An article I never thought I'd get to share :wub: :w00t:
QuoteWhy aren't the British middle-classes staging a revolution?
Why aren't the middle-classes more angry about stories such as the Phones4U collapse, and what will it take to tip us over the edge, asks Alex Proud
Alex Proud By Alex Proud8:16AM BST 22 Sep 2014 Comments343 Comments
Why aren't the middle classes revolting?
Words you probably never thought you'd read in the Telegraph. Words which, as a Gladstonian Liberal, I never thought I'd write. But seriously, why aren't we seeing scenes reminiscent of Paris in 1968? Moscow in 1917? Boston in 1773?
My current fury is occasioned the Phones4U scandal (and it really is a scandal).
Phones4U was bought by the private equity house, BC Partners, in 2011 for £200m. BC then borrowed £205m and, having saddled the company with vast amounts of debt, paid themselves a dividend of £223m. Crippled by debt, the company has now collapsed into administration.
The people who crippled it have walked away with nearly £20m million, while 5,600 people face losing their jobs. The taxman may also be stiffed on £90m in unpaid VAT and PAYE. It's like a version of 1987's Wall Street on steroids, the difference being that Gordon Gecko wins at the end and everyone shrugs and says, "Well, it's not ideal, but really we need guys like him."
I'm not financially sophisticated enough to understand the labyrinthine ins and outs of private equity deals. But I don't think I need to be. Here, my relative ignorance is actually a plus. You took a viable company, ran up ridiculous levels of debt, paid yourselves millions and then walked away, leaving unemployment and unpaid tax bills in your wake. What's to understand? We should be calling for your heads on a plate.
This column is supposed to be a "lifestyle" column, not a "business" column. So, you might ask yourself, why am I writing about conscience-free private equity deals? Well, it's because, assuming that you're part of the broad middle class who make up the vast majority of the Telegraph's readership, this is the most important lifestyle issue you'll ever face.
Instead of shrugging and saying, "This is the world we live in" you should be on the streets, you should be calling for this sort of thing to be a jailable offence, and you should want to see these guys up in front of parliament (or, better yet, in stocks) explaining why they made around £3,500 for every person they put out of a job. Seriously, Stefano Quadrio Curzio, the managing partner at BC, should be ashamed to show his face in public.
The point is, along with the people who sold phones who are now unemployed, some of Phones4U's employees, were officer class, just like you. Their jobs too have gone. It's just another example of people who build and make nothing gutting businesses, privatising the profits and socialising the losses. Slowly, it makes us all poorer. So, yes, this is a lifestyle issue inasmuch as it's about ensuring that you and your children will be able to worry about things like Farrow & Ball Paint colours, rather than getting another credit card to pay the rent.
All these guys care about is money. They don't care about society. They certainly don't care about jobs and they don't care about you.
OK, you might say, but this has always been going on. But it hasn't. This sort of utterly amoral screw-everyone capitalism has become much more prevalent in the last 15 years. Our financial elite is now totally out of control. They learned nothing from the crisis, except that the rest of us were stupid enough to give them a second chance. And, now, having plucked all the "low hanging fruit," they're destroying the middle classes for profit.
Our current problems have their roots in the early 80s. While much of what Reagan and Thatcher did was necessary, the trouble is that they set a deregulatory train in motion which, over the last couple of decades has dismantled so much of the legal framework that protected us from greedy scuzzballs.
The middle classes went along with it. We were sick of the Left, tired of powerful unions and, besides, very few us could remember the inequality of the 1920s that gave rise to many of these regulations in the first place. Also, vain fools that we were, we identified upwards. We thought the elite had our interests at heart. The 0.1% must have found this pretty cute. They knew the truth. We weren't their pals, we were just at the end of the line for the financial blood-letting.
We had plenty of other distractions too. Booming house prices meant we felt rich while our incomes stagnated. Ditto easy credit and cheap consumer goods.
And the super-rich are much cleverer than they once were. No longer are they Mr Burns types. Rather, they have an army of people doing PR for them in various guises. Perhaps you're one of them. For years there have been plenty of well-paying middle class jobs, helping the rich asset strip the world while pretending this is for everyone's benefit.
The reckoning has been a long time coming too. And even now, when we can see the swarm of financial locusts on the horizon, the sun is still shining and we can still (just about) afford the nanny. But for how much longer? The locusts are already well into the middle middle classes – you know, those poor schmucks who make, say, 40K a year. They may not have reached you yet, in your tastefully decorated detached Victorian house, but they will.
If there's a buck to made jacking up your mortgage, or asset-stripping the company you work for, privatising some local service you rely on or selling a publicly-owned amenity you enjoy, they won't think twice. In fact, they won't even think once. If they could figure out a way to sell your body from under you, they would. Then they'd get some business school shill to write an op-ed in the Wall Street Journal about how this was inevitable – and how, really, you should be grateful.
If I were a member of the working classes who'd been laid off in the '80s or '90s, I might be laughing at the middle classes right now. Because we've duped and screwed by the elite just as the lower orders were. The only differences are that, with us, the con was longer, and in many places we played an active part in our downfall; plenty of us were "useful idiots."
So, why aren't the middle classes revolting? I think there are a number of reasons. The first is simply that it's not that bad, yet. It takes a long time to undo all the good that was done between the end of World War II and the mid 70s. Living standards are still high and genuine poverty still feels a long way off. Plus we have plenty of entertaining distractions, although people in their 30s are starting to notice that you can't spend all those Facebook likes on a decent house.
It was Trotsky who originally said that all revolutions were impossible until they became inevitable and I think is the position we're in right now. Everyone keeps telling us that scandals like Phones4U are just the way things are and that, sorry, you can't have a pay rise this year. You're used to it. But if we continue like this, there will come a point when the middle classes really do snap.
We had a foretaste of this with London riots, a howl of anguish from those who enjoy no share in London's much vaunted wealth. At the time, the middle classes were mostly safely locked in their homes. But I know people - nice, well-educated, well-spoken people - who weren't entirely unsympathetic to the rioters. And its when the middle classes start identifying downwards, rather than upwards that when elites really need to start watching their backs.
Phones4U makes me think that this snapping point might be sooner rather than later. The 0.1% have abandoned any sense of restraint. They now appear incapable of even enlightened self-interest; it's all naked self-interest. They want everything, they want it now and they want from it from you.
So, perhaps next time London riots, it'll be Kensington, Mayfair and Notting Hill in flames, not Hackney and Croydon. And the people on ordinary incomes won't be hiding their homes, they'll be joining in or at least cheering from the sidelines.
I hope we can rebalance our society before this has to happen, but I rather fear we've passed that point.
:o
Edit: On the other hand I've just had a look at Farrow & Ball's website :mmm:
The phones4u stuff increasingly reminds me of the death of Vaux. That shit killed the city of sunderland :(
On this... The established "officer class" can always get another job.
How do you hide your home?
Because a tenet of what passes for modern middle class values in this country is to look down upon the lower classes, with little or no sympathy.
I guess they know the ruling class looks down upon them in a similar way, but it's not a comfortable thought to maintain, so if they're that self aware, they tend to push it to be back of their minds. Oh and then continue to look down upon the unfortunate, whilst fearing they don't join them.
(https://languish.org/forums/proxy.php?request=http%3A%2F%2Fspatialdesigner.files.wordpress.com%2F2010%2F08%2Farticle-1201412-00216dc700000258-604_468x559.jpg%3Fw%3D640&hash=d657d7a886f3db3e88a44b29421d24765cf334e6)?
Quote from: mongers on September 23, 2014, 04:48:21 PM
Because a tenet of what passes for modern middle class values in this country is to look down upon the lower classes, with little or no sympathy.
I guess they know the ruling class looks down upon them in a similar way, but it's not a comfortable thought to maintain, so if they're that self aware, they tend to push it to be back of their minds. Oh and then continue to look down upon the unfortunate, whilst fearing they don't join them.
Quote from: Sheilbh on September 23, 2014, 04:50:50 PM
(https://languish.org/forums/proxy.php?request=http%3A%2F%2Fspatialdesigner.files.wordpress.com%2F2010%2F08%2Farticle-1201412-00216dc700000258-604_468x559.jpg%3Fw%3D640&hash=d657d7a886f3db3e88a44b29421d24765cf334e6)?
Yes, and yes.
Quote from: Sheilbh on September 23, 2014, 04:50:50 PM
(https://languish.org/forums/proxy.php?request=http%3A%2F%2Fspatialdesigner.files.wordpress.com%2F2010%2F08%2Farticle-1201412-00216dc700000258-604_468x559.jpg%3Fw%3D640&hash=d657d7a886f3db3e88a44b29421d24765cf334e6)?
I think if that in part reflects the post-war bargain/settlement, then there's a certain amount of mutual respect between those roles/classes.
Now re-examine the same jobs/social positions in todays Britain and what might you find in terms of wages/advantages/security ?
I suspect John Cleese's merchant banker wouldn't have earn more than 10 or 20 times what the manual worker got; what's the ration now between someone managing a hedge fund and a minimum wage zero hour contract casual worker ?
And can you think of one good reason,
To remain'
To remain
To remain
To remain
Quote from: Sheilbh on September 23, 2014, 04:50:50 PM
(https://languish.org/forums/proxy.php?request=http%3A%2F%2Fspatialdesigner.files.wordpress.com%2F2010%2F08%2Farticle-1201412-00216dc700000258-604_468x559.jpg%3Fw%3D640&hash=d657d7a886f3db3e88a44b29421d24765cf334e6)?
Not a whole lot of "looking down" in this picture, more like "pretend the lower classes don't exist". :D
Seriously though, this guy is largely right. Some PE guys even boast about that over a glass of whisky. What's funny is poor sods like Tamas, who have no idea, and yet will defend it. :P
Quote from: The Brain on September 23, 2014, 04:44:57 PM
How do you hide your home?
Hide yo kids, hide yo wives, hide yo homes.
Quote from: mongers on September 23, 2014, 04:55:44 PM
Quote from: Sheilbh on September 23, 2014, 04:50:50 PM
(https://languish.org/forums/proxy.php?request=http%3A%2F%2Fspatialdesigner.files.wordpress.com%2F2010%2F08%2Farticle-1201412-00216dc700000258-604_468x559.jpg%3Fw%3D640&hash=d657d7a886f3db3e88a44b29421d24765cf334e6)?
I think if that in part reflects the post-war bargain/settlement, then there's a certain amount of mutual respect between those roles/classes.
Now re-examine the same jobs/social positions in todays Britain and what might you find in terms of wages/advantages/security ?
I suspect John Cleese's merchant banker wouldn't have earn more than 10 or 20 times what the manual worker got; what's the ration now between someone managing a hedge fund and a minimum wage zero hour contract casual worker ?
I have this theory that the UK financial elite first created the "light" and flexible service-based economy, with an unemployed (and, eventually, unemployable) lower class living off the dole - and then broke that social contract by cutting down the welfare when the collapse (which it largely engineered) came. For this it should be decimated, but so far the revolution did not come.
Quote from: Peter Wiggin on September 23, 2014, 05:20:54 PM
Quote from: Sheilbh on September 23, 2014, 04:50:50 PM
(https://languish.org/forums/proxy.php?request=http%3A%2F%2Fspatialdesigner.files.wordpress.com%2F2010%2F08%2Farticle-1201412-00216dc700000258-604_468x559.jpg%3Fw%3D640&hash=d657d7a886f3db3e88a44b29421d24765cf334e6)?
Not a whole lot of "looking down" in this picture, more like "pretend the lower classes don't exist". :D
Watch the sketch on youtube and you'll get it. But do remember it's from about 1962, I think the show was 'That was the week that was'
Quote from: Martinus on September 23, 2014, 05:34:15 PM
I have this theory that the UK financial elite first created the "light" and flexible service-based economy, with an unemployed (and, eventually, unemployable) lower class living off the dole - and then broke that social contract by cutting down the welfare when the collapse (which it largely engineered) came. For this it should be decimated, but so far the revolution did not come.
I don't think the UK financial elite are so coherent of a group to pull of something (or really anything) so nefarious.
Quote from: Tyr on September 23, 2014, 04:41:42 PM
The phones4u stuff increasingly reminds me of the death of Vaux. That shit killed the city of sunderland :(
On this... The established "officer class" can always get another job.
I think the point is that these days it's a bit of a crapshoot whether the officer class can get another job...
Quote from: Martinus on September 23, 2014, 05:24:40 PM
Seriously though, this guy is largely right. Some PE guys even boast about that over a glass of whisky. What's funny is poor sods like Tamas, who have no idea, and yet will defend it. :P
Haha. The common misinformation. Classical liberals are NOT on the side of reckless big business. YOU are, and everyone else calling for strong state regulations on businesses, since those help keeping the status quo, and giving the tools to save these assholes from the consequences of their actions.
Minimal regulations and welfare are, well, should be, on the flag of the middle class.
Regulation helps conserve the business and political aristocracy, and helps "communising" risks while keeping private profits. And welfare is effectively taking the money needed to pacify the poor screwed up by this system from the middle class, not only ensuring status quo, but also defending the rich from any kind of challenge.
Vaux beer was crap btw.
Quote from: alfred russel on September 23, 2014, 05:48:54 PM
Quote from: Martinus on September 23, 2014, 05:34:15 PM
I have this theory that the UK financial elite first created the "light" and flexible service-based economy, with an unemployed (and, eventually, unemployable) lower class living off the dole - and then broke that social contract by cutting down the welfare when the collapse (which it largely engineered) came. For this it should be decimated, but so far the revolution did not come.
I don't think the UK financial elite are so coherent of a group to pull of something (or really anything) so nefarious.
Historical forces can exist without being conspiracies.
Quote from: Martinus on September 23, 2014, 05:34:15 PM
Quote from: mongers on September 23, 2014, 04:55:44 PM
Quote from: Sheilbh on September 23, 2014, 04:50:50 PM
(https://languish.org/forums/proxy.php?request=http%3A%2F%2Fspatialdesigner.files.wordpress.com%2F2010%2F08%2Farticle-1201412-00216dc700000258-604_468x559.jpg%3Fw%3D640&hash=d657d7a886f3db3e88a44b29421d24765cf334e6)?
I think if that in part reflects the post-war bargain/settlement, then there's a certain amount of mutual respect between those roles/classes.
Now re-examine the same jobs/social positions in todays Britain and what might you find in terms of wages/advantages/security ?
I suspect John Cleese's merchant banker wouldn't have earn more than 10 or 20 times what the manual worker got; what's the ration now between someone managing a hedge fund and a minimum wage zero hour contract casual worker ?
I have this theory that the UK financial elite first created the "light" and flexible service-based economy, with an unemployed (and, eventually, unemployable) lower class living off the dole - and then broke that social contract by cutting down the welfare when the collapse (which it largely engineered) came. For this it should be decimated, but so far the revolution did not come.
You are one heck of a guy to call for a communist revolution. Project your bourgeois guilt elsewhere please.
I want to know who was stupid enough to lend money to a company leveraging it more than 100% for the purpose of paying dividends? How did these lenders expect to get their money back?
And as usual, Mark E. Smith was 20 years ahead of his time.
(https://languish.org/forums/proxy.php?request=http%3A%2F%2Fi.picresize.com%2Fimages%2F2014%2F09%2F23%2FUNxu.jpg&hash=514d63c587c9215d297a96678f1c66db9163f466)
Quote from: Viking on September 23, 2014, 06:12:40 PM
I want to know who was stupid enough to lend money to a company leveraging it more than 100% for the purpose of paying dividends? How did these lenders expect to get their money back?
This is the question I asked Joan long ago when the exact same story was raised to spike Romney's presidential bid.
Presumably junk investors are just getting straight up grifted.
Quote from: Viking on September 23, 2014, 06:12:40 PM
I want to know who was stupid enough to lend money to a company leveraging it more than 100% for the purpose of paying dividends? How did these lenders expect to get their money back?
Most likely the lenders were secured with some additional collateral so probably got their money back.
Quote from: Admiral Yi on September 23, 2014, 06:26:48 PM
Quote from: Viking on September 23, 2014, 06:12:40 PM
I want to know who was stupid enough to lend money to a company leveraging it more than 100% for the purpose of paying dividends? How did these lenders expect to get their money back?
This is the question I asked Joan long ago when the exact same story was raised to spike Romney's presidential bid.
Presumably junk investors are just getting straight up grifted.
That could be a bit of both. Junk investors could have just been offered bonds for example and get shafted on that. Everybody else got security which they used to get their money back. Notice that the article does say the PE fund made 20 mil profit while it paid out 200 mil dividend so it's not like all of it went out to the fund's pocket.
I presume this could have also been a so-called leveraged buy-out - in the most predatory version (not all LBO are like this) you borrow money to buy a company, then drop down the debt (eg by merging the spv you used to buy the company into the company), liquidate the company's assets, lay off people, use the proceeds to pay off the debt and take what is left.
Quote from: Tamas on September 23, 2014, 06:03:00 PM
Quote from: Martinus on September 23, 2014, 05:24:40 PM
Seriously though, this guy is largely right. Some PE guys even boast about that over a glass of whisky. What's funny is poor sods like Tamas, who have no idea, and yet will defend it. :P
Haha. The common misinformation. Classical liberals are NOT on the side of reckless big business. YOU are, and everyone else calling for strong state regulations on businesses, since those help keeping the status quo, and giving the tools to save these assholes from the consequences of their actions.
Minimal regulations and welfare are, well, should be, on the flag of the middle class.
Regulation helps conserve the business and political aristocracy, and helps "communising" risks while keeping private profits. And welfare is effectively taking the money needed to pacify the poor screwed up by this system from the middle class, not only ensuring status quo, but also defending the rich from any kind of challenge.
I am not sure why you are talking about "big business" and "business regulations" in the context of PE. Could you elaborate? These things are hardly related in my opinion. :huh:
Also, I am not aware of middle class PE - this is solely a domain of the super rich.
So every time somebody at a company does something against shareholder or public interest, the solution is for the middle class to go to the streets?
Quote from: Tamas on September 23, 2014, 06:03:00 PM
Quote from: Martinus on September 23, 2014, 05:24:40 PM
Seriously though, this guy is largely right. Some PE guys even boast about that over a glass of whisky. What's funny is poor sods like Tamas, who have no idea, and yet will defend it. :P
Haha. The common misinformation. Classical liberals are NOT on the side of reckless big business. YOU are, and everyone else calling for strong state regulations on businesses, since those help keeping the status quo, and giving the tools to save these assholes from the consequences of their actions.
Minimal regulations and welfare are, well, should be, on the flag of the middle class.
Regulation helps conserve the business and political aristocracy, and helps "communising" risks while keeping private profits. And welfare is effectively taking the money needed to pacify the poor screwed up by this system from the middle class, not only ensuring status quo, but also defending the rich from any kind of challenge.
You have to understand Tamas, a lot of countries who industrialized early tried what you say. Turns out, big business ran roughshod over people, hired thugs and murdered people, created enormous trusts which insulated the rich from any sort of challenge, etc. The poor were "Pacified" by the Pinkertons, the coal and iron police, and various other murderers for hire. Politics were rigged by political machines, if people don't have enough food, it's pretty easy to buy their votes. Welfare and regulation put and end to that.
Quote from: Razgovory on September 24, 2014, 03:06:02 AM
Quote from: Tamas on September 23, 2014, 06:03:00 PM
Quote from: Martinus on September 23, 2014, 05:24:40 PM
Seriously though, this guy is largely right. Some PE guys even boast about that over a glass of whisky. What's funny is poor sods like Tamas, who have no idea, and yet will defend it. :P
Haha. The common misinformation. Classical liberals are NOT on the side of reckless big business. YOU are, and everyone else calling for strong state regulations on businesses, since those help keeping the status quo, and giving the tools to save these assholes from the consequences of their actions.
Minimal regulations and welfare are, well, should be, on the flag of the middle class.
Regulation helps conserve the business and political aristocracy, and helps "communising" risks while keeping private profits. And welfare is effectively taking the money needed to pacify the poor screwed up by this system from the middle class, not only ensuring status quo, but also defending the rich from any kind of challenge.
You have to understand Tamas, a lot of countries who industrialized early tried what you say. Turns out, big business ran roughshod over people, hired thugs and murdered people, created enormous trusts which insulated the rich from any sort of challenge, etc. The poor were "Pacified" by the Pinkertons, the coal and iron police, and various other murderers for hire. Politics were rigged by political machines, if people don't have enough food, it's pretty easy to buy their votes. Welfare and regulation put and end to that.
Yeah. It is impossible to prevent violence unless the state can have a major influence on the economy. Makes sense.
I think regulation of big business and regulation of financial markets are completely different things and completely different debates.
The argument for regulation of big business is based on the inequality of actors (big business on one hand vs. a consumer or an employee on the other), and the argument that the state should empower the latter to level the playing field. There are legitimate arguments for it and against it (e.g. that in fact there is no reason to empower the weaker actor, as he or she is still able to make sovereign decisions) - and also possibility to reach middle ground (e.g. by empowering the weaker actor only if the stronger actor passes a certain threshold of power, e.g. is dominant in the market and there is no alternative for the weaker actor).
This is however completely different from regulation of financial markets (banks, PE, hedge funds etc.), where you have independent professional actors (whose interests, even if not always aligned, are also not usually contradictory) entering with each other into transactions that have the capacity of benefiting them immensely while wreaking great havoc on the state of the market and the society as a whole (with the latter not having any say in such transactions). The argument for regulation here is much stronger because without it there is absolutely no countervailing force to curtail such behaviour.
Quote from: Tamas on September 24, 2014, 03:22:33 AM
Quote from: Razgovory on September 24, 2014, 03:06:02 AM
Quote from: Tamas on September 23, 2014, 06:03:00 PM
Quote from: Martinus on September 23, 2014, 05:24:40 PM
Seriously though, this guy is largely right. Some PE guys even boast about that over a glass of whisky. What's funny is poor sods like Tamas, who have no idea, and yet will defend it. :P
Haha. The common misinformation. Classical liberals are NOT on the side of reckless big business. YOU are, and everyone else calling for strong state regulations on businesses, since those help keeping the status quo, and giving the tools to save these assholes from the consequences of their actions.
Minimal regulations and welfare are, well, should be, on the flag of the middle class.
Regulation helps conserve the business and political aristocracy, and helps "communising" risks while keeping private profits. And welfare is effectively taking the money needed to pacify the poor screwed up by this system from the middle class, not only ensuring status quo, but also defending the rich from any kind of challenge.
You have to understand Tamas, a lot of countries who industrialized early tried what you say. Turns out, big business ran roughshod over people, hired thugs and murdered people, created enormous trusts which insulated the rich from any sort of challenge, etc. The poor were "Pacified" by the Pinkertons, the coal and iron police, and various other murderers for hire. Politics were rigged by political machines, if people don't have enough food, it's pretty easy to buy their votes. Welfare and regulation put and end to that.
Yeah. It is impossible to prevent violence unless the state can have a major influence on the economy. Makes sense.
That is essentially correct. In the US, there are lots of filled graves that prove it.
Quote from: Martinus on September 24, 2014, 03:55:37 AM
I think regulation of big business and regulation of financial markets are completely different things and completely different debates.
The argument for regulation of big business is based on the inequality of actors (big business on one hand vs. a consumer or an employee on the other), and the argument that the state should empower the latter to level the playing field. There are legitimate arguments for it and against it (e.g. that in fact there is no reason to empower the weaker actor, as he or she is still able to make sovereign decisions) - and also possibility to reach middle ground (e.g. by empowering the weaker actor only if the stronger actor passes a certain threshold of power, e.g. is dominant in the market and there is no alternative for the weaker actor).
This is however completely different from regulation of financial markets (banks, PE, hedge funds etc.), where you have independent professional actors (whose interests, even if not always aligned, are also not usually contradictory) entering with each other into transactions that have the capacity of benefiting them immensely while wreaking great havoc on the state of the market and the society as a whole (with the latter not having any say in such transactions). The argument for regulation here is much stronger because without it there is absolutely no countervailing force to curtail such behaviour.
This.
Quote from: Warspite on September 24, 2014, 04:18:27 AM
Quote from: Martinus on September 24, 2014, 03:55:37 AM
I think regulation of big business and regulation of financial markets are completely different things and completely different debates.
The argument for regulation of big business is based on the inequality of actors (big business on one hand vs. a consumer or an employee on the other), and the argument that the state should empower the latter to level the playing field. There are legitimate arguments for it and against it (e.g. that in fact there is no reason to empower the weaker actor, as he or she is still able to make sovereign decisions) - and also possibility to reach middle ground (e.g. by empowering the weaker actor only if the stronger actor passes a certain threshold of power, e.g. is dominant in the market and there is no alternative for the weaker actor).
This is however completely different from regulation of financial markets (banks, PE, hedge funds etc.), where you have independent professional actors (whose interests, even if not always aligned, are also not usually contradictory) entering with each other into transactions that have the capacity of benefiting them immensely while wreaking great havoc on the state of the market and the society as a whole (with the latter not having any say in such transactions). The argument for regulation here is much stronger because without it there is absolutely no countervailing force to curtail such behaviour.
This.
A good point indeed. My issue is, that there is "financial regulation" as in stopping what is basically criminal behaviour (mostly the ones that work by offering products without disclosing all necessary informations, or finance people actually working against the interests of their clients), and there is "financial regulation" which in the name of stability keeps too big to fail around.
The main thing is, that state intervention and tweaking for the greater good is a false concept. Why? Because the state (or more precisely, the people wielding its power) is VERY far from being free of influences. And who can extort influence on the state (again, more precisely, the people wielding its power)? The ones with the means to do it.
No matter the intentions, it will be the financial and political aristocracy who will steer and benefit from the state's interventionist power (regardless of the exact field). That is inevitable. The only remedy for this, is to keep that interventionist power to the bare possible minimum.
Quote from: Tamas on September 24, 2014, 04:40:14 AM
A good point indeed. My issue is, that there is "financial regulation" as in stopping what is basically criminal behaviour
This is a bit of a circular argument, because in such cases criminal behaviour is what is prohibited by law under a pain of a criminal penalty. So, for example, in Poland, a company issuing stocks to its subsidiaries past a certain percentage threshold is a crime. Or certain forms of leverage buyouts constitute a crime. None of these behaviours are "swindle" or "fraud" but they potentially lead to such detrimental consequences that the legislator decides to criminalise them.
Quote(mostly the ones that work by offering products without disclosing all necessary informations, or finance people actually working against the interests of their clients), and there is "financial regulation" which in the name of stability keeps too big to fail around.
I think you are still talking past my point, to be honest, as the examples you are giving would fall into the "big business" regulations, at least in the meaning used in my example (i.e. protecting a consumer against unfair trading practices). What I am talking about are techniques such as short-selling, or acquisition financial assistance where you are not dealing with a "swindle" but something that everyone involved (at least directly) is perfectly aware of. You could say these are the business equivalent of "victimless crimes" (and are criminalised for the same reason).
QuoteNo matter the intentions, it will be the financial and political aristocracy who will steer and benefit from the state's interventionist power (regardless of the exact field). That is inevitable. The only remedy for this, is to keep that interventionist power to the bare possible minimum.
This is a completely dogmatic argument. But why stop there? The prohibition against murder and theft is also protecting the interests of the "financial and political aristocracy" (as it lets the "haves" keep their lives and their assets, and protects them against the "have nots"). It does not mean that abolishing all such laws and descending into an anarchy of roving raider bands would be the preferable alternative.
Quote from: Martinus on September 24, 2014, 04:57:55 AM
I think you are still talking past my point, to be honest, as the examples you are giving would fall into the "big business" regulations, at least in the meaning used in my example (i.e. protecting a consumer against unfair trading practices). What I am talking about are techniques such as short-selling, or acquisition financial assistance where you are not dealing with a "swindle" but something that everyone involved (at least directly) is perfectly aware of. You could say these are the business equivalent of "victimless crimes" (and are criminalised for the same reason).
Well yes, but those are the areas where it starts to be really hard to effectively regulate. And if you have inefficient regulation, it is probably worse than having none at all, as such regulations (and in fact, laws in other sectors) become mere tools in the powerplays of the people doing the questionable stuff.
Quote from: Tamas on September 24, 2014, 05:04:46 AM
Quote from: Martinus on September 24, 2014, 04:57:55 AM
I think you are still talking past my point, to be honest, as the examples you are giving would fall into the "big business" regulations, at least in the meaning used in my example (i.e. protecting a consumer against unfair trading practices). What I am talking about are techniques such as short-selling, or acquisition financial assistance where you are not dealing with a "swindle" but something that everyone involved (at least directly) is perfectly aware of. You could say these are the business equivalent of "victimless crimes" (and are criminalised for the same reason).
Well yes, but those are the areas where it starts to be really hard to effectively regulate. And if you have inefficient regulation, it is probably worse than having none at all, as such regulations (and in fact, laws in other sectors) become mere tools in the powerplays of the people doing the questionable stuff.
Sorry, but this argument can be made against virtually any law in the world.
Quote from: Martinus on September 24, 2014, 05:08:16 AM
Quote from: Tamas on September 24, 2014, 05:04:46 AM
Quote from: Martinus on September 24, 2014, 04:57:55 AM
I think you are still talking past my point, to be honest, as the examples you are giving would fall into the "big business" regulations, at least in the meaning used in my example (i.e. protecting a consumer against unfair trading practices). What I am talking about are techniques such as short-selling, or acquisition financial assistance where you are not dealing with a "swindle" but something that everyone involved (at least directly) is perfectly aware of. You could say these are the business equivalent of "victimless crimes" (and are criminalised for the same reason).
Well yes, but those are the areas where it starts to be really hard to effectively regulate. And if you have inefficient regulation, it is probably worse than having none at all, as such regulations (and in fact, laws in other sectors) become mere tools in the powerplays of the people doing the questionable stuff.
Sorry, but this argument can be made against virtually any law in the world.
Not really, but the more complex thing a law tries to regulate/stop, the more valid this argument is, indeed. But just because the argument is bad in some (or most) cases, it doesn't make it irrelevant by default.
And it is very complicated for financial stuff. You mentioned short selling, for example. Putting aside the fact that any regulation on it could be circumvented in some way, basically giving more manipulative power to the hands of those who can do that than they ever had while it wasn't regulated, the idea that short selling on its own being a bad thing is debatable at best. Massive short selling of an equity is not the cause of problems for that particular stock, it is the symptom. If somebody starts massive short selling of a product that is worth owing at the prices short selling is pushing it down to. If something can be collapsed by short selling, then it was ready to collapse period.
Quote from: Sheilbh on September 23, 2014, 04:36:08 PM
An article I never thought I'd get to share :wub: :w00t:
I once heard a series of European History lectures in which the professor talked (briefly) about the
Congrès International De La Petite Bourgeoisie which met in 1899 in (where else?) Brussels. So our revolution has a long and glorious history.
Quote from: Tamas on September 23, 2014, 06:03:00 PM
Haha. The common misinformation. Classical liberals are NOT on the side of reckless big business. YOU are, and everyone else calling for strong state regulations on businesses, since those help keeping the status quo, and giving the tools to save these assholes from the consequences of their actions.
What you fail to realize is that this is the story being sold to useful idiots, so that the plutocrat 1% will have more than 1% of the people voting for the policies that only favor the 1%.
While is is true that the effect of regulation can go both ways, either in the direction of egalitarianism or away from it, lack of regulation consistently goes in one direction only (guess which one). One of the reasons is that big money makes even bigger money quicker than little money makes less littler money. Another reason is that no single country has yet devised a political system that eliminates both graft and regulation, so guess what a portion of that bigger money is going to be used for.
Quote from: Viking on September 23, 2014, 06:12:40 PM
I want to know who was stupid enough to lend money to a company leveraging it more than 100% for the purpose of paying dividends? How did these lenders expect to get their money back?
To be fair, paying excessive dividends out of the creditors' pockets is essentially embezzlement, though the legal system may not be advanced enough to recognize that for what it is. It shouldn't be the job of investors to watch out against fraud.
Quote from: Martinus on September 24, 2014, 03:55:37 AM
I think regulation of big business and regulation of financial markets are completely different things and completely different debates.
The argument for regulation of big business is based on the inequality of actors (big business on one hand vs. a consumer or an employee on the other), and the argument that the state should empower the latter to level the playing field. There are legitimate arguments for it and against it (e.g. that in fact there is no reason to empower the weaker actor, as he or she is still able to make sovereign decisions) - and also possibility to reach middle ground (e.g. by empowering the weaker actor only if the stronger actor passes a certain threshold of power, e.g. is dominant in the market and there is no alternative for the weaker actor).
This is however completely different from regulation of financial markets (banks, PE, hedge funds etc.), where you have independent professional actors (whose interests, even if not always aligned, are also not usually contradictory) entering with each other into transactions that have the capacity of benefiting them immensely while wreaking great havoc on the state of the market and the society as a whole (with the latter not having any say in such transactions). The argument for regulation here is much stronger because without it there is absolutely no countervailing force to curtail such behaviour.
That is also a good point. I can see arguments against wealth redistribution, though ultimately I disagree with them. But to argue against things like investor protections takes some serious lack of critical thinking or some Putin-level ideological brainwashing.
Quote from: DGuller on September 24, 2014, 08:10:22 AM
so that the plutocrat 1% will have more than 1% of the people voting for the policies that only favor the 1%.
How often do "the people" get to vote on these policies?
Quote from: garbon on September 24, 2014, 08:53:16 AM
Quote from: DGuller on September 24, 2014, 08:10:22 AM
so that the plutocrat 1% will have more than 1% of the people voting for the policies that only favor the 1%.
How often do "the people" get to vote on these policies?
Not often do they get to vote directly, but they vote by proxy by electing their politicians.
Quote from: DGuller on September 24, 2014, 08:57:55 AM
Quote from: garbon on September 24, 2014, 08:53:16 AM
Quote from: DGuller on September 24, 2014, 08:10:22 AM
so that the plutocrat 1% will have more than 1% of the people voting for the policies that only favor the 1%.
How often do "the people" get to vote on these policies?
Not often do they get to vote directly, but they vote by proxy by electing their politicians.
I'm not so certain that we have any clear visibility on which politicians will do what with regards to said policies. I mean I guess we have Elizabeth Warren though I'm not sure we've real assurance she'll do anything other than make angry speeches.
I am ready to revolt.
Quote from: Grey Fox on September 24, 2014, 09:16:59 AM
I am ready to revolt.
I can't speak to that but I can say you are revolting. :x
Quote from: garbon on September 24, 2014, 09:08:15 AM
I'm not so certain that we have any clear visibility on which politicians will do what with regards to said policies. I mean I guess we have Elizabeth Warren though I'm not sure we've real assurance she'll do anything other than make angry speeches.
Oh, please, not that libertarian "both parties are essentially the same" garbage again. Both parties have plenty of corruption by money, but one party clearly favors a much deeper entrenchment of corruption and crony capitalism than another party. We do have a choice, as imperfect as it is, and we'll get better choices down the road if we actually get our heads out of our asses and make good use of it.
The reason we live in a Citizens United world is not because both parties are essentially the same. The reason we live in that world is because we elected enough Republicans to ram through enough conservative Supreme Court justices. Sometimes reality is really that simple.
Quote from: DGuller on September 24, 2014, 09:29:47 AM
Quote from: garbon on September 24, 2014, 09:08:15 AM
I'm not so certain that we have any clear visibility on which politicians will do what with regards to said policies. I mean I guess we have Elizabeth Warren though I'm not sure we've real assurance she'll do anything other than make angry speeches.
Oh, please, not that libertarian "both parties are essentially the same" garbage again. Both parties have plenty of corruption by money, but one party clearly favors a much deeper entrenchment of corruption and crony capitalism than another party. We do have a choice, as imperfect as it is, and we'll get better choices down the road if we actually get our heads out of our asses and make good use of it.
The reason we live in a Citizens United world is not because both parties are essentially the same. The reason we live in that world is because we elected enough Republicans to ram through enough conservative Supreme Court justices. Sometimes reality is really that simple.
Oh I don't think they are exactly the same. Unlike you though, I don't really see the Dems as that much better with the urge of "Spend, Baby, Spend!"
Quote from: garbon on September 24, 2014, 09:32:08 AM
Oh I don't think they are exactly the same. Unlike you though, I don't really see the Dems as that much better with the urge of "Spend, Baby, Spend!"
They have other urges besides that.
Quote from: DGuller on September 24, 2014, 09:32:39 AM
Quote from: garbon on September 24, 2014, 09:32:08 AM
Oh I don't think they are exactly the same. Unlike you though, I don't really see the Dems as that much better with the urge of "Spend, Baby, Spend!"
They have other urges besides that.
Just like Republicans have other urges. I'm a Republican and I certainly have other urges.
Quote from: garbon on September 24, 2014, 09:34:16 AM
Quote from: DGuller on September 24, 2014, 09:32:39 AM
Quote from: garbon on September 24, 2014, 09:32:08 AM
Oh I don't think they are exactly the same. Unlike you though, I don't really see the Dems as that much better with the urge of "Spend, Baby, Spend!"
They have other urges besides that.
Just like Republicans have other urges. I'm a Republican and I certainly have other urges.
A lot of other Republicans would not let you have those urges, though.
And DGuller I am going to debate this with you in about 20-30 years when the Democrats will be shifting toward more the center, and, along with their official policy, your worldview as ell.
Quote from: Tamas on September 24, 2014, 09:37:05 AM
Quote from: garbon on September 24, 2014, 09:34:16 AM
Quote from: DGuller on September 24, 2014, 09:32:39 AM
Quote from: garbon on September 24, 2014, 09:32:08 AM
Oh I don't think they are exactly the same. Unlike you though, I don't really see the Dems as that much better with the urge of "Spend, Baby, Spend!"
They have other urges besides that.
Just like Republicans have other urges. I'm a Republican and I certainly have other urges.
A lot of other Republicans would not let you have those urges, though.
Okay? There are a lot of Dems who wouldn't either - given what happened with gay marriage in California when it had a popular vote.
I'm not sure I buy the idea of middle class contempt for those beneath them that the article suggests.
This is the same middle class that voted in New Labour that brought about the minimum wage, for example, which is a policy that doesn't really benefit the middle. I'd also suggest that a lot of the reason for the middle class's support for the NHS and good-quality state education is for reasons of societal cohesion, even if they do of course benefit directly from services free at the point of access.
That said, each time I see another article on financiers taking us for a big ride, I do get a bit closer to putting up the barricades.
Quote from: Tamas on September 24, 2014, 09:38:00 AM
And DGuller I am going to debate this with you in about 20-30 years when the Democrats will be shifting toward more the center, and, along with their official policy, your worldview as ell.
:jaron:
Quote from: DGuller on September 24, 2014, 09:29:47 AM
Oh, please, not that libertarian "both parties are essentially the same" garbage again. Both parties have plenty of corruption by money, but one party clearly favors a much deeper entrenchment of corruption and crony capitalism than another party. We do have a choice, as imperfect as it is, and we'll get better choices down the road if we actually get our heads out of our asses and make good use of it.
The reason we live in a Citizens United world is not because both parties are essentially the same. The reason we live in that world is because we elected enough Republicans to ram through enough conservative Supreme Court justices. Sometimes reality is really that simple.
The other party arguably favors a deeper entrenchment of crony statism.
Quote from: Tamas on September 24, 2014, 09:38:00 AM
And DGuller I am going to debate this with you in about 20-30 years when the Democrats will be shifting toward more the center, and, along with their official policy, your worldview as ell.
They'll have to start drifting leftwards at some point, then.
Quote from: Admiral Yi on September 24, 2014, 09:46:32 AMThe other party arguably favors a deeper entrenchment of crony statism.
In what way?
Quote from: Jacob on September 24, 2014, 09:52:59 AM
In what way?
Money for favors. The same way Guller was talking about crony capitalism, presumably.
Quote from: DGuller on September 24, 2014, 09:32:39 AM
Quote from: garbon on September 24, 2014, 09:32:08 AM
Oh I don't think they are exactly the same. Unlike you though, I don't really see the Dems as that much better with the urge of "Spend, Baby, Spend!"
They have other urges besides that.
Overregulate, Baby, Overregulate!
Quote from: Sheilbh on September 23, 2014, 04:36:08 PM
An article I never thought I'd get to share :wub: :w00t:
QuoteI'm not financially sophisticated enough to understand the labyrinthine ins and outs of private equity deals. But I don't think I need to be. Here, my relative ignorance is actually a plus. You took a viable company, ran up ridiculous levels of debt, paid yourselves millions and then walked away, leaving unemployment and unpaid tax bills in your wake. What's to understand?
It's an interesting sort of argument that begins by touting self-ignorance as a virtue. As a rhetorical flourish it has some panache; as a persuasive argument it leaves something to be desired.
Let's look at the key premise "You took a viable company". What is the basis for that statement? The problem for Phones 4U as I understand it is that the big mobile operators it relied upon increasingly began opening their own stores, where there margins were higher. Plus the company had a lease deal with one of the big Brit department store chains, but recently got booted out in favor of a competitor .
The answer to the questioon "What's to understand"? is "the causal connection between the company's capital structure and the collapse of its business strategy."
Quote from: The Minsky Moment on September 24, 2014, 10:40:04 AM
Quote from: Sheilbh on September 23, 2014, 04:36:08 PM
An article I never thought I'd get to share :wub: :w00t:
QuoteI'm not financially sophisticated enough to understand the labyrinthine ins and outs of private equity deals. But I don't think I need to be. Here, my relative ignorance is actually a plus. You took a viable company, ran up ridiculous levels of debt, paid yourselves millions and then walked away, leaving unemployment and unpaid tax bills in your wake. What's to understand?
It's an interesting sort of argument that begins by touting self-ignorance as a virtue. As a rhetorical flourish it has some panache; as a persuasive argument it leaves something to be desired.
Let's look at the key premise "You took a viable company". What is the basis for that statement? The problem for Phones 4U as I understand it is that the big mobile operators it relied upon increasingly began opening their own stores, where there margins were higher. Plus the company had a lease deal with one of the big Brit department store chains, but recently got booted out in favor of a competitor .
The answer to the questioon "What's to understand"? is "the causal connection between the company's capital structure and the collapse of its business strategy."
Business school shill. :ultra:
It's actually easy to test the hypothesis that the company was killed off by its debt burden. Because if excessive debt was the problem, then they could just do a debt-equity swap and reorganize. Which the bondholders were ready and willing to do.
But the administrator nixed it. Why? Because the company was losing GBP 1 million per day on operations. Debt is no longer the issue. Lack of a business is the issue.
The company basically acted as a commissioned sales agent and it just lost its last significant commission paying customer.
Quote from: Richard Hakluyt on September 23, 2014, 06:03:17 PM
Vaux beer was crap btw.
I've no idea. Nor will I ever know :(
It seemed to sell well enough though.
Quote from: Tyr on September 24, 2014, 11:34:30 AM
Quote from: Richard Hakluyt on September 23, 2014, 06:03:17 PM
Vaux beer was crap btw.
I've no idea. Nor will I ever know :(
It seemed to sell well enough though.
I've just checked and they did make
Double Maxim (which I recall as a decent strong brown ale) and
Samson (a decent bitter that was only available in a fraction of the tied estate).
The rest of their stuff though was not so good.
I see that former employees have set up a successor brewery http://www.maximbrewery.co.uk/Default.aspx , lets hope they thrive :cheers:
Samson wasn't widespread?
Interesting.
I recall SAFC had Vaux Samson on their shirts for a while.
And hell, their mascot is still called Samson.
Odd for a product the company weren't trying to sell much.
I'll have to look into this brewery when I'm home. I have a few Vaux bottles in my room (commemorative ones) despite never having drunk it
You may be right..............wait a minute.............you are right. I'm muddling up Samson with Strongarm, the bitter produced by Cameron's in Hartlepool, which I've only had at one pub in Seaham and on rare visits to Hartlepool.
Quote from: The Minsky Moment on September 24, 2014, 11:30:41 AM
It's actually easy to test the hypothesis that the company was killed off by its debt burden. Because if excessive debt was the problem, then they could just do a debt-equity swap and reorganize. Which the bondholders were ready and willing to do.
But the administrator nixed it. Why? Because the company was losing GBP 1 million per day on operations. Debt is no longer the issue. Lack of a business is the issue.
The company basically acted as a commissioned sales agent and it just lost its last significant commission paying customer.
I think it is a little bit of both, to be honest. I do not think the PE fund deliberately set out to just strip-mine the company and move to greener pastures. But they were perhaps overconfident in their leverage, and the fact that they (likely) indebted it to service the acquisition debt (and not the investment/development debt) did not help. So I'm thinking greedy overzealous fools rather than evil masterminds.
Quote from: Martinus on September 24, 2014, 03:55:37 AM
I think regulation of big business and regulation of financial markets are completely different things and completely different debates.
The argument for regulation of big business is based on the inequality of actors (big business on one hand vs. a consumer or an employee on the other), and the argument that the state should empower the latter to level the playing field. There are legitimate arguments for it and against it (e.g. that in fact there is no reason to empower the weaker actor, as he or she is still able to make sovereign decisions) - and also possibility to reach middle ground (e.g. by empowering the weaker actor only if the stronger actor passes a certain threshold of power, e.g. is dominant in the market and there is no alternative for the weaker actor).
This is however completely different from regulation of financial markets (banks, PE, hedge funds etc.), where you have independent professional actors (whose interests, even if not always aligned, are also not usually contradictory) entering with each other into transactions that have the capacity of benefiting them immensely while wreaking great havoc on the state of the market and the society as a whole (with the latter not having any say in such transactions). The argument for regulation here is much stronger because without it there is absolutely no countervailing force to curtail such behaviour.
Great post.
Quote from: Tamas on September 24, 2014, 04:40:14 AM
The main thing is, that state intervention and tweaking for the greater good is a false concept. Why? Because the state (or more precisely, the people wielding its power) is VERY far from being free of influences. And who can extort influence on the state (again, more precisely, the people wielding its power)? The ones with the means to do it.
No matter the intentions, it will be the financial and political aristocracy who will steer and benefit from the state's interventionist power (regardless of the exact field). That is inevitable. The only remedy for this, is to keep that interventionist power to the bare possible minimum.
I don't think it is inevitable. We are able to build societies and political institutions that do not favor the financial and political aristocracy alone. The question is whether our current societies actually develop in that direction. I don't think so.
The bonds were PIK-toggle and paid a 10% coupon.
That is what I would consider pretty extreme on the speculative end. No sane "middle class" investor should have been touching that paper. It also suggests that the markets had a pretty realistic view about the precariousness of this business. It is an unfortunate outcome for the bondholders but you do get what you pay for.
The employees are more sympathetic but again even under a different captial structure the outcome would still be the same - liquidation. The only difference would be more cash on hand to pay out bondholders.
The PE firm certainly didn't cover itself in glory here. There is a broader question about what real value these firms provide to the market, and this particular episode is not good anecdotal evidence that PE firms are providers of useful management acumen. But the case for revolution seems understated, unless the proposal is for the Revolution of the Junk Bond Speculators.
Quote from: DGuller on September 24, 2014, 08:57:55 AM
Quote from: garbon on September 24, 2014, 08:53:16 AM
Quote from: DGuller on September 24, 2014, 08:10:22 AM
so that the plutocrat 1% will have more than 1% of the people voting for the policies that only favor the 1%.
How often do "the people" get to vote on these policies?
Not often do they get to vote directly, but they vote by proxy by electing their politicians.
However, the current system by which those politicians need funds to get elected means that we mostly get to pick between electing politicians all of whom are already committed to not changing anything.
Quote from: derspiess on September 24, 2014, 10:16:44 AM
Quote from: DGuller on September 24, 2014, 09:32:39 AM
Quote from: garbon on September 24, 2014, 09:32:08 AM
Oh I don't think they are exactly the same. Unlike you though, I don't really see the Dems as that much better with the urge of "Spend, Baby, Spend!"
They have other urges besides that.
Overregulate, Baby, Overregulate!
Whatever problems our financial markets might have, overregulation does not appear to be one of them.
Also - Marti - there is another way to look at this.
The big carriers are an oligopoly. Their topline growth is slowing because mobile voice and data is a saturated market in Europe. They are looking to defend margins and so the obvious move is to cut out the middleman and the associated commission expense.
Now look what happens when EE follows Vodaphone and the others and ditches Phones 4U.
Days later EE and Vodaphone turn around and scoop up the best store locations at liquidation values. So they expand their retail presence on the cheap and keep the margins up.
So is this story about rapacious financiers strip mining assets?
Or is it about monopolistic rent-seeking behemoths in a regulated industry abusing their market power over a business partner to grab their prize assets on the cheap?
Or maybe it is just about developments in the market rendering a business model obsolete, prompting an avalanche of overblown journalistic rhetoric?
Lots of ways to spin it.
Quote from: Berkut on September 24, 2014, 12:28:57 PM
Quote from: derspiess on September 24, 2014, 10:16:44 AM
Quote from: DGuller on September 24, 2014, 09:32:39 AM
Quote from: garbon on September 24, 2014, 09:32:08 AM
Oh I don't think they are exactly the same. Unlike you though, I don't really see the Dems as that much better with the urge of "Spend, Baby, Spend!"
They have other urges besides that.
Overregulate, Baby, Overregulate!
Whatever problems our financial markets might have, overregulation does not appear to be one of them.
Frank-Dodd is overregulation.
Quote from: Berkut on September 24, 2014, 12:28:57 PM
Whatever problems our financial markets might have, overregulation does not appear to be one of them.
Well, I suppose it was underregulated financial instruments masquerading as safer, regulated ones that got us into trouble. Clearly it would be better if nothing was regulated so that the risk of misplaced trust in regulation would go away. Or something.
Quote from: The Minsky Moment on September 24, 2014, 12:23:27 PM
The bonds were PIK-toggle and paid a 10% coupon.
That is what I would consider pretty extreme on the speculative end. No sane "middle class" investor should have been touching that paper. It also suggests that the markets had a pretty realistic view about the precariousness of this business. It is an unfortunate outcome for the bondholders but you do get what you pay for.
Ok I gotta agree with you, the compound interest of the PIK-toggle element would have been atrocious even without the coupon. For the record, I am not saying that poor investors were taken advantage of - I am just wondering whether bonds like this should be possible.
Quote from: The Minsky Moment on September 24, 2014, 12:33:43 PM
Also - Marti - there is another way to look at this.
The big carriers are an oligopoly. Their topline growth is slowing because mobile voice and data is a saturated market in Europe. They are looking to defend margins and so the obvious move is to cut out the middleman and the associated commission expense.
Now look what happens when EE follows Vodaphone and the others and ditches Phones 4U.
Days later EE and Vodaphone turn around and scoop up the best store locations at liquidation values. So they expand their retail presence on the cheap and keep the margins up.
So is this story about rapacious financiers strip mining assets?
Or is it about monopolistic rent-seeking behemoths in a regulated industry abusing their market power over a business partner to grab their prize assets on the cheap?
Or maybe it is just about developments in the market rendering a business model obsolete, prompting an avalanche of overblown journalistic rhetoric?
Lots of ways to spin it.
Well, you are right of course. My posts were more of a general nature rather than addressing this specific case (I wanted to make it more nuanced but had to rush to work - but yeah, for example the leveraged buyouts are not always or even in most cases evil and they improve the efficiency of bona fide investments a lot).
If they were impossible/illegal there would be an evil conspiracy to ensure weaker businesses fail because they can't get capitalized.
Quote from: MadImmortalMan on September 24, 2014, 02:33:01 PM
If they were impossible/illegal there would be an evil conspiracy to ensure weaker businesses fail because they can't get capitalized.
Well, many regulated businesses (such as banks or insurance companies) already have limits and restrictions on the risk they can accept, solvency margins, own funds etc. I guess the question is to what extent we should expand this to other businesses. I am not sure I know the answer to be honest.
Why is there be any need at all?
Venture capital counts on one hit out of eight tries. Should we outlaw venture capital?
Quote from: Admiral Yi on September 24, 2014, 02:41:40 PM
Why is there be any need at all?
Venture capital counts on one hit out of eight tries. Should we outlaw venture capital?
We outlaw fraud or swindle. I suppose, if you are offering terms that you can't possibly deliver there is a certain breaking point where it becomes indistinguishable from fraud or swindle. After all, most fraud or swindle is (also) based on the greed of the dupe - but that does not make it less illegal.
I could see your point if the issuer of this bond had provided fraudulent financial data in the prospectus, but otherwise don't see how it applies.
Quote from: Admiral Yi on September 24, 2014, 03:00:10 PM
I could see your point if the issuer of this bond had provided fraudulent financial data in the prospectus, but otherwise don't see how it applies.
I imagine that there is an implicit statement somewhere that when you issue bonds, you're using the proceeds to invest in business rather than channel them directly into the pockets of owners.
Quote from: DGuller on September 24, 2014, 03:19:45 PM
I imagine that there is an implicit statement somewhere that when you issue bonds, you're using the proceeds to invest in business rather than channel them directly into the pockets of owners.
I doubt it. Apple recently borrowed 12 billion to finance a stock buy back.
Quote from: DGuller on September 24, 2014, 03:19:45 PM
Quote from: Admiral Yi on September 24, 2014, 03:00:10 PM
I could see your point if the issuer of this bond had provided fraudulent financial data in the prospectus, but otherwise don't see how it applies.
I imagine that there is an implicit statement somewhere that when you issue bonds, you're using the proceeds to invest in business rather than channel them directly into the pockets of owners.
Not really.
In fact, telecoms are a great example of why that is not necessarily a bad thing as they require a massively disproportionate upfront investment into infrastructure - and once it is built (and no further big investments are needed and the original debt is paid off), the shareholders may decide to effectively convert some of the equity into debt. Nothing wrong with that, per se.
Quote from: Admiral Yi on September 24, 2014, 03:23:02 PM
Quote from: DGuller on September 24, 2014, 03:19:45 PM
I imagine that there is an implicit statement somewhere that when you issue bonds, you're using the proceeds to invest in business rather than channel them directly into the pockets of owners.
I doubt it. Apple recently borrowed 12 billion to finance a stock buy back.
True, although admittedly this trend is considered largely harmful.
Ok, I need to put in a lot more qualifiers than that. What I meant is that there is something somewhere that says that you can't start a company with $1 million of your own money, borrow another $5 million, and then give yourself a $6 million dividend and declare bankruptcy. I'm pretty sure that would count as embezzlement, even without any covenants.
Quote from: DGuller on September 24, 2014, 03:42:53 PM
Ok, I need to put in a lot more qualifiers than that. What I meant is that there is something somewhere that says that you can't start a company with $1 million of your own money, borrow another $5 million, and then give yourself a $6 million dividend and declare bankruptcy. I'm pretty sure that would count as embezzlement, even without any covenants.
Thats correct. But then most (all?) countries have regulations that say that in order to distribute dividend you need to have a so-called distributable reserve - which is generated from profit. So in theory you should be able to finance dividend with debt only to address the cash flow issue (eg your balance sheet has a lot of illiquid assets but your P&L is positive), not to create profit out of debt.
Quote from: Martinus on September 24, 2014, 03:39:51 PM
Quote from: Admiral Yi on September 24, 2014, 03:23:02 PM
Quote from: DGuller on September 24, 2014, 03:19:45 PM
I imagine that there is an implicit statement somewhere that when you issue bonds, you're using the proceeds to invest in business rather than channel them directly into the pockets of owners.
I doubt it. Apple recently borrowed 12 billion to finance a stock buy back.
True, although admittedly this trend is considered largely harmful.
Can't speak to Apple in this particular case, but it is very common for US companies to borrow for dividends or stock buy backs because repatriating overseas earnings will have significant tax costs. They have lots of cash overseas, but still need to borrow in the US to avoid the tax man.
There are reasons to consider that harmful, but not the ones being discussed in this thread.
Quote from: alfred russel on September 24, 2014, 03:55:01 PM
Quote from: Martinus on September 24, 2014, 03:39:51 PM
Quote from: Admiral Yi on September 24, 2014, 03:23:02 PM
Quote from: DGuller on September 24, 2014, 03:19:45 PM
I imagine that there is an implicit statement somewhere that when you issue bonds, you're using the proceeds to invest in business rather than channel them directly into the pockets of owners.
I doubt it. Apple recently borrowed 12 billion to finance a stock buy back.
True, although admittedly this trend is considered largely harmful.
Can't speak to Apple in this particular case, but it is very common for US companies to borrow for dividends or stock buy backs because repatriating overseas earnings will have significant tax costs. They have lots of cash overseas, but still need to borrow in the US to avoid the tax man.
There are reasons to consider that harmful, but not the ones being discussed in this thread.
Sorry. This was more of an off-hand comment on my part. The practice is overused and as such bad for business - was not suggesting it is fraudulent or that it should be banned.
Quote from: alfred russel on September 24, 2014, 03:55:01 PM
Quote from: Martinus on September 24, 2014, 03:39:51 PM
Quote from: Admiral Yi on September 24, 2014, 03:23:02 PM
Quote from: DGuller on September 24, 2014, 03:19:45 PM
I imagine that there is an implicit statement somewhere that when you issue bonds, you're using the proceeds to invest in business rather than channel them directly into the pockets of owners.
I doubt it. Apple recently borrowed 12 billion to finance a stock buy back.
True, although admittedly this trend is considered largely harmful.
Can't speak to Apple in this particular case, but it is very common for US companies to borrow for dividends or stock buy backs because repatriating overseas earnings will have significant tax costs. They have lots of cash overseas, but still need to borrow in the US to avoid the tax man.
There are reasons to consider that harmful, but not the ones being discussed in this thread.
Well you just pointed out precisely the reason it's bad - because it's done for purely tax purposes. Apple has retained overseas earnings that they can't or won't spend because doing so will trigger huge taxes.
Tax structuring is not bad per se.