.bodytext {float: left; } .floatimg-left-hort { float:left; margin-top:10px; margin-right: 10px; width:300px; clear:left;} .floatimg-left-caption-hort { float:left; margin-bottom:10px; width:300px; margin-right:10px; clear:left;} .floatimg-left-vert { float:left; margin-top:10px; margin-right:15px; width:200px;} .floatimg-left-caption-vert { float:left; margin-right:10px; margin-bottom:10px; font-size: 10px; width:200px;} .floatimg-right-hort { float:right; margin-top:10px; margin-left:10px; margin-bottom:10px; width: 300px;} .floatimg-right-caption-hort { float:left; margin-right:10px; margin-bottom:10px; width: 300px; font-size: 10px; } .floatimg-right-vert { float:right; margin-top:10px; margin-left:10px; margin-bottom:10px; width: 200px;} .floatimg-right-caption-vert { float:left; margin-right:10px; margin-bottom:10px; width: 200px; font-size: 10px; } .floatimgright-sidebar { float:right; margin-top:10px; margin-left:10px; margin-bottom:10px; width: 200px; border-top-style: double; border-top-color: black; border-bottom-style: double; border-bottom-color: black;} .floatimgright-sidebar p { line-height: 115%; text-indent: 10px; } .floatimgright-sidebar h4 { font-variant:small-caps; } .pullquote { float:right; margin-top:10px; margin-left:10px; margin-bottom:10px; width: 150px; background: url(http://www.dmbusinessdaily.com/DAILY/editorial/extras/closequote.gif) no-repeat bottom right !important ; line-height: 150%; font-size: 125%; border-top: 1px solid; border-bottom: 1px solid;} .floatvidleft { float:left; margin-bottom:10px; width:325px; margin-right:10px; clear:left;} .floatvidright { float:right; margin-bottom:10px; width:325px; margin-right:10px; clear:left;} Dear Mr. Berko:

P.C., Bend, Ore.

Dear P.C.:

You can get on the bandwagon, but I doubt there will be enough horses remaining to pull it during the next few years!

Private equity firms such as Blackstone, Fortress, Cerberus, Kohlberg Kravis, Clayton Dubilier, etc. make scandalous profits and add nothing to society except a culture of insatiable greed.

This rapacious industry makes its lucre by purchasing a private or public company for, let’s say, $6 billion, using a combination of $3 billion in “private equity” money and $3 billion in borrowed bank funds. After the purchase they will sell $3 billion in bonds (guaranteed by the remaining assets of the purchased company) to repay their private equity investment, then a year later, they will take the company public again, selling $4.5 billion of new stock. With the $4.5 billion proceeds from the public offering, the private equity firm repays its $3 billion bank loan, keeping a $1.5 billion profit, while the partners snicker as they deposit huge fortunes in their personal checking accounts. Meanwhile, the newly issued public company has $3 billion in additional debt it never had before.

In my opinion, most private equity firms are whoremongers, and investors who buy the newly minted initial public offering shares are dumber than size 15 bowling shoes.

Cerberus Capital Management may have enormous difficulty selling bonds to pay for its $7.5 billion buyout of Chrysler. Apax Partners will have big problems selling bonds to finance its $7.8 billion buyout of Thomson Learning. Kohlberg Kravis may have shamed banks and hedge funds into buying billions of dollars of bonds to finance its takeover of TXU, First Data and Dollar General.

There isn’t an iota of economic good in the purchase and resale of these over-indebted companies to investors at higher prices. Private equity firms have been flipping public companies like real estate speculators were flipping houses in the past few years, and I think it may soon “bubble.” Meanwhile, Blackstone CEO Steve Schwarzman, who recently took his company public at $31 per share, put $7.7 billion of those public proceeds in his bank account. I’m sure he was smirking like a Cheshire cat as he motored to the drive-through window.

Most private equity firms make me feel unclean because: (1) their endgame is like a necrotizing cancer; (2) the debt they incur to pay for the purchases is unscrupulous, counterproductive and borders on misfeasance; (3) their buyout activities spawn mountains of new debt, the weight of which becomes an anchor to a company’s growth; (4) their business plans create zero economic benefit for the target firms and their employees; and (5) these Wall Street carpetbaggers are basically paying Paul so they can rob Paul in order to steal from Peter.

Many private equity firms and many of their associated hedge funds represent capitalism in its most evil and virulent form. I suspect that some of the banks and hedge funds participating in this perversion of corporate structure are becoming nervous about the excessive accumulation of junk debt they’ve had to purchase and hold in inventory. And some of the brokerage firms who eagerly participated in this corporate defilement are looking to exit this cabal of collusion and complicity.

Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, Fla. 33429 or e-mail him at malber@adelphia.net.© Copley News Service