Say you take out a mortgage, then rent the house to a series of meth dealers to extract the rent while devaluing the property, and then default: you're still personally on the hook for any post-foreclosure deficiency judgment. One issue with LBOs is that, after extracting cash and fees, PE funds have various ways to extinguish liabilities that individuals don't, both by shielding the PE fund from debts and the use of bankruptcy and restructuring of the acquired company to discharge liabilities, including those from litigation.
There are various proposals to deal with this, but the most effective are probably imposing joint and several liability on certain kinds of litigation (breaking the "investor veil" and allowing rights of action against PE funds for the actions of their portcos) and limiting business judgment rule protection for directors and senior managers who approve LBO sales that are reasonably foreseeable to end in bankruptcy, which creates personal liability for fiduciaries. In other words, align the financial and personal interests of the individuals and companies involved with those of the acquired entity.
>both by shielding the PE fund from debts and the use of bankruptcy and restructuring of the acquired company to discharge liabilities, including those from litigation.
Who's extending credit to these companies? Individuals can do something similar by declaring bankruptcy. I think banks can be considered sophisticated enough that if they got hosed on a LBO deal, that it's hard to feel sympathy for them.
The people doing the lending can still make a profit. They get their interest payments and have a secured debt against the company. I.e. If interest and repayments until time of bankruptcy + liquidation of assets at bankruptcy is more than you'd get investing elsewhere at lower risk it's still a good investment. It's the other stakeholders (employees/community/unsecured debtors) that lose out.
I mean, if I'm allowed to just make up silly hypotheticals, I can easily justify anything.
Say I raise money for a friend to buy a house and they proceed to rent it out to meth dealers. The friend is the one on the hook for the loans, of course; but would I not be on the hook for at least a reputation hit such that I can't do that again? Or do we think folks can get away with that sort of poor judgement forever?
In that sort of hypothetical the Mortgage bank is likely to take one look at your friend, see you with all the money for the down payment, and decide that you need to at least cosign the loan (if not be solely responsible). You would be on the hook for the reputation (and credit score) hit and certainly still paying off the rest of the loan or face foreclosure and possibly a criminal lawsuit for fraud.
Which yeah, leaves a lot of questions for why this is legal for an LBO. Where's the "credit score" hit on these PE firms doing LBOs? How is it that these investors are allowed to be their own mortgage bank, not require themselves to cosign the very loan they are providing the down payment equity for, and not be liable for damages such as bankruptcy of the entity they put on the hook for the loan?
If you give the friend the money as a gift, you have nothing to do with it, right? if you give it to him as a loan to inflate his assets and don't disclose that then you are committing a Federal crime.
I didn't give any money in that hypothetical. Rather, I convinced a lot of other people to give them the loan. That is, largely, exactly what fundraising is. You convince other people to give money to someone or something.
If people are regularly doing this at my request, and it is constantly going to someone that just burns the money, how are people still taking my requests?
Yes. That doesn't change my question, here. You can arrange to bootstrap another company. It could go bust in a way that you are not on the hook for any money, but you should be on the hook for the things you did. That is the entirety of my point.
The hypotheticals being pushed on this thread have a foregone conclusion that the arranging party is completely free of any hit.
The hypotheticals seem to be in line with reality though. This business model works because the people who make money are the ones who are in control of whether to do it. Liquidating a large company in bankruptcy can get a lot of the money back for the investors while leaving a smoking ruin where it used to be generating economic value.
Are they, though? There are certainly some cases where it has happened, but I don't think it has been established that that is the norm.
Naive searching on the term shows that they common in PE, and they do have a worse default rate at 20% over 2% otherwise. Certainly something to look at more closely. And I would be nervous being party to one. That said, 80% success is still better than what some companies are looking at otherwise.
It is a thorny question. The best way I can square the difference is that generally buying a house with debt is on the debtor and the house itself is collateral. The debtor can't pay back the loan the house is taken by the bank to be sold. Where as a PE leveraged by out the debtor is the target company. A company is different than real estate in that they are a legal entity that is now responsible to pay back a loan equal to their own value. The collateral is the business, but the business is now illiquid and has to sell of real assets and go bankrupt.
For example, Joanne's Fabrics was a profitable business with a fair amount of real estate. After PE bought them and was saddled with unreasonable debt they were in the red and had to sell all their stores. This removed useful and profitable business from the economy and sold off the assets in a fire sale. Where as me losing a house just means a bank now owns it and someone else can buy it. But if someone were to buy Joanne's they'd have to pay off the debt Joanne's owed for being bought and run into the ground
There is a long practice of having cosigners on home loans. This feels basically like that.
Which, granted, if you don't like the idea of establishing a company to take on loan responsibilities, I am not trying to offer a defense of that. Was a legit question of how you would structure it so that this is illegal, but home/auto loans are not.
A cosigner is different than what's happening in leveraged buy outs. A Cosigner is financially responsible if the debtor cannot pay back their portion of the loan. In a Leveraged buyout the purchaser does not take on financial liability for the debt, that is all placed on the company being purchased. This means that if the purchaser isn't even the cosigner in this scenario; the company being purchased is the sole entity responsible for repayment. So if GameStop goes through with this, but Ebay can't repay the debt than Ebay would suffer graver consequences than GameStop
But the biggest reason the purchaser does not have to cosign that loan is because in an LBO the purchaser is also essentially the mortgage bank for that loan. Should that be allowed?
Fair, but the nefarious scenarios people are talking about should at least be a major reputational hit for the people that did the fund raising. We are literally describing a ton of value getting destroyed. Someone is taking that hit.
It would be functionally the same as what you described if the parent company took on the debt, but that’s not how they do it. They make the purchased entity take on the debt. Hence why you often see mass layoffs in the company that was acquired soon after the deed was done. The company has so much debt it can barely function and the easiest way to pay some back is redirecting salaries at it.
Then once you realize why private equity firms do this, how their leaders have extreme monetary incentives to squeeze value out of companies in ways not limited to this, you realize why it’s insane how we have basically zero regulation on it.
Home owns are owned by people, not the home itself. If someone fails to pay a loan, their own credit score will be impacted
For these PE loans, its the new company that takes on the debt, not the buyer. Essentially any broke person can "afford" any trillion dollar company this way
Home loans are secured by the asset (the home). It's comparable to stock, but it's a less liquid asset.
Any broke person can afford a trillion dollar loan, if they can convince the bank that their house is worth 1.8 trillion dollars. But is that really possible?
Loan companies do due diligence so if GameStop is $A and eBay is worth $A + $B, then so long as $A/$B remains the same, the acquiring company owns two assets worth the full price of the loan.
It doesn't seem to be a scam to me. Am I missing something?
The difference is that when you buy a home the debt is in your name and you are required to pay it off. In a leveraged buy out wouldn't be to person taking out the loan, the debt is owned by the target of the purchase. If it were like a home loan and this deal goes south GameStop would go bankrupt and have to sell it's own assets to cover the losses. But in reality the debt from the deal would be owned by Ebay and if GameStop can't pay the loan back it'd force Ebay into bankruptcy and sell Ebay's assets. It's essentially a riskless move by GameStop and PE in general. Heads GameStop wins tails Ebay loses
There are other categories of real estate loans where the debt is against the property itself. The lender evaluates the property's income and expenses when underwriting the loan.
Fair point, it's a corporation taking out the loan so there's nobody to go after if the company goes under the way there is if the value of your house tanks and you stop paying your mortgage. But doesn't the bank take that risk into account when deciding whether to issue the loan? Why should that be illegal?
The way I’m reading your question, it seems like you are looking for the law to follow philosophically consistent principles.
That is simply not the case and lawmakers can make any kind of law to shape the society how we wish. If leveraged buyouts are creating problems for the country, then it’s totally valid to make them illegal in certain cases.
The problem is that people can take loans without financial liability (not how home purchases work) and drive profitable businesses (which are good for the economy) into the ground (bad for the economy and society).
No one is worried about the bank making the loan in this situation. They are concerned that PE is buying up large parts of the economy using debt they aren't responsible for, which makes them irresponsible owners because they do not face consequences when the moves fail
> which makes them irresponsible owners because they do not face consequences when the moves fail
Again, isn't that entirely the bank's problem? They're responsible for the debt if the company can't pay it, right? I agree on the surface this seems like a bad deal for the bank, but what makes you think you know better than the bank so much so that they shouldn't even be allowed to take that risk?
Leaving aside that the new company is the buyer; the point remains that home and car loans are leveraged loans. With the main asset in the leverage being that which is being bought. Defaulting on that loan results in the assets going to the lender.
If a lender builds a pattern of lending to people that can't make the payments, that lender will take a hit. If we think that isn't happening, why? And how could we return us to that?
Or, back to my question, how would you structure a legal framework where some loans can be done this way, but others could not? (I can think of a few ways, largely curious if I have a blind spot here.)
In a home loan, the borrower buys a house and pledges that house as collateral. The debt is the buyer’s obligation. The house does not have to “pay the mortgage” by laying off the kitchen, selling the roof, or cutting maintenance. The borrower uses outside income to service the debt.
In an LBO, a private equity buyer often buys a company using a large amount of debt, but the debt is typically placed on the acquired company’s balance sheet or serviced from that company’s cash flows. In effect, the target company helps pay for its own acquisition. That is the key difference.
In a lot of LBO schemas, the acquirer loads the target with, abusing leverage to maximize its returns, but this leaves the company with very little margin errors, any hiccup in the economy, and Kabum! The company goes under, an once viable company closes its doors, employees lose their jobs and local economies suffer. Meanwhile, the PE entity walks with as much cash as it could extract from the acquired company and debt-free.
Some PEs also go one step ahead, make the acquired company borrow more money, not to invest in the business, or restructure debt, but to pay a dividend to them.
In other cases, PE companies acquire a controlling block and then use it to make the company sell their assets to them, to be immediatelly leased back to the company. Then, there is also the practice of extracting all kins of "monitoring fees", "advisory fees", "consulting fees", etc. for services that are vague and frequently of questionable value.
PE companies also frequently engage in overly agressive cost-cutting to manipulate the EBITDA in the short run to sell the company at a appreaciated valuation, but hurting the long term value creation potential of the company and the quality of their services.
For PE, sometimes even bankruptcy is a business strategy.
Technically the lender is the purchaser in the LBO which is also why this is so much the purchased company having to pay for its own purchase. Which seems to me like the easiest part to regulate: require third party lenders who can also audit the details of the loan terms and fees.
If you are talking smaller arrays, linear search with a sentinel value at the end is already tough to beat. The thing that sucks about that claim, is that "smaller" is such a nebulous qualifier that it is really hard to internalize.
Prior to the current generation Intel designs, Apple’s branch predictor tables were a good deal larger than Intel’s IIRC, so depending on benchmarking details it’s plausible that Apple Silicon was predicting every branch perfectly in the benchmark, while Intel had a more real-world mispredict rate. Perf counters would confirm.
This is an odd topic. On the one hand, we do seem to have a problem where attention is hijacked by engagement farming. On the other, we also know of problems from draconian management.
I would actually like it if we had something that could say, only promote things on my feeds that are "liked" by people within a geographic radius of me. At the least, mute things that are getting pumped from hostile regions.
I just don't know that I see how this can get us there, though? Seems far more likely that it would lead to more abuse.
This assumes that most people would choose that feed? Which, I'm less convinced.
That is, this sounds like the idea that telling people if bad things happen when you eat too much candy, then people will eat less candy. Just flat not the case at large.
Yes, you also have to document the downsides of candy. Such that I'm also all for having that feed. But I don't see it being enough to move the needle much, on its own.
> That is, this sounds like the idea that telling people if bad things happen when you eat too much candy, then people will eat less candy. Just flat not the case at large.
Seems like there's an effect but it just takes time. The younger generations are smoking and drinking less.
Maybe the trend will be to abstain from social media feeds and chronological feeds will be their Zima.
This feels wrong, too? Younger generations smoke less because we have made it very hard for them to smoke more. Literally where are they going to do it? And the proliferation of zyn and similar isn't exactly problem free.
Alcohol is a trend that is talked about a lot. I'm not entirely clear on what we know of that. So many hot takes that largely seem conflicting with each other.
> only promote things on my feeds that are "liked" by people within a geographic radius of me
Ugh, really? I live in a part of town where I speak a different language than the vast majority of the people in this "geographic radius of me" which means I'd see very little content that I could understand.
Where do people come up with these wild ideas of anything other than show me the content of people I want to see in the order it was posted? If you want a "Feeling Lucky" type of feed, make it available. Otherwise, you're sending people content they don't want and are only too lazy to stop using it.
$trillions of global brainpower is spent yearly trying to answer "How do we get people to consume things they didn't ask for?" whether those things are products, services, ads, or online content.
I mean, I don't think it has to be quite so literal that you can't work with it. Translate is also a thing.
And if you are building your own list, that is still perfectly fine for how this would work. My suggestion was not to remove the ability to do that. It is to add the ability of ignoring "liked" things where the "likes" are not from people near me. And, I realize that "near" is not necessarily geographic.
Similar problems exist with "trending." It is far too influenced by bots to be at all a reliable indicator of what is actually trending.
The first time I used one was in high school when I was playing some video game in an emulator and wanted to convert the game save to another emulator's format, cause halfway through I realized the first emu had issues with the game. There was no conversion software, but with the hex editor I figured out that you needed to remove some header and change the endianness.
I think the claim is more that if you provide financial support for X without solid record keeping to verify X, expect that you will get more self reported people in that description.
Put differently, relying on self reporting for any sort of status from people is just not a reliable methodology.
As stated, this feels wrong. Specifically, it does not account for traits being appropriate for environment. I like to say it as what was needed for one stage could be the problem for the next stage.
That is, traits that stop registering may no longer be something that helps survival. But that does not mean they were not necessary for survival at an earlier point.
How exactly does that contradict the concept of fitness?
Several examples from the paper are exactly that. E.g dark skin was better for survival in Africa, but as populations moved north light skin was strongly selected for. Given the levels of sunlight in Europe, lighter skin increased fitness.
It is against the idea that the beneficial traits will survive to the present. It could be that there was some trait/gene that was absolutely needed for survival in the past, that flat out became irrelevant and dropped off before the present.
That is, it is not an argument against any of the traits that are present. Is why I said the problem is with how it was stated. But you do not have everything with you to provide evidence for all of the things necessary for you to have gotten here. At best, you have evidence that nothing you have with you prevented you from getting here.
That make sense? I grant that pulling it back up, I see the comment I was responding to was hedged. My concern is largely against the idea that things that "were selected for" in the past can be determined by evidence. I'm not convinced it can't be. But I find this presentation of it to be somewhat weak.
More to the point, TFA is specifically addressing the issue (which is part of what makes it a big deal).
They aren't saying "we see these things now, so they must be good" but rather things like "we see these selected for from 9kya to 3kya, but from then to the present they were selected against"; they are specifically looking at how apparent selective pressures changed over time.
> the idea that things that "were selected for" in the past can be determined by evidence
When the evidence is a copious selection of ancient genomes, distributed over both space and time, they certainly can be.
Apologies, I only meant my gripe with the comment I was responding to. Is why I put "as stated." I meant that to be that I was not arguing what I think they were messaging towards.
The callout on "evidence" I have there is that I meant that to only be present evidence. And again, I am not convinced it can't be done. It takes a lot of work. Which, the article is doing. But just saying that traits that helped you survive are typically retained, so by definition increase fitness, does not.
This is as useless as the circular view that releasing dependencies for others to test makes you a free-rider on them using your stuff.
Which, honestly, I think it is fair to say that a lot of supply chains are lulling people into a false sense of what they do. Your supply chain for groceries puts a lot of effort into making itself safe. Your supply chain for software dependencies is run more like a playground.
Agreed. You can also say that they are better engineered for most use, nowadays. With the adage that anyone can build a bridge that doesn't fall over, an engineering team is needed to build one that has the minimum resources to stay up.
In particular, how durable do people think backpacks need to be? If you are going through them particularly quickly, maybe you are over loading compared to what they were designed for?
Why would you expect that more critical thought would lead to more visible opinions? Would be like expecting everyone to have a different route they take out of their neighborhood. Nothing wrong if someone does want to try a different way, to a large extent, but often nothing is gained from it, either.
The counter hope, of course, is that more critical thought will result in more people discovering some abstract truth out there. I don't think that is realistic, either.
The mundane landing spot, I think, is the likely one. For most things, critical thought is just not much of a benefit. Knowledge and understanding are far more beneficial. Is why we don't constantly reinvent how to drive a car. We have largely agreed that we have some mechanisms that work, and it is better to educate folks on how those work, than it is to get people to think critically about the controls.
Going further in that regard, understanding is far more immediately useful than critical deconstruction. Learning about affordances and how they guide you to what you are wanting to do is far more useful to someone's daily life.
Which is not to say that critical thought in designing said affordances is not good. Just, for most of us, we are not in a position to really impact any of that.
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