Evening Links 3-14
Private equity’s Trojan Horse of debt (Morgenson, NYT) Great piece from Gretchen. Another example of private equity — in this case TPG and Apax Partners — taking cash out of a corporate balance sheet by loading it with debt. See also the case of Thomas H. Lee Partners and Simmons.
Must Read — In hard times, lured into trade school and debt (Goodman, NYT) This is an issue close to my heart and, actually, it’s the same story as above. The only difference is that instead of finding corporate balance sheets to use as an ATM, for-profit education looks for vulnerable people trying to improve their lot in life. Find a warm body eligible for taxpayer-guaranteed federal loans and it matters little the quality of education you provide….you’ve already taken the cash out, cash the government provides. This article is loaded with colorful details, but Goodman saves the best for last. The government requires that only 10% of tuition money come from students themselves or private sources. On this portion, the companies set aside “roughly half” (!) to cover bad debt. But “they’re making so much money off their federal student loans and grants that they can afford to write off their own loans…”
Promises, promises (David Merkel) When all others fail, the last balance sheets that can be used to take cash out are governments’.
Lehman examiner punted on valuation (Partnoy, NC) Lehman examiner Anton Valukas is getting lots of credit for his very thorough report. Even so, at nearly 2300 pages, the report only glosses the surface in some respects. Lehman’s operations were so complex they’re impossible to properly catalog. No doubt the same is true of all the large investment banks: C, GS, MS, JPM, even BAC. We think 1) that these behemoths can be properly regulated? And 2) that when they get into trouble new “resolution authority” will enable them to be shuttered without causing financial contagion?
Science fails to face the shortcomings of statistics (Siegfried, Science News) “…if you believe what you read in the scientific literature, you shouldn’t believe what you read in the scientific literature.”
We bought a toxic asset, you can watch it die (NPR, ht Reje)
I want one of these in my office…