or if I'm so smart why ain't I rich?
Finance, especially of the high kind, has always been a mystery to me. I blamed my lack of a Harvard MBA, or something, anyway, for my lack of understanding.
But over the last few months I have come to understand how Bain Capital worked under Mitt Romney. And now I know why I ain't rich. And probably why you ain't, either.
Wanna get rich? Here's how to do it:
Put together from a bunch of investors a couple of million bucks. You can do this, when you have the confidence to know that it's gonna work. So, then you take that couple of million bucks and you go see a bank, and based on having a couple of million bucks and a four thousand dollar suit, you borrow, say, a hundred million bucks. The bank will lend you this because you let them in on what you're gonna do.
You have found a company that is in trouble financially. Taking that hundred million bucks, you buy a controlling interest in the company. Now the company owes YOU a hundred million bucks, because it's a debt of the company now. So now the company has to pay you (and the bank) back. Sometimes the profit/loss ratio of the company is such that the only way the company can make the payments on the debt is to begin to sell off its assets. Or to raid the retirement accounts of its employees. Or a combination of both.
So as the assets are sold off and the funds raided, the company and the people who depend on employment there now have squat.
Do you care? Not on your life. Because your goal is to make money, not continue to pay a labor force to produce goods on machines you have already sold off. So the company tanks, but only after you have your hundred (and two) million bucks back, plus whatever you've paid yourself for managing the company into the ground.
The original investors profit from letting their money “work” for them, and the bank gets its principal+interest. Some guy in China gets equipment to continue to manufacture whatever. Everybody's happy. Except the people who used to have jobs at the company.
Now, assuming that you really could put together the original couple of million and then the hundred million, would you do it?
So where we fall down in this scheme is the part about putting people in a failing company out of work. Why? Because it may be slick money management and it may turn a profit, but at heart it's immoral.
And that's why you and I may be smart but we ain't rich.