The Resurgence of Finance Capital?

BusinessWeek had a very interesting cover story on the Carlyle group.

Thornton, Emily. 2007. “Carlyle Changes Its Stripes.” Business Week (12 February): pp. 46-59.

The gist of the story is that: “By the end of this year it expects to have an unprecedented $85 billion in investor commitments under management, up sixfold from 2001.”

In a BusinessWeek podcast, the author suggests that private equity firms may end up running a large share of corporate America, rather than just flipping companies for a quick profit. In effect than, managerialism may be giving way to something more like the old German system, where the banks were in control.

Part of this transition is fueled by cheap capital, the cover story of this week’s edition of BusinessWeek, which I have not had time to read. But cheap capital also eventually means excessive capitalization, leading to huge busts.

All this is speculative, but I think it bears watching.

1 comment so far

  1. Chris Baehrend on

    Dear Mr Perelman,

    I value your column immensely and often pass on links to your pieces to robber-barons-in-waiting who I suspect of having a conscience attached to their mental calculators. And if I weren’t trying to escape from a PhD (English, on ST Coleridge) I’d comment more often. I had a few questions from a lay auditor that I hope you may find time to address in a future piece. First, what was the ‘old German System’ you refer to in this entry, and what sort of changes to our economic system might that model entail? Second, I’ve been reading in several places about private equity buying up “US” companies, but at the same time I also read that our debt is increasingly owned by China, Britain, etc. If the S&P companies hold 2.5 trillion USD in capital (which equates to a huge percentage of world GDP) how much of the US debt are they financing? If they seem less eager that foreign entities, do they see our present regime as a bad investment? And what sort of leverage does a foreign power to whom we owe trillions hold over us economically or otherwise? Third, I understand that multi-national corporations hold enormous sums of wealth and that many are based outside the US for tax purposes (& etc). Does this mean that wealth is being transferred out of this country? And what effect would that have on our economy?

    My last question is, perhaps, too broad for easy explanation. I presume that a shareholder on average probably holds shares for only a few years. A coropration is legally obliged to make money for its shareholders. Corporations hold more power over our governemnt than at any time since the late 19c. While I recognize that officers and board members usually live here, have ethics, and may want to have jobs in the long-run, does this mean that corporate influence is, on the whole, necessarily, legally, and irremediably detrimental to the long-term interests of the average US citizen?

    I know that I’m asking big questions here and that you may not have the opportunity to address them, but I thought that you might like to know about what’s perplexing your admiring readers.

    Also, I’ll thank you again (I wrote a few months ago) for elucidating these complex issues to non-economists without reducing them, and for doing so with humanity and chutzpah. (And thanks for turning me on to Plato’s Beard!).

    Best Wishes,
    Chris Baehrend
    (BA Berkeley ’93)


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