Perhaps the most compelling critique I've heard of the private equity industry is that oftentimes these transactions involve getting rich through financial engineering rather than actual improvements in underlying business practices. Fair enough. But it's hardly as if this is unheard-of in the exciting realm of the publicly traded firm. Here (via Atrios) is a tale from Pacific Gas & Electric:
Pacific Gas and Electric Co. diverted more than $100 million in gas safety and operations money collected from customers over a 15-year period and spent it for other purposes, including profit for stockholders and bonuses for executives, according to a pair of state-ordered reports released Thursday.
And here Josh Barro tells us about aviation:
But in 2007, Congress passed a law (actually, they inserted a provision in the Iraq War Funding bill) that specially allowed airlines to use a discount rate of 8.25 percent. A higher discount rate means fewer assets are needed to cover a given set of benefits, and therefore lower contributions into the pension fund are required. Essentially, this law allowed cash-strapped airlines to borrow money from their pension funds to keep themselves afloat.
I would further note that over and above borrowing from the pension fund, American Airlines went to great lengths to lever-up as much as possible by taking up loans backed by physical assets like airplanes. Then they declared bankrutpcy with over $4 billion in cash in the bank, not so much because they "couldn't" pay their bills as that it was simply more financially viable to go into bankruptcy to shed some of these pension obligations (and otherwise stiff unions) before the discount rate jig was up.
Socially destructive business practices are a real problem, but they're not unique to one particular form of corporate organization.
TODAY IN SLATE
Meet the New Bosses
How the Republicans would run the Senate.
The Government Is Giving Millions of Dollars in Electric-Car Subsidies to the Wrong Drivers
Scotland Is Just the Beginning. Expect More Political Earthquakes in Europe.
Cheez-Its. Ritz. Triscuits.
Why all cracker names sound alike.
Friends Was the Last Purely Pleasurable Sitcom
This Whimsical Driverless Car Imagines Transportation in 2059
- Protesters Take to the Streets to Sound Alarm on Climate Change in New York, Across the World
- Knife-Carrying White House Jumper is Vet who Feared “Atmosphere Was Collapsing”
- North Korea: American Sentenced to Hard Labor Wanted to Become “Second Snowden”
- Almost One in Four Americans Support Idea of Splitting From the Union
Did America Get Fat by Drinking Diet Soda?
A high-profile study points the finger at artificial sweeteners.