Counterparties: Private equity’s public relations

May 24, 2012

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After Cory Booker’s Meet the Press mishap, Noah Smith asks a great question: What does an economy without private equity look like? Smith says we should “sic the pirates on the zombies” of corporate Japan, where there isn’t an active PE industry, productivity is low and labor costs are high.

In the US, the private equity industry’s advocacy arm continues to focus on PE’s role as a job creator, releasing another in a series of videos showcasing job growth after a PE acquisition. But Steven Rattner notes that job creation isn’t the industry’s primary goal. Private equity, he says, seeks profit first and “any job creation [is] a welcome but secondary byproduct”.

The most recent research, Peter Coy writes, indicates that “having your company acquired by a private equity firm is like living through a national recession”. Ezra Klein looks at that research and argues that Mitt Romney should have learned from his time at Bain that a strong social safety net is as important as economic growth.

Mike Konczal lays out the the major strains of criticism against private equity and concludes that it “[games] tax law while cashing out short-term value, leaving others in the firm worse off and the firm itself more prone to collapse and less able to produce long-term value”. The Epicurean Dealmaker counters, saying that a successful PE deal generally ends with selling to a new buyer, and if the PE firm leaves the company as a shell of its former self, it probably won’t have made much money on the deal. – Ben Walsh

On to today’s links:

Long Reads
The philanthropic complex: Capitalism’s risk manager – Jacobin

A simple proposal that could end too big to fail – Barry Ritholtz

EU Mess
Yes, the European crisis could drag down America’s economic growth – WSJ
The lawyer who engineered Greece’s default represents sovereigns because “it’s just more fun” – Reuters
European PMIs could be terrible again, and even German confidence is sinking – Bloomberg
Greece’s oligarchs: Paying few taxes, giving relatively little to charity – NYT
Buiter: Greece will leave the euro zone on Jan. 1, 2013 – Business Insider

New Normal
Detroit is shutting off nearly half of its streetlights to combat budget problems – Bloomberg

“Facebook is an unprecedented synthesis of corporate and public spaces” – New Yorker

HP will lay off 27,000 workers by 2014 – Reuters

Ruin your day by seeing how many more hours you work than the OECD average – BBC

Should stocks trade in increments of $.0001? – Marginal Revolution


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