5 ms·

Somehow I haven't been able to find an explanation that I find convincing.

• ImPostingOnHN 3y ago
  Given how many people explained the same thing, that lack of understanding may be more attributable to you than to everyone else. In any case, I and several others were able to find many, so it's okay that you weren't. Sometimes a person who has made up their mind and doesn't want to change it, ignores anything that might, and further effort committed to them is just a lost cause.
  • tome 3y ago
    Thanks for the reassuring words. Can you point to an explanation you find convincing?
    • ImPostingOnHN 3y ago
      I would need to first see proof that the "observation" that banks would go bankrupt is true in the first place. I don't see any evidence it is, so the "observation" seems made up, and thus there is nothing to explain. It's possible you misunderstand how the process works.
      • dllthomas 3y ago
        The observation wasn't that the banks would go bankrupt. The observation was that if the practice was reliably so destructive to the value of the purchased businesses that the loans couldn't be repaid (including interest), the banks would stop choosing to make loans for that purpose. I think that observation is probably true. I also think that there are possible ways to accommodate that observation while preserving the main thrust (or perhaps even the entirety) of the criticisms, but I don't know which of those match reality (if any) or to what degree.
        • tome 3y ago
          Thanks, yes, that's a good summary. I think if the original claim was that the PE business model is pathological and parasitic because it is (economic) value-destroying then the claim must be false. Other financial stakeholders wouldn't participate, because they would make an economic loss. If the claim is that it is pathological and parasitic because it leaves employees and customers worse off that's another argument, and I could see myself agreeing, but it's a value judgement, not a financial or economic one. In principle there's nothing that PE can't do that owner-operators can't also do. The objection is to the outcome, not the means they use to get the outcome.
          • dllthomas 3y ago
            There's potentially room for value to be destroyed while still enough is extracted to pay off the debts. > In principle there's nothing that PE can't do that owner-operators can't also do. As others have got at, in bankruptcy owners (of any sort) get paid last; debt gets paid first. Borrowing to pay the owners makes "wind down the company" more attractive by letting the relevant decision-makers cut in line. Outside of PE you see a similar dynamic with funding stock buybacks with debt.
            • tome 3y ago
              Right, but in both cases you have to pay out of retained earnings. You can't "pay out using borrowed money"! You can borrow to get more cash on hand, and then pay out, but that's not the same thing: dividends are never allowed to take the equity in the company below zero. Dividends are always paid out of profits that have already been realised, and either kept as cash/investments or put into capital. (Having said that I'm not a corporate accountant so I'm open to correction, but no one has posted any technical details about this matter that make me think I'm mistaken, yet.) > Borrowing to pay the owners makes "wind down the company" more attractive by letting the relevant decision-makers cut in line. This bit I don't understand. It reads like a criticism, but what's wrong with winding down a company that's not deploying its capital as efficiently as it could be? (Wrong economically/financially, that is; I've already explained that I'm in sympathy with the effect on customers and workers.)
      • tome 3y ago
        Do you mean you would need to see proof that the observation is correct before you can link evidence that it's incorrect? If so that seems somewhat difficult to achieve.
        • ImPostingOnHN 3y ago
          It seems weirder to ask for proof the observation is false before it's proven that it wasn't made up in the first place. Again, who said banks would go bankrupt?
          • tome 3y ago
            > Again, who said banks would go bankrupt? This is the first time in the thread that "banks going bankrupt" has been mentioned by anyone.
            • ImPostingOnHN 3y ago
              Very well: who said the loans extended by the banks would be defaulted on?
              • tome 3y ago
                "Bankrupt" by definition means unable to pay one's debts, doesn't it? Perhaps there's another definition I am unaware of, so that may have been an invalid assumption on my part. But if that wasn't gumby's original point, then what was? Which precise aspect of PE is pathological and parasitic? Assuming the company can pay off all its debts, what exactly has gone wrong (wrong economically/financially; I've already explained I'm sympathetic to other stakeholders like customers and workers). https://news.ycombinator.com/item?id=38987576 https://news.ycombinator.com/item?id=38987576
                • ImPostingOnHN 3y ago
                  No, that's not what bankrupt means. Bankruptcy almost never happens when there is literally zero value left. In the archetype we're discussing, there is enough value in the company to pay the banks and PE firms lavishly and exorbitantly, but not enough to do that and keep the company healthy (or indeed, alive, in countless cases). So the PE firms choose just the first one. > Assuming the company can pay off all their debts This, too, seems to be unfounded assumption that turns out to not be correct, as explained above.
  • dang 3y ago
    Could you please stop posting flamewar comments? You've done it repeatedly and we've already had to ask you about this. Crossing into personal attack is particularly unwelcome. If you'd please review https://news.ycombinator.com/newsguidelines.html https://news.ycombinator.com/newsguidelines.html and stick to the rules when posting here, we'd appreciate it.
    • ImPostingOnHN 3y ago
      I'm sorry, I may have missed the first time, but didn't miss this. I'll change tone.
      • dang 3y ago
        Appreciated!