into the company that's fine. I know there's still all kinds of accounting shenanigans that can be played to payout to PE purchasers, but that'd be a good first step I think.

Aurornis 3y ago

> I wonder if we’ll ever get the guts to outlaw PE somehow PE is just a type of company that participates in the act of buying and selling businesses. You can't outlaw buying and selling businesses. You can't outlaw people working together to buy companies with financing. Yes, there are a lot of PE horror stories, but there are also 100X more invisible private equity style buyups that you never hear or think about because nothing is going wrong. Many of them actually improve when they roll up the company. My local eye doctor was bought out by a PE firm. They came in and installed all new diagnostic equipment that was standardized across their locations. They now nail my prescription on the first try and it's faster than ever before. The service is also more streamlined. This is the kind of thing that nobody ever thinks twice about, but it happens all over the place.

kibwen 3y ago
> You can't outlaw buying and selling businesses. Sure you can, and I'll argue that we should. Competition is the only thing that keeps businesses honest, and acquisition is the antithesis of competition. Shut it down and force companies to compete rather than for the richest to snap up their competitors, and to force startups to dream of sustainability rather than a fat exit.
- ribosometronome 3y ago
  So companies should live and die with the founder? Or only be able to be transferred to their heirs? That's going to be amazingly unstable compared to a system that allows businesses to change ownership.
- dehrmann 3y ago
  You haven't thought about how bizarre this would be. All growth and declines would have to be organic, so rather than the obvious winner just buying the market loser and cutting 20% of staff, the loser would bleed-out over years. Companies also couldn't sell divisions they're not interested in, so rather than finding someone who cares, they'd have to go through the motions to not lose money while letting it slowly die. It'd be a lot of zombie companies.

zeroCalories 3y ago

Outlawing PE would be incredibly difficult. Instead we should focus on punishing individual executives, board members, and even share holders that cause harm from cutting costs. It could be a criminal case, or even a culture of directly naming, shaming, and tracking people so that they can't get involved in another company without the share price instantly tanking.

ericmay 3y ago
It would also be an incredibly bad idea. As usual, the underlying issue is a lack of government regulation and enforcement (and thus the fault of the people). And, frankly, most people don't care about these problems because they're abstract (to them) and the price of goods on the local multinational corporation's shelves are what they really care about. I personally spend an awful lot of time being careful about what I buy and who I buy it from. Most people even if they have the resources to do so and spend 2x-5x the low price will just refuse to do any research in the first place.
daniel-cussen 3y ago
[dead]
MBCook 3y ago
There a lot of people willing to trash a company for $20 who won’t care.

hnthrowaway0328 3y ago

I feel a lot of similar recommendations on HN are to ask the left hand to slap the right or even slap the mouth that feeds them. The point is, they don't care about us. We are just clogs on a machines and we are one type of resources just like coal and iron. The only way to struck fear is by some collective methods but then everyone got spooked by "Socialism", so the whole thing becomes a perfect loop for the aristocratics.

MBCook 3y ago
Why would a law preventing the purchase of a struggling company through raising large amounts of debt which is immediately stuck on their books so that they those same investors can immediately sell everything of value for profit off the scraps leaving a dead shell of a company that has to fire all their employees a bad thing? If things are so bad just let the company go bankrupt and sell off their assets. If things are recoverable then PE isn’t going to help because they’re going to put on too much debt. It doesn’t make anything better. It doesn’t fix the companies that are too far gone. It doesn’t fix the companies that could still be saved. All it does is make the investors a bunch of money at the expense of everyone else.

g9yuayon 3y ago

I don't think it will be effective. The root cause is not PE, but human nature: greed, complacency, myopia, and etc. We can outlaw PE, but Boeing can simply invent another way to maximize their profit at the cost of product quality. It looks to me the only cure is to encourage competitors, so that long before Boeing becomes this rotting organization, their talented employees can join another competitor to beat the shit of Boeing. Unfortunately there's so much regulatory capture and intertwined interests between Boeing and governments that I don't think we will see any meaningful competition for years to come.

MBCook 3y ago
I wasn’t thinking of Boeing specifically. Plenty of companies that seem like they should have been able to survive, at some scale, were destroyed by PE. Like Toys R Us.