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As far as I understand, for publicly traded firms they just need to show significant reductions in operational costs and invested capital, what amounts to a "healthy" company because higher profits, and the share price goes up.
When the share price goes up, they get financing against the now higher share price (banks are where new money comes from), use that money to buy controlling shares in other companies, and repeat the process.
When the bare-bones operation shows that it can't do what it's supposed to do with fuck all resources, they let the company die, declare bankruptcy and use accounting tricks so the losses reduce their tax load.
Okay so:
Artificially boost valuation by cutting costs to unsustainable levels.
Take out a loan financed against the artificially valuable company.
Abandon the company they financed the loan with when it inevitably dies.
So the bank is the one eating the loss while the private equity firm gets away with all the loan money?
How isn't this just bank fraud ๐
The bank is getting paid regardless, because the money is invested in other companies with varying degrees of success (or at different stages of being gutted), or other financial vehicles that don't necessarily track actual company value accurately. I don't know that much about the financial part of it, but in my unfortunate experience with these kinds of shops they know not to piss off the banks.
It's like the meme with the two dudes exchanging a briefcase back and forth, "creating value"
I guess the bank is okay with eating the loss on one slash and burn if it means they can get more return from other investments, but I definitely can't wrap my mind around it. It's like the bank is being robbed and deciding it's okay because the robbers are reinvesting the money they stole.
Yup, good ol' vulture capitalism.
Make a corpse, pick its bones, and fly away to the next meal.
Shareholders 'in on it' can make a tidy profit too, so they don't care that their new CEO or owner or w/e has track records likes these. 'What's that? You killed the last five companies you bought?' Eyes bulge with looney toons dollar signs.
What more amazing is that people can look at this system and say "look buddy, you don't have to like it, but capitalism just works, unlike your gommunism bullshit."
Even liberal economists complain that this business model produces no value and should be discouraged. But capitalism machine goes brrr, I guess.