In many ways, what private equity firms did at Simmons, and scores of other companies like it, mimicked the subprime mortgage boom. Fueled by easy money, not only from banks but also endowments and pension funds, buyout kings like THL upended the old order on Wall Street. It was, they said, the Golden Age of private equity — nothing less than a new era of capitalism.
These private investors were able to buy companies like Simmons with borrowed money and put down relatively little of their own cash. Then, not long after, they often borrowed even more money, using the company’s assets as collateral — just like home buyers who took out home equity loans on top of their first mortgages. For the financiers, the rewards were enormous.
Twice after buying Simmons, THL borrowed more. It used $375 million of that money to pay itself a dividend, thus recouping all of the cash it put down, and then some.
A result: THL was guaranteed a profit regardless of how Simmons performed. It did not matter that the company was left owing far more than it was worth, just as many people profited from the mortgage business while many homeowners found themselves underwater.
You know how Iran keeps simmering, and how Ahmadi and Khameini are essentially living on borrowed time? That eventually things will erupt and a new social/political order will be born out of the chaos, just as it was in 1979?
The mullahs on Wall Street are going to be looking east towards Tehran with envy when that pot finally boils over.
JC doesn't have it quite right. They aren't thieves, they are parasites. Leeches. And they are begging for a match.