5 ms·

> the should-be-illegal process of putting debt on the acquired company's balance sheet. I agree it's weird but ultimately the check against dumb lending is na

> the should-be-illegal process of putting debt on the acquired company's balance sheet. I agree it's weird but ultimately the check against dumb lending is natural consequences for the lender, right? If you ask me for billions in loans for your zero revenue company and I give it to you, whose problem is that but my own?

consp 5mo ago
In the modern world if you are a bank you will be bailed out eventually, thus your problem becoming everyone's problem.
- boringg 5mo ago
  Ah-hem SVB?
  - vallassy 5mo ago
    An outlier in historical terms (i.e. the last 20 years) https://projects.propublica.org/bailout/list https://projects.propublica.org/bailout/list
    - deleted 5mo ago
      [deleted]
    - deleted 5mo ago
      [deleted]
  - matwood 5mo ago
    SVB was not bailed out. Depositors were made whole (as they should be), but shareholders were completely wiped out (as they should have been).
    - boringg 5mo ago
      My point exactly.
    - itsmek 5mo ago
      Eh, they were kind of bailed out in that uninsured deposits were made whole. Not saying they shouldn't have done it (fighting contagion is like fighting fire, earlier is prob better and potentially cheaper in the end if your confidence bluff succeeds) but "bail out" is a flexible enough term that electing to cover uninsured deposits at the expense of uninvolved parties feels like it qualifies to me. Plus it has some of the same smells as other bailouts - weighing moral hazard vs systemic risk.
      - matwood 5mo ago
        “They” in your sentence is not SVB. Depositors who put money in an accredited bank should not have to worry about bank runs. Risk free banking for depositors is a cornerstone of the US economy. There’s also no moral hazard here - the shareholders, equity partners, and debt holders were correctly wiped out.
        itsmek 4mo ago
        Risk free banking past FDIC limits is not explicitly a cornerstone of the US economy, it is a thing that is sometimes done and sometimes not done depending on contagion risk. If it's so essential then we should make it explicit so that everyone pays the fair share for their deposit insurance.
- WJW 5mo ago
  The 2023 mini banking crisis has its own wiki page and it's quite informative. Of the three banks involved, one bank saw its shares drop 97%, another "shareholders lost all invested funds" and the third got auctioned off for pennies on the dollar. No investors were bailed out. Banks go bankrupt all the time. Community Bank and Trust of West Georgia went bankrupt just 3 days ago. The Metropolitan Capital Bank & Trust that went bankrupt back in January. 99% of the time the investors are completely wiped out. Bailouts almost never happen, which is precisely why it's such big news when it happens.
SpicyLemonZest 5mo ago
The problem is that leveraged buyouts allow me to effectively inflict that debt on other companies, making a buyout offer the existing shareholders won't be able to resist and then reorienting its operations around servicing the debt I took out. In fact, lenders arguably favor this, letting me use the company I'm acquiring as collateral to acquire more debt at better terms than would otherwise be available.
- nyeah 5mo ago
  Of course lenders will lend more against more collateral. That doesn't mean it always ends happily.
sbarre 5mo ago
It's the problem of all the employees (and potentially customers) of the company being plundered. They have no say in the matter, and given that the lender can probably absorb the loss without, you know, missing mortgage payments or losing health insurance, I would absolutely argue it's not just their problem. You can certainly hold the opinion that "it's just business" but it feels like an unnecessary part of business that very often has real disruptive and detrimental effects on average working people, for the sole benefit of rich people getting richer. And yes I get that it's not just a PE problem, but PE is a big one of these kinds of problems.
- twoodfin 5mo ago
  This is a fundamental misunderstanding of the US employment model. Businesses can do all sorts of dumb things that end up making them unable to continue to invest in employees. The check against that is the greedy owners. Regulations designed to ensure businesses never take risky bets lest they have to lay people off would be a nightmare of unintended consequences and surely in aggregate hurt employment.
  - dgellow 5mo ago
    I assume the person you answered is saying that level of risk taking should be regulated. Not that no level of risk should be allowed if they have to fire people. Surely there is a point where you want some guardrails, so the C-suite has to at least take in account their employees as part of their risk assessment
    - brookst 5mo ago
      I don’t see it. Is the idea that big companies take too many risks today? If so, I’d love to see data, because the usual knock on big companies is they become dinosaurs and risk-averse, and therefore stop innovating and eventually get displaced by upstarts.
  - sbarre 5mo ago
    You're bringing your own conclusions to this, I never said anything about regulation. I was just responding to OP who said that PE plundering via debt loading is only the lender's problem when things don't work out, and I assert that it is not. Employees often pay a much more impactful price when PE-driven cuts occur (whether by design or because the plan failed).
miltonlost 5mo ago
The people who work at the bought-out company who will then be fired due to PE now gutting workforces to pay off the debt. Laborers are getting the shaft
deleted 5mo ago
[deleted]
nyeah 5mo ago
If it was just you personally, sure. But a bank failure affects lots more people than just the bank.
shmatt 5mo ago
The lenders get their money back via management fees. Pretty much only the consumers and the employees get screwed over
- nyeah 5mo ago
  For the most part, the lenders are not the people receiving management fees.

consp 5mo ago

In the modern world if you are a bank you will be bailed out eventually, thus your problem becoming everyone's problem.

boringg 5mo ago
Ah-hem SVB?
- vallassy 5mo ago
  An outlier in historical terms (i.e. the last 20 years) https://projects.propublica.org/bailout/list https://projects.propublica.org/bailout/list
  - deleted 5mo ago
    [deleted]
  - deleted 5mo ago
    [deleted]
- matwood 5mo ago
  SVB was not bailed out. Depositors were made whole (as they should be), but shareholders were completely wiped out (as they should have been).
  - boringg 5mo ago
    My point exactly.
  - itsmek 5mo ago
    Eh, they were kind of bailed out in that uninsured deposits were made whole. Not saying they shouldn't have done it (fighting contagion is like fighting fire, earlier is prob better and potentially cheaper in the end if your confidence bluff succeeds) but "bail out" is a flexible enough term that electing to cover uninsured deposits at the expense of uninvolved parties feels like it qualifies to me. Plus it has some of the same smells as other bailouts - weighing moral hazard vs systemic risk.
    - matwood 5mo ago
      “They” in your sentence is not SVB. Depositors who put money in an accredited bank should not have to worry about bank runs. Risk free banking for depositors is a cornerstone of the US economy. There’s also no moral hazard here - the shareholders, equity partners, and debt holders were correctly wiped out.
      - itsmek 4mo ago
        Risk free banking past FDIC limits is not explicitly a cornerstone of the US economy, it is a thing that is sometimes done and sometimes not done depending on contagion risk. If it's so essential then we should make it explicit so that everyone pays the fair share for their deposit insurance.
WJW 5mo ago
The 2023 mini banking crisis has its own wiki page and it's quite informative. Of the three banks involved, one bank saw its shares drop 97%, another "shareholders lost all invested funds" and the third got auctioned off for pennies on the dollar. No investors were bailed out. Banks go bankrupt all the time. Community Bank and Trust of West Georgia went bankrupt just 3 days ago. The Metropolitan Capital Bank & Trust that went bankrupt back in January. 99% of the time the investors are completely wiped out. Bailouts almost never happen, which is precisely why it's such big news when it happens.

SpicyLemonZest 5mo ago

The problem is that leveraged buyouts allow me to effectively inflict that debt on other companies, making a buyout offer the existing shareholders won't be able to resist and then reorienting its operations around servicing the debt I took out. In fact, lenders arguably favor this, letting me use the company I'm acquiring as collateral to acquire more debt at better terms than would otherwise be available.

nyeah 5mo ago
Of course lenders will lend more against more collateral. That doesn't mean it always ends happily.

sbarre 5mo ago

It's the problem of all the employees (and potentially customers) of the company being plundered. They have no say in the matter, and given that the lender can probably absorb the loss without, you know, missing mortgage payments or losing health insurance, I would absolutely argue it's not just their problem. You can certainly hold the opinion that "it's just business" but it feels like an unnecessary part of business that very often has real disruptive and detrimental effects on average working people, for the sole benefit of rich people getting richer. And yes I get that it's not just a PE problem, but PE is a big one of these kinds of problems.

twoodfin 5mo ago
This is a fundamental misunderstanding of the US employment model. Businesses can do all sorts of dumb things that end up making them unable to continue to invest in employees. The check against that is the greedy owners. Regulations designed to ensure businesses never take risky bets lest they have to lay people off would be a nightmare of unintended consequences and surely in aggregate hurt employment.
- dgellow 5mo ago
  I assume the person you answered is saying that level of risk taking should be regulated. Not that no level of risk should be allowed if they have to fire people. Surely there is a point where you want some guardrails, so the C-suite has to at least take in account their employees as part of their risk assessment
  - brookst 5mo ago
    I don’t see it. Is the idea that big companies take too many risks today? If so, I’d love to see data, because the usual knock on big companies is they become dinosaurs and risk-averse, and therefore stop innovating and eventually get displaced by upstarts.
- sbarre 5mo ago
  You're bringing your own conclusions to this, I never said anything about regulation. I was just responding to OP who said that PE plundering via debt loading is only the lender's problem when things don't work out, and I assert that it is not. Employees often pay a much more impactful price when PE-driven cuts occur (whether by design or because the plan failed).

miltonlost 5mo ago

The people who work at the bought-out company who will then be fired due to PE now gutting workforces to pay off the debt. Laborers are getting the shaft

deleted 5mo ago

[deleted]

nyeah 5mo ago

If it was just you personally, sure. But a bank failure affects lots more people than just the bank.

shmatt 5mo ago

The lenders get their money back via management fees. Pretty much only the consumers and the employees get screwed over

nyeah 5mo ago
For the most part, the lenders are not the people receiving management fees.