How private equity firms make their billions on other people's backs
Matt Taibbi on Mitt Romney's Crooked, Dirty Game
September 10, 2012 |
The following is a transcript of HuffPost Live, in which host Ahmed Shihab-Eldin interviews Rolling Store editor Matt Taibbi about his latest piece exposing the ugly ways Mitt Romney built his massive forture. The transcript has been edited for clarity.
Ahmed Shihab-Eldin: In case you didn’t know this particular factoid, both governor Mitt Romney and President Obama have each raised well over half a billion dollars in this election. Even worse, the total amount spent on this election year will surpass $2.5 billion. To me, that’s a lot of money. But a question that comes up often is why aren’t more people — more Americans, more politicians — speaking up about this. Someone who’s speaking up is Rolling Stone’s contributing editor, Matt Taibbi, who’s joining us to talk about his latest article. Matt, this is your article, thank you for joining us.
Matt Taibbi: This is how private equity deals work, and this is what most people don’t understand. When a company like Bain wants to take over a company, let’s say, like KB Toys, what they do is — it’s very similar to the process of getting one of those no-money-down mortgages — you put down a tiny amount of money, in the case of Bain, you put down about 5 percent of his own cash, $18 million. He financed the other $302 million that he got, and what he did was he went to a bank and you’re borrowing against the assets of a company you don’t own yet. So what you do is you say to the bank …
Ahmed Shihab-Eldin: Which is legal.
Matt Taibbi: Which is totally legal. But what you do is you say to the bank, ‘I’m going to take over this company,’ or ‘I’m going to take over some company, and when we do that company is going to be indebted to you.’ So they borrow $300 million. With that money, and his money, you buy a controlling stake in the company that you’re trying to take over, and once you do that, the debt that you yourself took out becomes the debt of the company that you have taken over. And this is very poorly understood by most people. Now there’s the other problem, now if you’re KB Toys, you’ve borrowed $300 million and you owe the bank. And you haven’t done it to buy new equipment or open new stores or do research and development, all you’ve bought with that $300 million is …
Ahmed Shihab-Eldin: Debt.
(More here.)
September 10, 2012 |
The following is a transcript of HuffPost Live, in which host Ahmed Shihab-Eldin interviews Rolling Store editor Matt Taibbi about his latest piece exposing the ugly ways Mitt Romney built his massive forture. The transcript has been edited for clarity.
Ahmed Shihab-Eldin: In case you didn’t know this particular factoid, both governor Mitt Romney and President Obama have each raised well over half a billion dollars in this election. Even worse, the total amount spent on this election year will surpass $2.5 billion. To me, that’s a lot of money. But a question that comes up often is why aren’t more people — more Americans, more politicians — speaking up about this. Someone who’s speaking up is Rolling Stone’s contributing editor, Matt Taibbi, who’s joining us to talk about his latest article. Matt, this is your article, thank you for joining us.
Matt Taibbi: This is how private equity deals work, and this is what most people don’t understand. When a company like Bain wants to take over a company, let’s say, like KB Toys, what they do is — it’s very similar to the process of getting one of those no-money-down mortgages — you put down a tiny amount of money, in the case of Bain, you put down about 5 percent of his own cash, $18 million. He financed the other $302 million that he got, and what he did was he went to a bank and you’re borrowing against the assets of a company you don’t own yet. So what you do is you say to the bank …
Ahmed Shihab-Eldin: Which is legal.
Matt Taibbi: Which is totally legal. But what you do is you say to the bank, ‘I’m going to take over this company,’ or ‘I’m going to take over some company, and when we do that company is going to be indebted to you.’ So they borrow $300 million. With that money, and his money, you buy a controlling stake in the company that you’re trying to take over, and once you do that, the debt that you yourself took out becomes the debt of the company that you have taken over. And this is very poorly understood by most people. Now there’s the other problem, now if you’re KB Toys, you’ve borrowed $300 million and you owe the bank. And you haven’t done it to buy new equipment or open new stores or do research and development, all you’ve bought with that $300 million is …
Ahmed Shihab-Eldin: Debt.
(More here.)
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