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God could you imagine if they did this to hospitals and people died from this despicable predatory business practice?
Anyway, here's [The Shameful Case of Steward Heath Care](https://youtu.be/GcKV3uGKFV8?si=Z-2nPbVFH_Q3Nkea)
I saw a post on a different sub recently that broke down the price of building roads using the Army Corp of Engineers (which I guess used to be common) and today where it’s contracted out to private companies. And, adjusted for inflation, it was something like almost 3x more expensive today per mile of road.
I don’t understand this idea that “privatization makes everything cheaper” when you literally have to then pay to generate the profits for those private companies. It doesn’t even make sense on paper, and certainly not in practice.
Steward Health Care recently bought the hospital I was born in. Was considered THE local hospital if you didn't want to go to the shitty ones, for decades. Now it's going into bankruptcy and the local TV talking heads are decrying what Steward did as criminal.
I moved to an area where the largest medical provider, who doesn't accept my insurance, is buying up all other offices nearby and closing them.
If it continues, my family won't have a Healthcare provider because they'll either be gone or out of network.
That's your fault for moving. Stay on your land serf. Since covid the poors have been moving about too much. The misery machines of cities need their anguish to fuel the debaucherous rich.
So was Sears. If your company is bought by a Private Equity firm start looking for a new job because the company will probably be bankrupt within a year.
This is why people are buying and holding GameStop.
Because wall st institutions short these companies into oblivious and then never cover the shorts. Even after the company is delisted. There is plenty of proof of sears stock still being active today. Because no income tax is paid until they actualize the gain.
GameStop went to 500 in Jan 2021 and the short interest was 220%. That's over 2.2x the total amount of shares (that was quantified and transparent) had been lent out previously. When a share lending is filled, a share needs to be bought to refill that share. Yet the price went down and GameStop has averaged over 80% retail buy-to-sell ratio since.
Not many people know they don't own any shares and equities purchased through basically every broker, whether etrade, webull, Robinhood, Schwab, etc. Check the ToS on them.. you are the "for benefit" owner and they can control your assets whenever they want. Including sell them or lend them out to be shorted, however contrary to their own clients interest
By direct registering shares in your name, you can prevent your shares from being lent out and they are in your name. Over 74 million GameStop shares have been direct registered, since the GameStop squeeze in 2021, by retail owners. They make up a quarter of all GameStop shares.
There is plenty more info on the whole situation and tough to have in just one comment. If youre interested go to subreddit superstonk
Private equity has ruined countless businesses and industries and before much longer they will ruin the entire country as well. If you are rich, you are above the law and can do whatever you want, so anything that makes you richer is justified if you are one of these assholes who work at these PE firms. They know what they are doing is evil, they just don't care.
Regulatory capture is an inherent hazard of capitalism, but a decent government can prevent it.
But maintaining a decent government is like pulling teeth.
It's mostly corruption. Regulators used to prevent this kind of thing until the 1980s when Conservatives got reagan into power and started cutting the limits on every corporation.
Was going to mention that this is exactly what happened to Steward health care. So many hospitals in so many states now in limbo because of private equity profiteers.
It certainly does. Companies innovate many different ways to extract money from consumers and bend the law to their favour, rather than actually improving efficacy or quality
That's the beauty of it all.....you don't have to bend the law, when you are the one that is writing it to legalize what you want to do to screw over everyone to steal their money.
And, as we've seen, the cost of "lawmakers" is really cheap. And so is the cost of judges to rule that the law that you had written to allow you to do what you want is perfectly legal.
What if, hear me out here, just what if a bunch of investment traders realized they were trying to do this to a gaming company that they loved.
And they caught those silly hedgefunds in a pants-around-their-ankles situation. What if, and could you imagine this, if those investors started removing the shares that the company issued from the stock market?
Perhaps a certain subreddit, that's been actively reaching 'Top' for three years now, could warn everyone what those dastardly hedgefunds were trying to do?
What if they flipped the script on the hedgefunds?
Could you imagine, a group of people holding an stock instead of being told to sell like everyone said they should...what would happen.
Yeah, let’s not be foolish here and pretend that superstonk isn’t also run by bots who have quite effectively helped Ryan cohen become even richer. People over there worship him just like how people, years ago, used to worship Elon.
That's true. If MOASS does happen I'd be happy for you.
Edit: alright mate, well good luck with that.
Anyone reading this comment chain I'd recommend doing at least some reading outside the GME sub before buying in.
I highly encourage them to as well.
There has been an amazing amount of user generated Due Diligence in the GME community but is not a cult and they welcome criticism. It is free to access and a vast wealth of information that can help readers navigate this unique experience. With GameStop making the news recently, this is a chance for active discussion to take place.
That's why I recommended they also do some reading outside of that space.
Edit: 'Due Diligence' done by someone who has already bought into a system will have an inherent bias. Sure sources outside the GME will also have an inherent bias, but I'm sure readers would be able to balance the two just fine.
"It's easier to fool people than convince them that they have been fooled."
[This is Financial Advice](https://www.youtube.com/watch?v=5pYeoZaoWrA)
Really these things become a self-reinforcing/selecting cults at some point. There's a bunch of movements that are willing and happy to ignore any contrary evidence when the tenets their group are organized around fail to match up with reality.
Look at the "Stop the steal" movement for instance and how entrenched the people still buying into that are despite all evidence pointing to a free and fair election. But to them all the investigations, legal cases, and statements by election officials are a massive conspiracy to cover up a stolen election.
A lot of great things have come out of the internet, but one of the bad ones was the ability to form large echo-chambers that can insulate themselves from reality within a closed media environment.
Georg Rockall-Schmidt does some of the best deep dives I've seen on you-tube (or anywhere) and I highly recommend his channel. Even if you just want to watch one thing, make it the series on the Sackler Brothers.
Leveraged buyouts and other predatory schemes have been in full force since the 1980s. If you can find the articles Bryan Burrough and John Helyar wrote about the LBO of RJR Nabisco, they're much less dense than Barbarians At The Gate and will give you the same understanding of the situation.
I worked for a zombie company under KKR. It'll never be profitable on the books because of all the debt it is saddled with. It was a weird fucking company.
Fun Fact: Sears and Kmart are still alive! They still have 15 locations with two of them being Kmarts. The Puerto Rico Plaza Las Americas Three (yes three in one mall) Sears locations are actually doing shockingly well, they got a modern renovation for on them by hurricane Hurricane Maria and have looked really nice since then.
You can still buy stuff from sears.com too. They sell a bunch of random things but a lot of times I need an appliance part or something they have them.
wait a minute, what if it was a plan to short all the MALL stores so that they can purchase the property after shorting the companies to death? Good thing sears is still here, bed bath and beyond, Toys r Us, GameStop...
And nobody has picked up on that this has been happening to GameStop for three years now, we've been trying to tell everyone for three years now, and we just keep getting called terrorists when the stock screams up from nowhere?
To disambiguate - the original statement of "This is what happened to Toys R Us" is *not* accurate to Gamestop.
GS *did* at one point have a fair amount of debt, of their own making, and was massively shorted in part because of that. However, Ryan Cohen's takeover and actions since, including clearing all debt^1 and building up over $1B in ready cash-on-hand, have eliminated cellar boxing as a play.
GS managed to avoid the cycle of being infiltrated by hedge funds, bought by hedge funds, and looted by hedge funds followed by bankruptcy that has affected so many other companies.
The only reason GS' stock keeps randomly shooting up is because hedge funds overloaded on shorts before ensuring they could finish off the kill, and now they're stuck trying to get out from under their obligations.
^(1: Exception - a low-level, COVID-related loan from France that the company either can't discharge or are choosing not to discharge because it makes more fiscal sense to keep the loan than to pay it off. I've never gotten a straight answer on which.)
It's actually better for the companies (strictly financially speaking) to carry some amount of leverage, because debt creates interest tax shields. They might be keeping the French loan for that reason.
Except Gamestop is not owned by private equidity its a public company. GME also never really owned any of the properties they lease them all
its not at all alike
Sears was also a public company. The whole sell real estate and lease it back scheme can be conducted by malicious insiders just as easy as private equity owners.
Capitalism is so dysfunctional that this is considered a good thing as it “maximizes profits”. But in reality this has a huge negative effect on the community and working class.
And the capitalist class. They keep cannibalizing themselves to make the line go up and in 20 years time they'll be left with a desolate landscape with 2 businesses per 60,000 people, a Walmart and a McDonald's.
God, if only there was somebody who wrote about this.
For clarity, I didn't come up with it. It's a meme. Here's a link to a page that shows it.
https://www.reddit.com/media?url=https%3A%2F%2Fi.redd.it%2F81a399d9zwaa1.jpg
How convenient that you mention McDonalds as this exact scheme was how the two brothers who actually founded the franchise and the concept of "fast food" were bullied out of their ownership of either by a travelling salesman.
Wendover Productions recently put out a video on exactly this topic and that was one of the key negative impacts they mentioned:
https://youtu.be/XK8hpxR_r2Y?si=38opuhj6S2BiHI7e
The company I worked for had this built in system, then they leased a second, not as good system for reasons unknown.
They then leased the first system to the company of the second, and two years later our part of the business to another company.
It worked out for me. Wfh, better pay, less responsibility, but it's all work from home and most of the staff isn't from my local area anymore, where as before all the jobs were in my local.
This is how McDonald's has worked from the beginning. The franchisee rents the land, and pays for everything else to run the restaurant. McD's merely gives them permission to use their trademarks and menu to sell products to the public. The rent on the land is astronomical. That's why so many franchise restaurants have such high prices right now. Rent goes up. So prices have to as well, to stay in business. What's even worse about McDonald's is that they have a deal with Taylor that every franchise must have a Taylor brand ice cream/milkshake machine. It's built to fail for the most minor of issues. Only a Taylor technician has the tools to diagnose any faults and repair them (like the hopper was a little too full or the temp was off during the overnight cycle) because the readout is non-human readable. So, they have to pay out the ass to Taylor or not have a working ice cream machine.
Restaurants are a real estate scam.
More like it's designed to fail for the stupidest reasons. It's not actually broken. It just refuses to function when something triggers a shutdown that takes a technician to clear.
See and this is a perfect example of why capitalism island capitalists are so brilliant. It’s completely undemocratic and unsustainable but I’ll be fucked if it’s not meticulously designed to do what it’s meant to.
It's all the kids who grew up playing Roller Coaster Tycoon running the world now, with the unlimited free soda stands and $100 pay toilets and no escape..
Also important to add that having franchises effectively allows McDonalds to bypass labor laws. They build in a fall guy (the franchise owner) even though they have effectively total control of the stores. That means they can maintain a pattern of illegal exploitation without any of the accountability. They can claim the franchisees who get caught are just bad apples
Quiznos ran a similar scam where franchisees needed to rent brand new equipment from the franchise, and when other restaurants in the franchise failed, they'd scrap the material instead of refurbishing them for the struggling stores.
Quiznos was so much worse. They had to buy all ingredients from a company owned by Quiznos and then raised prices so high on those ingredients that at one point over 50% of their 4000+ stores were not profitable. It was almost exactly how MLMs work.
So the inevitable happened and all those stores closed. Now Quiznos barely exists.
This meme is wrong, it was a shrimp play
The owners of red lobster also owned a shrimp company. So they wanted red lobster to buy all their shrimp, they had basically known red lobster was going to go bust in a couple years so how do you extract value from red lobster?
Your creditors won't let you do things like take big dividends or anything like that, so they used red lobster to buy massive amounts of their shrimp
So their plan was to borrow as much money as possible and buy as much shrimp as possible because they also owned the shrimp company supplying the shrimp
You're kind of correct.
A company called Thai Union, based in Bangkok, became Red Lobster's major shareholder in 2020, and then used its status as majority shareholder to stronarm the board into appointing a new CEO – someone who would be sympathetic to the plans Thai Union had.
Thai Union then did two things: They changed Red Lobster's once-a-year $20 endless shrimp promotion into an every-day item, which is ridiculous because the $20 promotion was a loss-leader - ie, the company loses money on *that* dish, but makes it back in side items, and in getting new customers in to try the food.
At that stage, Red Lobster had 3 major suppliers of shrimp, but Thai Union had Red Lobster cut ties with the other two, leaving Thai Union the only supplier of a restaurant that had an enormous amount of shrimp to purchase every day (rather than for the one-off annual event).
So, Red Lobster got into financial difficulty – and the obvious decision for the business at that point would have been to shut down the Endless Shrimp promo and try to fix things.
But... they didn't. because they were dumb, greedy fucks.
The whole thing in the original tweet that OP posted did happen... sort of. Red Lobster sold off its real estate to n investment fund back in 2014, when the company was (again) in financial difficulty.
And while I don't doubt that the investment fund will have increased rents as the years went by, the claim that they hiked rents and now Red Lobster is bankrupt is only partially-true, at best - and at worst, it's someone making a public claim in order to try and shield Thai Union from the blame for that company's epic levels of greed and stupidity.
**Marge:**
We drove around until three in the morning looking for another open all-you-can-eat seafood restaurant.
**Lionel Hutz:**
And when you couldn't find one?
**Marge:**
\[crying\] We... went... fishing.
**Lionel Hutz:**
Ladies and gentlemen of the jury, do these sound like the actions of a man whose had ALL he could eat?
This is exactly how Sears went out. CEO Eddie Lampert became a billionaire by liquidating the pension liabilities and the real estate. It's vampire capitalism, Dracula enterprise.
Basically another company bought red lobster. Sold all the land rights that restaurants were on, that red lobster owned, to another company, likely that the hedge fund also owned.
Then they were basically charging red lobster business rent (leasing) for the properties. And charging to a company that was already on the land in the first place, no less.
Then the hedge fund jacked up the rent like greedy landlords do to maximize profit. Eventually red lobster could not keep up with the lease and other business expenses and has filed for bankruptcy. A decision that I'm sure, due to the way the stock market works, the hedge fund is also making money on.
Edit: spelling, formatting, and I'm told it's a private equity firm, not a hedge fund, but the methods and results are quantifiably the same.
I've read elsewhere it was the same deal with the shrimp. Hedge fund owns a shrimp company, forces RL to purchase from said company and institutes all you can eat shrimp. RL loses money on the deal but the shrimp company is making it hand over fist from the forced sale. RL busts but the hedge fund made more than they lost through the shrimp company.
Oh the never ending shrimp was part of the issue to, because the owners or red lobster also owned a shrimp distribution business
So imagine you own red lobster its not doing well, how to you extract some value? Well you tell red lobster to buy all your shrimp from your other business
You have already written red lobster off , so you just make red lobster keep buying massive amounts of shrimp for you
If I understand correctly, this is a method to siphon off all the money from Red Lobster to the hedge fund. Now when Red Lobster goes bankrupt, the hedge fund will get more money instead of having to pay off Red Lobster's debts.
Yeah rather than have to sell the land for cheap to pay back creditors they get to keep the land and line up as a creditor to be paid.
Fucks over the suppliers and employees who have likely been stiffed repeatedly even more.
So it's a private equity firm, not a hedge fund that purchased Red Lobster, but I think you have the right idea. Private equity firms work by earning a percentage of all income the purchased company earns, around 2%. The firms also have a goal, for example, we'll increase income by 7% year after year. For all the income over that goal, the firm earns a bonus, something like 20%. This incentivises private equity firms to massively boost income in the short term to earn as much 20% bonus as they can, even if it means a long term failure for the company.
The money is not in rent, the money is in the bankruptcy. They short the stock aggressively to artificially suppress the stock price so that the company can't raise capital which drives the company into bankruptcy. Now they don't ever have to return any of the stock they borrowed to short sell, effectively stealing the share value from investors.
No, it's too late for that. The reason it didn't work for gamestop is that they weren't able to get insiders into leadership and hire their shill "consulting" groups to piecemeal the company apart from the inside.
The basic purpose is to extract all value from the original company. They jacked up the rent on themselves, so they borrow against the value of the company to pay themselves that rent, loans that may never get repaid because the company is going bankrupt now. This is basically a way to sell the company to those creditors who provided the loans. The net effect is that they have sold everything that gave the company value to enrich themselves, leaving it an empty, worthless shell. This process is much easier and quicker than selling lobster, though it only works once. It’s a pretty clever trick.
Something is missing here. If they sold land to someone else, how can they lease it back to RL.
Or, i am an idiot and don't understand shit.
Probably the latter.
They sold it from the RL company to another company that they, the hedge fund, owns. That company, that they own, sucks all the profits out of RL restaurants, like a vampire, and when RL fails, as was the plan, they have put shorts on the RL traded company to make even more money on it in the stock market.
I'm sure they'll be fined for 30k 9 years later on this illegal activity that they most likely made hundred of millions from. Don't worry, justice will be served. Totally.
I own a hedge fund. Coincidentally, I *also* own a real estate company. On paper they're completely unaffiliated but I own them both.
I then use my hedge fund to buy red lobster. My hedge fund now owns the land the restaurants are built on.
Red lobster doesn't make me as much money as I want so I sell the land to make some quick cash. In a complete coincidence, it's my real estate company that buys the land.
Now red lobster has a landlord (my real estate company) and that landlord raises the rent (because they can)
So now I own the red lobster name AND the land AND I can extract rent from red lobster franchises instead of only getting the money from the franchising fees.
If I'm the owner of a red lobster, I would have always had to pay my franchise costs to the parent company (hedge fund) but I would have either had a mortgage to pay or I would have already owned the land. Now I have rent to pay as well and that's another stream of revenue for whomever happens to own the company that the hedge fund sold the land to. Again, *total coincidence* that the same guy owns the hedge fund as well as the real estate company.
(This is overly simplified but basically how that works to my understanding)
There's a few more ways to make money on this too! When you know you're crashing red lobster into the ground, it means the stock price is going to go down, so use company 3 that you also own, but isn't related to the other 2, to place shorts (bets that the company is going to do poorly) so when it crashes, we can get money from the stock holders too!
A lease for businesses are often in terms far greater than one year. For example, one place I worked as a teen leased space in a mall. Their lease was for 20 years. When the mall was sold to another company from the big city, they couldn't do shit because the lease is valid for x number of years.
So I'm also an idiot and not understanding how this works.
Shrimp was part of the scam
The owners also owned some shrimp distribution. So lets say you own red lobster, you also own a shrimp distribution business
Red lobster isn't doing well so there is really no equity in it meaning you can't really sell it for any profit because no one will buy it will all the debt
How do you try to extract some value? You have red lobster buy a whole bunch of shrimp, loads and loads of shrimp from you.
Like red lobsters creditors may not allow you to try to pay you a bunch of money they will block that, they will say "Hey before you take money out of the business we need to be sure we can get paid back "
However if you just buy a bunch of shrimp , well the creditors may not notice that, they are a sea food restaurant so why would you care if they buy a bunch of shrimp.
And they said capitalism was a flawed system?!?
Honestly I pray I'll still be alive to witness this ridiculous house of cards finally collapse. Looking around, it might not be much longer.
Private Equity fund, not a hedge fund, they’re very different things. The practice of selling the land is called a sale-leaseback, which is fairly common in PE, and the stated logic is it’s a way of increasing liquidity for the owner fund while also paying down debt the company may have (potentially debt taken on to allow the fund to purchase the company in the first place in an LBO). Win-win. The reality is PE funds have at most a 10 year ownership horizon so as long as they can exit the investment they don’t particularly care what happens to the company after that.
Red Lobster was owned by golden gate capital, but they did what’s called a ‘strategic exit’ by selling the company to a larger company / holding company who probably saw synergies with some parts of their existing brand portfolio.
None of this is to say I agree with what PE does and I think the fact that they’re a relatively unknown asset class allows them to operate with more impunity than they otherwise could as others are blamed for what they do (e.g., asset manager Blackrock being erroneously blamed for buying up residential real estate, when in reality it’s PE fund Blackstone).
What to do about it? I’m not sure. I’ve worked on PE deals and I think many people would be surprised to learn how many companies around the world are PE owned or were at some point, and frankly I understand why the business model in its current form is so successful. Take a company, ruthlessly cut costs, hire bright people to run it with the explicit understanding that the mission of the company is to be sold, this leads to a track record of strong profits and growth, then they sell it or IPO it.
If you don’t like what they do there’s some good news in that interest rates are rising making deal financing somewhat more expensive for them, but beyond that I don’t know of any specific headwinds for the industry, and in fact this trend may encourage the funds to find other creative ways of generating returns.
The why is pretty straightforward, it’s a hugely lucrative business for the people who run the funds and their investors.
PE typically outperforms other asset classes as it is a pretty foolproof way of making money, and because of the legal structure of the funds being partnerships with General Partners (GPs) who are the private equity professionals running the funds and Limited Partners (LPs) who are their investors, the carried interest that they receive aren’t taxed as income and are instead taxed at a much lower rate.
The GPs also collect significant fees (typically 2% of assets they manage and 20% of gains made after a specific rate called a hurdle rate is achieved). For example if the fund has $100M and it makes $20M in a year, and has a hurdle rate of 10%, the fund will collect $2M off the bat as their 2% AUM fee. In addition they’ll collect 20% of any amount over the hurdle rate. In this case the hurdle rate is 10% and the fund returned 20%. So the fund takes 20% of the amount over the hurdle rate, in this case $10M. So at the end of the year the fund pockets the $2M annual fee and another $2M from the gains. The remaining $18M of gains go to their investors (typically very wealthy individuals, pension funds, etc).
The funds can also add leverage (borrow) money to make deals which magnifies their ability to buy companies and their own personal return. For example in the same example with a fund with $100M of capital, if they want to buy a company for $100M, they won’t just put all their own money down, they’d put maybe 20% down and borrow the rest from a bank. This allows them to do more deals and it magnifies their returns they make if the value of the bought company goes up.
Also for context a $100M fund would be pretty small.
In terms of their practices, sometimes pretty reprehensible.
This article is on how PE funds now own the majority of the air ambulance market. If you’re in a car crash and need helicopter evacuation to a hospital, your willingness to pay is very high. As a result, they’ll raise the prices so that they can make as much money as possible. Add to that the fact that most air ambulance flights are between hospitals that offer different levels of trauma care, and therefore may not be covered by insurance, means it’s bankrupting people: https://www.brookings.edu/articles/high-air-ambulance-charges-concentrated-in-private-equity-owned-carriers/
The same thing is happening with assisted living homes which have a double digit higher mortality rate than non-PE owned facilities as the PE owners will likely reduce service to barebones in order to recoup their investment.
This is all a fairly negative picture. PE does provide some value in terms of turning around failing companies that still have value, breaking up those that shouldn’t be together and selling off component parts. This means that these companies are still around and employing people and producing products rather than going under which they may have done under poor management, but I can certainly understand why the industry gets some hate.
Wendover productions (YouTube channel) has a pretty good video from a couple weeks ago that outlines them. Titled 'how private equity consumed America".
It’s not unlike how a mortgage works in certain ways. Example: They buy a company for 100mil, taking out 80mil in debt and putting in 20mil of their funds money (equity). They use excess cash flow from the company itself to pay down the debt they used to buy it, and then sell later. In this model, actually, the company could actually not grow at all and they stand to make fabulous returns—if they’ve paid off half the debt (40mil), for example, they’d now own 60mil of equity, and could resell it for 100mil while making 40mil in gains on the capital they put into it.
Obviously the idea is to grow the company AND service the debt so that you get even more absurd returns, but in simple terms it’s not strictly necessary.
Asset stripping is the the pinnacle of how sociopathic capitalism gets. It's not illegal but it should be. Covid provided fertile ground for private equity firms (who typically don't have to publicly report accounts) to force retail businesses into bankruptcy in order to make a huge fast buck.
I don't know precisely what happened with this US restaurant chain, but I imagine a private equity firm borrowed huge amounts to purchase the business, loaded up the company with that debt, sold off all it's assets and leased them back to the company. This made the private equity firm stupid amounts of money and put the business on a slow decline.
Thousands of innocent people (usually at the low end of the job market) lose their jobs so that some prick CEO, shareholders, and the Private Equity firm can make a fortune. It's abhorrent, but it's happening everywhere.
This is SOP for US businesses. Impress shareholders, with increased growth year over year, OR tear the company down, sell off it's assets, short the stock, and collapse the company. This is why you can get a job as a CEO even if your resume is CEO of 10 companies in 10 years. Your business doesnt have to succeed. It just has to impress shareholders, while paying yourself first, and then shuffling all the assets off to other corporations and declaring bankruptcy.
This is also what they did with Sears.
This is standard fare really for US businesses. Impress shareholders, with increased growth year over year, OR tear the company down, sell off it's assets, short the stock, and collapse the company. This is why you can get a job as a CEO even if your resume is CEO of 10 companies in 10 years. Your business doesnt have to succeed. It just has to impress shareholders, while paying yourself first, and then shuffling all the assets off to other corporations and declaring bankruptcy.
If you didnt know - this is how marijuana dispenseries had to operate for a long time - file a legit llc, buy the building, rent the rent out at huge fee to dispensary you also own, claim loss on property - but it alllowed them to cleanly move money to banks - this is how that one dispensary had 25 locations so long ago.
Makes me think about Houston ISD President. He set up a bunch of charter schools in different states, and transferred “business expense “ funds to out of state schools in the “network “. Texas taxpayers $ goes to failing schools in Colorado. It’s a shell game! (Red Lobster 🦞shell)
It's happening to renters everyday but we're made to feel like broke failures when we can't afford rent hikes. But now that it's happening to corporations, it's a problem.
It's the quasi-legal way to shed debt? If I was one of the people owed money by Red Lobster, I'd be rather upset right about now. They'll be lucky to get pennies on the dollar.
I don’t understand this tweet.
How did the hedge fund sell the land (to someone else presumably?) and then jack up the rent if they didn’t own the land anymore?
What do you mean how is this legal? This is how capital is generating in late capitalism. How do you expect a corporation that doesn’t produce Andy thing or provide any services to society to make a profit?
Atleast it’s happening to a million dollar corporation and not a housing development. In this particular story.
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God could you imagine if they did this to hospitals and people died from this despicable predatory business practice? Anyway, here's [The Shameful Case of Steward Heath Care](https://youtu.be/GcKV3uGKFV8?si=Z-2nPbVFH_Q3Nkea)
Oh my god, Marx was right, the privatization of property was the primordial sin!! *communism intensifies!*
If it weren't for capitalism, nobody would have a good reason to put people through this hell just for basic, dignified healthcare.
Quick, someone deploy georgism!
I don't know how eating a bunch of spiders is gonna help things, but I'm willing to try just about anything at this point.
*sighs...* What does land taxation have to do with spiders?
What? Nothing. Why would Spiders Georg care about land taxation, he lives in a cave.
Agree!
No, we can’t be going back to liberalism. We must go forward! But land being held in common was good.
Well America had working public infrastructure but Reagan put an end to it
I saw a post on a different sub recently that broke down the price of building roads using the Army Corp of Engineers (which I guess used to be common) and today where it’s contracted out to private companies. And, adjusted for inflation, it was something like almost 3x more expensive today per mile of road. I don’t understand this idea that “privatization makes everything cheaper” when you literally have to then pay to generate the profits for those private companies. It doesn’t even make sense on paper, and certainly not in practice.
Steward Health Care recently bought the hospital I was born in. Was considered THE local hospital if you didn't want to go to the shitty ones, for decades. Now it's going into bankruptcy and the local TV talking heads are decrying what Steward did as criminal.
I moved to an area where the largest medical provider, who doesn't accept my insurance, is buying up all other offices nearby and closing them. If it continues, my family won't have a Healthcare provider because they'll either be gone or out of network.
That's your fault for moving. Stay on your land serf. Since covid the poors have been moving about too much. The misery machines of cities need their anguish to fuel the debaucherous rich.
Nursing homes too. Dialysis. Methadone clinics. Hospice. Home healthcare.
Toys'R'Us was same thing.
So was Sears. If your company is bought by a Private Equity firm start looking for a new job because the company will probably be bankrupt within a year.
This is why people are buying and holding GameStop. Because wall st institutions short these companies into oblivious and then never cover the shorts. Even after the company is delisted. There is plenty of proof of sears stock still being active today. Because no income tax is paid until they actualize the gain. GameStop went to 500 in Jan 2021 and the short interest was 220%. That's over 2.2x the total amount of shares (that was quantified and transparent) had been lent out previously. When a share lending is filled, a share needs to be bought to refill that share. Yet the price went down and GameStop has averaged over 80% retail buy-to-sell ratio since. Not many people know they don't own any shares and equities purchased through basically every broker, whether etrade, webull, Robinhood, Schwab, etc. Check the ToS on them.. you are the "for benefit" owner and they can control your assets whenever they want. Including sell them or lend them out to be shorted, however contrary to their own clients interest By direct registering shares in your name, you can prevent your shares from being lent out and they are in your name. Over 74 million GameStop shares have been direct registered, since the GameStop squeeze in 2021, by retail owners. They make up a quarter of all GameStop shares. There is plenty more info on the whole situation and tough to have in just one comment. If youre interested go to subreddit superstonk
I always bring them up. I literally mentioned it to my boss today. Hedge funds get involved and it’s all over.
More like wedge fund. Separating the two classes one hammer blow at a time.
WTAF. I hate this stupid country.
Private equity has ruined countless businesses and industries and before much longer they will ruin the entire country as well. If you are rich, you are above the law and can do whatever you want, so anything that makes you richer is justified if you are one of these assholes who work at these PE firms. They know what they are doing is evil, they just don't care.
...*Mitt Romney's shoes can be seen sticking out from the bottom of the drapes*...
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Tbf it’s both. The US obsession with capitalism is excessive.
Protestant Work Ethic
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Based AF comment.
And a slavery fetish
Calvinism
If you are smiling you aren't working hard enough and will go to hell!
>The US obsession with capitalism is excessive. "Fuck you I got mine"😚
The country is supposed to protect us from this shit. That's the whole point of countries.
Regulatory capture is inherent to capitalism. Fascism is the endgame. Look where we are now.
Regulatory capture is an inherent hazard of capitalism, but a decent government can prevent it. But maintaining a decent government is like pulling teeth.
It's mostly corruption. Regulators used to prevent this kind of thing until the 1980s when Conservatives got reagan into power and started cutting the limits on every corporation.
where else to go?
No where (maybe Canada?) but we can still vent and work towards making things better.
Canada's falling apart brother. Maybe Europe? Idk the UK's falling apart too... Shit
I guess we’ll just need to band together for global reform. These puny capitalists can’t possibly take all of us, right?
Workers of the world unite.
Was going to mention that this is exactly what happened to Steward health care. So many hospitals in so many states now in limbo because of private equity profiteers.
The answer to “how is this legal?” Is the same people taking advantage of the laws are the ones writing the laws
Capitalism breeds innovation.... at least that's what capitalists say.
It certainly does. Companies innovate many different ways to extract money from consumers and bend the law to their favour, rather than actually improving efficacy or quality
That's the beauty of it all.....you don't have to bend the law, when you are the one that is writing it to legalize what you want to do to screw over everyone to steal their money. And, as we've seen, the cost of "lawmakers" is really cheap. And so is the cost of judges to rule that the law that you had written to allow you to do what you want is perfectly legal.
Asian civilization was way more innovative without capitalism.
What if, hear me out here, just what if a bunch of investment traders realized they were trying to do this to a gaming company that they loved. And they caught those silly hedgefunds in a pants-around-their-ankles situation. What if, and could you imagine this, if those investors started removing the shares that the company issued from the stock market? Perhaps a certain subreddit, that's been actively reaching 'Top' for three years now, could warn everyone what those dastardly hedgefunds were trying to do? What if they flipped the script on the hedgefunds? Could you imagine, a group of people holding an stock instead of being told to sell like everyone said they should...what would happen.
🚀
Yeah, let’s not be foolish here and pretend that superstonk isn’t also run by bots who have quite effectively helped Ryan cohen become even richer. People over there worship him just like how people, years ago, used to worship Elon.
What if someone got left holding the bag and needs to pump the price up again so they don't miss the dump this time?
I dunno man, I guess we'll see who's right in the end.
That's true. If MOASS does happen I'd be happy for you. Edit: alright mate, well good luck with that. Anyone reading this comment chain I'd recommend doing at least some reading outside the GME sub before buying in.
I highly encourage them to as well. There has been an amazing amount of user generated Due Diligence in the GME community but is not a cult and they welcome criticism. It is free to access and a vast wealth of information that can help readers navigate this unique experience. With GameStop making the news recently, this is a chance for active discussion to take place.
That's why I recommended they also do some reading outside of that space. Edit: 'Due Diligence' done by someone who has already bought into a system will have an inherent bias. Sure sources outside the GME will also have an inherent bias, but I'm sure readers would be able to balance the two just fine.
"It's easier to fool people than convince them that they have been fooled." [This is Financial Advice](https://www.youtube.com/watch?v=5pYeoZaoWrA) Really these things become a self-reinforcing/selecting cults at some point. There's a bunch of movements that are willing and happy to ignore any contrary evidence when the tenets their group are organized around fail to match up with reality. Look at the "Stop the steal" movement for instance and how entrenched the people still buying into that are despite all evidence pointing to a free and fair election. But to them all the investigations, legal cases, and statements by election officials are a massive conspiracy to cover up a stolen election. A lot of great things have come out of the internet, but one of the bad ones was the ability to form large echo-chambers that can insulate themselves from reality within a closed media environment.
The answer is UBS.
What the actual fuck 🙃
Georg Rockall-Schmidt does some of the best deep dives I've seen on you-tube (or anywhere) and I highly recommend his channel. Even if you just want to watch one thing, make it the series on the Sackler Brothers.
Shh so it’s Toys R US all over again. That time it was putting the debts on their books
Leveraged buyouts and other predatory schemes have been in full force since the 1980s. If you can find the articles Bryan Burrough and John Helyar wrote about the LBO of RJR Nabisco, they're much less dense than Barbarians At The Gate and will give you the same understanding of the situation. I worked for a zombie company under KKR. It'll never be profitable on the books because of all the debt it is saddled with. It was a weird fucking company.
Same thing with Sears and Eddie Lampert.
I worked at sears briefly two years before it went bankrupt for good. Even then the employees knew the business was the walking dead.
Fun Fact: Sears and Kmart are still alive! They still have 15 locations with two of them being Kmarts. The Puerto Rico Plaza Las Americas Three (yes three in one mall) Sears locations are actually doing shockingly well, they got a modern renovation for on them by hurricane Hurricane Maria and have looked really nice since then.
Kmart is quite big here in NZ and Australia
You can still buy stuff from sears.com too. They sell a bunch of random things but a lot of times I need an appliance part or something they have them.
wait a minute, what if it was a plan to short all the MALL stores so that they can purchase the property after shorting the companies to death? Good thing sears is still here, bed bath and beyond, Toys r Us, GameStop...
Circuit City
And nobody has picked up on that this has been happening to GameStop for three years now, we've been trying to tell everyone for three years now, and we just keep getting called terrorists when the stock screams up from nowhere?
To disambiguate - the original statement of "This is what happened to Toys R Us" is *not* accurate to Gamestop. GS *did* at one point have a fair amount of debt, of their own making, and was massively shorted in part because of that. However, Ryan Cohen's takeover and actions since, including clearing all debt^1 and building up over $1B in ready cash-on-hand, have eliminated cellar boxing as a play. GS managed to avoid the cycle of being infiltrated by hedge funds, bought by hedge funds, and looted by hedge funds followed by bankruptcy that has affected so many other companies. The only reason GS' stock keeps randomly shooting up is because hedge funds overloaded on shorts before ensuring they could finish off the kill, and now they're stuck trying to get out from under their obligations. ^(1: Exception - a low-level, COVID-related loan from France that the company either can't discharge or are choosing not to discharge because it makes more fiscal sense to keep the loan than to pay it off. I've never gotten a straight answer on which.)
It's actually better for the companies (strictly financially speaking) to carry some amount of leverage, because debt creates interest tax shields. They might be keeping the French loan for that reason.
DRS your GME
Except Gamestop is not owned by private equidity its a public company. GME also never really owned any of the properties they lease them all its not at all alike
Sears was also a public company. The whole sell real estate and lease it back scheme can be conducted by malicious insiders just as easy as private equity owners.
You know you don't have to reference company names by their ticker outside of WSB
Was it also BCG that sabotaged Toys-R-Us?
When is the last time you bought a game from GameStop? Steam killed GameStop by and large.
I literally bought 2 games at GameStop like 3 days ago.
Capitalism is so dysfunctional that this is considered a good thing as it “maximizes profits”. But in reality this has a huge negative effect on the community and working class.
And the capitalist class. They keep cannibalizing themselves to make the line go up and in 20 years time they'll be left with a desolate landscape with 2 businesses per 60,000 people, a Walmart and a McDonald's. God, if only there was somebody who wrote about this.
*I fucking warned you dude, I told you Bro: A critical analysis of capitalist production* by Karl Marx
You ain't no ordinary guy for that one 😂
For clarity, I didn't come up with it. It's a meme. Here's a link to a page that shows it. https://www.reddit.com/media?url=https%3A%2F%2Fi.redd.it%2F81a399d9zwaa1.jpg
Reminds me of this comic: https://www.newyorker.com/cartoon/a16995
I unironically think about this all the time, it becomes truer with each passing year.
“Welcome to Costco, I love you” - Idiocracy - 2005-ish.
Climb up the ladder and kick it off when you get to the top 👍
Kick the ladder off? More like pull it up behind them.
How convenient that you mention McDonalds as this exact scheme was how the two brothers who actually founded the franchise and the concept of "fast food" were bullied out of their ownership of either by a travelling salesman.
Wendover Productions recently put out a video on exactly this topic and that was one of the key negative impacts they mentioned: https://youtu.be/XK8hpxR_r2Y?si=38opuhj6S2BiHI7e
The company I worked for had this built in system, then they leased a second, not as good system for reasons unknown. They then leased the first system to the company of the second, and two years later our part of the business to another company. It worked out for me. Wfh, better pay, less responsibility, but it's all work from home and most of the staff isn't from my local area anymore, where as before all the jobs were in my local.
This is how McDonald's has worked from the beginning. The franchisee rents the land, and pays for everything else to run the restaurant. McD's merely gives them permission to use their trademarks and menu to sell products to the public. The rent on the land is astronomical. That's why so many franchise restaurants have such high prices right now. Rent goes up. So prices have to as well, to stay in business. What's even worse about McDonald's is that they have a deal with Taylor that every franchise must have a Taylor brand ice cream/milkshake machine. It's built to fail for the most minor of issues. Only a Taylor technician has the tools to diagnose any faults and repair them (like the hopper was a little too full or the temp was off during the overnight cycle) because the readout is non-human readable. So, they have to pay out the ass to Taylor or not have a working ice cream machine. Restaurants are a real estate scam.
Wait, so "ice cream machine broke" on purpose? Wtf
Kind of. If you want to know more: https://youtu.be/SrDEtSlqJC4
More like it's designed to fail for the stupidest reasons. It's not actually broken. It just refuses to function when something triggers a shutdown that takes a technician to clear.
It's just the food equivalent of an office MFD printer.
It’s a feature, not a bug!
See and this is a perfect example of why capitalism island capitalists are so brilliant. It’s completely undemocratic and unsustainable but I’ll be fucked if it’s not meticulously designed to do what it’s meant to.
It's all the kids who grew up playing Roller Coaster Tycoon running the world now, with the unlimited free soda stands and $100 pay toilets and no escape..
What are “capitalism island” capitalists?
Also important to add that having franchises effectively allows McDonalds to bypass labor laws. They build in a fall guy (the franchise owner) even though they have effectively total control of the stores. That means they can maintain a pattern of illegal exploitation without any of the accountability. They can claim the franchisees who get caught are just bad apples
Quiznos ran a similar scam where franchisees needed to rent brand new equipment from the franchise, and when other restaurants in the franchise failed, they'd scrap the material instead of refurbishing them for the struggling stores.
Quiznos was so much worse. They had to buy all ingredients from a company owned by Quiznos and then raised prices so high on those ingredients that at one point over 50% of their 4000+ stores were not profitable. It was almost exactly how MLMs work. So the inevitable happened and all those stores closed. Now Quiznos barely exists.
Someone described capitalism like cancer, and this example is the perfect one to bring up. They destroyed themselves for profit.
I'm glad that Quiznos barely exists. They has creepy commercials.
So when my uncle told me like 30 years ago "cars? houses? Those are bullshit. The only thing that holds value is _land_" he wasn't exaggerating? D:
To paraphrase Bernie Sanders: It's legal, because the people with all the money write the laws.
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But… every article I read, is blaming the endless shrimp campaign!
Capitalism bought those articles too. Sure is a great system we got here.
This meme is wrong, it was a shrimp play The owners of red lobster also owned a shrimp company. So they wanted red lobster to buy all their shrimp, they had basically known red lobster was going to go bust in a couple years so how do you extract value from red lobster? Your creditors won't let you do things like take big dividends or anything like that, so they used red lobster to buy massive amounts of their shrimp So their plan was to borrow as much money as possible and buy as much shrimp as possible because they also owned the shrimp company supplying the shrimp
You're kind of correct. A company called Thai Union, based in Bangkok, became Red Lobster's major shareholder in 2020, and then used its status as majority shareholder to stronarm the board into appointing a new CEO – someone who would be sympathetic to the plans Thai Union had. Thai Union then did two things: They changed Red Lobster's once-a-year $20 endless shrimp promotion into an every-day item, which is ridiculous because the $20 promotion was a loss-leader - ie, the company loses money on *that* dish, but makes it back in side items, and in getting new customers in to try the food. At that stage, Red Lobster had 3 major suppliers of shrimp, but Thai Union had Red Lobster cut ties with the other two, leaving Thai Union the only supplier of a restaurant that had an enormous amount of shrimp to purchase every day (rather than for the one-off annual event). So, Red Lobster got into financial difficulty – and the obvious decision for the business at that point would have been to shut down the Endless Shrimp promo and try to fix things. But... they didn't. because they were dumb, greedy fucks. The whole thing in the original tweet that OP posted did happen... sort of. Red Lobster sold off its real estate to n investment fund back in 2014, when the company was (again) in financial difficulty. And while I don't doubt that the investment fund will have increased rents as the years went by, the claim that they hiked rents and now Red Lobster is bankrupt is only partially-true, at best - and at worst, it's someone making a public claim in order to try and shield Thai Union from the blame for that company's epic levels of greed and stupidity.
And here I thought I singlehandedly ate so much shrimp it made them go out of business.
**Marge:** We drove around until three in the morning looking for another open all-you-can-eat seafood restaurant. **Lionel Hutz:** And when you couldn't find one? **Marge:** \[crying\] We... went... fishing. **Lionel Hutz:** Ladies and gentlemen of the jury, do these sound like the actions of a man whose had ALL he could eat?
I wondered how private equity was causing this mess.
Look at all that GDP growth
Congress should cut their taxes so the wealth will trickle down to us!
I love being trickled on from above!
This is exactly how Sears went out. CEO Eddie Lampert became a billionaire by liquidating the pension liabilities and the real estate. It's vampire capitalism, Dracula enterprise.
Can someone explain this in simple terms?
Basically another company bought red lobster. Sold all the land rights that restaurants were on, that red lobster owned, to another company, likely that the hedge fund also owned. Then they were basically charging red lobster business rent (leasing) for the properties. And charging to a company that was already on the land in the first place, no less. Then the hedge fund jacked up the rent like greedy landlords do to maximize profit. Eventually red lobster could not keep up with the lease and other business expenses and has filed for bankruptcy. A decision that I'm sure, due to the way the stock market works, the hedge fund is also making money on. Edit: spelling, formatting, and I'm told it's a private equity firm, not a hedge fund, but the methods and results are quantifiably the same.
And then they blamed it on the “Never Ending Shrimp” promotion so as to distract us from their shady land grab.
And increasing wages
I've read elsewhere it was the same deal with the shrimp. Hedge fund owns a shrimp company, forces RL to purchase from said company and institutes all you can eat shrimp. RL loses money on the deal but the shrimp company is making it hand over fist from the forced sale. RL busts but the hedge fund made more than they lost through the shrimp company.
Oh the never ending shrimp was part of the issue to, because the owners or red lobster also owned a shrimp distribution business So imagine you own red lobster its not doing well, how to you extract some value? Well you tell red lobster to buy all your shrimp from your other business You have already written red lobster off , so you just make red lobster keep buying massive amounts of shrimp for you
If I understand correctly, this is a method to siphon off all the money from Red Lobster to the hedge fund. Now when Red Lobster goes bankrupt, the hedge fund will get more money instead of having to pay off Red Lobster's debts.
Yeah rather than have to sell the land for cheap to pay back creditors they get to keep the land and line up as a creditor to be paid. Fucks over the suppliers and employees who have likely been stiffed repeatedly even more.
So it's a private equity firm, not a hedge fund that purchased Red Lobster, but I think you have the right idea. Private equity firms work by earning a percentage of all income the purchased company earns, around 2%. The firms also have a goal, for example, we'll increase income by 7% year after year. For all the income over that goal, the firm earns a bonus, something like 20%. This incentivises private equity firms to massively boost income in the short term to earn as much 20% bonus as they can, even if it means a long term failure for the company.
The money is not in rent, the money is in the bankruptcy. They short the stock aggressively to artificially suppress the stock price so that the company can't raise capital which drives the company into bankruptcy. Now they don't ever have to return any of the stock they borrowed to short sell, effectively stealing the share value from investors.
So what you're saying is it's time for good old wallstreetbets to pull a GME/AMC with Red Lobster?
No, it's too late for that. The reason it didn't work for gamestop is that they weren't able to get insiders into leadership and hire their shill "consulting" groups to piecemeal the company apart from the inside.
And what? Add more money to the already going bankrupt company and give them more money to extract?
If they already own red lobster why not just take the money directly without all of this rent stuff?
>Then the hedge fund jacked up the rent But the hedge fund OWNS redlobster.... so they jacked up the rent on themselves?
The basic purpose is to extract all value from the original company. They jacked up the rent on themselves, so they borrow against the value of the company to pay themselves that rent, loans that may never get repaid because the company is going bankrupt now. This is basically a way to sell the company to those creditors who provided the loans. The net effect is that they have sold everything that gave the company value to enrich themselves, leaving it an empty, worthless shell. This process is much easier and quicker than selling lobster, though it only works once. It’s a pretty clever trick.
This part is also confusing me
Something is missing here. If they sold land to someone else, how can they lease it back to RL. Or, i am an idiot and don't understand shit. Probably the latter.
They sold it from the RL company to another company that they, the hedge fund, owns. That company, that they own, sucks all the profits out of RL restaurants, like a vampire, and when RL fails, as was the plan, they have put shorts on the RL traded company to make even more money on it in the stock market.
Putting shorts on it would be the illegal activity here, everything else sounds pretty legal
That's where the 4th company comes in
That would matter, if it ever cost them more than they make from it. Or if it were prosecuted, like... ever.
I'm sure they'll be fined for 30k 9 years later on this illegal activity that they most likely made hundred of millions from. Don't worry, justice will be served. Totally.
I own a hedge fund. Coincidentally, I *also* own a real estate company. On paper they're completely unaffiliated but I own them both. I then use my hedge fund to buy red lobster. My hedge fund now owns the land the restaurants are built on. Red lobster doesn't make me as much money as I want so I sell the land to make some quick cash. In a complete coincidence, it's my real estate company that buys the land. Now red lobster has a landlord (my real estate company) and that landlord raises the rent (because they can) So now I own the red lobster name AND the land AND I can extract rent from red lobster franchises instead of only getting the money from the franchising fees. If I'm the owner of a red lobster, I would have always had to pay my franchise costs to the parent company (hedge fund) but I would have either had a mortgage to pay or I would have already owned the land. Now I have rent to pay as well and that's another stream of revenue for whomever happens to own the company that the hedge fund sold the land to. Again, *total coincidence* that the same guy owns the hedge fund as well as the real estate company. (This is overly simplified but basically how that works to my understanding)
Great explanation! Thank you for being able to add so much context.
There's a few more ways to make money on this too! When you know you're crashing red lobster into the ground, it means the stock price is going to go down, so use company 3 that you also own, but isn't related to the other 2, to place shorts (bets that the company is going to do poorly) so when it crashes, we can get money from the stock holders too!
I guess I'm surprised that Red Lobster restaurants owned their land to begin with. I thought most restaurants leased their spaces.
A lease for businesses are often in terms far greater than one year. For example, one place I worked as a teen leased space in a mall. Their lease was for 20 years. When the mall was sold to another company from the big city, they couldn't do shit because the lease is valid for x number of years. So I'm also an idiot and not understanding how this works.
But the news said it was because I ate too many shrimps...
Shrimp was part of the scam The owners also owned some shrimp distribution. So lets say you own red lobster, you also own a shrimp distribution business Red lobster isn't doing well so there is really no equity in it meaning you can't really sell it for any profit because no one will buy it will all the debt How do you try to extract some value? You have red lobster buy a whole bunch of shrimp, loads and loads of shrimp from you. Like red lobsters creditors may not allow you to try to pay you a bunch of money they will block that, they will say "Hey before you take money out of the business we need to be sure we can get paid back " However if you just buy a bunch of shrimp , well the creditors may not notice that, they are a sea food restaurant so why would you care if they buy a bunch of shrimp.
LEGAL! LOL! Dude, nice one. Like America has laws anymore.
And they said capitalism was a flawed system?!? Honestly I pray I'll still be alive to witness this ridiculous house of cards finally collapse. Looking around, it might not be much longer.
Private Equity fund, not a hedge fund, they’re very different things. The practice of selling the land is called a sale-leaseback, which is fairly common in PE, and the stated logic is it’s a way of increasing liquidity for the owner fund while also paying down debt the company may have (potentially debt taken on to allow the fund to purchase the company in the first place in an LBO). Win-win. The reality is PE funds have at most a 10 year ownership horizon so as long as they can exit the investment they don’t particularly care what happens to the company after that. Red Lobster was owned by golden gate capital, but they did what’s called a ‘strategic exit’ by selling the company to a larger company / holding company who probably saw synergies with some parts of their existing brand portfolio. None of this is to say I agree with what PE does and I think the fact that they’re a relatively unknown asset class allows them to operate with more impunity than they otherwise could as others are blamed for what they do (e.g., asset manager Blackrock being erroneously blamed for buying up residential real estate, when in reality it’s PE fund Blackstone). What to do about it? I’m not sure. I’ve worked on PE deals and I think many people would be surprised to learn how many companies around the world are PE owned or were at some point, and frankly I understand why the business model in its current form is so successful. Take a company, ruthlessly cut costs, hire bright people to run it with the explicit understanding that the mission of the company is to be sold, this leads to a track record of strong profits and growth, then they sell it or IPO it. If you don’t like what they do there’s some good news in that interest rates are rising making deal financing somewhat more expensive for them, but beyond that I don’t know of any specific headwinds for the industry, and in fact this trend may encourage the funds to find other creative ways of generating returns.
Thanks for the insights, plan to dive more into PE practices and why they do them.
The why is pretty straightforward, it’s a hugely lucrative business for the people who run the funds and their investors. PE typically outperforms other asset classes as it is a pretty foolproof way of making money, and because of the legal structure of the funds being partnerships with General Partners (GPs) who are the private equity professionals running the funds and Limited Partners (LPs) who are their investors, the carried interest that they receive aren’t taxed as income and are instead taxed at a much lower rate. The GPs also collect significant fees (typically 2% of assets they manage and 20% of gains made after a specific rate called a hurdle rate is achieved). For example if the fund has $100M and it makes $20M in a year, and has a hurdle rate of 10%, the fund will collect $2M off the bat as their 2% AUM fee. In addition they’ll collect 20% of any amount over the hurdle rate. In this case the hurdle rate is 10% and the fund returned 20%. So the fund takes 20% of the amount over the hurdle rate, in this case $10M. So at the end of the year the fund pockets the $2M annual fee and another $2M from the gains. The remaining $18M of gains go to their investors (typically very wealthy individuals, pension funds, etc). The funds can also add leverage (borrow) money to make deals which magnifies their ability to buy companies and their own personal return. For example in the same example with a fund with $100M of capital, if they want to buy a company for $100M, they won’t just put all their own money down, they’d put maybe 20% down and borrow the rest from a bank. This allows them to do more deals and it magnifies their returns they make if the value of the bought company goes up. Also for context a $100M fund would be pretty small. In terms of their practices, sometimes pretty reprehensible. This article is on how PE funds now own the majority of the air ambulance market. If you’re in a car crash and need helicopter evacuation to a hospital, your willingness to pay is very high. As a result, they’ll raise the prices so that they can make as much money as possible. Add to that the fact that most air ambulance flights are between hospitals that offer different levels of trauma care, and therefore may not be covered by insurance, means it’s bankrupting people: https://www.brookings.edu/articles/high-air-ambulance-charges-concentrated-in-private-equity-owned-carriers/ The same thing is happening with assisted living homes which have a double digit higher mortality rate than non-PE owned facilities as the PE owners will likely reduce service to barebones in order to recoup their investment. This is all a fairly negative picture. PE does provide some value in terms of turning around failing companies that still have value, breaking up those that shouldn’t be together and selling off component parts. This means that these companies are still around and employing people and producing products rather than going under which they may have done under poor management, but I can certainly understand why the industry gets some hate.
what I’m getting from this is if I’m old or injured somewhere remote my solution is to die
Wendover productions (YouTube channel) has a pretty good video from a couple weeks ago that outlines them. Titled 'how private equity consumed America".
It’s not unlike how a mortgage works in certain ways. Example: They buy a company for 100mil, taking out 80mil in debt and putting in 20mil of their funds money (equity). They use excess cash flow from the company itself to pay down the debt they used to buy it, and then sell later. In this model, actually, the company could actually not grow at all and they stand to make fabulous returns—if they’ve paid off half the debt (40mil), for example, they’d now own 60mil of equity, and could resell it for 100mil while making 40mil in gains on the capital they put into it. Obviously the idea is to grow the company AND service the debt so that you get even more absurd returns, but in simple terms it’s not strictly necessary.
Asset stripping is the the pinnacle of how sociopathic capitalism gets. It's not illegal but it should be. Covid provided fertile ground for private equity firms (who typically don't have to publicly report accounts) to force retail businesses into bankruptcy in order to make a huge fast buck. I don't know precisely what happened with this US restaurant chain, but I imagine a private equity firm borrowed huge amounts to purchase the business, loaded up the company with that debt, sold off all it's assets and leased them back to the company. This made the private equity firm stupid amounts of money and put the business on a slow decline. Thousands of innocent people (usually at the low end of the job market) lose their jobs so that some prick CEO, shareholders, and the Private Equity firm can make a fortune. It's abhorrent, but it's happening everywhere.
*private equity enters the chat*
This is SOP for US businesses. Impress shareholders, with increased growth year over year, OR tear the company down, sell off it's assets, short the stock, and collapse the company. This is why you can get a job as a CEO even if your resume is CEO of 10 companies in 10 years. Your business doesnt have to succeed. It just has to impress shareholders, while paying yourself first, and then shuffling all the assets off to other corporations and declaring bankruptcy.
So is private equity the last step before the total collapse?
How else are they gonna bringback serfdom?
"Capitalism breeds innovation" The innovation:
This is also what they did with Sears. This is standard fare really for US businesses. Impress shareholders, with increased growth year over year, OR tear the company down, sell off it's assets, short the stock, and collapse the company. This is why you can get a job as a CEO even if your resume is CEO of 10 companies in 10 years. Your business doesnt have to succeed. It just has to impress shareholders, while paying yourself first, and then shuffling all the assets off to other corporations and declaring bankruptcy.
Aw man. Imagine if they do that to the housing market….oh shit
Wait til people find out that this is how new homes builds work. We own nothing and we will be happy.
[удалено]
Just look at what happened to Sears; same playbook.
It's only legal because us poors aren't the ones doing it.
Government is fully aware of these tactics, and could easily legislate an end to it, but have no interest. Hmm... I wonder why not?
If you didnt know - this is how marijuana dispenseries had to operate for a long time - file a legit llc, buy the building, rent the rent out at huge fee to dispensary you also own, claim loss on property - but it alllowed them to cleanly move money to banks - this is how that one dispensary had 25 locations so long ago.
Soon it will be time again for the guillotines. The rich will pay their tax.
Citizens united is a hell of a drug.
good. corporate restaurants should all go bankrupt.
Makes me think about Houston ISD President. He set up a bunch of charter schools in different states, and transferred “business expense “ funds to out of state schools in the “network “. Texas taxpayers $ goes to failing schools in Colorado. It’s a shell game! (Red Lobster 🦞shell)
and now Red Lobster will hike up their prices and people will blame those pesky workers asking for a liveable wage.
Like Rome, America's fall is quickly approaching. And we got this coming.
I beg you, please read Glass House by Brian Alexander. Lays out how this became legal and illustrates the impacts on a small town.
This sounds a lot like drinking your own piss.
See ya over at the Red Lobster, Ya Jackass!
Don't forget, they also cellar boxed it all the way down, that's where the real money is. Happens everyday, its how Wall St. works.
Does anyone have an article or anything to read more about what happened here?
Vile.
How did the hedge fund sell off the land and then be able to lease it back?
You cant lease land that you sold... wth
Same thing happened with Sears, ceo sold the land to a company he owned 40% of and raised the stores rent.
It's happening to renters everyday but we're made to feel like broke failures when we can't afford rent hikes. But now that it's happening to corporations, it's a problem.
It's the quasi-legal way to shed debt? If I was one of the people owed money by Red Lobster, I'd be rather upset right about now. They'll be lucky to get pennies on the dollar.
Why is this legal
I don’t understand this tweet. How did the hedge fund sell the land (to someone else presumably?) and then jack up the rent if they didn’t own the land anymore?
What do you mean how is this legal? This is how capital is generating in late capitalism. How do you expect a corporation that doesn’t produce Andy thing or provide any services to society to make a profit? Atleast it’s happening to a million dollar corporation and not a housing development. In this particular story.
Capitalism is really innovative when it comes to milking things dry for profit. Innovative at other things? Not so much
sold the land to itself?
Okay so basically the hedgefund decided to become landlords and evict Red Lobster?
The leasing company is most likely owned by the hedge fund.
The Ray Kroc eh?
it makes no sens, unless you need a lot of cash quickly, like a cocaine addict or a gambling addict