Friday, March 23, 2012

Vulture Capitalism

The big liberal catch phase of late has been “Vulture Capitalism”. It is being used by the Occupy Movement to describe Wall Street companies, investors, and it has been used to describe Mitt Romney for business practices used by his former company Bain Capital. What liberals call vulture capitalism conservatives would call liquidation capitalism. In the 1991 movie “Other People’s Money”, vulture capitalism was put on display with Danny DeVito playing the sinister liquidating capitalist and Penelope Ann Miller played the righteous lawyer defending a small business. And yes, what Bain Capital did with many of the companies it purchased is no different than the premise displayed in this movie.

A vulture or liquidation company does basically one thing; it looks to buy companies at a discount. In other words, they purchase companies whose stock value is lower than the assets owned by the company. The liquidation company will often purchase the company at a premium stock price (higher than what it is worth – so that is not necessarily “vulture” like behavior) and then sell or restructure assets (including profitable business sectors within the company) to obtain a profit. Yes, people lose their jobs during this process of optimizing the value of the purchased company. Many liquidation companies (including Bain Capital) also invest in companies, which is called venture capitalism. Venture capitalist companies generally finance high risk, high reward startup companies, which eventually leads to job creation and innovation advances.

Liberals think liquidation or vulture capitalism is evil. But liquidation of assets is no different than how corporate or individual bankruptcy is handled. Obama has bragged about saving the automotive industry. Obama and Bush bailed out both Chrysler and GM using “other people’s money” (50 billion dollars of taxpayer money – a form of vulture capitalism by definition). But this did not stop both GM and Chrysler from going into bankruptcy where the companies were restructured. Assets were sold, divisions were sold and closed, and yes thousands of people lost their jobs. This bankruptcy form of vulture capitalism ultimately saved both GM and Chrysler from going belly up and hundreds of thousands more people losing their jobs. In essence, the bailouts did nothing to save GM and Chrysler – it was vulture capitalism.

When you get down to it; the U.S. federal government is biggest and most influential vulture capitalist on the planet because they take and distribute trillions in other people’s money. Charities can be seen as vulture capitalists because they too take and spend other people’s money. Of course the main difference here is that people chose to donate to the charity and not to the government. If we investigate vulture capitalism on an individual level, everyone is guilty of this practice. Anybody who has bought something on sale, used coupons, or has taken advantage of government subsidies is by definition a vulture capitalist (taking other people’s money or buying a product at a discount). Hence, what Bain Capital does is no different than people purchasing goods from a company going out of business (jobs are going to be lost). Are some forms of vulture capitalism more evil than others? Absolutely, but in most cases when people are buying a product at a discount it just makes sense for both the company and the purchaser. However, the practice of confiscating and distributing wealth is evil – especially when no product is involved.

For this reason, to some extent, I understand why some think Wall Street is evil. Wall Street investors really do not make a product; in most cases they merely funnel money into investments. However, when they loan money, this is no different than what a venture capitalist company would do and this practice can work to create jobs. There is one major difference between Wall Street and the federal government when it comes to vulture capitalism. People choose to not only invest their money in Wall Street, but where to invest it. On the other hand, the government confiscates money from American citizens and invests it where they want (people get no choice where the money is invested). This is a major and stark difference between Wall Street and the federal government. For instance, there is a huge difference between Bain Capital investing in a company and the U.S. government investing in Solyndra. The government is the vulture capitalist because they are using other people’s money (money as John Housman would say, “they did not earn”) and to make matters worse, the government is not transparent with investors (taxpayers) about how the money is being spent or invested. The bottom line, yes, vulture capitalism exists, but it is only conducted by the U.S. federal government and not by individuals or corporations.

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  1. Great points here, Patrick. Not that it would ever happen but suppose for a minute that the Left succeeded in its purported goal to transition us to “renewable” energy. Won’t that make them responsible for putting millions of people in the coal and oil industries out of work, which is the very reason they supposedly hate vulture capitalists?

  2. Yes, CW, you are 100% correct. It seems the Left thinks some corporations are great while others are evil. What's worse,they think everyone associated with so called evil companies are also evil. Thus, it is no big deal a blue collar worker gets laid off from a coal energy plant because he or she is evil.