[Plura-list] A weapon of mass financial destruction

[Cory Doctorow]

_,.-'~'-.,__,.-'~'-.,__,.-'~'-.,__,.-'~'-.,__,.-'~'-.,_

Next Weds (5/19), I'm doing a talk called "Seize the Means of
Computation," at the Ryerson Centre for Free Expression:

https://cfe.ryerson.ca/events/how-destroy-surveillance-capitalism-seize-means-computation

And on Thu (5/20), I'm doing a keynote called "Privacy Without
Monopoly," for the Northsec conference:

https://nsec.io/speaker/cory-doctorow.html

_,.-'~'-.,__,.-'~'-.,__,.-'~'-.,__,.-'~'-.,__,.-'~'-.,_

Today's links

* A weapon of mass financial destruction: Your pension is funding the
destruction of the real economy...and itself.

* This day in history: 2016, 2020

* Colophon: Recent publications, upcoming/recent appearances, current
writing projects, current reading

_,.-'~'-.,__,.-'~'-.,__,.-'~'-.,__,.-'~'-.,__,.-'~'-.,_

🤡 A weapon of mass financial destruction

Some things are hard to understand because they're complicated.

Some things are complicated so they'll be hard to understand.

The harder you look at the finance industry, the more evident it becomes
that the complexity is deliberate, a means of baffling with bullshit.

Private equity is one of those baffling and mysterious phenomena that
only gets worse with scrutiny: how is it possible that a handful of
companies are able to borrow vast sums to buy up and then destroy
successful businesses? Can that really be their business-model?

Yup.

"Private Equity at Work," Eileen Appelbaum and Rosemary Batt's 2014
analysis of the social consequences of private equity takeovers. It
identifies many destructive PE practices, but singles out one as
especially deadly: "club deals."

https://www.russellsage.org/publications/private-equity-work

In a club deal, "two or more PE funds join together to acquire a huge
enterprise, and share ownership." The presence of multiple marquee names
on the deal (like the Toys R Us acquisition, with Bain, KKR, and Vornado
in a single "club") puts billions on tap from lenders.

Club deals' easy access to credit made them hugely popular, constituting
40% of leveraged buyouts in 2004. But the uncritical fortunes showered
on club LBOs emboldened a series of increasingly destructive grifts that
caused club deals collapse in popularity.

The "save businesses, fuck workers" Trump stimulus sent trillions of Fed
dollars sloshing into the finance world, fuelling multiple asset
bubbles, from cryptos to single-family dwellings - even a violent
trading-card frenzy.

https://www.nytimes.com/2021/05/14/business/pokemon-cards-target.html

To that list, we can now add Club Deals 2.0, with billions being
marshalled by PE alliances who are bidding against one another to
acquire Medline America's largest manufacturer/distributor of medical
supplies, serving hospitals and doctor's offices.

https://www.bloomberg.com/news/articles/2021-05-06/top-buyout-firms-said-to-club-up-for-jumbo-lbo-of-medline

As Appelbaum writes for The American Prospect, this is cause for alarm.
To the PE clubs, Medline is an asset, used to secure debt financing that
can be handed out to fund managers and investors. To the rest of us,
Medline is a matter of life or death.

https://prospect.org/economy/private-equity-club-deal-coming-to-a-pension-fund-near-you/

To remind us of the awesome destructive power of PE club deals,
Appelbaum provides us with a rundown of their terrifying history:

* The 2006 $5.4b Tishman Speyer/Blackrock deal to buy Stuyvesant/Cooper
Village in order to undo its rent-control status, evict its tenants, and
go condo. Tenants organized, and the fund went bankrupt in 2010, dodging
the $200m it owed tenants for illegal rent overcharges. Though the fund
managers made out fine on that deal, its investment partners weren't so
lucky: "the Church of England, the government of Singapore, and three
public-employee pension funds in Florida and California, lost a total of
$850 million."

* The 2007 $48b KKR/TPG/Goldman Sachs buyout of Texas energy giant TXU
(AKA Energy Future Holdings). Bankrupt by 2012. PE extracted $538m from
the deal, and millions more in "fees" to oversee the company's
implosion. Investors lost 95 cents for every dollar they put in.

* The 2004 Cerberus/Sun/Lubert-Adler/Klaff buyout of Mervyn's department
stores: asset stripped, bankrupt by 2008, liquidated, destroying
thousands of jobs and stiffing suppliers, kicking off a wave of knock-on
bankruptcies.

* The 2006 $30.7b Apollo/TPG buyout of Harrah's (now Caesar's):
eliminated much of the 30,000 unionized employee workforce and cut the
IPO offering from $17/share to $9 in 2010. Investors lost 40% of their cash.

* The 2000 Caxton-Iseman/Sentinel acquisition of Buffets Holdings
(Ryan's, Hometown Buffet, Old Country Buffet, Tahoe Joe's, etc).
Bankrupt by 2008 after the PE extracted more than $250m. Thousands of
jobs gone, forever.

PE firms claim that they are Good at Business in ways that the people
who run profitable companies that employ people in good jobs that do
things other people value simply are not.

With leveraged buyouts, PE firms borrow billions by putting up the
companies they're targeting as collateral (like nonconsensually buying
someone else's house by taking out a mortgage that puts their house up
as security!).

Credulous lenders - your pension fund, your government, even your church
- put up the money, accepting deals in which the key assets of the
business are immediately liquidated to pay huge management and special
dividend fees to the PE company.

PE rakes in hundreds of millions - even billions - and saddles the
company with vast debts whose interest payments drain its profits.
Meanwhile, the company is forced to lease back the capital assets the PE
company sold off, exposing it to rent shocks and price hikes.

While the PE barons who devised this Excellent Business Strategy charge
the company millions more in "management and consulting fees" in
exchange for yet more of this species of commercial wisdom.

It's a (terrifying) sign of just how stupid big money has become that
club deals are back. A leveraged buyout of Medline puts the whole
medical system in jeopardy (raising a question: why didn't antitrust
regulators prevent Medline from becoming a single point of failure?).

There is no credible case for PE making Medline a better company. As
Appelbaum writes, "it's a highly successful company with no low-hanging
fruit in the form of operational, marketing, or business strategy
improvements requiring PE’s secret sauce."

Sticking Medline with $10b in leveraged buyout debts and saddling it
with millions in payments for "management and consulting" will
necessitate massive junk-bond raises and a spiral towards inevitable
bankruptcy.

As Appelbaum writes, that doesn't mean that the funds bidding for the
company (Advent/Bain/CVC, KKR/Clayton, Blackstone/Hellman) won't make
out like (literal) bandits on the deal.

For decades, we've been sold the narrative that wealth is the reward for
brilliance, in a concerted effort to overturn Balzac's maxim that
"behind every great fortune there is a crime."

We've been told that we're not qualified to comment on finance matters
because we don't understand its complexities, the underlying,
unquestionable axioms that make it somehow necessary and valorous to
destroy productive businesses in the name of capitalism.

We've been told that economic malaise is the result of workers demanding
a living wage (especially through unions) and "burdensome regulations"
that put the incomprehensible genius of billionaire saviors in shackles,
to the detriment of us all.

Reality has finally come for that self-serving myth. At a time in which
American union membership is at historic lows, support for unions is at
historic *highs*, and our trust in big business has plummeted:

https://www.theguardian.com/commentisfree/2021/may/13/americans-are-more-pro-union-and-anti-big-business-than-at-any-time-in-decades

Starting in 2012, and for first time in half-century the history of the
American National Election Studies, public sentiment moved *for* unions
and *against* business (historically, trust for unions and business rise
and fall together).

The latest ANES data shows the most intense divergence ever, with all
age groups and political groups hold "record or near-record positive
views favoring labor over big business." Republican support of unions,
which has grown since 2012, is at an all-time high.

The PRO Act, a landmark pro-union bill, is currently before the
Congress, with strong support from the Biden administration. It presents
the possibility that public sentiment will turn into public *policy*,
making lasting change to our politics:

https://pluralistic.net/2021/05/07/pro-act-class-war/#sectoral-balances

Billionaires have always been sterling exemplars of class solidarity.
Even when their private equity funds result in wealthy investors losing
hundreds of millions of dollars, they stick together and argue for
preferential treatment for capital gains and finance deregulation.

Today, we see serious signs of class solidarity among the rest of us,
the first in many decades. All it took was decades of hugely destructive
financial engineering, a nation brought to the brink of collapse, and a
planet on fire, all in the name of "efficiency."

_,.-'~'-.,__,.-'~'-.,__,.-'~'-.,__,.-'~'-.,__,.-'~'-.,_

🤡 This day in history

#5yrsago Infested: an itchy, fascinating natural history of the bed bug
https://memex.craphound.com/2016/05/14/infested-an-itchy-fascinating-natural-history-of-the-bed-bug/

#5yrsago Banker implicated in one of history’s biggest frauds says boss
beat him with a tiny baseball bat
https://www.ibtimes.co.uk/barclays-banker-accused-rigging-libor-rate-hit-assistant-baseball-bat-1559792

#1yrago Facebook's "backfire effect" junk science
https://pluralistic.net/2020/05/14/everybody-poops/#backfire-effect

#1yrago Restaurants won't let gig drivers pee
https://pluralistic.net/2020/05/14/everybody-poops/#gotta-go

_,.-'~'-.,__,.-'~'-.,__,.-'~'-.,__,.-'~'-.,__,.-'~'-.,_

🤡 Colophon

Today's top sources: Naked Capitalism (https://www.nakedcapitalism.com/).

Currently writing:

* A Little Brother short story about pipeline protests.  RESEARCH PHASE

* A short story about consumer data co-ops.  PLANNING

* A Little Brother short story about remote invigilation.  PLANNING

* A nonfiction book about excessive buyer-power in the arts, co-written
with Rebecca Giblin, "The Shakedown."  FINAL EDITS

* A post-GND utopian novel, "The Lost Cause."  FINISHED

* A cyberpunk noir thriller novel, "Red Team Blues."  FINISHED

Currently reading: Analogia by George Dyson.

Latest podcast: How To Destroy Surveillance Capitalism (Part 06)
https://craphound.com/nonficbooks/destroy/2021/05/10/how-to-destroy-surveillance-capitalism-part-06/

Upcoming appearances:

* Seize the Means of Computation, Ryerson Centre for Free Expression,
May 19,
https://cfe.ryerson.ca/events/how-destroy-surveillance-capitalism-seize-means-computation

* Privacy Without Monopoly, Northsec, May 20,
https://nsec.io/speaker/cory-doctorow.html

* In conversation with David Dayen (Second Life Book Club), Jun 4,
http://www.draxtor.com/sl-book-club-coming-up/corydavid

Recent appearances:

* Mohanraj and Rosenbaum Are Humans
https://open.spotify.com/episode/01dGJO8sqjQ9IoLy58f1rR

* Can Antitrust Laws Destroy Surveillance Capitalism? (Majority Report)
https://www.youtube.com/watch?v=stDGbYAduKE

* In conversation with John Scalzi at the Gaithersburg Book Festival
https://www.youtube.com/watch?v=jQAVJPE1vRk

Latest book:

* "Attack Surface": The third Little Brother novel, a standalone
technothriller for adults. The *Washington Post* called it "a political
cyberthriller, vigorous, bold and savvy about the limits of revolution
and resistance." Order signed, personalized copies from Dark Delicacies
https://www.darkdel.com/store/p1840/Available_Now%3A_Attack_Surface.html

* "How to Destroy Surveillance Capitalism": an anti-monopoly pamphlet
analyzing the true harms of surveillance capitalism and proposing a
solution.
https://onezero.medium.com/how-to-destroy-surveillance-capitalism-8135e6744d59
(print edition:
https://bookshop.org/books/how-to-destroy-surveillance-capitalism/9781736205907)
(signed copies:
https://www.darkdel.com/store/p2024/Available_Now%3A__How_to_Destroy_Surveillance_Capitalism.html)

* "Little Brother/Homeland": A reissue omnibus edition with a new
introduction by Edward Snowden:
https://us.macmillan.com/books/9781250774583; personalized/signed copies
here:
https://www.darkdel.com/store/p1750/July%3A__Little_Brother_%26_Homeland.html

* "Poesy the Monster Slayer" a picture book about monsters, bedtime,
gender, and kicking ass. Order here:
https://us.macmillan.com/books/9781626723627. Get a personalized, signed
copy here:
https://www.darkdel.com/store/p1562/_Poesy_the_Monster_Slayer.html.

Upcoming books:

* The Shakedown, with Rebecca Giblin, nonfiction/business/politics,
Beacon Press 2022

This work licensed under a Creative Commons Attribution 4.0 license.
That means you can use it any way you like, including commercially,
provided that you attribute it to me, Cory Doctorow, and include a link
to pluralistic.net.

https://creativecommons.org/licenses/by/4.0/

Quotations and images are not included in this license; they are
included either under a limitation or exception to copyright, or on the
basis of a separate license. Please exercise caution.

_,.-'~'-.,__,.-'~'-.,__,.-'~'-.,__,.-'~'-.,__,.-'~'-.,_

🤡 How to get Pluralistic:

Blog (no ads, tracking, or data-collection):

Pluralistic.net

Newsletter (no ads, tracking, or data-collection):

https://pluralistic.net/plura-list

Mastodon (no ads, tracking, or data-collection):

https://mamot.fr/web/accounts/303320

Medium (no ads, paywalled):

https://doctorow.medium.com/

Twitter (mass-scale, unrestricted, third-party surveillance and
advertising):

https://twitter.com/doctorow

Tumblr (mass-scale, unrestricted, third-party surveillance and advertising):

https://mostlysignssomeportents.tumblr.com/tagged/pluralistic

"*When life gives you SARS, you make sarsaparilla*" -Joey "Accordion
Guy" DeVilla

-------------- next part --------------
A non-text attachment was scrubbed...
Name: signature.asc
Type: application/pgp-signature
Size: 195 bytes
Desc: OpenPGP digital signature
URL: <http://mail.flarn.com/pipermail/plura-list/attachments/20210514/42593cc5/attachment.sig>