Hedge Funds, Vulture Capitalism, and The Decay of Rural America

[Curved_Sw0rd]

It's not every day a video speaks to you, especially when that video is produced by a big new outlet like FOX. And yet, this ten minute segment from Tucker Carlson managed to do just that.



If you're from or travel frequently through Small Town, USA, the opening will ring true. As a resident of rural America myself I've seen plenty. Abandoned houses, dead factories, everything seems to be falling apart and very little is getting better. And Tucker is correct, the reasons for this are numerous and complicated, but he brings up a salient point; the wealthy and powerful do not look at the economy and the people within it the way they used to.

The super rich of the industrial age like Rockefeller, Carnegie, and Ford, managed to give back to the American people through philanthropy. While remaining rich in the end, nonetheless the effects of philanthropy proved mostly positive, a net gain for the American people out of the pockets of the massively rich. All done willingly.

Compare that to the Rich of today. Now let me be clear here, I'm not a "Eat the Rich" Socialist by any means. But people like Elon Musk and Bill Gates stand out because they've become a fair bit rarer. Instead there's been a rise in more ruthless business practices, such as buying out distressed companies, gutting them, and selling everything to the lowest bidder, even if that bidder is in another country, as Carlson describes. This makes people rich, yes, but it gives absolutely nothing back to the American people. Jobs are lost, and that economic shake-up can have dire consequences for whole communities.

Carlson also singles out Paul Singer, a hedge fund investor who made his fortune by purchasing the Sovereign Debt of countries in financial trouble, waiting for the economy of said countries to stabilize, then suing them to regain his money with interest. This is called Vulture Capitalism. And if it can be done to other countries, it can be done here in the US, allowing Singer and those like him to prey on US companies and communities. The story of the automotive parts company, Delphi, sucking down government bailouts, paid for by tax payers, only to shitcan middle management and move jobs to China should tell you all you need to know.

This sort of thing remains legal because people like Singer use their money to influence our government officials, Singer himself putting massive support towards a SuperPAC focusing on Republican Senators. Were his politics reversed, Singer would just be another Soros, but corruption is old as time, and touches every facet of government.

And now we move on to the town of Sydney, Nebraska. When Singer seized ownership of Cabela's, the company that kept Sydney booming and prospering, the company folded, merging with Bass Pro Shop and getting caught in the pull of Vulture Capitalism, taking Sydney with it. Economic growth halted, and the town has been rotting ever since.

So that leaves a few questions. What can be done about this? While this corporate greed is not the be all end all of what is killing Rural America, it is certainly contributing to the decline. Singer has influence over the Republican party, yet I can't say I'd trust the Democrats to do anything about this practice at all, if not make it worse by making it easier for people like Singer to gobble up Tax Revenue from average joes.

 

[Lanmandragon]

Somehow reinvigorate "nobliese obliege"{which is what carnigie and co were doing} would be ideal. No idea how to do that though.

 

[LordsFire]

Somehow reinvigorate "nobliese obliege"{which is what carnigie and co were doing} would be ideal. No idea how to do that though.

Stop favoring Ivy-league graduates for upper management. By and large, they've abandoned the concepts of teaching meaningful business ethics, at least last I've checked.

 

[Realm]

The super rich of the industrial age like Rockefeller, Carnegie, and Ford, managed to give back to the American people through philanthropy. While remaining rich in the end, nonetheless the effects of philanthropy proved mostly positive, a net gain for the American people out of the pockets of the massively rich. All done willingly.

These were also the years where striking and unionizing workers would be beaten or murdered by state or private forces, and had levels of inequality similar if a tad lower than currently.

So that leaves a few questions. What can be done about this? While this corporate greed is not the be all end all of what is killing Rural America, it is certainly contributing to the decline. Singer has influence over the Republican party, yet I can't say I'd trust the Democrats to do anything about this practice at all, if not make it worse by making it easier for people like Singer to gobble up Tax Revenue from average joes.

Feel the Bern, and crash that neolib party with no survivers

 

[Abhorsen]

I'll be honest, I really don't like Tucker. If you ignore his culture views, his economics is basically socialism. This destruction of 'distressed' companies is a good thing. It's part of the process of creative destruction, where old companies who can't keep up must die off. This die off is a good thing, that keeps innovation happening, and preventing company die offs means giving special advantages to companies or corporate welfare. When CNN and many newspapers die off for being trash heaps that can't keep up with internet news, this will open up space for new ideas and companies.

What vulture capitalism does is seeing that a company might be crap and out competed, but parts are still good. So it gets rid of all the crap, and cannibalizes what is salvageable. It's ugly, but necessary. Without it, the whole company would die a few years down the road. With it, the company dies now, but parts of it are saved and used productively, so some people get to keep their jobs.

 

[PsihoKekec]

If it was really like that it wouldn't be called vulture capitalism. Vulture capitalists take over a company that might or might not still be salvagable, suck it dry and move money to offshore account, leaving ruin behind. Whatever hope of company surviving are gone whent they install managers that have no experience in the particular brand that company is in, but are experts at producing quarterly reports and liquifying assets.

but parts of it are saved and used productively

You mean machinery sold to China or India.

This die off is a good thing

If it happens naturally and not by billionare backed corporate raider squads. And it only happens to those who are not big enough to get corporate welfare.

 

[Abhorsen]

If it was really like that it wouldn't be called vulture capitalism. Vulture capitalists take over a company that might or might not still be salvagable, suck it dry and move money to offshore account, leaving ruin behind. Whatever hope of company surviving are gone whent they install managers that have no experience in the particular brand that company is in, but are experts at producing quarterly reports and liquifying assets.

That's what I said, just phrased as if this were some great sin. The thing about companies that might or might not be salvageable, is that if they're being sold, the current owner doesn't believe they are salvageable, or they would keep it and make more money fixing it. Those new middle managers you blame, who can't know what they were doing? Well they are replacing people who demonstrably didn't know what they were doing, because the company is failing.

Companies die, it's ugly. But complaining that it is some great bad thing is just incorrect. It's a part of creative destruction. For more information, presented in a comedic fashion:

 

[Curved_Sw0rd]

These were also the years where striking and unionizing workers would be beaten or murdered by state or private forces, and had levels of inequality similar if a tad lower than currently.

Be that as it may, there's still some nuance to it. You have to take the good with the bad, and in the case of Paul Singer, I'm not really aware of any humanitarian effort he's putting his money behind.

That's what I said, just phrased as if this were some great sin. The thing about companies that might or might not be salvageable, is that if they're being sold, the current owner doesn't believe they are salvageable, or they would keep it and make more money fixing it. Those new middle managers you blame, who can't know what they were doing? Well they are replacing people who demonstrably didn't know what they were doing, because the company is failing.

Companies die, it's ugly. But complaining that it is some great bad thing is just incorrect. It's a part of creative destruction. For more information, presented in a comedic fashion:

Where does the money go, then? As in the example of Paul Singer and his hedge funds, he's not selling the resources to Americans, it's going overseas. That might be good for those countries, but it's a net loss for ours.

 

[Abhorsen]

Where does the money go, then? As in the example of Paul Singer and his hedge funds, he's not selling the resources to Americans, it's going overseas. That might be good for those countries, but it's a net loss for ours.

The thing would have died anyway though. If a company doesn't outsource to the overseas, then another company will and push the first one out of business. Keeping any fraction of the original structure and jobs long-term should be interpreted as a win.

The other, more hidden benefit of outsourcing is that it makes the product itself cheaper, which makes everyone in America ever so slightly richer. But these little, small bits of added wealth add up to a lot over time, and this is one of the ways that capitalist countries are richer now than they were in the past. And it does suck for the people whose job got outsourced. But outsourced and automated jobs are part of capitalism, unless you want tariffs and protectionism getting in the way, and that way leads to cronyism.

 

[Bear Ribs]

That's what I said, just phrased as if this were some great sin. The thing about companies that might or might not be salvageable, is that if they're being sold, the current owner doesn't believe they are salvageable, or they would keep it and make more money fixing it. Those new middle managers you blame, who can't know what they were doing? Well they are replacing people who demonstrably didn't know what they were doing, because the company is failing.

Companies die, it's ugly. But complaining that it is some great bad thing is just incorrect. It's a part of creative destruction. For more information, presented in a comedic fashion:

Not necessarily. Some purchasers do specialize in destroying perfectly viable companies.

Vulture Capitalists do leveraged buyouts (LBOs) which allows them to buy a company for far less than it's worth, by borrowing money against the company itself before they even own it. If that sounds insane, it kinda is.

Once they have the company, Vulture Capitalists pay themselves absolutely obscene bonuses, strip out all the assets and transfer them to themselves, transfer any debt they owe to the company, and then let the company die since it's saddled with a massive amount of debt it can never pay since all it's assets are gone.

This article covers some of it. Payless Shoes was LBO'd and then the new owners paid themselves 400 million dollar bonuses, saddled it with massive debt, and sailed away. Toys R Us was LBO'd, saddled with 5 billion in debt while the new owners paid themselves 200 million and then collected interest on the debt, and It never recovered from the crushing debt that was used to buy the company and then immediately made the company's debt, not the buyer's.

The list of companies this has happened to goes on and on. This isn't companies failing because they can't compete. This is specialists in legal chicanery using a specific exploit in how the rules work to buy a company using it's own value as collateral, and walk off with a fraction of it's worth free and clear while the rest dies. Once the process is begun it can't be stopped, the company's been saddle with an impossible amount of Debt that was used to buy it and it's a corpse staggering forward from that poimt

 

[Abhorsen]

Not necessarily. Some purchasers do specialize in destroying perfectly viable companies.

Vulture Capitalists do leveraged buyouts (LBOs) which allows them to buy a company for far less than it's worth, by borrowing money against the company itself before they even own it. If that sounds insane, it kinda is.

Once they have the company, Vulture Capitalists pay themselves absolutely obscene bonuses, strip out all the assets and transfer them to themselves, transfer any debt they owe to the company, and then let the company die since it's saddled with a massive amount of debt it can never pay since all it's assets are gone.

This article covers some of it. Payless Shoes was LBO'd and then the new owners paid themselves 400 million dollar bonuses, saddled it with massive debt, and sailed away. Toys R Us was LBO'd, saddled with 5 billion in debt while the new owners paid themselves 200 million and then collected interest on the debt, and It never recovered from the crushing debt that was used to buy the company and then immediately made the company's debt, not the buyer's.

The list of companies this has happened to goes on and on. This isn't companies failing because they can't compete. This is specialists in legal chicanery using a specific exploit in how the rules work to buy a company using it's own value as collateral, and walk off with a fraction of it's worth free and clear while the rest dies. Once the process is begun it can't be stopped, the company's been saddle with an impossible amount of Debt that was used to buy it and it's a corpse staggering forward from that poimt

That's not quite how the LBO works. Yes, the debt given to the company, but with the promise to use the companies cash flow to pay for it, and the investors expect that the debt will be paid back. Basically, if you see a company that isn't living up to it's potential, but can't afford it, you promise a bank that you can make the company produce the money to pay it back. It's basic debt financing: You get money now, with the promise of paying more later, just the method you use to pay it is through the company you bought, not directly by you. There isn't anything wrong with this, as long as one plans to pay off the debt.

Toys R Us was LBO'd in 2005, and lasted until 2017, meaning that they weren't after a quick profit. The firm Bain Capital wasn't acting as a vulture capitalist, but instead tried to keep Toys R Us profitable while paying off the debt. They unfortunately failed, but I would argue that a good part of the blame lies with the bank that over-valued Toys R Us and didn't require Bain put more skin in the game.

Basically, Bain Capital was an investor that failed in this instance, but that's just one case out of many. Usually, its buyouts have been fine.

 

[Floridaman]

Not necessarily. Some purchasers do specialize in destroying perfectly viable companies.

Vulture Capitalists do leveraged buyouts (LBOs) which allows them to buy a company for far less than it's worth, by borrowing money against the company itself before they even own it. If that sounds insane, it kinda is.

Once they have the company, Vulture Capitalists pay themselves absolutely obscene bonuses, strip out all the assets and transfer them to themselves, transfer any debt they owe to the company, and then let the company die since it's saddled with a massive amount of debt it can never pay since all it's assets are gone.

This article covers some of it. Payless Shoes was LBO'd and then the new owners paid themselves 400 million dollar bonuses, saddled it with massive debt, and sailed away. Toys R Us was LBO'd, saddled with 5 billion in debt while the new owners paid themselves 200 million and then collected interest on the debt, and It never recovered from the crushing debt that was used to buy the company and then immediately made the company's debt, not the buyer's.

The list of companies this has happened to goes on and on. This isn't companies failing because they can't compete. This is specialists in legal chicanery using a specific exploit in how the rules work to buy a company using it's own value as collateral, and walk off with a fraction of it's worth free and clear while the rest dies. Once the process is begun it can't be stopped, the company's been saddle with an impossible amount of Debt that was used to buy it and it's a corpse staggering forward from that poimt

Toys R Us is a very bad example when you say this isn’t the case of companies not being able to compete. In their case the market shifted, children don’t demand regular toys like they used to, and what is demanded can be supplied by Walmart at a far cheaper price. There is no way the company would have survived LBO or not.

 

[Floridaman]

Stop favoring Ivy-league graduates for upper management. By and large, they've abandoned the concepts of teaching meaningful business ethics, at least last I've checked.

As someone who had to attend one of those classes they are a waste of time, ethics can’t be taught in class, you have to develop it in the real world. Second those classes are often used by professors to push their own pet peeves, which has resulted in some of the problems we see today.

 

[LordsFire]

As someone who had to attend one of those classes they are a waste of time, ethics can’t be taught in class, you have to develop it in the real world. Second those classes are often used by professors to push their own pet peeves, which has resulted in some of the problems we see today.

Meaningful business ethics.

When an educational institution is pushing relativistic morality and ideology, you have good reason to expect its graduates to be immoral or amoral. Even if they are teaching ethics classes, if the foundation for their ethical framework is quicksand, it won't be a very good class.

Much like the 'morality' that the hard left espouses these days.

 

[Terthna]

I'll be honest, I really don't like Tucker. If you ignore his culture views, his economics is basically socialism. This destruction of 'distressed' companies is a good thing. It's part of the process of creative destruction, where old companies who can't keep up must die off. This die off is a good thing, that keeps innovation happening, and preventing company die offs means giving special advantages to companies or corporate welfare. When CNN and many newspapers die off for being trash heaps that can't keep up with internet news, this will open up space for new ideas and companies.

What vulture capitalism does is seeing that a company might be crap and out competed, but parts are still good. So it gets rid of all the crap, and cannibalizes what is salvageable. It's ugly, but necessary. Without it, the whole company would die a few years down the road. With it, the company dies now, but parts of it are saved and used productively, so some people get to keep their jobs.

I'll be honest as well; I question your understanding of business and economics, because that's not how things work out in reality.

 

[CarlManvers2019]

Meaningful business ethics.

When an educational institution is pushing relativistic morality and ideology, you have good reason to expect its graduates to be immoral or amoral. Even if they are teaching ethics classes, if the foundation for their ethical framework is quicksand, it won't be a very good class.

Much like the 'morality' that the hard left espouses these days.

They also have reason to follow everybody else into the grave, merely on the basis that the politics of their professors and others around them lean in such a way that #GetWokeGoBroke will never be a problem even if they do end up seeing Batwoman cancelled or rebooted and never really do damage control for beloved franchises on the basis of feeling they’d be vindicated by history or because they think so many share their politics and/or are willing to use it yo judge how much they actually liked something

Honestly, I think you could be a sociopath or a psychopath who at the very least still manages on an intellectual level on how others actually think, they just turned into pseudo fanatics who can’t grasp the future or understand the differences in behavior or how simply put guys like Muslims moving in en masse will result in a bunch of their industries being in future danger or outright illegalization at some point