So here is what I wrote a couple days ago after doing the research on why Toys R Us is being dismantled because of a private equity group who bought them in 2005 using “equity” from their portfolios of investing other people’s money and leveraging 80% of the price which was then charged to Toys R Us to pay off ultimately destroying them as they threw $400 million out the door every year to service loans which shouldn’t have belonged to them since they were made to purchase the company in the first place.
That is a long winded sentence and I was about to change it – but damn, that’s exactly what they did. It can’t be said in two or three word sentences.
So, rather than tell you all about how to make a great art business and share with you what all I’ve learned about it, from fine art to illustration, art publishing and surface design, showing in art festivals to showing in galleries, to the amazing online opportunities which are mostly work and not really opportunities – I’m going to share what I’ve learned about really making money – if you’re going to –
The Anatomy of Business in America –
Open a firm. Make it an LLC and get a nice address for it, even if it is shared.
Print a bunch of slick looking brochures and paperwork. Buy some nice desks and expensive chairs.
Hire some men and dress them in very expensive suits.
Get people to give you their money to invest. Borrow against the money they give you to invest more than you have available.
Charge them for investing their money and every time the investments are handled, traded, bought or sold.
Use their money and portfolios as collateral to buy up an existing company in the US – one that has been around for years.
Borrow 80% – 100% of the price the company purchase would be by using these other people’s money and portfolios as you “equity”collateral on the loan promising the company will payoff the loan from its cash earnings inflow
Pay yourself several million dollars for making the deal by taking it from the company you are buying.
Put the entire purchase price of the company you are buying into debt owed by that company and not you and not your company even though you did the borrowing to get ownership of it.
The collateral wasn’t yours, the equity stake put up never moved anywhere and is paid off by the company being bought plus paying for its own purchase by you without any of your money ever being used.
Rob all the cash resources and assets that you can possibly liquidate from the company you now own without ever having to pay anything to get it.
Charge management fees to the company you’ve bought while you dismantle its assets and cash diverting them into your pockets and those of your firm.
Force the company you now own to borrow from you and from your firm some of its new loan money that will satisfy paying off your debt for having bought it, so they are effectively paying you interest on the money you did not actually borrow to buy the company in the first place which is now owed by the company you “bought” who is paying for its purchase price.
After 2 – 5 years of bleeding all the cash possible from the company, either A.) sell it by taking it public and then finding a buyer for it to cash you out, or B.) going into bankruptcy as the company is then required to pay you again three times over in the bankruptcy process.
Get payouts again from any credit default swaps you took out on the loans your firm made to the company that you forced the company to take to pay the money off that you “borrowed” to “buy” them. Make sure you get hundreds of millions from the bankruptcy of the company while its vendors, landlords contractors and many other creditors get nothing.
Make sure executives are given big fat bonuses by the bankruptcy court because they are your friends and any pension funds or other employee benefit funds are depleted so they get nothing but a layoff notice, (or not even that.)
Enjoy the hundreds of millions of dollars that now are yours which you never built in the first place through hard work, gaining market share, challenging the competition or any other basic tenets of capitalism and market based economics.
Do the same thing to as many companies as you can while continuing to run your firm convincing people to give you their money to invest and charging them while using their money and not yours to be the “equity” / collateral to buy these companies and do the same thing to them to bleed them of all cash resources which you didn’t earn.
Tell everybody how great you are and how nobody else in the United States is worth anything unless they are like you.
Deny you put tens of thousands of families in economic hardship by taking their jobs away, destroying their communities by shutting down large employers and cutting the income from contractors and landlords who had provided real services and goods to the company. And, run for public office.
Well, that’s it – that is how money has been being made in America since the 80’s.
How would it EVER make sense for me as a company to be required to pay the price I’m charging you for buying me? And, pay the interest on that debt you used to buy me as a company – AND pay you management fees for destroying the company I’ve built that you’re charging me the price of buying – from me – so you can own it?
Why wouldn’t the borrowing that was done to buy Toys R Us belong to the private equity firms who bought it?
What happened to Toys R Us?
Apparently, the company was loaded with debt that came from three private equity firms forcing the company to pay for its own purchase by them back in 2005. Bain Capital, KKR and Vornado Trust Realty bought Toys R Us with the promise they would pay off the $2.3 billion in debt that Toys R Us already had at the time. Then, rather than doing that, these private equity firms added the debt they acquired buying the company and added it to what was already owed by the Toys R Us company.
That meant a debt of $7.2 billion has been owed by the company since that time and each year having to pay to roll it over by servicing the debt and never having paid it off.
Toys R Us was paying $400 million a year to simply service the debt plus paying management fees and making payouts to the private equity firms.
So, despite the toy industry seeing increases across the world in sales and the Babies R Us stores of the chain being profitable AND the 15% share of the entire toy market being enjoyed by Toys R Us which is phenomenal across its 1600 stores in 38 countries – it was forced into complete bankruptcy (Chapter 7 Bankruptcy now).
When Toys R Us sold to Bain, KKR and Vornado, 80 percent of its asking price of the $6.6 billion price tag was paid by Toys R Us and not those acquiring the company – which would be illegal in any other context of finance, loans and buying something.
Then, by putting this debt load on the company, it assured that money coming into the company could not be used in a vast array of other ways to upgrade and maintain their stores, increase their online presence, hire more sales people, or even to keep the sales staff they had that were already familiar with their stores and products, among other things.
Effectively, after buying KB toys which had been the second biggest toy retailer in the US, the same private equity group robbed that company of its cash resources to operate as well, even before the Toys R Us brand was bled dry of cash by the same pattern of destructive acquisition.
After buying KB Toys in 2000, Bain and its co-investors had the retailer borrow $85 million to pay the firm and its co-investors a dividend — a move that left the chain, which had been generating steady earnings, strapped for cash as deepening price cuts at Walmart lured more shoppers away from malls.
In that case, Bain’s cash grab left it with a profit on its investment, despite the fact that 86-year-old KB Toys got liquidated in 2008.
It looks like Toys R Us, that was built from 1948 into a mammoth successful and very profitable toy stores, wasn’t bought for $6.6 billion. It was bought for $1.3 billion in equity by the three firms, Bain Capital, Vornado Realty Trust and KKR.
This article said that the fees and interest on the debt from that buyout was costing Toys R Us $470 million a year in service. It also says that the price for the company during the buyout was $7.3 billion. Of which, the private equity firms put up what? Obviously, not cash. I’m going to look that up.
Bain, KKR, Vornado Suffer Wipeout in Toys ‘R’ Us Bankruptcy
The three firms and their co-investors sank $1.3 billion of equity into the takeover of the Wayne, New Jersey-based toy company, financing the rest with debt, according to company filings. The debt included senior loans in which they held a stake.
Partly offsetting the loss is more than $470 million in fees and interest payments that Toys “R” Us awarded the firms over time.
And from this article, it describes briefly, the typical method involved in these types of buyouts which follow a pattern of destroying the assets of the company’s operations while stealing resources (legally) at every point along the way.
It would be as if I gave someone $3 to own something that cost $2,000 and had someone else responsible for paying the entire amount, and giving me back several thousand dollars for having put up $3 in the first place.
I’d almost bet the $3 they used in the form of $1.3 billion wasn’t even cash or real assets.
Toys R Us and why the retail downturn is all about debt
“Leverage just means you’re using lots of debt,” said Eileen Appelbaum, co-director of the Center for Economic and Policy Research.
If a private equity firm wants to buy a company, it’ll put up a small portion of the money. Then it’ll go to the bank and borrow the rest.
The key? “They put the debt on the company they buy,” Appelbaum said.
In other words, the firms take out these loans, buy a company and then make that company pay the loans back.
Despite having 15% of toys sales in the marketplace and a heavier shopping season last Christmas with shoppers spending $800 billion during the holiday season, according to FT (see below for article), Toys R Us was facing massive loan payment costs that put it into liquidation status.
Toys ‘R’ Us Has 15% of the Toy Market And It’s Still Going Under. Here’s Why.
Fifteen percent of U.S. toy revenue. With that kind of market share, Toys ‘R’ Us should be in a comfortable position, not on the ropes.
The pattern followed by Toys “R” Us is typical in private equity takeovers. Management is bought off: John Eyler, CEO of Toys “R” Us, was compensated $65.3 million upon the buyout’s completion. Employees have no say in the matter. Then come the layoffs, debt transfers and shortsighted asset sales. Funds are earmarked to pay down debts—Toys “R” Us was spending more annually on debt payments than it was on its website and stores—even as cash reserves are depleted.
US retail’s turbulent relationship with private equity
DECEMBER 29, 2017
FT research shows many of the largest leveraged buyouts in the sector over the past decade have either defaulted, gone bankrupt or are in distress
At least 50 US retailers — including Toys R Us, children’s retailer Gymboree, shoe store Payless and jean maker True Religion — have filed for bankruptcy this year, the most in six years, with analysts describing it as a “day of reckoning”, for companies that rolled over their debt refinancing for years.
Observers warn that the distress is likely to accelerate in 2018 with nearly $6bn in high-yield retail debt set to mature.
The swift unraveling of the toy seller, at $6.9bn the third-largest retail bankruptcy in history, jolted vendors, who are critical to a retailer’s health.
There was some respite for bricks-and-mortar retailers this week with US shoppers spending more than $800bn in the holiday season, a 3.8 per cent rise from last year,
Looking at the article below, it occurred to me that possibly, the private equity firms own some of the debt made to the companies required to pay for their own buyouts by someone else.
Then the fees for those loans are also being paid to the private equity or investment firms holding them, on top of the management fees and other dividend payments, plus other payouts they’re are finagling from the company.
And, all of it providing a stream of resources to the investment funds that should legally belong to the company for its operation, sustenance, growth and as a prudent cash reserve against changes in the market.
The retail apocalypse is being fueled by private equity firms adding to debt loads
Nearly every retail chain caught up in the brick & mortar meltdown is an LBO queen – acquired in a leveraged buyout by a private equity firm either during the LBO boom before the Financial Crisis or in the years of ultra-cheap money following it. During a leveraged buyout, the PE firm uses little of its own capital. Much of the money needed to buy the retailer comes from debt the retailer itself has to issue to fund the buyout, which leaves the retailer highly leveraged.
The PE firm then makes the retailer issue even more junk bonds or leveraged loans to fund a special dividend back to the PE firm. Come hell or high water, the PE firm has extracted its money.
Then the PE firm charges the retailer hefty management fees on an ongoing basis.
A lot of times, these PE firms acquire part of the bonds before bankruptcy of their portfolio company for cents on the dollar. For example, Bain Capital bought significant amounts of Gymboree bonds. This gives PE firms more control during the bankruptcy proceedings, and they win again.
Why do institutional investors fund asset-stripping associated with LBOs and special dividends? Some of the answers are in Wall Street’s culture where fee extraction is everything, and one firm helps another. And too, they’re chasing yield in a world where central banks have repressed yield. Which turns out to be a costly chase.
Sports Authority is Another Loss to Our Country Caused By Leveraged Buyout Nightmare
A number of retailers have suffered this buyout process whereby the company being acquired is forced to pay for itself to be bought out by loading the profit making retailer (or other types of companies) with massive debt and extra costs to pay off cash to those who “bought” it.
But, since when do you or I get to buy something for nothing but a promise of 10% on the cost of it and then enslave the operation to pay off the rest for that purchase while streaming most of its available cash to us in fees and dividends?
From this article describing the process that took apart Sports Authority –
Leveraged buyouts saddle retailers with debts they can’t repay
April 29, 2016
But Englewood-based Sports Authority was loaded with at least $643 million in debt, a hangover from the $1.4 billion leveraged buyout in 2006 by investors led by Leonard Green & Partners.
Sports Authority’s bankruptcy plan initially included closing 140 of its 463 stores. But lawyers for the chain said in court last week that the company now is pursuing liquidation, leaving workers jobless and shopping centers across America anchorless.
In the fast-evolving world of retail, where the one constant is the need for investment, retailers laboring under heavy debt are at a disadvantage.
“Doing it right is very expensive,” said Raya Sokolyanska, an analyst with Moody’s Investor Service in New York. “Limited financial flexibility has been a reason why a lot of these retailers haven’t been able to fight back and position themselves correctly for growth.”
Private equity firms have been connected to a rash of retail bankruptcies in recent years, including Gymboree, Payless ShoeSource, The Limited Stores, True Religion Apparel, and most recently, Toys “R” Us.
(. . . )
But Toys “R” Us wasn’t pushed into court because of terrible sales — it recorded nearly $1 billion in online sales in 2016, according to a spokesperson, and had earnings before interest, taxes, depreciation, and amortization of $792 million. Rather, the company was struggling to pay down its staggering debt load — for which it could thank its 2005 leveraged buyout. Bain Capital Private Equity and KKR & Co. teamed up with real estate investment trust Vornado Realty Trust to acquire the company for approximately $6.6 billion, including $5.3 billion of debt secured by the company’s assets.
Why Private Equity Firms Like Bain Really Are the Worst of Capitalism
Here’s what private equity is really about: A firm like Bain obtains cheap credit and uses it to acquire a company in a “leveraged buyout.” “Leverage” refers to the fact that the company being purchased is forced to pay for about 70 percent of its own acquisition, by taking out loans. If this sounds like an odd arrangement, that’s because it is. Imagine a homebuyer purchasing a house and making the bank responsible for repaying its own loan, and you start to get the picture.
O.K., but what about this much more virtuous business of swooping in and restoring struggling companies to financial health? Well, that’s not a large part of what private equity firms do, either. In fact, they more typically target profitable, slow-growth market leaders. (Private equity firms presently own companies employing one of every 10 U.S. workers, or 10 million people.)
And that’s when the fun starts. Once the buyout is completed, the private equity guys start swinging the meat axe, aggressively cutting costs wherever they can – so that the company can start paying off its new debt – by laying off workers and cutting capital costs.
This process often boosts operating profit without a significant hit to the business, but only in the short term; in the long run, the austerity approach makes it difficult for companies to stay competitive, not least because money that would otherwise have been invested in expansion or product development – which might increase revenue down the line – is used to pay off the company’s debt.
It takes several years before the impacts of this predatory activity – reduced customer service, inferior products – become fully apparent, but by that time the private equity firm has generally resold the business at a profit and moved on.
The next article reminded me of how much is at stake for vendors, toy manufacturers, shippers, shopping malls and strip mall groups that have used Toys R Us to stock their shelves with products, rent large anchor properties and draw traffic to other stores nearby. All of these will be suffering hits, possibly causing layoffs beyond those being caused directly by the bankruptcy of Toys R Us as it closes 2600 stores.
How $5 billion of debt caught up with Toys ‘R’ Us
SEPTEMBER 20, 2017
But the company’s ability to kick the can down the road had been exhausted. The bankruptcy filing was the culmination of an unsuccessful seven-month effort by Toys “R” Us to find relief from its $5.2 billion debt pile, according to bankruptcy court filings and people familiar with the deliberations.
The advisers that Toys “R” Us hired to fix its capital structure explored at least two deals with some of its creditors to raise money that would have helped the company stave off bankruptcy before the key holiday shopping season, avoiding a supply chain disruption stemming from vendor fears about repayment, a bankruptcy filing shows.
Once the company realized that it could not secure financing to get through the holiday season, the objective became “let’s get it done as quick as possible so it does not interrupt the holidays,” Toys “R” Us Chief Executive Officer David Brandon told Reuters in an interview. Filing for bankruptcy allowed the company to secure financing to continue to operate its stores.
Given that “we successfully obtained our debtor-in-possession financing today, we can assure our lenders that we are in a good position to accept shipments on a normal basis and they have great assurance they will be paid,” Brandon said.
Like other retailers that own their stores, Toys “R” Us tried last month to tap its vast real estate portfolio to raise money in a sale-leaseback transaction, according to court filings. Sale-leaseback deals allow retailers to raise cash by selling real estate they own and then renting it back from the new owner. (which didn’t work, my note.)
More Layoffs for Retailers Already Having Massive Store Closings and Layoffs
Jobs everywhere! Except at stores
January 5, 2018
Record numbers of store closings and a surge in retail bankruptcies, as well as the shift to online shopping, have forced retailers to slash jobs even as other employers scramble to find qualified workers.
The sector lost a total of 66,500 jobs in 2017.
General merchandise stores, the segment that includes department stores, were hit the hardest, losing 90,300 jobs, according to the Friday’s December jobs report from the Labor Department. Clothing stores cut another 28,600 jobs. Drug stores lost 18,400.
So the job losses in the sector are likely to continue said Nicholas. In 2017, 7,000 store closings were announced, a record that was more than triple 2016’s number. And the trend will undoubtedly continue in 2018. Sears Holdings (SHLD), owner of both Sears and Kmart, said Thursday it plans to close more than 100 additional stores.
According to BLS data, the number of retail openings in February slumped to 541,000, down by 40,000, its worst performance since 2015. (U.S. News)
BLS data also showed retail layoffs and discharges climbed 37% in February and reached a total of 212,000 – its highest level in nearly two years. (U.S. News)
Unlike in 2008, Americans today are shopping more than ever.
While the last spike in retail bankruptcies during the Great Recession was clearly a byproduct of consumer stress, this time around consumers are actually spending more than ever. According to Gallup, February 2017 marked the highest average in consumer spending since 2008, with no signs of slowing.
The US retail industry is hemorrhaging jobs – and it’s hitting women hardest
January 13, 2018
As the retail landscape undergoes a dramatic transformation, analysis finds 129,000 women lost jobs last year while men actually gained positions.
Between November 2016 and November 2017, the sector fired 129,000 women (the largest loss for any industrial sector for either sex) while men gained 109,000 positions, according to an analysis by the Institute for Women’s Policy Research (IWPR). In the whole labour force women gained 985,000 jobs over the year, while men gained 1.08m jobs.
(also from this article – )
Major retailers shut shops across the US last year. A record 6,700 stores shut in 2017, according to Fung Global Retail & Technology, a retail thinktank. Macy’s alone closed 68 stores and shed 10,000 jobs. Drugstore chain Walgreens closed 600 locations.
A comment in this article says a lot of what I’ve been thinking. And, why is it that Bain, KKR and Vornado didn’t have to pay the loan payments they took out to buy Toys R Us? Shouldn’t that debt belong to the buyers, not the company they’ve bought? (This article also lists a number of the retail bankruptcies from 2017, including Radio Shack.)
Big Wall Street banks are not likely to blow the whistle on asset-stripping scams in the private equity world. They are frequently involved in collecting fees for advising on the LBOs. Then they reap more huge windfalls in fees when they underwrite the bond offerings that load up the company with debt it can’t service on a long term basis.
So the overarching question in all of this is: where is the Securities and Exchange Commission, the so-called cop on the beat that is supposed to be policing the publicly traded corporate bonds involved in these deals?
In April, Aisha Al-Muslim, a reporter for Newsday, the Long Island, New York newspaper, found the following after an in-depth review of court documents and data from top research firms like S&P Global Market Intelligence:
“…43 large retail or supermarket companies, which owned chains with 10 or more locations, have filed for bankruptcy in the United States since January 2015. The 43 companies controlled 52 brick-and-mortar chains.
“Of those 43 companies, 18 — more than 40 percent — were owned by private equity firms. The remainder were public or private companies or owned by a hedge fund.”
When 40 percent of insolvent large retail companies got this way at the hands of the so-called turnaround experts at private-equity firms while huge amounts of money moved from the coffers of the company to the pockets of the “experts,” it’s time for Federal regulators to get involved.
Private equity firms bled the company dry to turn a profit, and now mass layoffs are imminent.
Upon closer examination, however, this analysis doesn’t hold up. First, the global toy industry isn’t in decline. In fact, it’s been growing consistently over the past five years. Physical toys may be less popular in the United States than they once were, but internationally—particularly in Asian and Latin American countries—the play business is booming. And most of Toys “R” Us’s profits actually come from its Babies “R” Us affiliate which sells not just toys but also health, safety and educational tools for infant care.
Yet most importantly, this analysis fails to account for how Toys “R” Us wound up so deeply in debt in the first place. In 2005, as the company’s stock was regularly losing value due to mediocre sales, management decided to sell the company in a leveraged buyout to a trio of buyers, real-estate-investment trust Vornado Realty Trust and private equity firms KKR and Bain Capital.
This trio played a critical role in the downfall of Toys “R” Us, through imposing massive debt obligations on the company and requiring it to pay back its debts so that its buyers could turn a profit. Meanwhile, the finances of the company were thrown into disarray and employees were hit with wave after wave of layoffs.
Vornado Realty Trust, KKR and Bain Capital financed 80 percent of the purchase of Toys “R” Us, so while the company sold for $6.6 billion, the trio only contributed $1.3 billion. As part of the purchase agreement, the companies also agreed to take responsibility for all of Toys “R” Us’s long-term debt obligations, which at the time totaled $2.3 billion. Once Toys R Us was taken over, however, the debt Vornado Realty, KKR and Bain used to acquire it was pushed back onto the company, skyrocketing its debt obligations to $7.6 billion.
Toys “R” Us has been paying $400 million a year to service these debts. This money could have been used to lower prices or improve the company’s website—not to mention raising pay to its employees—but instead went to paying off creditors. Last year, the company reported a loss of $29 million. If it weren’t for these debt payments, Toys “R” Us would have run a substantial profit.
In both instances, critics say Bain and its private-equity partners left the chains vulnerable by saddling them with heavy debt loads as they took them private, crippling their capacity to compete in brutal price wars that have dogged the industry.
A leveraged buyout (LBO) is a financial transaction in which a company is purchased with a combination of equity and debt, such that the company’s cash flow is the collateral used to secure and repay the borrowed money.
(also – KKR appears in the history of corporate raiding during the 80’s and beyond – plus this, of interest)
The inability to repay debt in an LBO can be caused by initial overpricing of the target firm and/or its assets. Over-optimistic forecasts of the revenues of the target company may also lead to financial distress after acquisition. Some courts have found that in certain situations, LBO debt constitutes a fraudulent transfer under U.S. insolvency law if it is determined to be the cause of the acquired firm’s failure.
The outcome of litigation attacking a leveraged buyout as a fraudulent transfer will generally turn on the financial condition of the target at the time of the transaction – that is, whether the risk of failure was substantial and known at the time of the LBO, or whether subsequent unforeseeable events led to the failure. The analysis historically depended on “dueling” expert witnesses and was notoriously subjective, expensive, and unpredictable. However, courts are increasingly turning toward more objective, market-based measures.
Private equity typically refers to investment funds organized as limited partnerships that are not publicly traded and whose investors are typically large institutional investors, university endowments, or wealthy individuals. Private equity firms are known for their extensive use of debt financing to purchase companies, which they restructure and attempt to resell for a higher value. Debt financing reduces corporate taxation burdens and is one of the principal ways in which private equity firms make business more profitable for investors.
Leveraged buyout, LBO or Buyout refers to a strategy of making equity investments as part of a transaction in which a company, business unit or business assets is acquired from the current shareholders typically with the use of financial leverage. The companies involved in these transactions are typically mature and generate operating cash flows.
Private equity firms view target companies as either Platform companies which have sufficient scale and a successful business model to act as a stand-alone entity, or as add-on or tuck-in acquisitions, which would include companies with insufficient scale or other deficits.
Leveraged buyouts involve a financial sponsor agreeing to an acquisition without itself committing all the capital required for the acquisition. To do this, the financial sponsor will raise acquisition debt which ultimately looks to the cash flows of the acquisition target to make interest and principal payments.Acquisition debt in an LBO is often non-recourse to the financial sponsor and has no claim on other investments managed by the financial sponsor. Therefore, an LBO transaction’s financial structure is particularly attractive to a fund’s limited partners, allowing them the benefits of leverage but greatly limiting the degree of recourse of that leverage. This kind of financing structure leverage benefits an LBO’s financial sponsor in two ways: (1) the investor itself only needs to provide a fraction of the capital for the acquisition, and (2) the returns to the investor will be enhanced (as long as the return on assets exceeds the cost of the debt).
As a percentage of the purchase price for a leverage buyout target, the amount of debt used to finance a transaction varies according to the financial condition and history of the acquisition target, market conditions, the willingness of lenders to extend credit (both to the LBO’s financial sponsors and the company to be acquired) as well as the interest costs and the ability of the company to cover those costs. Historically the debt portion of a LBO will range from 60%–90% of the purchase price, although during certain periods the debt ratio can be higher or lower than the historical averages. Between 2000–2005 debt averaged between 59.4% and 67.9% of total purchase price for LBOs in the United States.
Simple example of leveraged buyout
A private equity fund say for example, ABC Capital II, borrows $9bn from a bank (or other lender). To this it adds $2bn of equity – money from its own partners and from limited partners (pension funds, rich individuals, etc.). With this $11bn it buys all the shares of an underperforming company, XYZ Industrial (after due diligence, i.e. checking the books). It replaces the senior management in XYZ Industrial, and they set out to streamline it. The workforce is reduced, some assets are sold off, etc. The objective is to increase the value of the company for an early sale.
The stock market is experiencing a bull market, and XYZ Industrial is sold two years after the buy-out for $13bn, yielding a profit of $2bn. The original loan can now be paid off with interest of, say, $0.5bn. The remaining profit of $1.5bn is shared among the partners. Taxation of such gains is at capital gains rates.
Note that part of that profit results from turning the company around, and part results from the general increase in share prices in a buoyant stock market, the latter often being the greater component.
Often the loan/equity ($11bn above) is not paid off after sale but left on the books of the company (XYZ Industrial) for it to pay off over time. This can be advantageous since the interest is typically offsettable against the profits of the company, thus reducing, or even eliminating, tax.
Most buyout deals are much smaller; the global average purchase in 2013 was $89m, for example.
The target company (XYZ Industrials here) does not have to be floated on the stockmarket; indeed most buyout exits are not IPOs.
Buy-out operations can go wrong and in such cases the loss is increased by leverage, just as the profit is if all goes well.
The application of the Freedom of Information Act (FOIA) in certain states in the United States has made certain performance data more readily available. Specifically, FOIA has required certain public agencies to disclose private equity performance data directly on their websites.
In the United Kingdom, the second largest market for private equity, more data has become available since the 2007 publication of the David Walker Guidelines for Disclosure and Transparency in Private Equity.
How would it EVER make sense for me as a company to be required to pay the price I’m charging you for buying me?
And, pay the interest on that debt you used to buy me as a company – AND pay you management fees for destroying the company I’ve built that you’re charging me the price of buying – from me – so you can own it?
In what world does any of that make sense as anything but theft and embezzlement whether legal or not?
Can you imagine what it would take to start a company today and garner 15% of the toy market? And yet, here is a company that already has that which is being decimated by a very corrupt business practice of Wall Street investment firms – to the detriment of America.
As the Dow drops value today and last week’s two ending days of trading, the questions I have are –
Dissonance in the economy shows up in job losses, layoffs, store and business closings, bankruptcies, share dividends being increased as well as execs bonuses even as those bankruptcies are underway or about to be underway, is this normal?
Dow is overvalued from synthetically adding tax cuts into the revenues, but layoffs at those same companies receiving massive breaks on taxes are still occurring along with restructuring despite profitability, is that the way business was expected to respond to those tax cuts and if not, why not?
As the Dow drops over the last three trading days in significant shifts, rumors of increased bond rates are hovering in the financial press outlets, but has that happened or simply feared?
Did these large point drops in the stock markets happen because US markets are having international resources and investors pulling out of our markets or is it associated with the recent news which occurred on the same day as the first slide, that the US will have to borrow double (or more) than what was expected.
Is the volatility in the US dollar that has been seen since just before Davos a couple weeks ago along with Trump and Mnuchin said about it created part of an image that the US administration is intentionally manipulating currencies and with the refusal to continue Yellen at the helm, obviously intending to manipulate markets as well through raising interest rates arbitrarily.
My other significant question – have any dollars or profits been repatriated to the US economy and employment picture at all as promised by the GOP and Trump with the tax cuts that knocked $1.5 Trillion dollars from our infrastructure that is most heavily impacted by those same businesses, and from our economy if those tax savings are moving elsewhere as well?
Found a few things about this trying to answer my questions today and thinking about what it all will mean for our real economy and people’s lives. It is more than hits to people’s 401K’s that is happening here and the Dow’s massive sudden slide is just an indicator of what is significantly changing in our economy right now.
US on track to double borrowing in Trump’s first full fiscal year: report
Stock markets continue to fall amid interest rate hike fears
US Federal Reserve expected to increase rates at faster pace than planned
Wall Street joined a rout of global stock markets, tumbling by more than 450 points by about 6.30pm (GMT) as investors contemplated the end of an era of cheap lending by central banks to boost growth. The slide in share values of America’s largest industrial businesses followed the dumping of shares on stock markets across Asia and Europe earlier in the day.
In London, the index of Britain’s top 100 companies stretched its longest losing streak since last November into a fifth day, following a 1.3% fall. The FTSE 100 index tumbled to 7,345, having peaked at almost 7,800 last month.
BTW, when bonuses are given to execs – it doesn’t stimulate the economy, nor provide profits for the company, nor sales because executives are not the ones buying the products and services that most companies and industries provide. Aside from the fact that ten executives with millions are not going to spend what 800 – 8,000 families spend with any corporation across all the markets the company serves. Just a thought.
I was going along tonight watching the Mandela Memorial in Soweto where world leaders are gathering with everyone else in the world to honor the life and catalytic achievements of this incredible man. And I made some more ornaments with words on them for various aspects of character that are fruitful. While the news is going, jumping occasionally between France 24, CNNI, and BBC America – I was making these products and checking twitter with a re-tweet here and there about the Memorial. But, then I got the news on of course and they told another story about something else – and so, here I am about to write about it.
There were several Christmas designs for wrapping papers I made including the one above and one (below) that is to honor the idea of Rainbow People out of the Mandela legacy – ages ago. And, I had made that on zazzle with three different background colors – while thinking about why I named one of my daughters Rainbow (spelled differently) from the same thing. She probably believed had to do with being gay or something – as most of my children would have likely thought with rainbows used for that in their lifetimes.
(In case my children ever read this and want to know –
Soweto came to the world’s attention on 16 June 1976 with the Soweto Uprising, when mass protests erupted over the government’s policy to enforce education in Afrikaans rather than English. Police opened fire in Orlando West on 10,000 students marching from Naledi High School to Orlando Stadium. The rioting continued and 23 people died on the first day in Soweto, 21 of whom were black, including the minor Hector Pieterson, as well as two white people, including Melville Edelstein, a life-long humanitarian.
The impact of the Soweto protests reverberated through the country and across the world. In their aftermath, economic and cultural sanctions were introduced from abroad. Political activists left the country to train for guerrilla resistance. Soweto and other townships became the stage for violent state repression. Since 1991 this date and the schoolchildren have been commemorated by the International Day of the African Child.
– I graduated high school in California at James Monroe High School on June 10, 1976.
And, I don’t know how much of world events, and Soweto before Mandela came to help, Nelson Mandela’s way of resolving it once he had the opportunity – or anything else like that which my children my know. They are grown but have never seemed much interested in the things that might forge an interest to me. So, I don’t know if we would have ever talked about it or not. South Africa is a long ways away from here, but 1978 wasn’t that long ago in my lifetime. Before her life had even begun, the horrors I knew of, read about, cared about changing and wanted to help change – were things like that which I really hoped neither she nor any of the rest of my children would ever have to know existed that way anywhere. It was so sad, so horrific and so wrong. And, it took almost the entire world to raise up and set – let that man out of jail. Let the African people participate in their lives in their own nation in freedom and democracy – break apartheid and send it back to hell from whence it came. It was wrong – horrifically wrong.
But, then – what Nelson Mandela did with it when he easily could have been understandably vindictive and awakened a violent repression of the whites who had been in power – but he didn’t. And he took a potentially volatile, desperate, violent boiler pot of a situation and turned it into something else – something remarkable and wise and brilliant. And, he did that when there was no reason to do such a thing with it – but he did.
So, as I had been going along and twittering, thinking about the Rainbow People of Mandela’s idea how inclusive society could be – and listening to the news – I had noticed this article over on the twitter feed, had seen the NYTimes article on homelessness yesterday but hadn’t read it – and had gone over to read the one below about the Post slamming homelessness as a bunch of hooey. It was damn hateful, but not the first time I’ve noticed that kind of attitude in New York City, from the Post or from other GOP outlets for that matter.
It did get me thinking though of another article in the NY Times that I read about homelessness a couple years ago which had online comments by the pages and pages. I read them all and was completely horrified at the aggressive, shitty, nastiness, hatred and even cruelty exchanged in those comments. There were only about five comments of reason, compassion and decency for those who are homeless in our city and it was about families with young children who are in our shelters, single mothers, people put out work by the lay-offs from the Wall Street financial debacle of 2008 that took away their jobs through no fault of their own, and elderly and disabled people who couldn’t get jobs at all. And, those comments were disgusting. They reminded me of apartheid mentality before anything became different in their perspectives about people and their fellow human beings who didn’t look like them. This is New York City, but those comments came from all over America. It was only two years ago – and this article below is simply more of the same attitudes toward people less fortunate than those writing for the Post.
One of the character ornaments that I was making when the news sidetracked me into other things – but now there are about twenty of them, more or less – each with a different word of character and quality life skills. They are pretty. (It occurred to me today that provenance as an American artist having created these, having designed them and actually being from an American artist of the turn of the 21st century is provided by the sales records to various people when they buy these on zazzle. – pretty nifty. That makes them collectible is some larger sense when I get around to it with dealers and galleries and stores eventually.)
I had gone over and read the article which was pretty maddening considering that damn near all the charities and donated money are being done that way being plowed into huge portfolios with fees being paid to financial managers to manage them and fees paid for every trade, sell, purchase made through and into the products in the portfolio. That is why every charity is saying they don’t have any money to give to any of the things their mission claims the charity is actually there to do. But, they are taking in hundreds of millions of dollars every single year – and its all, or nearly all plowed into products from Wall Street and portfolios and paying somebody to manage them to the tune of over $200,000 a year per financial manager.
Then it was in a story on BBC America news running on the tele with Jeff Bennett of the Wall Street Journal talking about how selling these GM shares at a loss (of $10 Billion Dollars) was a good thing because it allows Executive Pay to be set by GM and for GM to decide to pay out dividends for shareholders as well as how much those dividends should be. AND inside my world – I hit the ceiling. It was so disgusting and outrageous – especially in the context of what people’s attitudes are about poor people ruining America – bankrupting the US budget – causing the US budget deficit – breaking the backs of the working people and the good church going people of America – etc., etc., etc.,
US government lost around $10bn on GM bailout 12-09-13 BBC article –
and, the thing is – I know back in 2008-2009 when Paulson was still there – The US Treasury Department made a contract to pay a Wall Street firm over $500,000 a month every month (probably for the last five years for every single month) – with the sole purpose of telling them when to sell the GM stock – so it would gain money rather than lose money. So what the hell happened? And, if that isn’t criminal while telling homeless children and their mothers in America, the elderly and the disabled that none of them are even worth having in America – OOOOH and RRRHHH. There are no words. That is fucking outrageously and insanely wrong.
I hate them. I’m not going to be able to do what Mr. Mandela did. He had the willingness to work with those that had oppressed him and everyone he knew. I’m going to have no patience with these attitudes about money-having people and those with no money. I’m not going to have his tolerance for working through to another day with those same assholes. I just can’t see it.
Found this looking for who that company name was that has been getting $500,000 a month since 2008 to make the decision when to sell the GM stock – so we wouldn’t lose on it and then sell it at a loss of $10 BILLION DOLLARS –
$52 billion has been reserved for the Consumer and Business Lending Initiative, of which $20 billion has been allocated to the Term Asset-Backed Securities Lending Facility.
While $30 billion has been reserved for a small business lending program, the Treasury has proposed creating a $30 billion Small Business Lending Fund separate from TARP through legislation. Not more than $1 billion is planned for the Small Business and Lending Initiative -SBA 7a Securities Purchase Program and not more than $1 billion is planned for the Community Development Capital Initiative
MY NOTE – where is $30 Billion in loans to America’s small businesses? That doc above is from 2010 – it is 2013
And this one describes the massive amounts of money generally being spent over at the Treasury Dept – but I’m going to have to find the info in my other computer because it is easier than tracking down the contract they made with that Wall Street firm. But, if I can’t find it in my other computer files – I’ll go look up the contract because it is public information and those amounts paid to them does appear in 2008 / 2009 budgets and probably onwards from there. Monthly fees of over $500,000 every single month and they give it away to the tune of $10 Billion Losses. I could’ve done a better job at that nearly not knowing a damn thing about it.
Corporations continue to raise substantial capital in private markets and have built up record cash reserves, which will eventually be reinvested and fuel growth.
While substantial progress has been made, significant challenges remain. In the banking system, charge-offs for residential, consumer, and commercial loans are still elevated, and the FDIC projects that the rate of bank failures will remain high.
Despite offering relatively low borrowing costs, banks continue to report falling loan balances. To a significant degree, this reflects a natural and healthy adjustment as borrowers and lenders de-leverage after a period of aggressive credit expansion. But it does mean that many consumers and businesses are still finding it difficult to get new credit.
Its a subscription article at the Wall Street Journal – however, in light of recent legislation about the insider trading of Congress members and the SEC saying that insider trading laws apply equally to Congress members as to everyone else, I got to thinking about some things . . .First, is that non-elected people in financial institutions across Europe and America are running things they were not elected to run – including enforced austerity measures to cover their own games and losses.
And, second – that no group has ever called Congress on the carpet through our courts for their habitual and customary insider trading practices, nor has any agency including the SEC ever held them to account on these and other shady transactions which took undue advantage of their political position and inside information to personal financial gain.
And, third – I noticed this – which reminded me of how many hedge funds, banks, Wall Street trading firms, financiers and other financial decision-makers in Wall Street completely botched it up and lost tremendous amounts of money – who wants those people as the ones making the choices for entire economies across the United States, the World, the Eurozone, the European Union and in every state in America?
If I were losing nearly 50% of your money every year, you wouldn’t still give me your money – but no, not when its Wall Street – and then to take these groups of people as the decision-makers for everyone’s lives despite not having been elected and truly not being qualified to even sustainably run their own affairs?
CNN just reported on their Live show that a report released today says the Federal Reserve loaned $7.7 Trillion dollars to the big banks and Wall Street firms during 2008. Aren’t those the same bankers that said the whole reason the mess happened was because of citizens across America who got into a financial hole with their own finances? And then, those same bankers borrowed all that money from the Fed because they had to in order to stay afloat?
Aren’t they the same ones that didn’t want to lend anyone any money thereafter unless a complicated system of credentials and perfect credit were held by individuals, small businesses and homeowners?
The report is apparently on CNN and Bloomberg.com. It includes the amounts loaned to these large banks and Wall Street firms. Worth seeing.
You just have to read this – Absolutely unbelievable –
So, not only does it take an obscene amount of jumping through hoops for most Americans to get any money borrowed from these banks or the SBA or to prevent foreclosure or to get the small business loans offered through banks – or to get government help through any program available from foodstamps to WIC to TANF to help with not being homeless any longer, when it is the Wall Street financial products, bankers and their gambling debts that are in trouble, they are handed the keys to our Treasury and Federal Reserve and told to get what they need, however many billions of dollars it may be. Obviously, they couldn’t pay their original notes and creditors or they wouldn’t have even needed the money. Obviously – that would make them a group of companies with the worst credit scores, the worst at being overextended in their borrowing and gambling with it, and the very worst at what they are doing in order to have put themselves (and us) in this financial disaster in the first place.
But, no –
Freely give them whatever amount of money they need and then print money to make the rest of us absorb their losses whether we agree to it or not. They are the worst violaters of good financial management known to the history of mankind (evidenced by the fact that it took $7.77 Trillion dollars plus $700 Billion in TARP funds and another $134 Billion for AIG and another 15 programs of interest free money systems plus the US taxpayers buying all their bad debt products in order to get them solvent.)
But, if I went to ask for $30 – what do you think would happen?
Oh no – they couldn’t loan me that because I don’t have the “track record” they do . . .
I’d hate to ask for $300 – they would just laugh while sitting on their pile of our money to the tune of hundreds of billions of dollars each of them have taken.
Even existing small businesses with good, even perfect repayment histories have been denied loans all over the United States in every state, county, district and city by these same banking institutions and their government backpocket “keepers”. I’m not sure which one is the worst – the banks that did it and their Wall Street counterparts, or the government players who facilitated it. Obviously, the only real enemy of the US today, exists in the concept of capitalism which denies the free market principles when it has to do with banking, financial products, Wall Street brokerages, financial institutions, financial investment firms, hedge funds, banks, insurance companies, credit default swaps and other toxic exotic fincancial vehicles, large corporate players in Wall Street and a handful of very wealthy players – but leaves everyone else in the nation strapped with not only suffering those personal failures in the free market capitalist system but covering the big players’ losses, as well.
To say it is unfair is the understatement of the century. To say the situation is untenable and unviable in this form will likely be closer to the truth of it. It’s just a matter of time.
Today, there are derivatives being created and sold in the hundreds of millions of dollars in value. Today there are financial derivatives and exotic financial instruments being created (manufactured). Today stocks and bonds are being sold, traded. purchased every single minute by the the hundreds of millions of dollars in value. In total, all of it is being swapped, traded, bought, sold and manufactured as well as exported and imported across nations. I would say that in and of itself, starting now – would solve the deficit problems.
And, just as we pay taxes on milk when it is bought, there are other taxes on the suppliers which are paid, on the retailers which are paid, on the properties housing it which are paid, on the truckers that deliver, on the gas they buy to deliver it, on the farms and farmers which produce it and sell it in the first place. So, why in the world wouldn’t these tremendously expensive products being created every minute of every day not be taxed in the same way with the same sales taxes, manufacturing taxes, product taxes, VAT and ad valorem taxes, export and import duties, and state taxes?
A tax of even 20% on the total value of credit default swaps, credit derivatives, stocks, bonds, and other financial derivative instruments would put nearly every nation including and especially the United States, Great Britain and the European Union in the black instead of facing huge deficits.
(etc. – from my post on March 7, 2011)
Also from the above post –
If a corporation makes a dollar in sales or revenue (gross) then from the gross, they pay America 25%. And, they can give another 1% on top of that gross to the states where they did business.
If the sales were made in the US, then the sales and business revenues are taxed 25% with no deductions, no loopholes, no adjustments against “losses” – nothing. And, every industry subsidy that is being paid out right now in the hundreds of millions of dollars can simply be stopped immediately this budget, this year, right now.
This plan works. This plan works right now. These two plans together work even better (the one here and the one for taxing the financial products every time they change hands – bought, sold or traded).
These work to pay off the debt that the US owes right now and then no interest would have to be paid on it any longer as of right now.
And, that would actually fix the deficits in the US Federal budget, the EU budgets, the UK budget, the NY budget and the rest of the budgets of the 50 US states.
– cricketdiane, 03-07-11 (and the few days before that.)
I bet they could figure out a better way to work out balancing these budgets if they wanted to do that. Maybe their rich friends in the business world could be putting in their fair share instead of working every trick in the book to cheat America out of any of what they make here. There could be a simple tax put on businesses with no loopholes whatsoever.
If a company gets a dollar gross in revenue in the US, they could pay 25 cents of it to support the infrastructure where they’ve gotten it. No loopholes, no more corporate subsidies, no more tax breaks. No taxes after the net is calculated, and regardless of what is paid to whoever the jackasses are running the company, no matter what is paid to shareholders in dividends.
– CricketDiane, March 6, 2011)
My Note –
Before the US House of Representatives under the demands of the cutting budgets theme – dismantle, unfund, eviscerate and destroy the agencies, programs, employment, skills banks represented there, the systems and processes already in place – without regard to our national interests, they need to consider simply using the existing sales tax and ad valorem laws to raise the revenues from the financial industries who put all of our nations into this economic mess.
If the “exclusions for the financial and credit derivatives” were removed from the existing laws – it would quickly require them to pay the same as every other product and creator of products and consumer is required to pay on every other thing.
That could immediately fix the needed revenues to complete the payoff of the entire US debt this year – right now with the interest, and have a surplus besides. Every state’s budget could be brought into the black before the strength of our nation is weakened any further by increasing unemployment by these severe cuts, and before decimating our education systems, our state agencies, our social safety nets for the communities and before leaving our next generations without any opportunities for economic participation.
We need to be competing with the other world nations – not supporting them and their assets which are often corrupt slush funds for the elite controlling the countries and not helping to make the world or the US in any way better.
With the US debt greater than any of us will see in our lifetimes – the fact is that we are spending more on the interest for the debt than on most all of the domestic spending programs combined. That means – there is where the money is going and about to go instead of being available to help anyone. I would say that is the real problem.
( – cricketdiane – found on the post below halfway down)
And, apparently, they don’t know how to fix an economic situation adequately either or they would be doing it to increase the revenues across these states rather than diverting the funds as they are doing, hiding them, redistributing them and decimating their states and the nation in the process.
We don’t need everyone in America fighting for the sustenance of a little bread and a roof over their heads with so much stress that they beat the hell out of each other in their own homes and have the incentive to thieve simply to live. That won’t work to help us match the competitive economic war grounds in the world with a matched competence and increased chance of winning.
And, that is what is going to be the most important for the future, both immediately and in the far-reaching distance.
– cricketdiane, 03-06-11 (from the post linked below)
We are the only nation that I know whose children are not learning to speak two or three languages. We are one of the few nations that are taking our best and brightest, putting them on a football field and having them beat one another’s brains into permanent brain damage. We are the only nation that insists on taking music and art out of the schools while we pay for it to be added to every back woods, backwaters place in the world to help students learn to develop their abilities for math, science, engineering, ordered thought, creativity and innovation all at the same time.
What the Governors and Republican conservatives in particular, are doing in disrupting this opportunity for our nation is to set the future course of America on a downward trajectory rather than a higher one where we would have more security, greater prosperity and sustenance, better more extensive opportunities for all and a better world including the future living environment across America.
We essentially bought the toxic assets that the banks and financial firms were using to play their gambling games. Their ideas about how things had to be done left us all with the bills to pay on it and then to have us blamed for it. They were running things. Their Republican buddies were decision-making. They chose to do it that way and then chose to have us all pay for it when it went horribly, horribly wrong for them. That is bullshit.
The bully does not win though he may think he does in each battle against another to set himself above everyone else. The pain and difficulties he causes are born by the whole group each and every time and over the entire course of when the bully is allowed to perpetrate his wrongs upon others. How many harms did the bully ever fix? How many of those whose suffering he caused are ever put right by the bully? And, when life finally rears its ugly head upon the bully, how can he possibly be ready or internally strong enough to know what to do or how to handle it when everything has only seemed to go his way without ever being real, character building, genuine experiences that build strength?
He always loses. History tells us that. In small ways, from the playground view of the bully to the great lessons from history of mankind, we have seen that the bully loses – Nero lost, Caligula lost, Louis the whatever that no one can even picture in their own mind to this day – definitely lost. They did not win.
(etc. – from above post)
The Republican Conservatives striving to undermine the US government, to divert resources in state and national budgets, to unfund every single program and agency that serves the public good – are bullies. And, five years from now when they say – “oh well, maybe we shouldn’t have done that,” – how many children’s lives will have been left uneducated, how many families will have beat each other to death in despair, how many public consumer safety, food safety and worker safety program will exist to effectively insure the public good? The costs that the bully perpetrates on those around him are too great for this to be tolerated any longer. We can little afford it as a nation or as members of any state in the US.
(added just now – cricketdiane)
And this is pathetic when the domestic spending cuts won’t even solve the problems which could easily be solved by simply including the financial instruments being manufactured by Wall Street and bankers in the sales taxes collected, the other taxes and fees that manufacturers and retailers pay and ad valorem taxes that are placed on multiple things, export duties and import duties as everything else has to pay – and similar fees.
03-10-11 (cricketdiane – Pay Off the US Debt Right Now Plan – 2011)
They’re paying $4 Billion dollars a week of our tax dollars to play war in Afghanistan. They’re giving $3.2 million dollars a day to each of a vast number of countries which makes that figure multiplies by that many. And, that is just for military equipment and military training to these nations. The other money going from our tax dollars to pay for every other kind of thing, rarely even enriches the public good of those nations because of the corruption that diverts it. But, we have to cut domestic spending budgets?
No. That has created enough nonsense already.
All of it has.
And this published on CNN was interesting – but do any of them know of the above plans that would simply pay off the US debt this year exactly as it stands now –
‘Gang of Six’ may solve U.S. debt mess
By John Avlon, CNN Contributor
March 10, 2011 7:55 a.m. EST
Every day the United States adds $4 billion to our national debt. We need to raise the debt ceiling this spring or America will default on its payments to creditor nations like China, which is using U.S. interest payments to fuel its rise while we borrow money to just pay for benefits to an aging population.
Chairman of the Joint Chiefs Adm. Mike Mullen has described our national debt as the greatest national security threat facing our nation, and it’s easy to see why: The world’s biggest debtor nation cannot remain the world’s sole superpower indefinitely.
The heroes of this story are the so-called Gang of Six. The group is led by Democrat Mark Warner and Republican Saxby Chambliss, who are joined in meetings by Senate veterans of the president’s deficit reduction panel — Republicans Tom Coburn and Mike Crapo and Democrats Kent Conrad and Dick Durbin. The group’s off-site negotiations have attracted more than 30 of their Senate colleagues.
Why shouldn’t these speculators, hedge funds, traders and commodities market brokers trading, buying and selling these contracts that drive our price of oil, gasoline, heating oil, natural gas, gold and silver – pay at least a sales tax on the amount of the contract just as we do when we buy any gallon of milk or gallon of gas at the store?
That would solve our debt crisis without having to cut anything and it would actually solve the problem of our $4 billion dollars a day being paid on the national debt. It would actually solve it in the next six months of this year.
Why can’t our legislators simply do that? It is fair, it is reasonable, it actually works to solve the real problems in the national budget and solves the national debt with its interest costs. It works.
There is a 25 percent chance the pump price will exceed $4 a gallon from June through August, the agency said, compared with a 10 percent probability gasoline could fall below $3 during the same period.
My Note –
I think they need to review their math skills at the agency where they made this projection. It is wrong.
The price of gasoline is already at or over $4.00 a gallon in Chicago, it has been reported. And, it is over $4 a gallon in California, Denver and probably anywhere Spring Break destinations are used to having a captive audience.
Summer will be even more so. My guess is that the price of gasoline will go up substantially higher than that because the traders and speculators driving the prices per barrel are already trying to figure out how to offload what they’ve purchased and make a bigger profit from it. They likely figure this is one of those once in a lifetime deals where they can really make a killing. That would be my guess. It will stagger through the economy faster than the contracts that will get delivered because that is how it has done in the past (2008, 1970’s) as companies try to get ahead of the upswing in costs to have a buffer.
On a personal note, as I have noticed in the stores when I stopped buying cereal – it the boxes that cost nearly $5 already get any skinnier – we can use them as postage stamps instead. I don’t know how they get away with it. Many foods now look like something from a child’s play kitchen set with little in it at all. That is going to be even more so as the commodities prices have been driving upwards by the traders on the exchanges and now add the increased price of oil, gasoline, shipping and increased cargo charges to them. It is not going to work.
The law of supply and demand would naturally bring these prices down or the quantities up because there cannot possibly be as many people buying these things at these prices for the amount of product offered. But, the free market doesn’t exist in America in that sense. It is unnaturally supported in the manner middlemen including the commodities traders are driving the prices. The losses can be written off and it doesn’t yield any incentive to meet the market demand where it is and price competitively to it at the real value.
Oh well. If we had a better deal on the oil that is being pulled out of the ground in America, like Libya’s foul leaders got from the oil industries – we wouldn’t even be having this problem.
They only give away 12% of the profits and charge a “sign-on” bonus over a billion dollars each to the oil companies (and they are glad to get it.) Damn ridiculous while we are subsidizing the oil companies and begging them to do whatever they will to get our oil out of the ground so they can profit at our expense. Damn ridiculous.
From the article – everyone needs to read it in America, including my children and parents, aunts, uncles, friends, acquaintances and anyone reading this durn blog –
At least it explains why the price of oil is going up and why when it does go up for contracts that won’t be delivered for three – four months, that we still watch the little sign at the gas station go up three to four times a day upwards –
(and prices of everything else quickly accommodate that despite none of them having bought any gasoline or jet fuel at those prices yet.)
A couple bits of this article (from the link above) –
Power plants, gas stations, fuel distributors, and oil companies across the globe paid close attention to this rarefied casino, watching carefully for any price changes that would determine how much they would pay for fuel and what they’d charge their customers, the ordinary consumer. Newspapers and television networks trumpeted Nymex’s prices as the holy gospel, beaming them throughout the continents for all to follow—banks, hedge funds, Wall street investors, even the top-producing oil nations of Saudi Arabia, Iran, Russia, and Norway.
D’Agostino: No. OPEC only sets the oil supply. . . . The price of oil is actually set in New York. . . .
O’Reilly: Is there a guy who says $125 a barrel?
D’Agostino: No. There’s a huge market. It’s filled with hedgers. It’s filled with speculators. It’s filled with moms and dads, average Americans. It’s a big market that sets the price.
O’Reilly: somebody has to put the $125 on the barrel. Who does it?
(an excerpt from the Bill O’Reilly show included in the text, the first paragraph is from the author of the article and book that serves as its basis) – well worth reading the whole thing, my note.