Tag Archives: Wall Street

This Should Be Fun

“The Ray Rice video for the financial sector has arrived.” You can hear it on This American Life starting today.

Comments Off on This Should Be Fun

Filed under Wall Street

Rigged Casino

So, here’s the front page story in my Gannett fishwrap today:

An alleged bid-rigging conspiracy among Bain Capital and other private equity firms to divvy up targeted companies — including Nashville-based HCA — may have taken as much as $1.6 billion out of HCA shareholders’ pockets by blocking rival bidders and keeping a lid on the final price when the hospital chain was sold in 2006.

“This is potentially a very big story,” said Randall Thomas, a professor at the Vanderbilt University Law School. “It’s all coming out slowly. We’ll see how it evolves. It’s lot more than just HCA.”

The notion that big private equity firms such as Bain, Goldman Sachs and the Blackstone Group engaged in a conspiracy to lower sales prices in leveraged buyouts from 2003 to 2007 remains a key claim in a federal lawsuit in Boston brought against those firms by former HCA shareholders, and by stockholders of other acquired companies — such as Neiman Marcus and Toys “R” Us — snapped up in Wall Street mega-deals before the recession.

HCA — then a public company — went private in 2006 in a $32.1 billion sale to private equity funds Kohlberg Kravis Roberts (KKR), Bain Capital and Merrill Lynch, as well as to family members of HCA’s co-founder Dr. Tommy Frist Jr. and other executives on HCA’s management team.

The size of the deal was a U.S. record at the time, but the federal lawsuit in Boston lays out the legal argument that the price tag was kept artificially low. Attorneys for the private equity firms being sued insist they did nothing wrong.

To me, this explosive story is far more damaging than the “Bain Capital shut down our factory and outsourced our jobs to China” thing because let’s be real here: the elite class does not care about people’s jobs. They care about profits. In their worldview, it’s the free hand of the market outsourcing those jobs, and people need to get trained for a different job that won’t get outsourced. That’s the meme that the elites in both parties spread, it’s what people like Fareed Zakaria and Nick Kristoff tell us in every column and we hear it even in President Obama’s speeches — it’s the global economy, stupid! Work-force retraining! Education! Etc. etc.

But this? This narrative is one of a rigged casino. This is allegations of collusion and price fixing by the big money boys — Bain, Carlyle, Blackstone, Goldman Sachs, as well as the Frist family. This is the big fish carving up the ocean for themselves, their investors be damned. This is the failure of a worldview which claims the profit motive is the perfect antidote to flawed human emotions and is always perfect.

This doesn’t look good for free market capitalism.

12 Comments

Filed under Wall Street

Here We Go Again

What could possibly go wrong?

Investors place big bets on Buy Here Pay Here used-car dealers

Private equity firms are investing in chains of used-car lots, and auto loans are being packaged into securities much like subprime mortgages. They’re attracted by the industry’s average profit of 38% for each car sold

[…]

Loans on decade-old clunkers are being bundled into securities, just as subprime mortgages were a few years ago. In the last two years, investors have bought more than $15 billion in subprime auto securities.

Although they’re backed mainly by installment contracts signed by people who can’t even qualify for a credit card, most of these bonds have been rated investment grade. Many have received the highest rating: AAA.

That’s because rating firms believe that with tens of thousands of loans lumped together, the securities are safe even if some of the loans prove worthless.

Some analysts worry that the rush to securitization could lead to careless lending by dealers eager to sell more loans, as happened with many mortgage-backed bonds.

No. Just, no.

Just, fucking stop it, already. Stop the greed, stop the endless need for more more MORE. I am about to lose my shit here, people. Stop coming up with these irresponsible, crazy mechanisms that profit off the misery of financially strapped people because some idiot thinks there’s a pony in that pile of horseshit. Stop the greed machine. If you want to gamble, take it to Vegas, where the only person who gets hurt is you.

And while we’re at it, stop calling those of us who see the inevitable trainwreck up the bend “socialists” already. You assholes are the “socialists” because every time you decide to fiddle around with these complicated toxic assets you privatize the gains and socialize the losses. This time it’s not just no, it’s HELL no.

This:

“It might be an attractive model to investors, but when it’s designed to ruthlessly maximize profit, there’s no way it can’t hurt the consumer,” Keest said.

Have you people learned nothing over the past few years? Nothing at all?

Credit Acceptance combines some of the loans into securities and sells them to investors. The buyers are usually insurance companies, banks, mutual funds and other institutional investors.

What they’re buying, essentially, is the right to collect borrowers’ loan payments, which are passed on by dealers and assorted intermediaries. If borrowers default, investors are stuck with the loss.

Really? You promise, this time? Taxpayers won’t be bailing out some insurance company or bank or mutual fund that decided this was the next big Ponzi scheme profit center job creator because God forbid we should keep our greed in check during the Second Great Depression? Honest?

No tightening our belts, no siree, there’s always money to be made somewhere and none of these assholes ever has to suffer the consequences of their bad decision making.

There is no way this isn’t going to blow up in y’all’s faces and when it does, do not — I repeat do not — come crying to me.

[UPDATE]:

Apparently they’re also gambling on European debt:

U.S. banks increased sales of insurance against credit losses to holders of Greek, Portuguese, Irish, Spanish and Italian debt in the first half of 2011, boosting the risk of payouts in the event of defaults.

Guarantees provided by U.S. lenders on government, bank and corporate debt in those countries rose by $80.7 billion to $518 billion, according to the Bank for International Settlements. Almost all of those are credit-default swaps, said two people familiar with the numbers, accounting for two-thirds of the total related to the five nations, BIS data show.

Wonderful.

22 Comments

Filed under banks, economy, rants, Wall Street