Reviews for The Buyout of America: How Private Equity Will Cause the Next Great Credit Crisis

The average rating for The Buyout of America: How Private Equity Will Cause the Next Great Credit Crisis based on 2 reviews is 3.5 stars.

Review # 1 was written on 2010-09-25 00:00:00 Terry Cavan When the bad press about LBOs (leveraged buyouts) and the destruction they left in their wake made LBO a dirty acronym, the industry gave itself a new name: private equity. Private equity firms like to pretend that they make companies leaner, stronger, and more efficient, but what they do most of the time is make them leaner, weaker, starve them of capital (the capital they suck out goes into dividend payouts) while saddling them with debt, emphasize short-term over long-term profits, fire lots of employees, and often, drive them into bankruptcy. The PE firms' partners always come out ahead, though: they guarantee themselves huge fees and profits upfront. Kosman estimates that between 2000 and 2008, about 500,000 Americans lost their jobs because PE firms had bought their employers and were cutting costs. The scariest stories are where PE takes over hospital chains and reduces staff. You can imagine what happens. The incredibly high costs of mattresses made by Sealy and Simmons can be traced to PE, which drove prices higher to increase revenues, even as they lost market share. 10% of all private sector employees work at companies owned by private equity firms, meaning that if PE's fairly dismal track record continues, that's a lot of jobs in danger. And between 2012 and 2015 $700 billion in loans borrowed by PE owners will come due, which, Kosman argues, will produce "the next great credit crisis" and plunge many of those companies into bankruptcy. "Still, after enough PE-owned companies go bankrupt, the public will be looking for answers." They will? I think that's being optimistic. Most of the public probably has never heard of private equity, or if they have, have little notion what it means. The mainstream media might tell us when a company goes bankrupt, but you'll rarely ever hear the gritty details - whether it was owned by private equity, how and why it went bankrupt, how the tax deductibility of interest payments on debt makes PE buyouts so enormously appealing and easy in the first place. How difficult is it to regulate PE? Aside from the lobbyists, consider that Barney Frank, chair of the House Financial Services Committee, is a fan of PE; Chuck Schumer and his chairman on the Senate Banking Committee, Chris Dodd, are big fans of Wall Street; four of the past eight Treasury Secretaries joined the PE industry (James Baker, Nicholas Brady, Paul O'Neill, and John Snow); Bill Clinton and both Bushes have advised PE firms. There are a few chapters (the last three in particular) where Kosman could have made the story more cohesive and less rambling. There were also certain companies I would have liked to see him focus more closely on, such as Kinko's. We learn that from 1996 to 2004, when Kinko's was owned by private equity, cutting back on customer service was a primary management strategy - but that's all we're told. Overall, though, this is a horrifically enlightening read and a well-told tale. The PBS Newshour did a story on the book and an interview with the author which you can watch here:

Review # 2 was written on 2010-07-10 00:00:00 Jonathan Heslin A very interesting look around the next corner of the financial crisis where few (if any) analysts/economists/pundits have yet even discerned that there is weakness. Kosman does a very good job laying out the nature of Private Equity companies and showing direct examples of the harm they have done in the past before making his case for the powder keg they appear to be lighting in the present. Of particular interest is how these PE/LBO (leveraged buyout) entities are able to harm normally productive and profitable American businesses at potentially the most precarious time in our history since the 1930's. Just when we need American industry to be at its strongest, these termites enter and consume the timbers of intra-national business from the inside out leaving in their wake, unemployment, lost communities, wasted infrastructure and shells of the former enterprises they've taken over. Written in a way that both encapsulates and documents the issues properly while not making the information inaccessible to the layman, Josh Kosman has done a notable service to his readers. Whether or not his predictions of a Next Great Credit Crisis at the hands of PE prove to be true, his detailed explanations of the moral hazard at play and the crippling after-effects of the Leverage Buyout barons in America make this a worthwhile read for anyone interested in how nuanced and complicated our financial system really has become. He has successfully opened a doorway where the common man is not usually granted entry with the disclaimer in place that behind the door, we are far more likely to find the tiger than the lady we were promised.