[Plura-list] Leveraged buyouts are not like mortgages
Cory Doctorow
doctorow at craphound.com
Mon Aug 5 12:14:14 EDT 2024
Read today's issue online at: https://pluralistic.net/2024/08/05/rugged-individuals/
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I'm coming to Defcon! This Friday (Aug 9), I'm emceeing the EFF Poker Tournament (noon, Horseshoe Poker Room), and speaking on the Bricked and Abandoned panel (5PM, track 1). On Saturday (Aug 10), I'm giving a keynote called "Disenshittify or die! How hackers can seize the means of computation and build a new, good internet that is hardened against our asshole bosses' insatiable horniness for enshittification" (noon, track 1).
https://defcon.org/html/defcon-32/dc-32-index.html
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Today's links
* Leveraged buyouts are not like mortgages: Corporate raiders and investment banks conspiring to steal companies.
* Hey look at this: Delights to delectate.
* This day in history: 2004, 2009, 2019, 2023
* Upcoming appearances: Where to find me.
* Recent appearances: Where I've been.
* Latest books: You keep readin' em, I'll keep writin' 'em.
* Upcoming books: Like I said, I'll keep writin' 'em.
* Colophon: All the rest.
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🥊 Leveraged buyouts are not like mortgages
Here's an open secret: the confusing jargon of finance is not the product of some inherent complexity that requires a whole new vocabulary. Rather, finance-talk is all obfuscation, because if we called finance tactics by their plain-language names, it would be obvious that the sector exists to defraud the public and loot the real economy.
Take "leveraged buyout," a polite name for *stealing a whole goddamned company*:
I. Identify a company that owns valuable assets that are required for its continued operation, such as the real-estate occupied by its outlets, or even its lines of credit with suppliers;
II. Approach lenders (usually banks) and ask for money to buy the company, offering the company itself (which you don't own!) as collateral on the loan;
III. Offer some of those loaned funds to shareholders of the company and convince a key block of those shareholders (for example, executives with large stock grants, or speculators who've acquired large positions in the company, or people who've inherited shares from early investors but are disengaged from the operation of the firm) to demand that the company be sold to the looters;
IV. Call a vote on selling the company at the promised price, counting on the fact that many investors will not participate in that vote (for example, the big index funds like Vanguard almost *never* vote on motions like this), which means that a minority of shareholders can force the sale;
V. Once you own the company, start to strip-mine its assets: sell its real-estate, start stiffing suppliers, fire masses of workers, all in the name of "repaying the debts" that you took on to buy the company.
This process has its own euphemistic jargon, for example, "rightsizing" for layoffs, or "introducing efficiencies" for stiffing suppliers or selling key assets and leasing them back. The looters - usually organized as private equity funds or hedge funds - will extract all the liquid capital - and give it to themselves as a "special dividend." Increasingly, there's also a "divi recap," which is a euphemism for borrowing even more money backed by the company's assets and then handing it to the private equity fund:
https://pluralistic.net/2020/09/17/divi-recaps/#graebers-ghost
If you're a *Sopranos* fan, this will all sound familiar, because when the (comparatively honest) mafia does this to a business, it's called a "bust-out":
https://en.wikipedia.org/wiki/Bust_Out
The mafia does destroy businesses on a onesy-twosey, retail scale; but private equity and hedge funds do their plunder wholesale.
It's how they killed Red Lobster:
https://pluralistic.net/2024/05/23/spineless/#invertebrates
And it's what they did to hospitals:
https://pluralistic.net/2024/02/28/5000-bats/#charnel-house
It's what happened to nursing homes, Armark, private prisons, funeral homes, pet groomers, nursing homes, Toys R Us, The Olive Garden and Pet Smart:
https://pluralistic.net/2023/06/02/plunderers/#farben
It's what happened to the housing co-ops of Cooper Village, Texas energy giant TXU, Old Country Buffet, Harrah's and Caesar's:
https://pluralistic.net/2021/05/14/billionaire-class-solidarity/#club-deals
And it's what's slated to happen to 2.9m Boomer-owned US businesses employing 32m people, whose owners are nearing retirement:
https://pluralistic.net/2022/12/16/schumpeterian-terrorism/#deliberately-broken
Now, you can't demolish that much of the US productive economy without attracting some negative attention, so the looter spin-machine has perfected some talking points to hand-wave away the criticism that borrowing money using something you don't own as collateral in order to buy it and wreck it is obviously a dishonest (and potentially criminal) destructive practice.
The most common one is that borrowing money against an asset you don't own is just like getting a mortgage. This is *such* a badly flawed analogy that it is really a testament to the efficacy of the baffle-em-with-bullshit gambit to convince us all that we're too stupid to understand how finance works.
Sure: if I put an offer on your house, I will go to my credit union and ask the for a mortgage that uses your house as collateral. But the difference here is that you own your house, and the only way I can buy it - the only way I can actually *get* that mortgage - is if you agree to sell it to me.
Owner-occupied homes typically have uncomplicated ownership structures. Typically, they're owned by an individual or a couple. Sometimes they're the property of an estate that's divided up among multiple heirs, whose relationship is mediated by a will and a probate court. Title can be contested through a divorce, where disputes are settled by a divorce court. At the outer edge of complexity, you get things like polycules or lifelong roommates who've formed an LLC s they can own a house among several parties, but the LLC will have bylaws, and typically all those co-owners will be fully engaged in any sale process.
Leveraged buyouts don't target companies with simple ownership structures. They depend on firms whose equity is split among many parties, some of whom will be utterly disengaged from the firm's daily operations - say, the kids of an early employee who got a big stock grant but left before the company grew up. The looter needs to convince a few of these "owners" to force a vote on the acquisition, and then rely on the idea that many of the other shareholders will simply abstain from a vote. Asset managers are ubiquitous absentee owners who own large stakes in literally every major firm in the economy. The big funds - Vanguard, Blackrock, State Street - "buy the whole market" (a big share in every top-capitalized firm on a given stock exchange) and then seek to deliver returns equal to the overall performance of the market. If the market goes up by 5%, the index funds need to grow by 5%. If the market goes down by 5%, then so do those funds. The managers of those funds are trying to match the performance of the market, not *improve* on it (by voting on corporate governance decisions, say), or to beat it (by only buying stocks of companies they judge to be good bets):
https://pluralistic.net/2022/03/17/shareholder-socialism/#asset-manager-capitalism
Your family home is *nothing* like one of these companies. It doesn't have a bunch of minority shareholders who can force a vote, or a large block of disengaged "owners" who won't show up when that vote is called. There isn't a class of senior managers - Chief Kitchen Officer! - who have been granted large blocks of options that let them have a say in whether you will become homeless.
Now, there *are* homes that fit this description, and they're a fucking disaster. These are the "heirs property" homes, generally owned by the Black descendants of enslaved people who were given the proverbial 40 acres and a mule. Many prosperous majority Black settlements in the American South are composed of these kinds of lots.
Given the historical context - illiterate ex-slaves getting property as reparations or as reward for fighting with the Union Army - the titles for these lands are often muddy, with informal transfers from parents to kids sorted out with handshakes and not memorialized by hiring lawyers to update the deeds. This has created an irresistible opportunity for a certain kind of scammer, who will pull the deeds, hire genealogists to map the family trees of the original owners, and locate distant descendants with homeopathically small claims on the property. These descendants don't even know they own these claims, don't even know about these ancestors, and when they're offered a few thousand bucks for their claim, they naturally take it.
Now, armed with a claim on the property, the heirs property scammers force an auction of it, keeping the process under wraps until the last instant. If they're really lucky, they're the only bidder and they can buy the entire property for pennies on the dollar and then evict the family that has lived on it since Reconstruction. Sometimes, the family will get wind of the scam and show up to bid against the scammer, but the scammer has deep capital reserves and can easily win the auction, with the same result:
https://www.propublica.org/series/dispossessed
A similar outrage has been playing out for years in Hawai'i, where indigenous familial claims on ancestral lands have been diffused through descendants who don't even know they're co-owner of a place where their distant cousins have lived since pre-colonial times. These descendants are offered small sums to part with their stakes, which allows the speculator to force a sale and kick the indigenous Hawai'ians off their family lands so they can be turned into condos or hotels. Mark Zuckerberg used this "quiet title and partition" scam to dispossess hundreds of Hawai'ian families:
https://archive.is/g1YZ4
Heirs property and quiet title and partition are a *much* better analogy to a leveraged buyout than a mortgage is, because they're ways of stealing something valuable from people who depend on it and maintain it, and smashing it and selling it off.
Strip away all the jargon, and private equity is just another scam, albeit one with pretensions to respectability. Its practitioners are ripoff artists. You know the notorious "carried interest loophole" that politicians periodically discover and decry? "Carried interest" has nothing to do with the interest on a loan. The "carried interest" rule dates back to 16th century sea-captains, and it refers to the "interest" they had in the cargo they "carried":
https://pluralistic.net/2021/04/29/writers-must-be-paid/#carried-interest
Private equity managers are like sea captains in exactly the same way that leveraged buyouts are like mortgages: not at all.
And it's not like private equity is good to its *investors*: scams like "continuation funds" allow PE looters to steal all the money they made from strip mining valuable companies, so they show no profits on paper when it comes time to pay their investors:
https://pluralistic.net/2023/07/20/continuation-fraud/#buyout-groups
Those investors are just as bamboozled as we are, which is why they keep giving more money to PE funds. Today, the "dry powder" (uninvested money) that PE holds has reached an all-time record high of *$2.62 trillion* - money from pension funds and rich people and sovereign wealth funds, stockpiled in anticipation of buying and destroying even more profitable, productive, useful businesses:
https://www.institutionalinvestor.com/article/2di1vzgjcmzovkcea8f0g/portfolio/private-equitys-dry-powder-mountain-reaches-record-height
The practices of PE are crooked as hell, and it's only the fact that they use euphemisms and deceptive analogies to home mortgages that keeps them from being shut down. The more we strip away the bullshit, the faster we'll be able to kill this cancer, and the more of the real economy we'll be able to preserve.
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🥊 Hey look at this
* How to Survive a Digital D&D Future https://slyflourish.com/survive_a_digital_dnd.html
* Five tech companies are the undead monsters ruling our days. Let’s knock them over and take back what’s ours https://www.thestar.com/opinion/contributors/five-tech-companies-are-the-undead-monsters-ruling-our-days-lets-knock-them-over-and/article_edde07dc-4dc5-11ef-8f09-03f2d8a30083.html
* How dumpster diving went from taboo to trendy: ‘It’s a treasure hunt’ https://www.theguardian.com/us-news/article/2024/aug/04/dumpster-diving-cost-of-living-waste (h/t Roz Doctorow)
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🥊 This day in history
#20yrsago Arlo Guthrie on “This Land” parody https://corante.com/importance/arlo-guthrie-on-jibjab-parody-an-incredibly-wonderful-bit-of-hilarity/
#20yrsago Stupid judge breaks porn, Internet https://web.archive.org/web/20040903175845/http://www.avnonline.com/index.php?Primary_Navigation=Web_Exclusive_Features&Action=View_Article&Content_ID=185024
#20yrsago EFF reply comments to RIAA’s digital radio proposal at the FCC https://web.archive.org/web/20041027065736/https://www.eff.org/IP/Video/HDTV/EFF-BC_DAB_reply.pdf
#20yrsago Jack Valenti says stupid things — really, really stupid things https://web.archive.org/web/20040805024304/http://www.lessig.org/blog/archives/002065.shtml#002065
#15yrsago David Byrne’s live show: the highlight of the year https://memex.craphound.com/2009/08/03/david-byrnes-live-show-the-highlight-of-the-year/
#15yrsago Senator’s campaign website suffers search-engine death penalty for embedding invisible homophobic slur against opponent https://arstechnica.com/tech-policy/2009/08/hidden-gay-slur-search-terms-get-campaign-site-blacklisted/
#15yrsago HOWTO Present a poster session at a science meeting https://colinpurrington.com/tips/poster-design/
#15yrsago Black-market stem-cell clinic raided https://www.newscientist.com/article/dn17551-guerrilla-stem-cell-clinic-raided-by-police/
#5yrsago Cookie Monster performs Tom Waits’s “Hell Broke Luce” https://www.youtube.com/watch?v=fbiioBFkD_Q
#5yrsago Massachusetts says Purdue’s profits from a single opioid addict were $200,000 https://www.bloomberg.com/news/articles/2019-08-02/sacklers-are-massachusetts-ag-s-opioid-scapegoat-lawyer-says
#5yrsago Elsevier: “It’s illegal to Sci-Hub.” Also Elsevier: “We link to Sci-Hub all the time.” https://eve.gd/2019/08/03/elsevier-threatens-others-for-linking-to-sci-hub-but-does-it-itself/
#5yrsago Hong Kong’s General Strike on Monday will include workers from Hong Kong Disneyland https://twitter.com/maree_jun/status/1157671896751599621
#5yrsago Medieval people bathed https://going-medieval.com/2019/08/02/i-assure-you-medieval-people-bathed/
#5yrsago Edelman PR drops GEO Group after employee revolt at the prospect of laundering the reputation of private US concentration camps https://memex.craphound.com/2019/08/04/edelman-pr-drops-geo-group-after-employee-revolt-at-the-prospect-of-laundering-the-reputation-of-private-us-concentration-camps/
#1yrago Fighting junk fees is "woke" https://pluralistic.net/2023/08/04/owning-the-libs/#swiper-no-swiping
#1yrago Cloudburst https://pluralistic.net/2023/08/03/there-is-no-cloud/#only-other-peoples-computers
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🥊 Upcoming appearances
* EFF Charity Poker Tournament (Defcon, Las Vegas, Horseshoe Poker Room), Aug 9 12h
https://www.eff.org/deeplinks/2024/06/betting-your-digital-rights-eff-benefit-poker-tournament-def-con-32
* Bricked & Abandoned: How To Keep The IoT From Becoming An Internet of Trash (Defcon, Las Vegas, Track 1), Aug 9 17h
https://info.defcon.org/event/?id=54844
* Disenshittify or die! How hackers can seize the means of computation and build a new, good internet that is hardened against our asshole bosses' insatiable horniness for enshittification (Defcon, Las Vegas, Track 1), Aug 10 12h
https://info.defcon.org/event/?id=54861
* Launch for Madeline Ashby's *Glass Houses* at Chevalier's Books (LA), Aug 16
https://www.eventbrite.com/e/book-talk-madeline-ashbys-glass-houses-tickets-965286486867
* Disenshittify or die! (Burning Man, Palenque Norte, 7&E), Aug 27, 13h
* Talking caterpillar Q&A (Burning Man, Liminal Labs, 830&C), Aug 28, 12h
* Albacon (Albany/remote), Sep 13-15
https://albacon.org/2024/
* TusCon (Tucson), Nov 8-10
https://tusconscificon.com/
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🥊 Recent appearances
* The Paradigm Shift
https://paradigm-shift-on-4zzz.pinecast.co/episode/dbf12eaf/tech-criticism-with-cory-doctorow
* How To Fix The Internet (EFF)
https://www.eff.org/deeplinks/2024/06/podcast-episode-fighting-enshittification
* Big Tech and the News (Tech Policy Press)
https://www.techpolicy.press/big-tech-and-the-news/
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🥊 Latest books
* The Bezzle: a sequel to "Red Team Blues," about prison-tech and other grifts, Tor Books (US), Head of Zeus (UK), February 2024 (the-bezzle.org). Signed, personalized copies at Dark Delicacies (https://www.darkdel.com/store/p3062/Available_Feb_20th%3A_The_Bezzle_HB.html#/).
* "The Lost Cause:" a solarpunk novel of hope in the climate emergency, Tor Books (US), Head of Zeus (UK), November 2023 (http://lost-cause.org). Signed, personalized copies at Dark Delicacies (https://www.darkdel.com/store/p3007/Pre-Order_Signed_Copies%3A_The_Lost_Cause_HB.html#/)
* "The Internet Con": A nonfiction book about interoperability and Big Tech (Verso) September 2023 (http://seizethemeansofcomputation.org). Signed copies at Book Soup (https://www.booksoup.com/book/9781804291245).
* "Red Team Blues": "A grabby, compulsive thriller that will leave you knowing more about how the world works than you did before." Tor Books http://redteamblues.com. Signed copies at Dark Delicacies (US): and Forbidden Planet (UK): https://forbiddenplanet.com/385004-red-team-blues-signed-edition-hardcover/.
* "Chokepoint Capitalism: How to Beat Big Tech, Tame Big Content, and Get Artists Paid, with Rebecca Giblin", on how to unrig the markets for creative labor, Beacon Press/Scribe 2022 https://chokepointcapitalism.com
* "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?sk=f6cd10e54e20a07d4c6d0f3ac011af6b) (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/p2682/Corey_Doctorow%3A_Poesy_the_Monster_Slayer_HB.html#/.
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🥊 Upcoming books
* Picks and Shovels: a sequel to "Red Team Blues," about the heroic era of the PC, Tor Books, February 2025
* Unauthorized Bread: a middle-grades graphic novel adapted from my novella about refugees, toasters and DRM, FirstSecond, 2025
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🥊 Colophon
Today's top sources:
Currently writing:
* Enshittification: a nonfiction book about platform decay. Today's progress: words ( words total).
* A Little Brother short story about DIY insulin PLANNING
* Picks and Shovels, a Martin Hench noir thriller about the heroic era of the PC. FORTHCOMING TOR BOOKS JAN 2025
* Vigilant, Little Brother short story about remote invigilation. FORTHCOMING ON TOR.COM
* Spill, a Little Brother short story about pipeline protests. FORTHCOMING ON TOR.COM
Latest podcast:
AI's productivity theater https://craphound.com/news/2024/08/04/ais-productivity-theater/
This work - excluding any serialized fiction - is 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/
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