05/21/2014 archive

The SEC and Private Equity

Naked capitalism‘s Yves Smith appeared in RT news Boom/Bust to discuss the risky business and abuses of private equity in the real estate rental market. Her segment starts at 3:45.

In her article, Yves also noted this piece from an article on private equity from Friday’s Bloomberg News:

PE Slump

Private-equity transactions overall have fallen 22 percent to $53 billion through April, data compiled by Bloomberg show, led by the drop in buyouts of public companies. The value of those leveraged buyouts declined to $3.2 billion compared with an average of $34 billion in the 10 years through 2013.

The peak for buyouts came before the financial crisis, when U.S. funds struck $659 billion of deals from 2005 through 2007, including the purchases of HCA Inc., Hilton Worldwide Inc. and Biomet Inc., the data show. Buying inexpensive public companies was generally easier for the funds than carve-outs are, said Raymond Lin, a mergers and acquisitions attorney at Latham & Watkins LLP.

“The easy days for private-equity buyers are over when they profited from buying undervalued companies,” he said. “Carve-out deals require a lot of up-front work that would incur additional costs and could affect returns.”

The Standard & Poor’s 500 Index, which reached a record this week, trades at 17.4 times reported profit, the highest level since 2010, according to data compiled by Bloomberg.

PE’s Limits

While high valuations haven’t scared off dealmaking between companies, buyout firms are motivated by different factors, said Gordon Caplan, chairman of the private-equity practice group at law firm Willkie Farr & Gallagher LLP.

“If business growth slows, companies have to buy things,” he said. “Private-equity buyers can’t create synergies like company mergers can in most cases.”

Corporations are more willing to spin off divisions as management continues to clean up underperforming businesses and pay down debt following the financial crisis, said Tom Franco, a partner at Clayton Dubilier.

SEC Official Describes Widespread Lawbreaking and Material Weakness in Controls in Private Equity Industry

Posted on May 8, 2014 by Yves Smith

At a private equity conference this week, Drew Bowden, a senior SEC official, told private equity fund managers and their investors in considerable detail about how the agency had found widespread stealing and other serious infractions in its audits of private equity firms.

In the years that I’ve been reading speeches from regulators, I’ve never seen anything remotely like Bowden’s talk. I’ve embedded it at the end of this post and strongly encourage you to read it in full.

Despite the at times disconcertingly polite tone, the SEC has now announced that more than 50 percent of private equity firms it has audited have engaged in serious infractions of securities laws. These abuses were detected thanks to to Dodd Frank. Private equity general partners had been unregulated until early 2012, when they were required to SEC regulation as investment advisers. [..]

Bowden pointed out that private equity is unique among the investment advisers the SEC supervises. The general partners’ control of portfolio companies gives them access to their cash flows, which the GPs can divert into their own pockets in numerous ways. Naked Capitalism readers may recognize that this arrangement is similar to the position mortgage servicers are in: they control the relationship with the funds source, and they are also responsible for records-keeping and remitting money to investors. And as we’ve chronicled at considerable length, servicers have shown remarkable creativity in lining their wallets and investors have been unable to discipline them. [..]

Needless to say, this overly cozy arrangement has proven to be a ripe breeding ground for illegal conduct.

Punting the Pundits

“Punting the Pundits” is an Open Thread. It is a selection of editorials and opinions from around the news medium and the internet blogs. The intent is to provide a forum for your reactions and opinions, not just to the opinions presented, but to what ever you find important.

Wednesday is Ladies’ Day.

Thanks to ek hornbeck, click on the link and you can access all the past “Punting the Pundits”.

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Marcy Wheeler: The NSA reform bill now shuts down a secret database. Will that fix anything?

A detailed look into the future of America’s phone dragnet reveals a world without the nuclear bomb of the Snowden revelations. Unless, of course, the telecoms set it off

A last-minute change to the National Security Agency reform bill making its way through Congress, as reported by the Guardian on Tuesday afternoon, may minimize one of the greatest dangers of the program. Or it may make things far worse!

At issue is the number of completely innocent Americans who will be subjected to the NSA’s scrutiny under the new, reformed phone dragnet, in which the telecoms retain the data but conduct queries for the NSA. Language added to the USA Freedom Act, which is scheduled for a House floor vote on Thursday, may limit how much of the data on those innocent Americans the NSA can actually keep – and for how long.

To understand the risk going forward, of course, it helps to understand how your phone calls get sucked up right now. But going forward, somebody’s going to have to make it very clear whether it will be the telecoms or the NSA removing numbers from the database. Otherwise you’re still going to be spied on for liking the same kind of pizza as a terrorist.

Katrina vanden Heuvel: Reining in the Surveillance State

Last week, Tea Party-backed Senator Rand Paul (R-KY) set the progressive world abuzz.

No, not with his usual retrograde positions on abortion, gay marriage or the Civil Rights Act of 1964 (he was against it before he was for it)-but rather with an op-ed in The New York Times, demanding that the Obama administration release its legal argument justifying the use of a drone to kill al-Awlaki, a US citizen, without trial. Paul vowed to filibuster the nomination to the US Court of Appeals for the 1st Circuit of former Justice Department official David Barron, who helped write memos supporting said argument.

Paul’s strong libertarian principles have always differentiated him from many of his Republican colleagues. It is, therefore, not all that shocking for him to speak out against a president he dislikes on a policy he disdains. Yet his outspokenness has many liberals and leftists asking a legitimate question: Why aren’t there more Democratic voices opposing the surveillance state? Protecting civil liberties should be a critical piece of the progressive platform, but too many establishment Democrats and progressives have been silent on this issue simply because one of their own is in the White House.

Ana Marie Cox: Don’t be fooled: McConnell’s victory in Kentucky is also a Tea Party win

The top Senate Republican beat his conservative primary opponent, but it came at a price for the GOP

Senate minority leader Mitch McConnell’s primary victory on Tuesday night in Kentucky will undoubtedly tempt many a pundit to write the Tea Party’s eulogy. But the Tea Party will achieve in electoral death what it could never achieve in life: lasting control of the GOP agenda.

McConnell won because he’s got a familiar name, a lot of money and the kind of political clout that makes up for occasional lapses from orthodoxy. That might not be enough next time – as a local Kentucky Republican leader told the National Journal last week, the state party is “still McConnell’s Republican Party, but it’s edging toward being Rand Paul]’s Republican Party”. But, it was enough to keep it from being challenger Matt Bevin’s Republican party – especially after his [unforced errors and willingness to prize ideological purity over more pragmatic concerns (like the $2bn in pork McConnell brought home for agreeing to end the government shutdown).

McConnell didn’t win because he became a Tea Party member – he’s so conservative, he didn’t have to. (A vote analysis casts him as one of the top 25 conservative members of the Senate, and Tea Party darling and intrastate rival Paul is at number 19.) Instead, McConnell’s win just shows how easily the GOP grows over its fringes.

Zoë Carpenter: Will GOP Leaders Block Another Immigration Measure?

For months now Republican leaders have said they’re committed to passing immigration reform while making excuses for inaction. This week, the House has a chance to tackle one small part of a reform agenda, in the form of a bill to allow undocumented immigrants to serve in the military and in some cases receive green cards. WIth the window of opportunity for reform closing, the GOP leadership is poised once again to back away from it, in deference to the far right.

The Enlist Act, put forward by California Republican Jeff Denham and co-sponsored by twenty-four Republicans and twenty-six Democrats, should be among the most palatable to Republicans of the individual reforms: It rewards military service and would apply only to those who were brought to the US as children. But hard right groups like Heritage Action have fought the proposal because it would open up a pathway to legal status. Last week a spokesperson for House Majority Leader Eric Cantor said he would not allow debate on the measure, dealing what seemed like a terminal blow.

Bryce Covert: In the Real World, the So-Called ‘Boy Crisis’ Disappears

The realization came to me later than it should have: getting a job is not the same as applying to college. After I graduated, I assumed for a long time that the work world operated the same way as the school world. If I wanted a job, I would comb through hundreds upon hundreds of job postings. If there were jobs that sounded interesting and I seemed to have the right qualifications, I would send in a cover letter and resume, then wait for a call to come in for an interview. About 98 percent of the time, a call never came.

Little did I know that by the time a company posts a job listing, in particular a journalism job, it’s often already all but filled and the posting is an HR formality. The people getting the jobs weren’t following the instructions as laid out on the “Work for Us” section of companies’ websites. They were having informal meetings with friends of friends.

School was all about following the directions and reaping the rewards. Getting ahead outside of school, I eventually figured out, meant figuring out rules that weren’t written down.

Michelle Chen: Turkey’s Deadly Mining Disaster Reveals Just How Little Was Done to Prevent It

After days of pulling bodies from the ruptured earth, the death toll of the Turkish mine disaster in Soma has plateaued at 301. With their masked faces frozen in agony, their crumpled photographs clutched in the fists of loved ones, the workers and their struggles have become far more visible in death than they were in life.

The names have been accounted for, but not the catastrophe that befell them. What was originally suspected to be an electrical fire was later described by experts as a massive industrial explosion precipitated by long-term negligence, not a mere technical malfunction.

Whatever the exact cause, the government seems committed to avoiding blame. Defying workers’ accounts of horrific safety conditions, Prime Minister Recep Tayyip Erdogan stoked outrage by coldly citing mining accidents of nineteenth-century England and suggesting that such tragedies were “usual.” The mine operator, Soma Holding, claimed the company was not obligated to provide workers with an emergency shelter, insinuating that workers were personally responsible for failing to escape on their own. (According to Today’s Zaman, Turkey is one of just a few countries without such a shelter requirement.)

The Breakfast Club: 5-21-2014

Welcome to The Breakfast Club! We’re a disorganized group of rebel lefties who hang out and chat if and when we’re not too hungover we’ve been bailed out we’re not too exhausted from last night’s (CENSORED) the caffeine kicks in. Everyone’s welcome here, no special handshake required. Just check your meta at the door.

Join us every weekday morning at 9am (ET) and weekend morning at 10:30am (ET) to talk about current news and our boring lives and to make fun of LaEscapee! If we are ever running late, it’s PhilJD’s fault.

breakfast beers photo breakfastbeers.jpg

This Day in History

Glenn Greenwald “No PlaceTo Hide”

“No place to hide”

Chris Hayes talks with Glenn Greenwald about his new book and new NSA revelations from his book “No Place to Hide.”

Hating on Glenn Greenwald

Chris Hayes gets journalist Glenn Greenwald to open up about his tendency alienate liberals.

On This Day In History May 21

This is your morning Open Thread. Pour your favorite beverage and review the past and comment on the future.

Find the past “On This Day in History” here.

Click on image to enlarge

May 21 is the 141st day of the year (142nd in leap years) in the Gregorian calendar. There are 224 days remaining until the end of the year.

On this day in 1881, the American Red Cross was established in Washington, D.C. by Clara Barton, who became the first president of the organization.

Clara Barton

Clara Barton (1821-1912) had a career as a teacher and federal bureaucrat when the American Civil War broke out. Barton liked teaching when she was younger. All of her older siblings became teachers. Her youngest sibling was 12 years of age, when Barton was born. Her brother David was always like a teacher to her. She taught her first class, at age 17. She also expanded her concept of soldier aid, traveling to Camp Parole, Maryland, to organize a program for locating men listed as missing in action. Through interviews with Federals returning from Southern prisons, she was often able to determine the status of some of the missing and notify families.

After performing humanitarian work during and after the conflict, on advice of her doctors, in 1869, she went to Europe for a restful vacation. There, she saw and became involved in the work of the International Red Cross during the Franco-Prussian War, and determined to bring the organization home with her to America.

When Barton began the organizing work in the U.S. in 1873, no one thought the country would ever again face an experience like the Civil War. However, Barton was not one to lose hope in the face of the bureaucracy, and she finally succeeded during the administration of President Chester A. Arthur on the basis that the new American Red Cross organization could also be available to respond to other types of crisis.

As Barton expanded the original concept of the Red Cross to include assisting in any great national disaster, this service brought the United States the “Good Samaritan of Nations” label in the International Red Cross. Barton became President of the American branch of the society, known officially as the American National Red Cross. Soon after the initial May 1881 meeting in Washington, on August 22, 1881, the first local chapter of the Red Cross was formed in village of Dansville, New York, where Barton kept a part-time residence between 1876 and 1886. Subsequent local chapters were established in Rochester and Syracuse. Ultimately, John D. Rockefeller, along with four others and the federal government, gave money to create a national headquarters in Washington, D.C., located one block from the White House.

TDS/TCR (Sex and Drugs and Rock and Roll)


India Jones Part 2


Oh, I know what you want to see.