Tag: Matt Taibbi
The term leveraged buyout simply means purchasing a company using lots of borrowed money, while using the assets of that company as collateral (the "lever" for the debt). The whole purpose of leveraged buyouts is that it allows a group of investors to risk very little money and reap very large profits, using other people's money.
Please note...Romney as a highly successful, private equity CEO specializing in leveraged buyouts did not spend his career creating jobs as his father did at American Motors. Instead, he spent it creating debt, debt that other people had to pay back. His job was to maximize profits for his investors.
Bain Capital looked for companies that had good cash flow and valuable assets but were having problems. Then, Bain investors would put up maybe 10-20% of the money needed to take over the company. Bain would get the rest of the necessary money by borrowing it by putting up the assets of the acquired company. Just like the mortgage on your house, someone would have to pay back all that borrowed money, but it wouldn't be Bain. What Bain would do is collect huge management fees for telling the company how to slash expenses in order to pay the cost of the borrowed money. One of the first ways to do that would be to fire "excess" employees. A prime example from Bain Capital is the now-defunct KB Toys.
"According to popular legend, we're broke and in so much debt that 40 years from now our granddaughters will still be hooking on weekends to pay the medical bills of this year's retirees from the IRS, the SEC and the Department of Energy." - Matt Taibbi in Rolling Stone
That's the hook Taibbi sets in his 28 April issue contribution: Real Housewives of Wall Street. The article is artfully crafted and about a more egregious violation of trust and power than General McChrystal's lack of professionalism and dignity; not to mention insubordination. It outlines some of the beneficiaries of Waterfall TALF (short for Term Asset-Backed Securities Loan Facility) Opportunity. These were some of the very well to do who were "loaned" hundreds of millions of dollars against which they were essentially sheltered from risk while accumulating 100% of any gains. This story is a field of dreams that will fuel conspiracy theorists' belief in the supernatural powers of a Federal Reserve with tentacles that loans money to "banks in places like Mexico, Bahrain and Bavaria, billions more to a spate of Japanese car companies, more than $2 trillion in loans each to Citigroup and Morgan Stanley, and billions more to a string of lesser millionaires and billionaires with Cayman Islands addresses.