Not sure if you are being sarcastic or not. I liked it!
It dumbs things down for sure and the graphics are very cartoony. The message hits spot on. I see this in the Bay area and in other places with well-paying jobs. The PE firms jumped to scoop up real-estate after the 2008 crisis. In the cases I saw, they upgraded 1500-2000 a month apartments to 3200-3600 a month fancy apartments (this is an example from Mountain View btw). The economist inside me says PE firms helped stabilize the economy and are bringing efficiency but the lil voice inside me says they are the scum of the earth and the reason I'll NEVER be able to afford a house and always be hand-to-mouth. As a rah-rah believer in capitalism, PE firms have changed my view and made me realize of the dangers of uncontrolled pursuit of wealth and profit.
So private companies with the monopoly of force the government has. Again, the private part isn't the problem. It's the privilege government gives them through exclusive deals to pick the electorate's pockets.
I wouldn’t be surprised to learn that a lot of these deals come from constrained government budgets rather than corruption. The conservative movement has been very effective at keeping taxes and government revenue low since the 1980s.
Yes, because every problem is easily solved if we only taxed everyone and everything into oblivion. Couldn't have anything to do with the government taking and printing endless streams of cash, wasting it to buy votes, then using their monopoly of force to prevent competition when they hand over the bungled job to private firms.
On the local level -- which is where these monopolies are handed out -- it's actually been decades of "cut taxes, then cut taxes, then if it's not working cut taxes, and if you still have budget problems try a tax cut or ten, then cut taxes some more, then try a tax cut, and if you don't have any other ideas, maybe a tax cut will help".
Which has predictably resulted in basic services being cut and things that even the hardest ultra-hardcore libertarian wants government to do -- like providing police and courts to enforce contracts and property rights -- having to resort to overpolicing in order to collect money from citations, since that's the only revenue stream the "10 CUT TAXES; 20 GOTO 10" mentality will allow.
Similarly I'm personally budget constrained because as my income went up, I rented a larger house, bought an extra car, took more expensive vacations, and switched from street hookers to high class call girls, all the while consuming the same % of my income.
Obviously I'm not budget constraint. I'm just spending a lot more money.
The corruption aspect is because politicians, rather than doing a proper job of trading off taxes and services [0], are essentially selling off capital assets to shore up the balance sheet in the immediate term by creating a new ongoing liability. They individually take the credit, and their successors are left with the mess.
(Never mind the deep-rooted federal corruption that has destroyed steady returns from debt and thus caused all of this dumb money to be scraping for returns via home run equity investment)
[0] which requires pushing back against growing middle management bureaucracy, which consumes resources while providing no services.
Low taxes don't represent lower government revenue. See the Laffer Curve. You also have a trade off between the maximum government revenue and maximum economic growth. Raising taxes past the growth maximizing point would increase revenues (to a certain point,) but then limit growth which would feedback and ultimately lower revenues.
Given the idea that a 100% tax rate would result in near zero zero economic activity (nobody would have money to spend and nobody willingly works for free,) that result in near zero tax revenues. If we accept that a 100% tax rate would result in near-zero tax revenues and if we accept that a zero tax rate would also result in zero revenues, then it follows that there IS a point where revenue and growth are optimized and that point isn't necessarily close to 100% or zero. Many non-conservatives who dispute Laffer would be happy with a 75% tax rate, as their Keynesian (or alternatively, Marxist) belief is more plausible that the reality depicted by Laffer.
However most people, Democrat and Republican, do believe in Laffer -- they just dispute where those revenue and growth maximizing points actually occur. The problem is that many Democrats don't care about Laffer (even though they do agree with the effects of the curve) -- they willingly chose to ignore Laffer because their convictions of economic "justice" supersede the rationality of Laffer. Meaning they know Laffer is correct, but they don't care: they'll sacrifice maximum revenue and maximum growth for maximum "fairness." Ironically, maximum "fairness" results in lower overall tax revenues this starving the very programs they insist are necessary. Then they blame conservatives because clearly x% is too low of a tax rate because "deficits."
Belgium has a much higher tax rate (43% for a single person making the average salary) and New Zealand is about 16%.)
The growth rate of Belgium is 1% and New Zealand is 3.5%. There are definitely more factors involved, but there is absolutely a correlation between growth, tax revenues and tax rates (a correlation illustrated by Laffer.)
My point is that keeping tax rates low os not necessarily the same thing as keeping revenues low. We could argue the opposite with equal ferocity: non-conservatives have kept government revenues low by keeping tax rates high.
To be honest though, conservatives do favor the left side of Laffer, even at the expense of revenues because the growth maximizing point is to the left of the revenue maximizing point. The non-conservatives favor the right side of the curve (closer to the revenue maximizing point) even at the expense of growth.
I could only wish our tax policy were based purely on math rather than politics. Voters decide what growth rate they want, we enter that into the system and the tax rate is dynamically calculated. The tax rate would then be a result of economic reality rather than the cause. The political debate would then "simply" be: how much growth do we want? Unfortunatly tax policy is used to reward or punish those whose politics are on the 'correct' side of the winning political party.
So private companies with the monopoly of force the government has. Again, the private part isn't the problem. It's the special deals government gives them through exclusive deals to pick the electorates pockets.
Interesting way to present information. Very poor framing and discussion of the issue that lacks data or statistics of any sort, even top-line numbers to provide any context for how large the PE industry really is.
Utmost importance even for a casual reader to get a sense of the relative size of the industry under discussion and how well PE-managed firms perform on average, not just a few cherry-picked examples that cast the PE industry in a slightly negative light, kind of dancing around the issue without making any argument head on.
50 largest PE firms manage $1.5t in assets. Total global equity market is $48.6t (from Dimensional's 2015 Matrix Book). Total market value of world's financial assets is probably >$200t (including land, commodities, currency, etc.).
This is embarrassing, but experience has taught me that I have to push through these situations, where I suddenly realize that my ignorance on some topic is truly profound...
I thought all companies above a certain size were publicly traded. ...Wait, do I have some incorrect definition of publicly traded?
It means there is stock in the company for sale, right? What percentage (by count) of companies are publicly traded? By volume?
If a large company isn't publicly traded, does that make it a private equity company?
> I thought all companies above a certain size were publicly traded. ...Wait, do I have some incorrect definition of publicly traded?
Size doesn't really matter. I suppose you could say size and public status are correlated. Companies who are publicly traded have gone through an IPO and their shares are available for purchase at stock exchanges.
For instance Uber is large but not publicly traded.
If a large company isn't publicly traded it is a private company. I don't think "private equity company" is a term in wide use, but a private company has private equity that is available for VC and private equity firms to invest in.
As a HN user you may be familiar with how VCs work? VC can be thought of as a subsection of the PE industry.
Yup. Or more generally known as M&A which could be a buyout (LBO from a PE firm), bigger company acquisition, merger, IPO, or selling shares to another investor.
Publicly traded companies are ones where stock is bought and sold on an exchange, such as the NYSE or Nasdaq. Basically anyone with money can find a broker and buy/sell shares of publicly traded companies.
Private firms do not list on public exchanges and their shares aren't available for purchase or sale to just anyone. Many of the more recent unicorns, such as Uber, are currently private.
The size of a company does not determine whether it is public or private. Becoming public means submitted lots of paperwork to the SEC and getting an investment bank to underwrite the sale of your shares on a public exchange. All comes down to whether or not the private owners care to go through that process.
Private equity usually refers to investment firms who specialize in buying shares in non-publicly traded companies. Angel investors and venture capitalists can broadly be included under this label.
PE money is no different from VC money in that it is an investment in private companies. The biggest difference is that PE firms usually have a majority stake in the business they invest in (usually 51% or more) and effectively means they "own" the company. For VC, it's almost entirely a minority stake (at most maybe 30%). Most PE firms do what's called a Leverage Buyout (LBO) which means companies are bought like houses with a significant chunk of the capital provided for by investment banks. So, let's say Acme Co (made up company) is bought by a PE firm for $100M and now the PE firm owns 51% of Acme. The PE firm usually puts in (let's say) $20M from it's own fund and an investment bank puts in $80M. In 5-7 years the PE firms sells the company for $200M. They pay back the remainder of their loan of $80M to the investment bank (plus interest and some would have already been paid back by profits) and then they get a return on their investment in the form of carry. PE follows a similar business model as VC using it's 2-and-20 rule on their returns (2% management fees + 20% carry).
private equity specifically does mean stock that is not publicly traded. BUT (and I may be wrong here, so apologies if I am!) I think some of the confusion may be that the term "private equity" is more commonly/generally used to describe private equity funds and their investment strategies.
In that case, private equity funds are essentially investment funds with a strategy something like this (and I'm trying to be as bland in description here as possible, as private equity fund strategies very often result in some unpopular results - ie. mass layoffs, selling for parts, etc.): purchase a controlling interest in a company (often times financing the purchase with debt acquired by the company they are purchasing), operate the company with a super focus on some sort of efficiency (usually profitability or revenue), and then re-sell the company 3-5 years later at a 2-5X return (ideally, of course sometime that doesn't happen).
the reason they are called private equity funds is that in order to get a "controlling interest", PE funds almost always either target (1) smaller private (usually industrial) companies that are operated by their owners (my cousin works at a fund that focuses on oil-services companies that are private but have $100m+ in annual revenue) or (2) public companies that they think are undervalued by the market or poorly run that they can "take private" by purchasing all the stock and then running more efficiently (these are the big sexy PE deals, biggest recent example is: Dell - http://www.forbes.com/sites/connieguglielmo/2013/10/30/you-w...)
there's a WHOLE lot of other details that I won't get into on how PE funds work, and about how PE funds are now so massive that they almost act like unregulated banks and have a bunch of strategies other than the one I described above, but that's the traditional fund strategy (at least based on my experience) and I think a good place to start.
Another good way to learn would be to learn more about the biggest PE funds themselves:
If you really get into it, the book "Barbarians at the Gate" is considered a classic book written by two WSJ journalists about KKR's takeover of RJR Nabisco, the largest PE deal in history ($25b in 1988), I enjoyed it!
You're off on a few details, but mostly on the right track.
You need to do a bit light reading: Start with legal-dictionary's definition of Equity[0] and Authority[1], and Agency[2]. That gets you the answer on where the authority to issue certificates of any sort comes from. Then apply those entire pages to private ownership. Documents for private corporations are drafted in private, using private authorities, unlike public corporations registered with a state. they can issue shares privately, as well, provided they have an underwriter.
Property ownership (or rather, those entities that own the property) is King in this new economy. Many (All?) YCombinator companies use Delaware as their authority.
(We could apply all of the above to how Corporations are now Persons, but that's a rabbit-hole).
Bottom Line: everyone should incorporate. become a private equity firm.
Once you get through the horrible way of presenting information that goes far beyond of https://xkcd.com/1273/, there isn't much to the message. Yes, in a country whose citizens distrust the government and firmly believe in the invisible hand, products and services are produced and served by private firms rather than the government. Isn't this what you always wanted?
Except it's usually the government selling these projects to private firms, so the tax payer gets the worst of both sides of the coin. There are some things that are fundamentally necessary (e. g. roads and highways, water) that should not be sold to private industry as for public interest vs profit should be priority number 1.
Profit serves an important function: it creates incentives to invest and guides investment into areas where demand exists. Our public services in the US are the subject of dramatic underinvestment and also malinvestment (I.e. why your public bus stop every block instead of every 5, why there are three guys standing around for every one guy doing road work). So clearly getting profit out of the equation hasn't worked well.
Isn't this the by-product of the neoliberal mindset we have been promoting in the United States for at least a century now? This isn't a surprise to me and I suspect the article's real intention goes beyond conveying how PE firms actually work - and simply demonizing Wall Street - an industry that comprises a substantial percentage of our workforce.
I have no issue with keeping the public up-to-date on what high finance is doing, even if biased towards mistrust. They tanked the economy in 2008 and hurt everyone. I would go as far to say, we should be mistrustful.
"Bloomberg Businessweek has called private equity a rebranding of leveraged-buyout firms after the 1980s. Common investment strategies in private equity include: leveraged buyouts, venture capital, growth capital, distressed investments and mezzanine capital."
So this is just a continuation of the Gordon Gekko LBO firms, made possible by the deregulation of Wall St that occurred around that time.
No surprise here. The Wall St genie is out of the bottle, and it will continue to wreak havoc until we have another Great Depression.
I only see this being a problem if there are no free market forces being allowed. One of the examples was that 'some' of the private equity ambulances and fire trucks arrive late. As long as a better one comes in and replaces them, then what's wrong with that?
I have a lot more faith in a greedy money driven investor and company to delivery on the end product than the government. At least they will do everything possible to maximize profits. If they get contracts and have a complete monopoly with no free market though, then this is an issue.
Do you actually have a choice which ambulance and fire truck you get when you dial 911?
Markets only work in the presence of consumer choice, agency, and evaluation. If there are no consequences for bad service, you will continue to get bad service. Similarly, if the consequences for bad service fall on people who do not have a say in which service is chosen, you will still get bad service.
>At least they will do everything possible to maximize profits.
Yes, sometimes this involves slower ambulances or slow internet. This is especially the case when there is no/few alternatives. What are you going to do... not have a water supply? Walk to the hospital mid-heart attack?
One need only to look at Comcast/Time Warner Cable data speeds in markets before and after Google Fiber entered the fray.
Sometimes, maximizing profits involves maximizing consumer satisfaction. More often, it does not. And it's a phenomenon that isn't unique to the private or public sphere.
As a counter-point to the idea that private equity buyouts harm consumers, here is a recent paper documenting the impact of PE transactions in the restaurant industry. [0]
Key bits from the abstract:
"Analysis of health
inspections conducted for over 50,000 stores in Florida shows that food
safety and sanitation improve after private equity takeover, especially in areas
related to food handling, kitchen maintenance and consumer advising."
"Restaurants also
reduce employee headcount and lower menu prices. This evidence suggests
private equity firms are not simply financial engineers but rather active
operators that improve management practices in the firm. Moreover,
efficiency gains do not come at the expense of product quality."
Unfortunately this does not address the main thrust of the New York Times piece, which focused more on natural monopoly sectors such as water, public transit, and emergency response. It does make intuitive sense that private firms would have less of an incentive to improve operations when buying a monopolistic entity that comes with significant pricing power already baked in. Hopefully good research on these is out there or in the pipeline, as it seems like an in-demand and under-served area of academic inquiry.
Disclosure: I worked briefly as an undergrad for one of the paper's authors, on a distinct but similar project.
Is there any reason an experience from "restaurants" is meaningful in the context of what the article is about? At the very least I see not even an effort from you, as if it's all the same. It seems to me that those are entirely different categories. For example, the restaurant business is highly competitive, people can easily go elsewhere.
Regarding the article though, I wonder what the purpose of spending 99% of the budget for the article on visuals rather than the actual article was. That's a really lame piece of pseudo-"journalism". It provides a very weak argument (if any), which is unfortunate given the importance of the topic.
I thought the restaurants example demonstrating that PE firms could have a positive impact on a business was actually a good counterpoint to specific points where the article was stating or implying that PE was bad (e.g. that 911 results could be slow and you'd be stuck with a bill, paramedic response times got worse under PE)
Your point about restaurant businesses being a different category seems to be engaging only on the point of PE owned businesses are ubiquitous not on sub-text that PE turnarouds could be bad.
I don't understand your reply. If the businesses are in a completely different realm, how is it of any use to know that it works fine for restaurants? How can that possibly serve as an argument for completely different businesses (when it's not even clear they should be businesses, but no need to argue about that). Where is the argument "something like this works in a completely different context" a valid argument?
The article describes how PE works badly in a limited set on industries (monopolies), but uses expansive language and doesn't properly caveat it's argument that PE is bad in general. Parent uses restaurants as an example of a more ordinary competitive business, where academic research exists that shows the benefits of PE.
Your reply doesn't address any of the points of my reply. Once more: Why would it be relevant at all that something works for restaurants, a completely different environment? Mentioning restaurants does not work to refute the article's points.
Yes the article is horrible. It's not even an article. But that does not mean you can now go ahead and use anything to refute it. That's illogical. You have to use good logic even when trying to refute something bad.
The examples in the article are atypical because they are monopolies. Restaurants are typical because they are not monopolies. Academic research about a typical case is high-quality evidence.
The piece clearly went out of its way to avoid any mention of PE successes. The closest they come is mentioning that Fortress claims they "will create jobs and take cars off the road."
I tried to address it in my paragraph after the snippets from the abstract, but I admit it was a rather superficial treatment. I actually am most interested in the core of the problem presented by service needs that fall naturally into monopoly (water, power, public transit). We have a long track-record of poor government administration when it comes to these services, and as the New York Times article suggests, private ownership may be no better. So what do we do? The only semi-acceptable answer I can think of is moving the voting date for city and state level elections to weekends/holidays, in the hopes of driving turnout and subsequently accountability among politicians responsible for overseeing these services.
Quick Service Restaurant industry one of the most competitive. The reason why they were able to increase productivity and product quality might be because when you focus on a few core metrics like serving time and food prices it doesn't come at the expense of productivity but because of it.
What types of public services (and their quality) are bing provided by private firms vs governments and municipalities is a very relevant conversation, and one we should be having.
However, conflating private equity with wall st., and making a distinction between how firms under private equity ownership behave vs. public equity or closely held (no financial sponsor) seems pointless other than to further some other purpose (which i won't speculate about)
>However, conflating private equity with wall st., and making a distinction between how firms under private equity ownership behave vs. public equity or closely held (no financial sponsor) seems pointless other than to further some other purpose (which i won't speculate about).
Agreed, and I say this as someone who's generally a fan of the New York Times' journalism. Here they simply seem to be trotting out the "look, it's Wall Street!" trope without offering deeper analysis (at least in this piece). Which is a shame because there are industries where private equity has a laudable record and others where the record is rather checkered.
And this notion, of course, oversimplifies "private equity" into one monolithic actor. As though a competent private equity firm which seeks to maximize value through improving quality wouldn't operate a company differently from one which seeks to extract value solely through levered financial engineering.
Paris outsourced its water supply to a private company (Suez) a while back, only to witness exactly what the article describes: Rising prices and sinking quality. The city finally decided to take the water supply back into its own hands and did not renew a 20 year lease to Suez, creating its own water supply company instead, "Eau de Paris". Already in the first year of its operation, the city was able to decrease water prices by 8 %.
Privatization of a monopoly is almost always a terrible idea.
(For what it's worth, water costs have risen much faster than inflation in the US too, where it's primarily managed by local governments. http://imgur.com/a/SNstZ)
If an industry really is a natural monopoly (water probably is), the best structure is probably a regulated private monopoly. The problem is that if you're privatizing a function because you're incompetent at administration (which is usually the case), you're probably not going to be good at regulating either.
> the best structure is probably a regulated private monopoly
I think that needs to be changed to "well regulated private monopoly". When the monopoly starts to unduly influence the regulators then it's no better than an unregulated one.
> The problem is that if you're privatizing a function because you're incompetent at administration (which is usually the case), you're probably not going to be good at regulating either.
This is one of the best and most accurate sentences I have read in awhile.
I another very good idea is to have multiple private suppliers, along with publicly owned (but potentially privately managed) infrastructure. At least that's how electricity works in the EU.
While this is biased towards the NYT narrative (the last third of the article is their opinion on the situation), the key is to look up what the legal definition of Equity[0]. Start your own private equity firm. Or go one step further: incorporate in Delaware, Indiana, or Nevada (or Better yet, Bermuda, Nevis, or Antigua), and start generating some real income in the game.
One doesn't exactly "start [their] own private equity firm." Tens of (more often: hundreds of) millions of dollars must be raised and even then, they must bid (or acquire by other means) on companies.
Anyone with a net worth above $1mm can become a venture capitalist, given that VCs deal with earlier stage companies which, as a result of their youth, are happy to take small checks for minority investments.
Private equity, because it deals with mature companies and (more often than not) involves controlling stakes, requires very, very large checks. And because investors don't like an undiversified portfolio, the PE firm must have the means to write many very, very large checks.
This isn't an undertaking that just anyone can do. Of course, if someone has the means to raise hundreds of millions of dollars, has a nose for investing, is experienced in both buy-side mergers & acquisitions as well as the operations of a company in a given domain, then co-sign your advice.
Though index funds or an advisor would be much less risky for someone with those means.
oh come on, Don't pretend it's hard to do; you can start a private equity firm to own your house and car. Sure, it won't have the same muscle as the larger ones, but it isn't impossible. just draft the documents, and agree to underwrite (or get a corporation to underwrite!).
An LBO of a home is called "getting a mortgage." And yet, one's car or home isn't exactly a share-issuing company. You can form a company to own it – but that's not private equity.
Are you familiar with what "private equity" is? Note that "private equity" is distinct from "private" "equity."
One's car or home isn't _normally_ owned by a share-issuing company. are you saying it can't be owned by one? Pretty sure there's a well-known Mayer Amschel Rothschild quote about owning vs. controlling.
Private equity is an asset class. equity securities and debt (such as, oh, unpaid medical bills, and the right to collect on them) can be purchased as well as corporations/corporate debt.
First off, no bank will underwrite your mortgage for your house if you will own it under a corporate name. It's just too unusual for the bank to think about, and also they lose the ability to place a lien against you personally.
Second, what exactly do you accomplish by doing this, except paying a bunch of money in incorporation fees and drafting documents?
There's a reason why corporate shell games are usually played by people with relatively deep pockets: all the benefits that come from using corporate law require lawyers and accountants, and those are expensive.
This piece reads more like it's trying to rekindle hatred towards Wall Street than educating people what private equity is and how it works. If it's supposed to be investigative journalism then it certainly failed. Maybe try starting with improving accuracy of the terms by not using "private equity" and "Wall Street" interchangeably?
This is the 2nd time I see a NYT article bashing on private equity. The first time it was about ambulances and it was factually incorrect (to put it mildly).
As soon as I read the article too I wanted to check if the NYT is owned by private equity. According to wikipedia, it's both part publicly traded on the NYSE and privately owned: https://en.wikipedia.org/wiki/The_New_York_Times_Company. I wouldn't know where to find out how much of the company is privately owned and publicly traded, though. But spot on, it's a publicity piece (and you've played your part by clicking). But I think most would see that by the presentation. Was still entertaining though.
What irony? There is no connection. What is so "ironic" about a private business being private? Or is there anyone - apart from former Eastern Bloc countries - who thinks newspapers should be state-owned? The topic is privatization of government functions. Private media should not write about it? I don't understand. So in order to write about this topic we need non-private media, i.e. only individual bloggers, state-owned media (China?) and maybe NPR can write about it?
It is visually appealing and I like its attempt to bringing exposure to something general public has little understanding of. This topic definitely deserves more than just a publicity piece, especially for something as complicated as financial industry.
Being privately owned isn't the same thing as being owned by private equity. And looking at the NYT it has Class A and Class B shares, where only the Class B shares are privately owned. The usual reason for dividing the shares into different classes is to give the owners of one class rights that the other class doesn't have. I'm not sure what, if any, differences there are between the NYT's Class A and Class B shares.
I'll admit, I don't know what the specific legal definition of private equity is. According to wikipedia: https://en.wikipedia.org/wiki/Private_equity "In finance, private equity is an asset class consisting of equity securities and debt in operating companies that are not publicly traded on a stock exchange." There are probably more legal specifics that would further divide private equity from just anything that's not publicly traded. But, you're on the right track, if in fact the private Class B shares override the rights of Class A shares (significantly), then the NYT's could be seen as just another shady entity in our lives that's controlled by private equity, as the link tries to illuminate.
I agree the piece doesn't represent itself as investigative journalism. However, this is below the quality level of journalism that I typically receive from the NYT, which typically makes some effort at covering multiple perspectives on an issue. This feels like it was made by BuzzFeed or something.
For example: it's an info graphic if you show some number of cars unevenly distributed across two lanes on a road and explain that each car in lane A represents 10,000 rental cars and each car in lane B represent 10,000 driver-owned cars, and the sum of the infographic cars * 10,000 happens to equal the number of cars on USAmerican roads, assuming that the infographic specifies that its subject is rental-vs-ownership of cars on USAmerican roadways.
See? An info graphic is a fancy chart or graph. Every rule from your highschool science textbook about charts and graphs applies to infographics.
Pictures that don't adhere to those rules are just pictures.
>It's just an infographic with a basic level of interactivity.
No, it's just a graphic. There's no info, and it's inflammatory.
It tells you what X is by listing all the bad things X has done. That's like telling someone what the US is by saying "The US tried to purge the North American natives in the 19th century."
It doesn't tell me what "the US" actually refers to, and it poisons the well against it. You are no better at implementing a classifier to distinguish "US" for "not US", and now you're armed with entirely negative things about the US.
(I was originally going to do Germany there, but Godwin's Law and all.)
> > It's just an infographic with a basic level of interactivity.
> No, it's just a graphic. There's no info, and it's inflammatory.
IME, "infographic" is a term in which the "info" portion relates to "information" in much the same way that "factoid" relates to "fact" (or "truthy" relates to "truthful".)
> more like it's trying to rekindle hatred towards Wall Street than educating people
They did that on purpose. That's because NYT is left-wing newspaper just like The Guardian. Note that, socialist Paul Krugman is columnist for NYT.
The only job of Guardian, NYT, Huff Post and many others is to say negative about capitalism, private enterprise and free-markets. And to say positive about big government, wealth distribution and other left-wing agenda.
The same about Hollywood and entertainment industry (e.g. MTV), they are mostly left-wing.
I think left-wing ideas and left-wing propaganda completely monopolise western world (almost entire Europe, AU, CA etc).
There are people who view the world, politics and the economy differently than you do, and they're writing about what they know. No secret propaganda agenda.
> Note that, socialist Paul Krugman is columnist for NYT.
Socialist Paul Krugman is a columnist for the NYT? They must have two Paul Krugmans, then, as the better-known one [0] is not even close to a socialist.
Also it is important to realize that a lot of private entities like have money for lobbyists and they use them very well. For example, they might "bribe" an official in charge of budget to cut the budget for schools in a certain area, if the PE happens to own and manage charter schools.
School doesn't have money, is struggling. PE lobby firm issues a few press releases pointing out what a failure public schools are. Then another press release about how there is a way out -- go to their schools, and so on.
Or if they happen to lease land and run an tolled expressway, they might lobby local government against expanding or improving local roads, because it means a but in the profits for them, and so on.
The cheapest and most effective way to profits is to often to do just that -- lobbying and regulatory capture. That is what's scary with privatizing everything.
So much mis-information... I don't know where to begin.
And why did they have to go on and call out named PE groups...(Fortress).
What does that achieve NYT?
What is the goal of this in the first place...? If we want to educate people on what PE really does, let's talk. But this is clearly just targeting the masses with a one sided viewpoint to try and get them to associate 2008 again and raise their pitchforks back up. Accomplishes nothing.
The article presents horrible examples. Transportation and water are two sectors ripe for disruption by the private sector. Governments around the country are polluting rivers and poisoning children with lead because they refuse to raise water rates on grandma to upgrade their infrastructure. And here in DC, the Metro literally keeps catching on fire. We have a multi-trillion infrastructure spending backlog in these sectors because government operation has been such a disaster.
Private Equity was bar none the biggest winner in the financial crisis. They got to buy all sorts of assets super cheap, fund those purchases at interest rates not seen in many years, skirt Reg T[1], and a dodge taxes via the carried interest tax loophole.
What's not to love about them. Oh, and let's forget they often secretly double dip on fees. i.e charge their LP's management fees, and their portfolio companies advisory fees (which are often not disclosed to their LPs).
Despite all this hating, I'd sooner invest in a PE fund then HF or VC.
[1] regular investors can only lever 2:1 in equities, but PE often leverages 10:1 or more.
This conversation is a little off the rails, in my opinion.
Colors of money, market forces, the political alignment of the NYT... None of these are the most interesting part.
The government(s) exists to serve the people, right? To provide safety, predictability in the environment, in our lives. We exchange a little liberty for those benefits and indeed pay taxes, too.
Corporations exist to make money. And to protect their owners from liability, I guess? I'm no expert on why corporations exist, and I certainly can't tell you why they should exist.
This animated series of tweets from the NYT (it's hardly an article!) tells us that corporations, specifically a subset known as "private equity", now own things that the average person does not expect them to own.
For me, the takeaway is: The number of things NOT owned by corporations is decreasing and traditional resistance (by the governments and individuals) is failing or has failed.
114 comments
[ 0.30 ms ] story [ 173 ms ] threadIt dumbs things down for sure and the graphics are very cartoony. The message hits spot on. I see this in the Bay area and in other places with well-paying jobs. The PE firms jumped to scoop up real-estate after the 2008 crisis. In the cases I saw, they upgraded 1500-2000 a month apartments to 3200-3600 a month fancy apartments (this is an example from Mountain View btw). The economist inside me says PE firms helped stabilize the economy and are bringing efficiency but the lil voice inside me says they are the scum of the earth and the reason I'll NEVER be able to afford a house and always be hand-to-mouth. As a rah-rah believer in capitalism, PE firms have changed my view and made me realize of the dangers of uncontrolled pursuit of wealth and profit.
</end-rant>
Are you an engineer?
Which has predictably resulted in basic services being cut and things that even the hardest ultra-hardcore libertarian wants government to do -- like providing police and courts to enforce contracts and property rights -- having to resort to overpolicing in order to collect money from citations, since that's the only revenue stream the "10 CUT TAXES; 20 GOTO 10" mentality will allow.
https://fred.stlouisfed.org/series/W006RC1A027NBEA
https://fred.stlouisfed.org/series/B245RC1Q027SBEA
https://fred.stlouisfed.org/series/S210400
https://fred.stlouisfed.org/series/W070RU1Q027NBEA
If budgets are constrained, it's because spending has simply risen faster than tax revenue.
Similarly I'm personally budget constrained because as my income went up, I rented a larger house, bought an extra car, took more expensive vacations, and switched from street hookers to high class call girls, all the while consuming the same % of my income.
Obviously I'm not budget constraint. I'm just spending a lot more money.
(Never mind the deep-rooted federal corruption that has destroyed steady returns from debt and thus caused all of this dumb money to be scraping for returns via home run equity investment)
[0] which requires pushing back against growing middle management bureaucracy, which consumes resources while providing no services.
Given the idea that a 100% tax rate would result in near zero zero economic activity (nobody would have money to spend and nobody willingly works for free,) that result in near zero tax revenues. If we accept that a 100% tax rate would result in near-zero tax revenues and if we accept that a zero tax rate would also result in zero revenues, then it follows that there IS a point where revenue and growth are optimized and that point isn't necessarily close to 100% or zero. Many non-conservatives who dispute Laffer would be happy with a 75% tax rate, as their Keynesian (or alternatively, Marxist) belief is more plausible that the reality depicted by Laffer.
However most people, Democrat and Republican, do believe in Laffer -- they just dispute where those revenue and growth maximizing points actually occur. The problem is that many Democrats don't care about Laffer (even though they do agree with the effects of the curve) -- they willingly chose to ignore Laffer because their convictions of economic "justice" supersede the rationality of Laffer. Meaning they know Laffer is correct, but they don't care: they'll sacrifice maximum revenue and maximum growth for maximum "fairness." Ironically, maximum "fairness" results in lower overall tax revenues this starving the very programs they insist are necessary. Then they blame conservatives because clearly x% is too low of a tax rate because "deficits."
Belgium has a much higher tax rate (43% for a single person making the average salary) and New Zealand is about 16%.)
The growth rate of Belgium is 1% and New Zealand is 3.5%. There are definitely more factors involved, but there is absolutely a correlation between growth, tax revenues and tax rates (a correlation illustrated by Laffer.)
My point is that keeping tax rates low os not necessarily the same thing as keeping revenues low. We could argue the opposite with equal ferocity: non-conservatives have kept government revenues low by keeping tax rates high.
To be honest though, conservatives do favor the left side of Laffer, even at the expense of revenues because the growth maximizing point is to the left of the revenue maximizing point. The non-conservatives favor the right side of the curve (closer to the revenue maximizing point) even at the expense of growth.
I could only wish our tax policy were based purely on math rather than politics. Voters decide what growth rate they want, we enter that into the system and the tax rate is dynamically calculated. The tax rate would then be a result of economic reality rather than the cause. The political debate would then "simply" be: how much growth do we want? Unfortunatly tax policy is used to reward or punish those whose politics are on the 'correct' side of the winning political party.
Utmost importance even for a casual reader to get a sense of the relative size of the industry under discussion and how well PE-managed firms perform on average, not just a few cherry-picked examples that cast the PE industry in a slightly negative light, kind of dancing around the issue without making any argument head on.
50 largest PE firms manage $1.5t in assets. Total global equity market is $48.6t (from Dimensional's 2015 Matrix Book). Total market value of world's financial assets is probably >$200t (including land, commodities, currency, etc.).
Here is some data for those who are interested:
http://www.pionline.com/article/20150406/PRINT/304069998/big...
The NYT manages to foul up the Safari browser's Reader View again. This is getting tedious.
They seem mainly a way to make the otherwise vague, elementary-school-level writing more visually-interesting.
I thought it meant "money that belongs to companies".
But after skimming through https://en.wikipedia.org/wiki/Private_equity for ten seconds, I realize that I have no idea what "private equity" is.
This is embarrassing, but experience has taught me that I have to push through these situations, where I suddenly realize that my ignorance on some topic is truly profound...
I thought all companies above a certain size were publicly traded. ...Wait, do I have some incorrect definition of publicly traded?
It means there is stock in the company for sale, right? What percentage (by count) of companies are publicly traded? By volume?
If a large company isn't publicly traded, does that make it a private equity company?
Size doesn't really matter. I suppose you could say size and public status are correlated. Companies who are publicly traded have gone through an IPO and their shares are available for purchase at stock exchanges.
For instance Uber is large but not publicly traded.
If a large company isn't publicly traded it is a private company. I don't think "private equity company" is a term in wide use, but a private company has private equity that is available for VC and private equity firms to invest in.
As a HN user you may be familiar with how VCs work? VC can be thought of as a subsection of the PE industry.
So a VC, an investor... can buy a share of the private company?
And then as the value of the private company grows, so does the value of the VC's share?
If there isn't a public market for such shares, then how does the VC sell the share?
Private firms do not list on public exchanges and their shares aren't available for purchase or sale to just anyone. Many of the more recent unicorns, such as Uber, are currently private.
The size of a company does not determine whether it is public or private. Becoming public means submitted lots of paperwork to the SEC and getting an investment bank to underwrite the sale of your shares on a public exchange. All comes down to whether or not the private owners care to go through that process.
Private equity usually refers to investment firms who specialize in buying shares in non-publicly traded companies. Angel investors and venture capitalists can broadly be included under this label.
In that case, private equity funds are essentially investment funds with a strategy something like this (and I'm trying to be as bland in description here as possible, as private equity fund strategies very often result in some unpopular results - ie. mass layoffs, selling for parts, etc.): purchase a controlling interest in a company (often times financing the purchase with debt acquired by the company they are purchasing), operate the company with a super focus on some sort of efficiency (usually profitability or revenue), and then re-sell the company 3-5 years later at a 2-5X return (ideally, of course sometime that doesn't happen).
the reason they are called private equity funds is that in order to get a "controlling interest", PE funds almost always either target (1) smaller private (usually industrial) companies that are operated by their owners (my cousin works at a fund that focuses on oil-services companies that are private but have $100m+ in annual revenue) or (2) public companies that they think are undervalued by the market or poorly run that they can "take private" by purchasing all the stock and then running more efficiently (these are the big sexy PE deals, biggest recent example is: Dell - http://www.forbes.com/sites/connieguglielmo/2013/10/30/you-w...)
there's a WHOLE lot of other details that I won't get into on how PE funds work, and about how PE funds are now so massive that they almost act like unregulated banks and have a bunch of strategies other than the one I described above, but that's the traditional fund strategy (at least based on my experience) and I think a good place to start.
Another good way to learn would be to learn more about the biggest PE funds themselves:
KKR: https://en.wikipedia.org/wiki/Kohlberg_Kravis_Roberts TPG: https://en.wikipedia.org/wiki/TPG_Capital Silverlake: https://en.wikipedia.org/wiki/Silver_Lake_Partners (work in tech a lot, did the skype deal where they bought from eBay and sold to MS)
Another way to learn more might be learning how a leveraged buy out (LBO) works, as this is one of the more traditional PE fund financing strategies for their deals: http://www.investopedia.com/articles/financial-theory/08/lev...
If you really get into it, the book "Barbarians at the Gate" is considered a classic book written by two WSJ journalists about KKR's takeover of RJR Nabisco, the largest PE deal in history ($25b in 1988), I enjoyed it!
Because they're not banks..
You need to do a bit light reading: Start with legal-dictionary's definition of Equity[0] and Authority[1], and Agency[2]. That gets you the answer on where the authority to issue certificates of any sort comes from. Then apply those entire pages to private ownership. Documents for private corporations are drafted in private, using private authorities, unlike public corporations registered with a state. they can issue shares privately, as well, provided they have an underwriter.
Property ownership (or rather, those entities that own the property) is King in this new economy. Many (All?) YCombinator companies use Delaware as their authority.
(We could apply all of the above to how Corporations are now Persons, but that's a rabbit-hole).
Bottom Line: everyone should incorporate. become a private equity firm.
0. http://legal-dictionary.thefreedictionary.com/Equity
1.http://legal-dictionary.thefreedictionary.com/authority
2.http://legal-dictionary.thefreedictionary.com/agency
"Bloomberg Businessweek has called private equity a rebranding of leveraged-buyout firms after the 1980s. Common investment strategies in private equity include: leveraged buyouts, venture capital, growth capital, distressed investments and mezzanine capital."
So this is just a continuation of the Gordon Gekko LBO firms, made possible by the deregulation of Wall St that occurred around that time.
No surprise here. The Wall St genie is out of the bottle, and it will continue to wreak havoc until we have another Great Depression.
I have a lot more faith in a greedy money driven investor and company to delivery on the end product than the government. At least they will do everything possible to maximize profits. If they get contracts and have a complete monopoly with no free market though, then this is an issue.
Markets only work in the presence of consumer choice, agency, and evaluation. If there are no consequences for bad service, you will continue to get bad service. Similarly, if the consequences for bad service fall on people who do not have a say in which service is chosen, you will still get bad service.
Yes, sometimes this involves slower ambulances or slow internet. This is especially the case when there is no/few alternatives. What are you going to do... not have a water supply? Walk to the hospital mid-heart attack?
One need only to look at Comcast/Time Warner Cable data speeds in markets before and after Google Fiber entered the fray.
Sometimes, maximizing profits involves maximizing consumer satisfaction. More often, it does not. And it's a phenomenon that isn't unique to the private or public sphere.
Including cutting corners and reducing service. That is why I do not believe they are a good idea.
Key bits from the abstract:
"Analysis of health inspections conducted for over 50,000 stores in Florida shows that food safety and sanitation improve after private equity takeover, especially in areas related to food handling, kitchen maintenance and consumer advising."
"Restaurants also reduce employee headcount and lower menu prices. This evidence suggests private equity firms are not simply financial engineers but rather active operators that improve management practices in the firm. Moreover, efficiency gains do not come at the expense of product quality."
Unfortunately this does not address the main thrust of the New York Times piece, which focused more on natural monopoly sectors such as water, public transit, and emergency response. It does make intuitive sense that private firms would have less of an incentive to improve operations when buying a monopolistic entity that comes with significant pricing power already baked in. Hopefully good research on these is out there or in the pipeline, as it seems like an in-demand and under-served area of academic inquiry.
Disclosure: I worked briefly as an undergrad for one of the paper's authors, on a distinct but similar project.
0: http://people.hbs.edu/asheen/BernsteinSheen_Restaurants_June...
Regarding the article though, I wonder what the purpose of spending 99% of the budget for the article on visuals rather than the actual article was. That's a really lame piece of pseudo-"journalism". It provides a very weak argument (if any), which is unfortunate given the importance of the topic.
Your point about restaurant businesses being a different category seems to be engaging only on the point of PE owned businesses are ubiquitous not on sub-text that PE turnarouds could be bad.
Yes the article is horrible. It's not even an article. But that does not mean you can now go ahead and use anything to refute it. That's illogical. You have to use good logic even when trying to refute something bad.
https://en.wikipedia.org/wiki/Investor-owned_utility
However, conflating private equity with wall st., and making a distinction between how firms under private equity ownership behave vs. public equity or closely held (no financial sponsor) seems pointless other than to further some other purpose (which i won't speculate about)
Agreed, and I say this as someone who's generally a fan of the New York Times' journalism. Here they simply seem to be trotting out the "look, it's Wall Street!" trope without offering deeper analysis (at least in this piece). Which is a shame because there are industries where private equity has a laudable record and others where the record is rather checkered.
And this notion, of course, oversimplifies "private equity" into one monolithic actor. As though a competent private equity firm which seeks to maximize value through improving quality wouldn't operate a company differently from one which seeks to extract value solely through levered financial engineering.
The scrolling art is nice though.
Here's a short article in English:
http://www.futurepolicy.org/food-and-water/remunicipalisatio...
Wikipedia article about water privatization in France:
https://en.wikipedia.org/wiki/Water_privatization_in_France
Privatization of a monopoly is almost always a terrible idea.
(For what it's worth, water costs have risen much faster than inflation in the US too, where it's primarily managed by local governments. http://imgur.com/a/SNstZ)
I think that needs to be changed to "well regulated private monopoly". When the monopoly starts to unduly influence the regulators then it's no better than an unregulated one.
This is one of the best and most accurate sentences I have read in awhile.
0. http://legal-dictionary.thefreedictionary.com/Equity
Anyone with a net worth above $1mm can become a venture capitalist, given that VCs deal with earlier stage companies which, as a result of their youth, are happy to take small checks for minority investments.
Private equity, because it deals with mature companies and (more often than not) involves controlling stakes, requires very, very large checks. And because investors don't like an undiversified portfolio, the PE firm must have the means to write many very, very large checks.
This isn't an undertaking that just anyone can do. Of course, if someone has the means to raise hundreds of millions of dollars, has a nose for investing, is experienced in both buy-side mergers & acquisitions as well as the operations of a company in a given domain, then co-sign your advice.
Though index funds or an advisor would be much less risky for someone with those means.
Are you familiar with what "private equity" is? Note that "private equity" is distinct from "private" "equity."
Private equity is an asset class. equity securities and debt (such as, oh, unpaid medical bills, and the right to collect on them) can be purchased as well as corporations/corporate debt.
Are you sure you understand what I'm saying?
Second, what exactly do you accomplish by doing this, except paying a bunch of money in incorporation fees and drafting documents?
There's a reason why corporate shell games are usually played by people with relatively deep pockets: all the benefits that come from using corporate law require lawyers and accountants, and those are expensive.
https://news.ycombinator.com/item?id=11977710
Do not get tripped by the top comment.
It is not. It's just an infographic with a basic level of interactivity.
It doesn't claim to be an extensive or comprehensive report on the influence of PE in the US market and everyday life.
Just a reductionist overview of the topic, nothing more nothing less.
For example: it's an info graphic if you show some number of cars unevenly distributed across two lanes on a road and explain that each car in lane A represents 10,000 rental cars and each car in lane B represent 10,000 driver-owned cars, and the sum of the infographic cars * 10,000 happens to equal the number of cars on USAmerican roads, assuming that the infographic specifies that its subject is rental-vs-ownership of cars on USAmerican roadways.
See? An info graphic is a fancy chart or graph. Every rule from your highschool science textbook about charts and graphs applies to infographics.
Pictures that don't adhere to those rules are just pictures.
No, it's just a graphic. There's no info, and it's inflammatory.
It tells you what X is by listing all the bad things X has done. That's like telling someone what the US is by saying "The US tried to purge the North American natives in the 19th century."
It doesn't tell me what "the US" actually refers to, and it poisons the well against it. You are no better at implementing a classifier to distinguish "US" for "not US", and now you're armed with entirely negative things about the US.
(I was originally going to do Germany there, but Godwin's Law and all.)
> No, it's just a graphic. There's no info, and it's inflammatory.
IME, "infographic" is a term in which the "info" portion relates to "information" in much the same way that "factoid" relates to "fact" (or "truthy" relates to "truthful".)
They did that on purpose. That's because NYT is left-wing newspaper just like The Guardian. Note that, socialist Paul Krugman is columnist for NYT.
The only job of Guardian, NYT, Huff Post and many others is to say negative about capitalism, private enterprise and free-markets. And to say positive about big government, wealth distribution and other left-wing agenda.
The same about Hollywood and entertainment industry (e.g. MTV), they are mostly left-wing.
I think left-wing ideas and left-wing propaganda completely monopolise western world (almost entire Europe, AU, CA etc).
It's sad but true.
There are people who view the world, politics and the economy differently than you do, and they're writing about what they know. No secret propaganda agenda.
Socialist Paul Krugman is a columnist for the NYT? They must have two Paul Krugmans, then, as the better-known one [0] is not even close to a socialist.
[0] https://en.wikipedia.org/wiki/Paul_Krugman#Economic_views
School doesn't have money, is struggling. PE lobby firm issues a few press releases pointing out what a failure public schools are. Then another press release about how there is a way out -- go to their schools, and so on.
Or if they happen to lease land and run an tolled expressway, they might lobby local government against expanding or improving local roads, because it means a but in the profits for them, and so on.
The cheapest and most effective way to profits is to often to do just that -- lobbying and regulatory capture. That is what's scary with privatizing everything.
And why did they have to go on and call out named PE groups...(Fortress). What does that achieve NYT?
What is the goal of this in the first place...? If we want to educate people on what PE really does, let's talk. But this is clearly just targeting the masses with a one sided viewpoint to try and get them to associate 2008 again and raise their pitchforks back up. Accomplishes nothing.
What's not to love about them. Oh, and let's forget they often secretly double dip on fees. i.e charge their LP's management fees, and their portfolio companies advisory fees (which are often not disclosed to their LPs).
Despite all this hating, I'd sooner invest in a PE fund then HF or VC.
[1] regular investors can only lever 2:1 in equities, but PE often leverages 10:1 or more.
Colors of money, market forces, the political alignment of the NYT... None of these are the most interesting part.
The government(s) exists to serve the people, right? To provide safety, predictability in the environment, in our lives. We exchange a little liberty for those benefits and indeed pay taxes, too.
Corporations exist to make money. And to protect their owners from liability, I guess? I'm no expert on why corporations exist, and I certainly can't tell you why they should exist.
This animated series of tweets from the NYT (it's hardly an article!) tells us that corporations, specifically a subset known as "private equity", now own things that the average person does not expect them to own.
For me, the takeaway is: The number of things NOT owned by corporations is decreasing and traditional resistance (by the governments and individuals) is failing or has failed.