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Brothern
Wendigo
Furthermore, if an investment firm buys up a company, why should they necessarily care about the company at all?[/quote
Because companies are made of people. The investment firm, presumably being staffed by people, should care about people. If they do not, then they are being bad people. We call people who don't care about people sociopaths.
Complex Systems
Secondly, it is not the role of an investment firm to care about people. Again, finance is weird. I'm sure on some level individuals do, and should, care, but anyone who places it as a primary prerogative is foolish.

I'll take this a step further. Investment firms do care about people, but only the people that will improve the value of the firm. The biggest predictor of success for a company (esp. in start-ups) is being able to have not just a competent management team, but a world-class one at that. It's why three quarters of company founders are usually fired from the companies they found. They usually are unsuitable to lead a company.

And to mirror Complex Systems, it's not the job of investors and those overlooking CEOs to care about the feelings of others. That especially holds true in Bain's world where the vast majority of their purchases are on a fiery, screaming path to hell bankruptcy. The only thing that matters is keeping the business profitable because you'll lose millions and millions of dollars otherwise.

In Venture Capital? Multiple that by a factor of TEN. The majority of investments in business ventures made by VC firms outright fail and go bankrupt. Another 20-30% do nothing and only about 10% of all investments made are able to become massively successful. One is not able to afford being nice to people.


10%? I thought it was something like 1-5% at best become successful at all, and only a fraction of that become massively successful.
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Brothern

I'll take this a step further. Investment firms do care about people, but only the people that will improve the value of the firm. The biggest predictor of success for a company (esp. in start-ups) is being able to have not just a competent management team, but a world-class one at that. It's why three quarters of company founders are usually fired from the companies they found. They mostly are just unable to lead a company.
See, I would think that'd relate to the skeleton of a joint stock company, the voting shares, of which a controlling share can be acquired fairly easily.

Quote:
And to mirror Complex Systems, it's not the job of investors and those overlooking CEOs to care about the feelings of others. That especially holds true in Bain's world where the vast majority of their purchases are on a fiery, screaming path to hell bankruptcy. The only thing that matters is keeping the business profitable because you'll lose millions and millions of dollars otherwise.
Doesn't have to be profitable, we're long past those days. Certainly it has to appear profitable, for long enough for money to change hands. After that it's somebody else's problem.
Quote:

In Venture Capital?
Leveraged buyouts, is th' word.
Complex Systems
10%? I thought it was something like 1-5% at best become successful at all, and only a fraction of that become massively successful.

It's a bit more positive than that, but you're right that I erred in throwing 'massively' in there. Only a fraction do become massively successful.
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Or "hostile takeover" if you're feeling dramatic.
Complex Systems's avatar

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Brothern
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10%? I thought it was something like 1-5% at best become successful at all, and only a fraction of that become massively successful.

It's a bit more positive than that, but you're right that I erred in throwing 'massively' in there. Only a fraction do become massively successful.


I know my dad has been involved in a fair amount of start ups, and my sister is now out with the computer programming crowds in San Francisco, so I'm fairly aware of what start up culture is like, at least.
Complex Systems
I know my dad has been involved in a fair amount of start ups, and my sister is now out with the computer programming crowds in San Francisco, so I'm fairly aware of what start up culture is like, at least.

Oh man I'd have liked to have had that growing up. I've worked in the Midwest with people who'd like to be called VC, because truthfully it's nothing like Boston or CA.
Complex Systems's avatar

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Brothern
Complex Systems
I know my dad has been involved in a fair amount of start ups, and my sister is now out with the computer programming crowds in San Francisco, so I'm fairly aware of what start up culture is like, at least.

Oh man I'd have liked to have had that growing up. I've worked in the Midwest with people who'd like to be called VC, because truthfully it's nothing like Boston or CA.


It was weird going to a house party in San Fran where just about everyone had been employed by 3 different start ups that had gone under since graduating around 2008, and that was just expected of the field. And my dad got caught in the tech bubble back at the turn of the century. It's weird. None of them can be called venture capitalists, so much as always hunting for VCs. The company my dad has been working for is hoping to sell itself off just to break even after nearly 7 years of operation, because the VCs acknowledge that the company will never be wildly successful and are looking to recoup their investments.
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If you're an investment firm and making decisions based on people and not making money, have fun being sued.

/only contribution to this discussion.
The New York Times has an article on one of Romney's Bain associates:

Quote:
A central problem with the U.S. economy, he told me, is finding a way to get more people to look for solutions despite these terrible odds of success. Conard’s solution is simple. Society benefits if the successful risk takers get a lot of money. For proof, he looks to the market. At a nearby table we saw three young people with plaid shirts and floppy hair. For all we know, they may have been plotting the next generation’s Twitter, but Conard felt sure they were merely lounging on the sidelines. “What are they doing, sitting here, having a coffee at 2:30?” he asked. “I’m sure those guys are college-educated.” Conard, who occasionally flashed a mean streak during our talks, started calling the group “art-history majors,” his derisive term for pretty much anyone who was lucky enough to be born with the talent and opportunity to join the risk-taking, innovation-hunting mechanism but who chose instead a less competitive life. In Conard’s mind, this includes, surprisingly, people like lawyers, who opt for stable professions that don’t maximize their wealth-creating potential. He said the only way to persuade these “art-history majors” to join the fiercely competitive economic mechanism is to tempt them with extraordinary payoffs.

“It’s not like the current payoff is motivating everybody to take risks,” he said. “We need twice as many people. When I look around, I see a world of unrealized opportunities for improvements, an abundance of talented people able to take the risks necessary to make improvements but a shortage of people and investors willing to take those risks. That doesn’t indicate to me that risk takers, as a whole, are overpaid. Quite the opposite.” The wealth concentrated at the top should be twice as large, he said. That way, the art-history majors would feel compelled to try to join them.

I first met Conard last fall, around the same period in which I was spending a lot of time in Zuccotti Park, interviewing anti-Wall Street protesters who argued that people like him were destroying our democracy. Most Wall Street leaders ignored the Occupy movement or evaded it, and I was sure Conard would be among the most silent. He had recently been stung by a 1 percent scandal of his own: setting up a company whose sole purpose was to donate $1 million to a political-action committee that supported Romney.

(link)


....And as a riposte of sorts to this, I give you Stephen King

Quote:
Here’s another crock of fresh bullshit delivered by the right wing of the Republican Party (which has become, so far as I can see, the only wing of the Republican Party): the richer rich people get, the more jobs they create. Really? I have a total payroll of about 60 people, most of them working for the two radio stations I own in Bangor, Maine. If I hit the movie jackpot—as I have, from time to time—and own a piece of a film that grosses $200 million, what am I going to do with it? Buy another radio station? I don’t think so, since I’m losing my shirt on the ones I own already. But suppose I did, and hired on an additional dozen folks. Good for them. Whoopee-ding for the rest of the economy.

Tired of hearing about it, they said. Tough s**t for you guys, because I’m not tired of talking about it. I’ve known rich people, and why not, since I’m one of them?

At the risk of repeating myself, here’s what rich folks do when they get richer: they invest. A lot of those investments are overseas, thanks to the anti-American business policies of the last four administrations. Don’t think so? Check the tag on that T-shirt or gimme cap you’re wearing. If it says MADE IN AMERICA, I’ll … well, I won’t say I’ll eat your shorts, because some of that stuff is made here, but not much of it. And what does get made here doesn’t get made by America’s small cadre of pluted bloatocrats; it’s made, for the most part, in barely-gittin’-by factories in the Deep South, where the only unions people believe in are those solemnized at the altar of the local church (as long as they’re from different sexes, that is).

(link)
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Complex Systems
It was weird going to a house party in San Fran where just about everyone had been employed by 3 different start ups that had gone under since graduating around 2008, and that was just expected of the field. And my dad got caught in the tech bubble back at the turn of the century. It's weird. None of them can be called venture capitalists, so much as always hunting for VCs. The company my dad has been working for is hoping to sell itself off just to break even after nearly 7 years of operation, because the VCs acknowledge that the company will never be wildly successful and are looking to recoup their investments.
It's not exactly a secret that new businesses generally do not last. Accordin' to the SBA, a new business has a 51-49 shot of lasting 5 years. Like flippin' a coin, basically.

All manner of reasons for that, of course.
Brothern
TheSilverNoble
Link

The article is definitely biased, but that doesn't necessarily mean it's wrong. It sounds pretty damning, but I admit I don't know a whole lot about that sort of investing. So is this as bad as it seems, or is does it blow things out of proportion.

No, it completely blows things out of proportion. It's hard to beginning defending it too, because you have to have the academic and business background to understand what Bain does what it does and for what purposes.

The best analogy I can think of is flipping a house. You buy an old, worn house for $100K with a leaky roof, broken plumbing and atrocious landscaping. You may be able to live in the house, but the living conditions are still terrible. What Romney does is take out a loan to buy the house, fix the roof, tear out the plumbing and re-do the landscaping. He then sells the house for $250K, because the condition of the house has been improved.

Business are like that house. A lot of people believe every single company that exists is actually a $2M McMansions. They aren't. Businesses may even be profitable (livable) but they still can have poor management, ineffective resource allocations, insensible capital structures, and etc. that is damaging the company and wasting time, resources and human capital. Flipping the house is "creative destruction" - by ripping out the roof or reforming the company's resource allocation, you are strengthening the company.

The disconnect comes from the workers, who do not have the insight into the larger business. No one tells them that their employer is a shitty broken company. Employees may not realize their division is the leaky sink or broken pipe that's dragging down the company. Unfortunate as it may be, that has to be fixed in order for the company to grow or become more prosperous. This article is the equivalent of a person hugging and sobbing over the broken sink and blaming Romney for fixing it.

Yeah. It's harsh. It's cruel. But on a large scale, we need to do it as a society. Economic and social progress will not occur if all of our resources are being ineffectually used and our companies are digging one hole to fill another. Yeah, you have to feel bad for the manufacturing plant that laid off it's employees, but it's killing economic development by wasting resources.

What brothern says could, and should, be true. but its not, not in every case, anyway. If capital was tied to real wealth, then sure, only increasing the real value of an asset would yield profits. But we have the fed.

I love the treatment, by the way, of "creative destruction" in the article as if it were some sort of unnacceptably predatory practice and not a naturally ocurring, and thoroughly necesary, ocurrence in a market economy. James Buchanan should be required reading. for everyone.

But what is true is that the model of rapid liquidization and short-term profit seeking is very dangerous, and part of the reason for the economic crisis.

I, personally, blame the fed. Well, also Economics and Business faculties in universities around the globe, but mostly the fed.

See, if a firm like Bain didnt have an easy source of immediate capital lending out at below interest rates, they would actually have to take care of their investments. If a company that they bought was profitable and solvent, it would become a source of capital for later operations, and thus killing the golden goose to sell it for parts would be a ridiculous idea.

But Bain can always borrow at ridiculously low interest rates, because The Fed exists and is willing and able to lend them a limitless amount of money at interest rates that are such that, when taking inflation into acount, they are actually paying Bain to borrow. Thus, rapid liquidization and selling off all means of production becomes the name of the game. Bain doesnt need access to real capital, it just acquires a property that they see as more valuable to liquidate in the short run than a means of production that can grant them acess to a steady flow of capital in the long run. Again, econ faculties, "in the long run we're all dead" and such.

Plus, the fact that executives are rewarded by shareholders and boards based on quarterly performances ( ever wonder how the kochs got so rich? they kept the company to themselves and disposed of the whole quarterly evaluation for executives nonsense). So, Bain borrows money to buy a company, tears it aparts and sells it off for millions, pays back less than what the fed lent it, and gets to report the entire sale as a profit. Why? cuz they dont need to keep the cash around as operating capital, as the fed tap keeps flowing.

So everyone has a lot more money, sure, but what you actually have is the destruction of the means of production of actual wealth. More money chasing less wealth means inflation, and everyone thinks theyre getting richer, but theyre really just riding a bubble. The bubble pops, everything goes to s**t, and business mayors everywhere are left scratching their heads, not understanding that money doesnt make anyone rich. Actual wealth, as in real goods and services with real value created by real demand and real marginal utility, make you rich.
Darth_Nader
Brothern
TheSilverNoble
Link

The article is definitely biased, but that doesn't necessarily mean it's wrong. It sounds pretty damning, but I admit I don't know a whole lot about that sort of investing. So is this as bad as it seems, or is does it blow things out of proportion.

No, it completely blows things out of proportion. It's hard to beginning defending it too, because you have to have the academic and business background to understand what Bain does what it does and for what purposes.

The best analogy I can think of is flipping a house. You buy an old, worn house for $100K with a leaky roof, broken plumbing and atrocious landscaping. You may be able to live in the house, but the living conditions are still terrible. What Romney does is take out a loan to buy the house, fix the roof, tear out the plumbing and re-do the landscaping. He then sells the house for $250K, because the condition of the house has been improved.

Business are like that house. A lot of people believe every single company that exists is actually a $2M McMansions. They aren't. Businesses may even be profitable (livable) but they still can have poor management, ineffective resource allocations, insensible capital structures, and etc. that is damaging the company and wasting time, resources and human capital. Flipping the house is "creative destruction" - by ripping out the roof or reforming the company's resource allocation, you are strengthening the company.

The disconnect comes from the workers, who do not have the insight into the larger business. No one tells them that their employer is a shitty broken company. Employees may not realize their division is the leaky sink or broken pipe that's dragging down the company. Unfortunate as it may be, that has to be fixed in order for the company to grow or become more prosperous. This article is the equivalent of a person hugging and sobbing over the broken sink and blaming Romney for fixing it.

Yeah. It's harsh. It's cruel. But on a large scale, we need to do it as a society. Economic and social progress will not occur if all of our resources are being ineffectually used and our companies are digging one hole to fill another. Yeah, you have to feel bad for the manufacturing plant that laid off it's employees, but it's killing economic development by wasting resources.

What brothern says could, and should, be true. but its not, not in every case, anyway. If capital was tied to real wealth, then sure, only increasing the real value of an asset would yield profits. But we have the fed.

I love the treatment, by the way, of "creative destruction" in the article as if it were some sort of unnacceptably predatory practice and not a naturally ocurring, and thoroughly necesary, ocurrence in a market economy. James Buchanan should be required reading. for everyone.

But what is true is that the model of rapid liquidization and short-term profit seeking is very dangerous, and part of the reason for the economic crisis.

I, personally, blame the fed. Well, also Economics and Business faculties in universities around the globe, but mostly the fed.

See, if a firm like Bain didnt have an easy source of immediate capital lending out at below interest rates, they would actually have to take care of their investments. If a company that they bought was profitable and solvent, it would become a source of capital for later operations, and thus killing the golden goose to sell it for parts would be a ridiculous idea.

But Bain can always borrow at ridiculously low interest rates, because The Fed exists and is willing and able to lend them a limitless amount of money at interest rates that are such that, when taking inflation into acount, they are actually paying Bain to borrow. Thus, rapid liquidization and selling off all means of production becomes the name of the game. Bain doesnt need access to real capital, it just acquires a property that they see as more valuable to liquidate in the short run than a means of production that can grant them acess to a steady flow of capital in the long run. Again, econ faculties, "in the long run we're all dead" and such.

Plus, the fact that executives are rewarded by shareholders and boards based on quarterly performances ( ever wonder how the kochs got so rich? they kept the company to themselves and disposed of the whole quarterly evaluation for executives nonsense). So, Bain borrows money to buy a company, tears it aparts and sells it off for millions, pays back less than what the fed lent it, and gets to report the entire sale as a profit. Why? cuz they dont need to keep the cash around as operating capital, as the fed tap keeps flowing.

So everyone has a lot more money, sure, but what you actually have is the destruction of the means of production of actual wealth. More money chasing less wealth means inflation, and everyone thinks theyre getting richer, but theyre really just riding a bubble. The bubble pops, everything goes to s**t, and business mayors everywhere are left scratching their heads, not understanding that money doesnt make anyone rich. Actual wealth, as in real goods and services with real value created by real demand and real marginal utility, make you rich.


In short you are saying Bain is just taking advantage and exploiting the FED *please capitalize is confusing xD* to squeeze the most "wealth" or better yet, cash, from these struggling corporations; who most likely employed Bain's services to save their company. *Though this could be bullshit as well*

You see, the problem with politics is that politicians are supposed to represent their constituents and have a background that states or at the least present some history of working for the improvement of the community. That is what I believe a politician is suppose to show or embrace if he is to prove that he is a leader that truly cares about those he is supposed to represent. What we can argue here with this evidence is that Mitt Romney has done the opposite of that which I just stated in regarding to the field which he worked in the 90s.
He did not create jobs or better the life for these "wealth producers", instead he came in and destroyed these companies from the inside out in order to use that short term boost in capital for the betterment of himself and his firm. This was done at the expense corporations that employ workers *low, middle class* such as the ones stated in the article.
What does that say of Romney? Can he make a case that he truly cares for the middle class when he basically funded his campaign and gained profits by working towards its destruction? I don't think these tactics should be encouraged, if anything they should be shunned as predatory and deviant behavior similar to those of a con man.

It is not the same as buying a house and flipping it over since the ones getting the short end of the stick *loosing their jobs* are members of the middle class.

I want to know how his experience working for Bain can be attributed to anything in our government. I would love to see him swing this practice towards his favor other then saying "I have experience working in the free market".
azulmagia
The New York Times has an article on one of Romney's Bain associates:

Quote:
A central problem with the U.S. economy, he told me, is finding a way to get more people to look for solutions despite these terrible odds of success. Conard’s solution is simple. Society benefits if the successful risk takers get a lot of money. For proof, he looks to the market. At a nearby table we saw three young people with plaid shirts and floppy hair. For all we know, they may have been plotting the next generation’s Twitter, but Conard felt sure they were merely lounging on the sidelines. “What are they doing, sitting here, having a coffee at 2:30?” he asked. “I’m sure those guys are college-educated.” Conard, who occasionally flashed a mean streak during our talks, started calling the group “art-history majors,” his derisive term for pretty much anyone who was lucky enough to be born with the talent and opportunity to join the risk-taking, innovation-hunting mechanism but who chose instead a less competitive life. In Conard’s mind, this includes, surprisingly, people like lawyers, who opt for stable professions that don’t maximize their wealth-creating potential. He said the only way to persuade these “art-history majors” to join the fiercely competitive economic mechanism is to tempt them with extraordinary payoffs.

“It’s not like the current payoff is motivating everybody to take risks,” he said. “We need twice as many people. When I look around, I see a world of unrealized opportunities for improvements, an abundance of talented people able to take the risks necessary to make improvements but a shortage of people and investors willing to take those risks. That doesn’t indicate to me that risk takers, as a whole, are overpaid. Quite the opposite.” The wealth concentrated at the top should be twice as large, he said. That way, the art-history majors would feel compelled to try to join them.

I first met Conard last fall, around the same period in which I was spending a lot of time in Zuccotti Park, interviewing anti-Wall Street protesters who argued that people like him were destroying our democracy. Most Wall Street leaders ignored the Occupy movement or evaded it, and I was sure Conard would be among the most silent. He had recently been stung by a 1 percent scandal of his own: setting up a company whose sole purpose was to donate $1 million to a political-action committee that supported Romney.

(link)


....And as a riposte of sorts to this, I give you Stephen King

Quote:
Here’s another crock of fresh bullshit delivered by the right wing of the Republican Party (which has become, so far as I can see, the only wing of the Republican Party): the richer rich people get, the more jobs they create. Really? I have a total payroll of about 60 people, most of them working for the two radio stations I own in Bangor, Maine. If I hit the movie jackpot—as I have, from time to time—and own a piece of a film that grosses $200 million, what am I going to do with it? Buy another radio station? I don’t think so, since I’m losing my shirt on the ones I own already. But suppose I did, and hired on an additional dozen folks. Good for them. Whoopee-ding for the rest of the economy.

Tired of hearing about it, they said. Tough s**t for you guys, because I’m not tired of talking about it. I’ve known rich people, and why not, since I’m one of them?

At the risk of repeating myself, here’s what rich folks do when they get richer: they invest. A lot of those investments are overseas, thanks to the anti-American business policies of the last four administrations. Don’t think so? Check the tag on that T-shirt or gimme cap you’re wearing. If it says MADE IN AMERICA, I’ll … well, I won’t say I’ll eat your shorts, because some of that stuff is made here, but not much of it. And what does get made here doesn’t get made by America’s small cadre of pluted bloatocrats; it’s made, for the most part, in barely-gittin’-by factories in the Deep South, where the only unions people believe in are those solemnized at the altar of the local church (as long as they’re from different sexes, that is).

(link)


I have no problems with tax cuts for the middle class *which Obama insist in extending for those making less then 250k* under our current situation in which they are currently struggling. However, I do see a problem with cutting taxes for those that make more then 1million.
That being said the issues of taxation shouldn't be more important then our predicament with the budget; something that seriously needs to be fixed and properly analyzed.

Let's start by cutting military spending and fixing up our tax loopholes that are letting corporations pay little to no taxes due to the outsourcing of "the means of production" by these businesses.

Congress by law does not have to present a balanced budget to the president. I attribute most of our problems with our inability to balance the budget to the 1974 budget act which coupled with the blatant partisanship that arose from that time has made consensus extremely difficult as to what should get cut and what needs to be done with federal spending. We are currently experiencing a government that can be said to be one of the best examples of an inefficient and gridlocked democracy.


We can either give more power to the executive *our president* in balancing our budget or we need to demand co operation and action from our congressman *that's funny*.

The question is, should we leave the current system the way it is? Should we trust Congress with our budget?
Wendigo's avatar

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In fact, Ramsey's Kitchen Nightmares gives a fairly robust explanation of the process of new business failure. 'Cept Bain Capital ain't no Ramsey by any stretch of the imagination.
Less Than Liz
If you're an investment firm and making decisions based on people and not making money, have fun being sued.

/only contribution to this discussion.

True that.

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