[Plura-list] Private equity rips off its investors, too
Cory Doctorow
doctorow at craphound.com
Thu Aug 8 10:42:04 EDT 2024
Read today's issue online at: https://pluralistic.net/2024/08/08/sucker-at-the-table/
^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^
I'm coming to Defcon! TOMORROW (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
^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^
Community voting for SXSW is live! If you wanna hear Rida Qadri and me talk about how gig workers can disenshittify their jobs with interoperability, vote for this one!
https://panelpicker.sxsw.com/vote/150498
^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^
Today's links
* Private equity rips off its investors, too: Remorseless, greedy scumbags are - unsurprisingly - also disloyal.
* Hey look at this: Delights to delectate.
* This day in history: 2009, 2019
* 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.
^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^
🏯 Private equity rips off its investors, too
It's amazing how many of the scams that have devastated our economy and everyday people owe their success to the fact that we assume that rich people know what they're doing, so if they're doing something, it must be real.
Think of how many people lost everything by gambling on junk bonds, exotic mortgage derivatives, cryptocurrency and web3, because they saw that the largest financial institutions in the world were going all-in on these weird, incomprehensible bets.
Then there are the people who are *convinced* that online advertising is built around a mind-control ray, because tech companies claim that's what they have ("I am an evil dopamine-loop-hacking wizard and I can sell anything to anyone!"), and because huge, sober blue-chip companies hand billions to these soi dissant svengalis. Sure, online ads are a swamp of clickfraud and garbage, but would these super smart captains of industry spend so much on online advertising if it didn't work super-well?
http://pluralistic.net/HowToDestroySurveillanceCapitalism
From our worms'-eye-view here on the ground, it's easy to assume that rich people and the people who sell them stuff are all on the same side. "If you're not paying for the product, you're the product," right? If Facebook is tormenting you with surveillance advertising, it must be doing so on behalf of the surveillance *advertisers*, for whom Mark Zuckerberg has bottomless reservoirs of honest, forthright impulses.
The reality is simultaneously weirder, and obvious in hindsight. The reason Zuck is tormenting you is that he's a remorseless sociopath who doesn't care who he hurts. He rips off everyone he *can* rip off, and that includes advertisers, who have seen steady price-hikes and lower-fidelity targeting, even as ad-fraud has skyrocketed while Facebook draws down its anti-fraud spending:
https://www.404media.co/where-facebooks-ai-slop-comes-from/
This is not to say that Facebook advertisers have your best interests at heart, that they aren't engaged in active deception in order to better themselves at your expense. Rather, it's to say that there's no honor among thieves, and Zuck is an equal-opportunity predator. Moreover, both Zuck *and* his advertisers are credulous dolts, so the mere fact that they are pouring money into something (advertisers: FB ads; Zuck: metaverse) it doesn't follow that these are real or important or the coming thing.
For me, the Ur-example of "rich people are dumb, even when it comes to money" is the private equity sector. I've written a *lot* about PE, and how destructive it is to the real economy, from Toys R Us to pet grooming:
https://pluralistic.net/2024/08/05/rugged-individuals/#misleading-by-analogy
How they killed Red Lobster:
https://pluralistic.net/2024/05/23/spineless/#invertebrates
And how they actually created the death panels that Sarah Palin warned us about (it's OK, though: *these* death panels are run by the efficient private sector, not government bureaucrats):
https://pluralistic.net/2023/04/26/death-panels/#what-the-heck-is-going-on-with-CMS
The devastating effect of private equity on the real economy is increasingly well understood, and a curious side-effect of this is that people assume that if PE is destroying their lives, they must be doing so on behalf of their investors, who are making bank.
But - like Zuck - PE bosses are just as happy to steal from their investors as they are to to steal from the workers and customers of the businesses they acquire on those investors' behalf. They swaddle this theft in performative complexity and specialized jargon, but when you strip all that away, you find more fraud.
All the misery that PE inflicts on workers, communities and customers are just a convincer in a Big Store con, a bid to make the scam seem credible. For a certain kind of investor, any economic activity that destroys communities and workers' livelihoods *must* be a good bet. This is the dynamic at work in the pitch of AI image-generator companies, who spend tens of billions on technology that there is no substantial market for:
https://pluralistic.net/2024/07/25/accountability-sinks/#work-harder-not-smarter
AI image generators represent a high-profile, extremely visible example of "a job that AI can do." Nevermind that AI illustration went from a novelty to a tired cliche in less than a year. Even if you think that AI illustrations are a perfect substitute for commercial illustrations, that *still* won't come anywhere near making AI companies a profit. Add up the entire wage bill for every commercial illustrator in the world, hand it to Open AI, and you're not even gonna cover the kombucha budget for Open AI's staff kitchens.
Hell, all the wages of every commercial illustrator that ever *lived* won't pay back even a *fraction* of the money the AI companies spent on image generators. The pauperization of an entire class of creative workers is just a canned demo, a way to fool investors into thinking that there is a whole universe of similarly situated workers whose wages can be diverted to AI companies. This is the logic of small-time spammers, scaled up to the scale of the entire S&P 500. Smalltime spammers looked at AI and thought, "OK, I can generate as much botshit as I want on demand for free. Science fiction magazines pay $0.10/word. So if I generate a *billion* words, I'll get *$100 million*." But that's not how any of that works: sf magazines don't buy botshit, and even if they did, the entire market for short fiction adds up to what Sam Altman spends on a single designer t-shirt. The point of destroying these beloved, useful things isn't to make a lot of money by taking their markets - it's to convince dopey, panicked rich people to give you lots of money you can steal, because they think you can do this to *every* market and they don't want to miss out on the opportunity of a lifetime:
https://pluralistic.net/2024/01/15/passive-income-brainworms/#four-hour-work-week
Take "divi recaps": after a private equity firm acquires a company (by borrowing money against its assets), it typically declares a "special dividend," emptying out the company's cash reserves and pocketing them. A "divi recap" is when PE then takes out *another* massive loan against the company's (remaining) assets and pockets *that*:
https://pluralistic.net/2020/09/17/divi-recaps/#graebers-ghost
All of this happens under an opaque cloud, thanks to the light-to-nonexistent disclosure rules for PE. A public company has to open its books for the SEC, its investors, and the world. PE is private - and so are its finances. It is absolutely routine for PE bosses to put their spouses, kids, and pals on the payroll and hand them *millions* for doing little to nothing, all at the expense of their investors:
https://www.nakedcapitalism.com/2022/02/sec-set-to-lower-massive-boom-on-private-equity-industry.html
PE bosses charge *huge* fees to their investors - not merely the usual 2-and-20 (2% of the funds under management and 20% of any profits) - but also a wide variety of special one-off fees that pile to the sky. They also dip into their investors' funds to issue themselves massive loans that they use to make side-bets, without telling the investors about it:
https://pluralistic.net/2022/02/10/monopoly-begets-monopoly/#gary-gensler
PE investors are chickens ripe for the plucking: take "continuation funds," which allow PE bosses to *soak* the rich people and pension funds who supply them with billions:
https://news.bloomberglaw.com/mergers-and-acquisitions/matt-levines-money-stuff-buyout-funds-buy-from-themselves
Remember 2-and-20? 2% of all the money you manage, every year, and 20% of all the profits. You'd think that these would be somewhat zero sum, right? If you use some of your investors' cash to buy a company, and then sell off that company for a profit, you get the 20%, but now the pot of money you're managing has gone down by the amount you used to buy the company, and so your 2% carry goes down, too.
But what if you sell your portfolio companies *to yourself*, using your investors' own money? When you do *that*, you continue to hold the company on your PE firm's books, meaning you continue to get the 2% carry, *and* you can pocket 20% of the sale price as a "profit":
https://pluralistic.net/2023/07/20/continuation-fraud/#buyout-groups
This is straight-up fraud, wrapped up in so much jargon that it can successfully masquerade as "financial engineering" ("financial engineering" is really just a euphemism for "fraud"). PE bosses keep coming up with new, exotic ways to steal from their investors. The latest scam is "tax receivable agreements":
https://archive.ph/RczJ9
On its face, this is a *tax* scam. When a company goes public, early investors generally hold stock in the original partnership or LLC; this company ends up holding a ton of shares in the new, public company. When they sell those non-public shares in the LLC, this creates a (potentially gigantic) tax credit.
A TRA hustle involves tracking down these LLC shareholders and convincing them to sign off on dumping the LLC's shares, which generates a huge tax credit for the public company. The hustler offers to split these credits with the LLC holders.
All of this is especially attractive to PE bosses, who often take a company private, do a bunch of "financial engineering" and then take it public again, leaving the PE firm as the owner of those LLC shares that can be converted to a TRA and a huge windfall - which the PE bosses pocket, because they (not their investors) are holding those credits.
This scam is really doing big numbers. KKR - the monsters who killed Toys R Us - just diverted *$650 million* in TRA loot, prompting a lawsuit from Steamfitters union pension fund, which had handed these jerks millions of its members' money to gamble with:
https://archive.ph/kqQvI
This highlights another very weird aspect of the PE scam: they are absolutely dependent on pension funds. To add insult to injury, PE funds are notorious union-busters - they use *union money* to buy companies and destroy their unions:
https://pluralistic.net/2023/10/05/mr-gotcha/#no-ethical-consumption-under-capitalism
People who try to understand the PE business model often give up, because it seems to make no sense, leading many to assume that they're too unsophisticated to grasp the complex financials here. For example, PE is absolutely dependent on massive loans as a way of looting its businesses, but it also often defaults on those loans. Why do banks and investors keep making huge loans to PE deadbeats? Because - like the PE fund investors - they are credulous dolts.
The reason PE seems like a scam is that it *is* a scam. It is a *fractal* scam - every part of it is a scam. You might have heard about the "carried interest" tax loophole that allows PE bosses to avoid billions in taxes on the money they steal from their investors, creditors, workers and customers. Most people assume "carried interest" has something to do with "interest" on a loan. Nope: "carried interest" is a 16th century nautical tax rule designed for mercantalist sea-captains who had an "interest" in the cargo they "carried":
https://pluralistic.net/2021/04/29/writers-must-be-paid/#carried-interest
But rich people and other "sophisticated investors" (like pension fund investment managers) are no smarter than the rest of us. They are herd animals. When they see other rich people piling into some scheme or asset class, they rush to join them, which makes the asset price go up, which makes them think they're smart (until the inevitable rug-pull). When one plute jumps off the Empire State Building, the rest of them jump, too.
Which is why there's more money flooding into PE than at any time in history, $2.62T in "dry powder," handed over to greedy, thieving PE bosses in a poker game where *everyone* is the sucker at the table:
https://www.institutionalinvestor.com/article/2di1vzgjcmzovkcea8f0g/portfolio/private-equitys-dry-powder-mountain-reaches-record-height
^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^
🏯 Hey look at this
* Crow Jim: Project 2025’s Obsession With Reverse Racism https://prospect.org/politics/2024-08-07-crow-jim-project-2025-reverse-racism/
* Why are so many car YouTubers quitting? https://www.theverge.com/2024/8/7/24214600/car-youtube-quit-donut-car-throttle-hoonigan
* Will Kamala Harris fire Lina Khan? https://twitter.com/matthewstoller/status/1821186767447278038
^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^
🏯 This day in history
#15yrsago Exhaustive index of fearmongering Daily Mail stories about cancer and its causes https://web.archive.org/web/20090815070522/http://kill-or-cure.heroku.com/
#5yrsago Hospital checklists work really well — except when they’re not used https://www.nature.com/articles/523516a
#5yrsago Science fiction and the law: beyond mere courtroom drama https://reactormag.com/will-there-be-justice-science-fiction-and-the-law/
#5yrsago Grifty “Students For Trump” founder pleads guilty to wire fraud for pretending to be a lawyer https://www.nydailynews.com/2019/08/06/students-for-trump-founder-pleads-guilty-to-posing-as-lawyer-in-46k-scam/
#5yrsago Security researcher cracks high-security lock used for ATMs, Air Force One, military bases https://www.reuters.com/article/us-locks-cyber-exclusive/exclusive-high-security-locks-for-government-and-banks-hacked-by-researcher-idUSKCN1UW26Z/
#5yrsago Taiwanese sympathizers are shipping helmets and gas-masks to Hong Kong https://asiatimes.com/2019/08/helmets-goggles-sent-from-taiwan-to-hk-protesters/
#5yrsago Tiktok is valued at $75b, is spending $3m/day on US advertising, and in China, it has been turned into a state propaganda vehicle https://www.theverge.com/interface/2019/8/7/20757855/tiktok-growth-monetization-influencers-regulation
#5yrsago Medical examiner quits after declaring that bloody, stabbed corpse had died of “natural causes” https://www.fox5atlanta.com/news/gwinnett-county-me-investigator-resigns-after-misinterpreted-autopsy
#5yrsago CHESSES: chess variants for nonexperts, nonplayers, and the very playful https://pippinbarr.com/chesses/
^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^
🏯 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/
^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^
🏯 Recent appearances
* Enzittification with Ed Zitron & Brian Merchant
https://omny.fm/shows/better-offline/enzittification-with-cory-doctorow-brian-merchant
* 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
^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^
🏯 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#/.
^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^
🏯 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
^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^-^
🏯 Colophon
Today's top sources: Naked Capitalism (https://www.nakedcapitalism.com/).
Currently writing:
* Enshittification: a nonfiction book about platform decay. Today's progress: 766 words (34667 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/
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/@pluralistic
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: OpenPGP_0x9026DBBE1FC237AF.asc
Type: application/pgp-keys
Size: 3480 bytes
Desc: OpenPGP public key
URL: <http://mail.flarn.com/pipermail/plura-list/attachments/20240808/ce89c49d/attachment.bin>
-------------- next part --------------
A non-text attachment was scrubbed...
Name: OpenPGP_signature.asc
Type: application/pgp-signature
Size: 203 bytes
Desc: OpenPGP digital signature
URL: <http://mail.flarn.com/pipermail/plura-list/attachments/20240808/ce89c49d/attachment.sig>
More information about the Plura-list
mailing list