State of The Union 2012

[heironymouspasparagus]

You are so hard-wired against anything I've got to say, I don't think you have a clue what we are talking about here.

Not everything.

There was a back and forth about financial capitalism (defined as Bain approach) versus real capitalism as represented by Berkshire.  Then you said;

So we are saying investment doesn't create jobs now?  Berkshire Hathaway doesn't create jobs and hurts workers as well I take it?

Which is NOT what was said at all.  Investment is good, investment is necessary, investment can be excellent.  And it is very different from raping and pillaging capitalism - defined in this specific string of posts by TTC as financial capitalism, which is actually pretty close, with investment capital firms taking the place of banks.

Berkshire has been spectacularly successful at making money for its investors.  Berkshire doesn't actually seem to create jobs very much at all - last I heard a number, it was that there are about 20 people working for the company.  What is seems to do very well is identify good, well run companies; buy them; and let the existing management continue to run them successfully, with the intervening step of injecting capital by way of said purchase that allows the companies to continue and most of the time, enhance their growth/performance.  Except maybe Coca-Cola for the last 15 years....  (I know - you already know this.)

And then was when I jumped in and said you were trying to deflect - which brings us back to the difference between Berkshire - an example of good (if not excellence!) in corporate America and Bain - a mediocre at best example of corporate America.  

And we could go one step further to an example of absolutely toxic corporate America, like Cerberus Capital Management.  A "company" whose sole purpose is to do to corporate and working America what a baby does to a diaper.  The 'poster child' company of why Congress should act, but is so badly 'bought and paid for' that it never will.

[nathanm]

And we could go one step further to an example of absolutely toxic corporate America, like Cerberus Capital Management.  A "company" whose sole purpose is to do to corporate and working America what a baby does to a diaper.  The 'poster child' company of why Congress should act, but is so badly 'bought and paid for' that it never will.

It's more an example of what happens when you privilege a certain class of income over another, thereby providing strong incentives to be on the money shuffling side of capitalism rather than the productive side.

[Conan71]

It's more an example of what happens when you privilege a certain class of income over another, thereby providing strong incentives to be on the money shuffling side of capitalism rather than the productive side.

Or at least delineating between the actions of individual investors (i.e. middle class people with investment accounts they manage on their own) vs. a different rate for larger scale speculators. 

I suspect Romney will become a whipping boy and example of American greed, when in actuality, venture capitalists have helped create many jobs and saved many jobs when companies had nowhere else to turn for survival or growth.  Our business landscape would look a whole lot different without venture capitalists.  They take huge risks that banks and traditional institutional investors won't. 

[nathanm]

I suspect Romney will become a whipping boy and example of American greed, when in actuality, venture capitalists have helped create many jobs

Bain was not a VC firm. VC firms invest near the beginning. Bain is a private equity firm. They're the sort that buy up and (often) part out businesses. There have been a long line of profitable businesses bought up and run into the ground by PE firms. Since they're just after the assets, they don't give a smile about the long term viability of the business.

[Red Arrow]

Bain is a private equity firm. They're the sort that buy up and (often) part out businesses. There have been a long line of profitable businesses bought up and run into the ground by PE firms.

I don't doubt that it happens.  Have any numbers to put to "often"?

[Hoss]

I don't doubt that it happens.  Have any numbers to put to "often"?

The company I work for was bought by an equity firm at one point.  They sold us off after we had some good financials for about 3 quarters and made a profit.  So that's one for one as far as I know how they work.

[Red Arrow]

The company I work for was bought by an equity firm at one point.  They sold us off after we had some good financials for about 3 quarters and made a profit.  So that's one for one as far as I know how they work.

I was hoping for a statistical sample larger than one.

[Red Arrow]

It's more an example of what happens when you privilege a certain class of income over another, thereby providing strong incentives to be on the money shuffling side of capitalism rather than the productive side.

Our tax code is full of behavior modifying privileges.  Home mortgage interest deduction.  Deductions for dependents.  IRA deduction. 401K contributions are before tax (at least I get one). Student loan interest deduction.

[Red Arrow]

They take huge risks that banks and traditional institutional investors won't. 

And they deserve to pay a lot higher tax rate for such risky behavior.  We should also remove the capability to deduct any losses from their income.  A $3000. cap (according to Bill O) is just too much.  They knew what they were getting into.
/sarcasm

[Red Arrow]

You are so hard-wired against anything I've got to say, I don't think you have a clue what we are talking about here.

Heiron has his own little script that he follows. 

[nathanm]

Our tax code is full of behavior modifying privileges.  Home mortgage interest deduction.  Deductions for dependents.  IRA deduction. 401K contributions are before tax (at least I get one). Student loan interest deduction.

Those are mostly examples of areas in which the tax code privileges specific ways of spending your money. Those higher on the income scale can donate money to charity, or in many cases get the same deduction a lower income person gets. Some, like student loan interest, phase out, but a lot don't. Pre-tax contributions get taxed when you withdraw, by the way.

What I'm talking about is privileging a certain form of income over another. As if it wasn't bad enough, they get several large loopholes that those of us who don't own private equity firms or hedge funds don't get to use to turn wage income into long term capital gains. How do you think it came to be that Romney's rate is around 14%?

Edited to add: Come to think of it, even all the minor rich are at a disadvantage here. Why do private equity fund managers/partners pay a lower rate than a boots on the ground entrepreneur? That makes no sense.

[Red Arrow]

Those are mostly examples of areas in which the tax code privileges specific ways of spending your money. Those higher on the income scale can donate money to charity, or in many cases get the same deduction a lower income person gets. Some, like student loan interest, phase out, but a lot don't. Pre-tax contributions get taxed when you withdraw, by the way.

What I'm talking about is privileging a certain form of income over another. As if it wasn't bad enough, they get several large loopholes that those of us who don't own private equity firms or hedge funds don't get to use to turn wage income into long term capital gains. How do you think it came to be that Romney's rate is around 14%?

They are all examples of privileged money vs. just privileged income. Yours and my standard deduction and exemption for ourselves plays a lot larger role in reducing our taxable income than for Warren Buffet.  If someone chooses to have children, some of the money spent on them is privileged by not being taxable via the deduction for dependents.  Pre-tax contributions to my 401K are privileged due to the assumption that withdrawls will be made when my overall income will be a lot less and therefore at a lower marginal rate.  The way things are going, that rate may be 15%.  Due to the standard deduction, personal exemption, and 401K contributions, my overall tax rate (Federal Income tax) is in the mid teens, a little over 1/2 of my top marginal rate.

[heironymouspasparagus]

I don't doubt that it happens.  Have any numbers to put to "often"?

How about every time with Cerberus and Blackstone?  And never with Berkshire Hathaway.  And sometimes by Bain with Mitt involved. 

I don't have a big gripe about Mitt at Bain at all.  And granted, I don't know very much compared to what must be the reality of his tenure, but at worst, it would seem to be neutral.


Also, it doesn't have to be a VC who does the deed.  We have a classic example of how that works with a little company in town called Oil Dynamics, when the "parent" company (Franklin Electric) dug a deep debt hole for it (to take cash out), then let the company pay it off.  Then sold it to the big conglomerate (Baker Hughes) for another, even bigger pile of free and clear cash.  Assimilation ensued.

[heironymouspasparagus]

Heiron has his own little script that he follows.  

Yep.  It's the script of rational, reasoned thought.  Direct opposite of The Script....

[heironymouspasparagus]

Edited to add: Come to think of it, even all the minor rich are at a disadvantage here. Why do private equity fund managers/partners pay a lower rate than a boots on the ground entrepreneur? That makes no sense.

Exactly!  It's because of a "bought and paid for" Congress that wrote the laws to let that happen, and then let themselves do insider trading based on information provided by their "good buddy" friends in private equity fund world.