More Noises about Private Equity and Debt.

So now it’s time for everyone’s favorite time of day again – that time when I try to sound intelligent and well-versed in all things investing. I was ‘reading some interesting information’ (aka doing my job and editing boring investment reports) when I started thinking about some stuff the common man might not know about private equity, and I thought I would share my thoughts with him.

First of all, private equity is all that investment action that you, the common man, can’t get in on. It involves trading of stocks not on the public market, usually involving company takeovers and large-scale investments that even the upper middle class will never be able to afford. So. Why do any of us really care, unless we become billionaires? Debt.

I’ve written a bit before about my own skewed view of the current debt and mortgage system, but private equity is a part of that system in a big big way. Basically, a private equity investment company works to develop existing or start-up companies and corporations.  This doesn’t always involve debt, or buying out an entire company, but it can.  A private equity company usually researches a particular market – say, software – with a specific target in mind. Let’s give an example. Let’s say Geronimo is an investment management company in the home appliance market that is targeting undervalued and underperforming companies. That means they look at all the cheapest private companies that make home appliances and try to figure out why those few companies are doing so badly. Then, if they think they can improve the company and generate some money from it, they buy it out, change it around, and sell it for a profit. Of course, sometimes it doesn’t work out like it’s supposed to. Even in a strong market, there could be so many companies that no amount of improvement in one is going to lead to large profits. Or, the market could take a sudden dip, leaving our sad Geronimo with no profit for all its hard work.

The buyout system usually works because the investment companies like Geronimo make enough in one investment to fund months of research and bargaining for another. Plus, once a company like this gets known for its successful work, it gets easier to make attractive buyout proposals to private companies.

The problems we’re facing right now due to a slumping economy increase pressures for private equity – there’s less of a guarantee that an investment will post significant gains. Research becomes even more important. In addition, since the majority of these takeover involve large infusions of capital, many of these private equity companies use debt to make the initial purchase. Which means, of course, if they don’t make good on their investment, they’re actually short of cash due to interest on those loans. Which means, in times of scarcity, the normal private equity players may be more reluctant to taake on a questionable investment, meaning that more corporations may be run inefficiently, which certainly doesn’t improve market conditions. One great big circle yet again. Yay!

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The Conherency of Mormons

As I struggle in my own faith, I am troubled by a variety of belief structures different from my own. Vehement atheists who I picture as scary for their anger. Mormons who come a-knocking. Scientologists. And then, I am occasionally struck by shades of light from these different faith traditions, struck that they too may have valid reasons for their crazy beliefs and that I should not be so quick to judge without knowing more.

I have known a few Mormons in my day, and I can attest to the fact that they aren’t all crazy. Some of them are even intelligent. That doesn’t mean I haven’t found all the beehives and golden plates a little off-putting, but it means that I have approached new Mormons I meet with a degree of rationality I might not have with others. And then stories like this one remind me why that approach is valid. I wanna talk to this guy. I think he’s someone who would give me a reasonable understanding of his own faith and teach me about what Mormonism could mean, rather than the stereotypes I have regarding it. It gives me hope for a faithfully discerning world, despite differences of religion or belief.

Late Night video games

Last night for me was a night of distinct putzing.  True, I did clean up the bathroom a little, which needed major work, and a I got a load of laundry done.  But I really feel like I did less.  Why?  Video games.  Specifically, Bioshock, which has evidently won lots of video game awards.  If you’re like me and don’t really follow computer games and don’t really care about what you’re missing, here’s a nice article on why you might want to care.  Maybe.

Granted that Bioshock is a good melding of genre types, with enough shooting for hard-core first person shooters, but enough other stuff for people like me who haven’t really been into similar games since Kings Quest and the first-generation Carmen Sandiego games, I still find it oddly attractive outside its video game role.   Why?  Perhaps because I don’t really play it.  Mike does.

When I was a kid playing KQ with my sisters, there was always a fight about who got to be in the driver’s seat.   If you were playing together, of course you all wanted to be there when various plot points unfolded, but it was always more exciting to solve the puzzles and discover things yourself, rather than watching someone else do so.  With Mike and Bioshock, this isn’t really the case.  I suck at first person shooters, and I don’t care to experiment with the different fun ways to kill things very much.  Is it amusing when you accidentally throw a corpse at an enemy?  Yeah, probably, but not that amusing.

The real fun comes from  getting to boss Mike around without actually being mad at him.  Comments such as “You haven’t gone down that hall to your left yet.  No, no your other left.  Go back!” or “There’s an Eve hypo on top of that rock.” or “B! B!  You need more health.  Nope, you’re dead.” are perceived as helpful, rather than pissy.  I get to yell with drama, rather than anger, which is always fun.

For that, I will stay up till midnight even though I was sick and meant to get to bed early.