The Disastrous Toll of Fictitious Value

The world of fictitious value mesmerizes itself by using a strange language. Financial operations refer to their “shop,” as if they were standing over a workbench shaping metal or wood. Then they talk about “value creation.”

What does that mean? Suppose I start a private equity company. People give me money to create value. I can create this value by taking over a company with very little of my own money. I need a banking accomplice to give me a bridge loan and a compliant company management. Then I can “unlock” the firm’s value.

Once source of untapped value is a pension fund. Workers can be granted stock in the company as compensation. I can take over the firm, then use the pension fund to pay for some of the money I own. I can load the firm up with debt and charge it exorbitant fees. Now I have begun to “unlock” value.

Next, I can fire lots of workers, including those whose pension fund financed my takeover. By doing so, I can show that I am creating efficiencies. Once I cook the books to make the firm look profitable and sell it to a unsuspecting public.

Should anyone be surprised that many of these companies have been going bankrupt? And the workers whose pensions were central to the process? Well, they have some pretty paper.

Ain’t capital wonderful?

1 comment so far

  1. Azuz on

    I am glad to come across your blog. Coincidently my blog (http://rsatomorrowsinvestor.wordpress.com/) also discovers “Intelligent Bankruptcy” for unsercured creditors pension fund investors tomorrow. I think it is time that these stories are unfolded.


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