Good, concise explanation at the New Yorker of how private equity companies like Bain work, and how these exemplars of private enterprise depend on government subsidies of one form or another to thrive.
Part of the process: load the acquisition with debt for the sole purpose of paying yourself a special dividend:
As a result, private-equity firms are increasingly able to profit even if the companies they run go under—an outcome made much likelier by all the extra borrowing—and many companies have been getting picked clean. In 2004, for instance, Wasserstein & Company bought the thriving mail-order fruit retailer Harry and David. The following year, Wasserstein and other investors took out more than a hundred million in dividends, paid for with borrowed money—covering their original investment plus a twenty-three per cent profit—and charged Harry and David millions in “management fees.” Last year, Harry and David defaulted on its debt and dumped its pension obligations. In other words, Wasserstein failed to improve the company’s performance, failed to meet its obligations to creditors, screwed its workers, and still made a profit. That’s not exactly how capitalism is supposed to work.
Those pension fund obligations? We taxpayers pick those up, while the fund managers pay tax at half the rate the rest of us do.
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