[HN Gopher] Private equity is devouring the U.S. economy
___________________________________________________________________
Private equity is devouring the U.S. economy
Author : fortran77
Score : 199 points
Date : 2023-10-30 13:25 UTC (9 hours ago)
(HTM) web link (www.theatlantic.com)
(TXT) w3m dump (www.theatlantic.com)
| robertlagrant wrote:
| This article is...not good.
|
| > One answer is that the private-equity industry is devouring
| them.
|
| Another is that public companies buy them and they consolidate.
| Another is management buyouts. Another is it's harder to run a
| business than it used to be, for better or worse, so they close.
|
| > One-fifth of the market has been made effectively invisible to
| investors, the media, and regulators.
|
| No. You still have financial regulations to follow. If you're a
| medical device company, you'll still have to follow those
| regulations. You have employment regulations. All sorts of
| regulations.
|
| You just don't have to follow regulations for public companies
| (such as "don't talk about this thing with anyone outside a list
| until you've announced it publically, because that would be
| unfair to other investors), which are expensive and onerous, nor
| follow the whims of the market, which can be expensive and
| onerous.
|
| E.g. Dell went private and the quality got a lot better.
| Joker_vD wrote:
| Yep. "Oh no, the investors don't get reliable information about
| private-equity companies and so investment is way too risky" --
| well, then investors probably would just stop invest in them?
| What's the problem?
| Panezirigilloso wrote:
| I think you missed a good part of the article. It says that:
| "A private economy is one in which companies can more easily
| get away with wrongdoing and an economic crisis can take
| everyone by surprise."
|
| Its not about the investors, is about the economy, the global
| economy.
| edoceo wrote:
| I see how that works for a case like Dell. I've also read about
| PE buying up smaller medical/dental practices and squeezing the
| price. Happened to my old dentist in Ballard, WA -- and dang,
| they pushed me for x-rays on every visit (turns out there is
| good margin on x-rays). Dell is still run by the OG -- these PE
| folks are just trying to squeeze margin.
|
| And sure, they still have to follow some regulations -- but
| with much less oversight when you're not public. "expensive and
| onerous" is not a sufficient reason to not require a business
| to do something. Paying employees is expensive and onerous,
| should that stop?
| scarface_74 wrote:
| Why do you care if a private company has to follow financial
| reporting regulations? The reason that public companies have
| to is because the public buys shares in the company.
| edoceo wrote:
| For a small company, a sole-prop dentist for example -- I
| don't. There is not enough motivation or sophistication or
| dollars on the table.
|
| For PE backed conglomerates I care because they can and do
| hide shady things in there. There is more motivation to
| juke the stats; more sophistication and dollars on the
| table. Sadly, because these companies are not public, when
| their anti-consumer operations are discovered there is
| little news about it. That results in a situation, for
| example, where folk don't think there is any reason to care
| about the issue.
| scarface_74 wrote:
| Again why do you care as a consumer? If they aren't
| getting money from the public market and no taxpayer
| money, how does that affect you?
|
| Whether the company is public or private they still have
| to follow the relevant laws for their industry.
| edoceo wrote:
| I care because these PE backed firms can (and do) screw
| the consumer (me, my family, my friends, you) and there
| is no visibility.
|
| Do you understand it's possible to follow the law and
| still use greed to screw the consumer? Are you being
| intentionally naive?
| scarface_74 wrote:
| I'm asking you for a specific case where a PE firm could
| specifically screw you and you have no choice but to be a
| consumer in a way a public firm couldn't?
| QuadmasterXLII wrote:
| He gave a specific case of PE attemting to scam him in a
| way that not only steals money from him, but would
| literally irradiate his face
| scarface_74 wrote:
| And what does that have to do with how the company is
| financed? Public GAAP disclosures have absolutely nothing
| to do with whether the company is harming people or
| following applicable laws for their industry.
| massysett wrote:
| At least in US society, the general idea is that there should
| be a reason to require a business to do something. Not that
| there needs to be a reason to not require a business to do
| something.
|
| Public companies are subject to some requirements for good
| reason. Those reasons may not apply to private companies.
|
| Companies pay employees because if they don't, they won't
| have employees and therefore will lack labor, a critical
| input.
| robertlagrant wrote:
| > "expensive and onerous" is not a sufficient reason to not
| require a business to do something.
|
| I don't know where you're getting this from. The reason to
| not require it is that the regulations don't apply.
|
| However, it's also true that making it cumbersome to do
| business, while making the big four consulting firms endless
| amounts of cash, is a real problem for all other public
| companies.
| anthonypasq wrote:
| why not get mad at the dentist for selling out then? people
| are acting like there is only 1 side on all of these deals.
| TeMPOraL wrote:
| Because those deals are targeted "offers you can't refuse",
| by design.
|
| Consider: surely there is a price for which you would be
| willing to sell me your business, or your house, pretty
| much on the spot. The current value of your assets could be
| X. Maybe you're reluctant to sell for anything under 120%
| X. Maybe you know your neighbors will hate you if you sell
| it, so you really won't do it for less than 140% X. I come
| to you and offer you 160% X. At this price, I can be
| certain you'll sell. It's a deal of a lifetime. It would be
| stupid not to.
|
| The trick is, as a PE firm, I can make this profitable for
| me all the way to say 250% X. I can just keep repeating
| that deal with every other person like you in the
| neighborhood, certain they'll all individually agree. And
| by the time the neighborhood realizes some critical service
| or area is now owned by a profit-obsessed faceless
| corporation, it'll be mostly sold out already.
|
| The trick is to target a market segment when you're able to
| make offers the other side can't refuse. Then you can
| literally _divide and conquer_ it.
| anthonypasq wrote:
| well the person CAN very easily refuse if they care about
| not selling out to some faceless corporation and fucking
| their customers, but obviously most of these people dont
| care about that, so again, seems like you should be
| getting mad at them.
|
| i just dont understand exactly what is the problem here.
| do you think people shouldnt be able to sell their
| businesses for what they are worth?
| TeMPOraL wrote:
| > _well the person CAN very easily refuse if they care
| about not selling out to some faceless corporation and
| fucking their customers, but obviously most of these
| people dont care about that_
|
| Those people aren't spherical cows in an toy ethics
| thought experiment. They are real people, with complex
| lives and many things competing for their care (like e.g.
| families). They all care about not selling out or hurting
| their customers... _to some degree_. Some to larger than
| others.
|
| The simplified algorithm the PE companies are doing is:
|
| - Estimate the upper bound of how much most - say, 80% -
| of the owners of targeted businesses care about things;
|
| - Express that upper bound in dollars over the value of
| business, call that number X;
|
| - If you can still make a profit while overpaying by up
| to X for each bought business, start making offers;
| otherwise, find a different target.
|
| There's little point blaming the business owners, because
| the transactions are initiated by the PE companies, and
| they specifically target businesses they know they _can_
| get anyway. They 're _taking advantage of_ the idea that
| people should be free to sell their business for a fair
| price if they want to.
| anthonypasq wrote:
| > They're taking advantage of the idea that people should
| be free to sell their business for a fair price if they
| want to.
|
| this sentence is incoherent. no one is being taken
| advantage of
| ben_w wrote:
| What other word or phrase would describe this situation?
| Even if you would you prefer "playing the long game", I
| can see how doing this results in the buyer getting some
| "advantage" _even though_ at first glance it looks like
| throwing money away.
| anthonypasq wrote:
| its a mutually beneficial and agreed upon transaction
| just like walmart selling me a pen for a price i agree to
| buy it for.
|
| no exploitation of either party is necessary
| ben_w wrote:
| "Either" implies there are only two parties, the buyer of
| the business and the seller of the business. The _third_
| party, the public who would use the services of the
| business, is the one being harmed if the buyer of the
| business also buys all other such businesses in order to
| create a monopoly.
|
| This can also be done with products -- not usually pens,
| but quite commonly with tickets for events. The buyer and
| the seller of the tickets can be quite happy, but the
| person who now owns all the tickets is free to tout them
| for higher prices to the detriment of the general public
| who would otherwise have bought them directly for less
| money.
|
| This is annoying enough when it's just tickets (I'm told,
| I never go to the kind of events that touts do this at),
| but we also saw it with random goods during the pandemic.
| edoceo wrote:
| I spoke to the dentist. He was retiring and the offer was
| very, very good. The PE firms can afford this because they
| know they will get to squeeze a bunch of consumers for the
| next 10 years.
| anthonypasq wrote:
| so what are you bitching about/suggesting should happen?
| People should not be allowed to sell their businesses for
| what they are worth?
| ryandrake wrote:
| Wait a minute, if the dentist was retiring, why would the
| PE firm buy his practice? There'll be nobody to clean
| those customers' teeth. Are they just paying a fortune
| for the office, equipment, and customer list?
| onlyrealcuzzo wrote:
| Most of this goes away when you have positive real interest
| rates.
|
| It makes sense to take on massive amounts of debt to buy things
| when you get paid to be in debt.
|
| Companies that do leveraged buyouts are going to have a good
| time.
|
| When money isn't free - companies that do leveraged buyouts
| aren't going to have as good of a time.
| lukas099 wrote:
| Do you mean higher real interest rates? They have been
| positive almost all of the last 10 years.
| https://fred.stlouisfed.org/series/REAINTRATREARAT10Y
| michaelt wrote:
| That's the interest rate for people willing to lock their
| money up for 10 years.
|
| Look at
| https://fred.stlouisfed.org/series/REAINTRATREARAT1YE
| instead, the 1 year real interest rate, and it's barely
| been positive between 2009 and 2022.
| lukas099 wrote:
| Oh gotcha, you're right.
| onlyrealcuzzo wrote:
| My understanding is the 10-y is not relevant to venture
| debt or leveraged buyouts: https://www.svb.com/startup-
| insights/venture-debt/how-does-v...
|
| And anyway - yes - a 1% real return really only existed in
| a long capacity since the 2000s, since QE became main
| stream.
| DragonStrength wrote:
| Did you read the full article? The majority of it is defending
| why public financial oversight is good. Saying the article is
| "not good" while ignoring its central argument to make a
| tangential point is not convincing.
| robertlagrant wrote:
| The majority of it seemed to be very cherry-picked and
| caveated claims, with the claims being far more prominent
| than the caveats. If you want to avoid boom and bust cycles
| and the pursuit of growth at all costs, you probably want to
| avoid the public markets if you can, or at least for as long
| as possible.
| em500 wrote:
| > This article is...not good.
|
| I agree. The opening paragraph reeks of picking numbers to fit
| a narrative. It states that the number of US listed public
| firms declined from 8000 in 1996 to 4000 today (suggesting but
| not explicitly claiming that a significant part has been
| devoured by PE), but leaves out that the valuation of the
| public companies in that period increased from 5T to 40T.
| dathos wrote:
| I'm not arguing for their suggestion. But if their logic is
| that this happened because of PE and those PE owning also a
| big chunk of those public firms, doesn't your argument proof
| they are devouring a large part of the economy?
| robertlagrant wrote:
| Private equity by definition isn't invested in public
| firms.
| dangus wrote:
| You could also say "all private equity is not created equal."
|
| I think that the common belief that private equity swoops in
| and sucks the company dry like a vampire is only a half-truth.
| The "company flipper" style private equity companies are
| usually buying companies that are not doing all that well in
| the first place.
|
| Not unlike a venture capital firm investment in a startup,
| private equity firms probably don't expect 100% of their
| investments to pan out. The idea is to buy a struggling company
| for pennies on the dollar, turn it around, make a big return on
| that investment. However, turning around a struggling business
| isn't always going to happen, and when it fails the private
| equity firms are perceived as vultures.
|
| A good example of a company that has done well under private
| equity ownership has been Popeyes. They launched their
| extremely popular chicken sandwich under private equity
| ownership. The parent company has for the most part left the
| strong parts of the business alone (keeping the product up to a
| good enough standard) while appeasing franchises' need for more
| profitable operations, leading to growth in its footprint.
| chollida1 wrote:
| This is, IMHO, a serious problem for the markets and regular
| investors.
|
| Microsoft went public for a valuation of around $300M and is
| trading over a $1T now. This means that regular investors had a
| chance at all this growth.
|
| Newer companies like AirBNB and Uber went public at what could be
| their max market cap valuation of billions so investors wont' get
| much of a chance to make money from these companies.
|
| In addition to this problem of private investors(VC's) taking
| most of the profits, we now have such concentration of wealth
| that the big PE firms can buy alot of what used to be small
| businesses and roll them up.
|
| Vet clinics, medial practices, engineering firms, etc all use to
| to thrive on being 20 person shops are now routinely being bought
| up by PE firms and rolled into larger companies which means far
| fewer entrepreneurs or chances for up and coming employees to buy
| into the firm from the founders, which helps stall careers.
|
| Heck you see it now with these firms buying up single family
| housing in US cities now and then renting them back to people,
| transforming regular middle class people from home owners to
| renters, and transferring the home appreciate from the middle and
| lower class to the PE limited partners ensuring the rich get
| richer and the middle class disappears even faster.
| Joker_vD wrote:
| > we now have such concentration of wealth thatthe big PE firms
| can buy alot of what used to be small businesses and roll them
| up.
|
| If only those small businesses could just refuse and continue
| operating on their own... alas.
| scarface_74 wrote:
| Exactly. No one forces these businesses to sell. It's the
| owners easiest retirement plan instead of passing them down
| to their kids who may not want to or have the skill set to
| run the family business.
| TeMPOraL wrote:
| Sure, no one is blaming any individual business for
| selling. Nor would you blame any particular drop of water
| for flowing downhill. Still, too much water will make a dam
| burst and most of the water will flood the land; too much
| business owners realizing their retirement plan by selling
| out to PEs, and everyone suffers - including those
| retirees.
| scarface_74 wrote:
| Are you going to tell these mom and pop shops they can't
| sell?
| TeMPOraL wrote:
| Of course not. The problem aren't the mom and pop shops.
| The problem are the PE companies making those offers.
| These are the ones to go after.
| scarface_74 wrote:
| How is that any different? You're still trying to stop
| mom and pop shops from selling out to PE's.
|
| Are you also going to stop startups from getting acquired
| to? Seeing that only 6 of the hundreds of companies that
| YC has invested in have ever gone public, acquisitions is
| the most likely exit
| TeMPOraL wrote:
| The difference is that PE is just one of many kinds of
| buyers, but the one that has a particular tendency of
| doing trades with nasty externalities. It's this pattern
| of buying that is a problem, and I don't see fighting it
| any different than fighting factories dumping toxic waste
| into rivers. Factories, in general, are not a problem.
| Actions that have destructive impact on people at scale
| are a problem.
|
| Startups are a bad example because I absolutely _would_
| stop startups from being acquired as a general
| phenomenon. The pattern of startups seeking an exit is
| one of the worst economic innovations that happened to
| the world. They at best just waste time of their users /
| customers before inevitable rugpull, and at worst, they
| actively disrupt whole market segments - not creatively
| disrupt, just in the "blow the whole thing up with VC
| money, disappear when it's clear the business was never
| sustainable" kind of way.
|
| And again, it's not the acquisitions as a concept that
| are the problem - it's the _pattern_ of startups being
| created with acquisition as the goal that is a problem.
| scarface_74 wrote:
| All startups have acquisition as a goal. If not, they
| aren't paying attention to statistics.
|
| This very site you are on is funded via VCs where only 6
| of the hundreds of companies that have been funded have
| gone public.
|
| Who is going to buy these mom and pop shops? Are you
| going to say that startups can't be acquired and either
| have to go public or go out of business when the large
| companies just put a few people on a clone of their
| project and crush them?
| ryandrake wrote:
| Why would a PE firm be buying (for example) a doctor's
| office if the doctor-owner was retiring? The doctor is why
| the business exists in the first place. Without him, it's
| no longer a doctor's office, it's a charming little suite
| with front desk people and a few nurses running around.
|
| We had a local machine shop (that I used to go to for
| welding) sadly go out of business because the owner was
| retiring. I asked him if he considered selling it instead
| so it could stay open and he said "Who would buy it? _I am
| this shop_ and I 'm retiring. In 5 days it's just going to
| be a pile of tools."
| scarface_74 wrote:
| For the patients and as a slow "exit"
| peteradio wrote:
| If only each individual bond could try a little bit harder to
| resist the acid.
| starcraft2wol wrote:
| the point is the owners have a positive exit that they
| choose. And yes people are agents
| peteradio wrote:
| Right America is governed by individual incentives.
| starcraft2wol wrote:
| There are more kinds of incentives than money.
| peteradio wrote:
| Doing what's morally responsible in spite of everyone
| else is a losers game these days.
| justrealist wrote:
| It's partly that, but in medicine (dentistry, fertility, etc)
| a lot of clinics are being rolled into PE conglomerates
| because the bureaucratic overhead in medicine has skyrocketed
| in the past 20 years, and clinic chains have better support
| for doing all the paperwork and legal side of things.
| plagiarist wrote:
| What a convenient way to completely ignore the macro effects,
| well done.
| gmd63 wrote:
| You joke but it's not benign. The reason economic regulations
| exist is to ensure we maintain the economy as a crucible for
| rewarding the smartest and hardest workers in society.
|
| When private money can grow cancerously via pump and dump
| crypto schemes, overhyping IPO's that peaked during the
| series A round, and strong arming small branches of
| independently owned practices (all to later enable milk mode
| and reap monopolistic profits), the general public and
| society is left with overlords who do not build, they eat.
| fnimick wrote:
| When have the smartest and hardest workers ever been the
| richest?
| Applejinx wrote:
| It's easy for me to believe it's not always been (and
| doesn't have to be) THIS bad.
|
| There's functional value in a capitalist system. It just
| requires ongoing maintenance, to avoid situations like
| we're currently in. It's not self-repairing. Operated
| properly, it makes market conditions self-repairing, but
| this is at the expense of the potential market capturers.
| ToucanLoucan wrote:
| It was better when corporate tax rates and income taxes
| for the incredibly wealthy were much, much higher. My
| favorite hobby is putting Thatcher and Reagan's faces on
| economic graphs to show what year they were elected is
| almost universally either the same year or just about
| when the global economic system went bugfuck by basically
| every metric we measure.
|
| But, thanks to those two and the larger political milieu
| they so well represent, those entities are now rich
| beyond all reason and in a capitalist system that permits
| things like Citizen's United, money more or less equals
| political power so the odds of getting any of this
| addressed are basically nil, along side other issues that
| would demand corporations make less money: like climate
| change, crumbling infrastructure, socialized healthcare
| for the US, better socialized healthcare elsewhere, the
| vanishing middle class, etc.
|
| Private Equity is going to get us all killed in a very
| real sense.
| robertlagrant wrote:
| > When private money can grow cancerously via pump and dump
| crypto schemes, overhyping IPO's that peaked during the
| series A round, and strong arming small branches of
| independently owned practices (all to later enable milk
| mode and reap monopolistic profits), the general public and
| society is left with overlords who do not build, they eat.
|
| None of those practices create "overlords".
| techdmn wrote:
| They could, but my opinion is that this is putting personal
| responsibility front and center on what is a systemic
| problem. If our economic systems encourage the consolidation
| of wealth, we should change the systems, rather than blaming
| individuals.
| chollida1 wrote:
| Well think this through.
|
| There are 10 vet practices in your city. 7-8 get rolled up
| into one uber practice by a PE firm.
|
| They now have far less overhead per patient. Billing,
| equipment and even vets can be amortized over far more
| patients.
|
| You, the hold out clinic, are now more expensive, or have a
| far smaller profit ratio, thus you are operating at a big
| disadvantage to the other clinics in your city.
|
| You can hold out but what is your edge in this case where
| your competitor is now bigger and can handle things like a
| vet quitting as they have a bunch that roam from practice to
| practice. Or they can handle buying a new machine for
| millions while the bank won't lend to you due to your
| shrinking margins.
|
| Economies of scale are a thing and can be a very real
| competitive differentiator.
|
| You the hold out are now getting crushed by your competitors
| while you look around and see your fellow vets taking
| weekends off to take their new boat to the lake because they
| sold their practice and you're working your 11th weekend in a
| row because your other vet quit to work for your competitor
| that can now pay more than you.
|
| I've had friends live this and its not fun.
| Joker_vD wrote:
| Ah, so the overall economic efficiency improves and then
| everyone's better off. Wait, what's wrong with that?
| gmd63 wrote:
| Think of Comcast but for puppies' health
| jprete wrote:
| The actual problem is that the unmonetizable value gets
| tossed out by PE. E.g. customer service will take a
| massive dive because everyone working for the clinic or
| whatever else will be time-pressured out of good service.
|
| Generally the problem with treating everything via pure
| financial models is that some things are valuable but
| hard to measure financially and those are inevitably
| destroyed by PE and other entropy-maximizers.
| ToucanLoucan wrote:
| You're shifting goalposts. Your first comment was about
| how small businesses could just refuse to sell, then a
| commenter described the (very real) consequences of that
| decision: a person has to work harder, for less money, to
| compete with entities that can outspend them by a few
| factors. Now you're saying that's more efficient overall
| which is a completely different point.
|
| And, that's true, it is more efficient. But those
| veternarians, despite now having their weekends off, are
| paid barely market rate for their skills (if that) and
| more importantly, no longer running their business: A PE
| firm is. That means they have zero recourse if the PE
| firm starts doing PE firm shit: keeping bare minimum
| stock at their clinic of every last consumable, to avoid
| taxation; keeping bare minimum staff at all times to
| avoid paying workers; abusing staff and causing high
| turnover; basically every stupid ass "why would they do
| that" type decision you've heard of a large business
| making in the last 30 years, PE's LOVE those decisions.
|
| And that's not even going into the fact that the profits
| of that business are no longer going to the community in
| which it operates, they're going to far away
| shareholders.
| Libcat99 wrote:
| More efficient for the mega-vet, sure. Once you've
| consumed all the competition, there's no need to compete
| on price anymore. Prices can go up quite a bit before it
| becomes economical for a new entrant to take a risk in
| the market. Except maybe another mega-vet.
|
| See what Walmart did to communities and small business.
| Efficiency is not all roses.
| lapcat wrote:
| Another issue is that doctors are coming out of school with
| more student loan debt than ever before, so when it comes
| time for the older doctors to retire, the younger doctors
| haven't built up enough personal equity to take over the
| clinics.
|
| Nobody seems to care about the student loan debt of
| doctors, because doctors can make a good salary, but
| student loan debt still has negative consequences down the
| road such as this.
| FireBeyond wrote:
| Dentistry is different. I've seen multiple comments from
| fresh DDS graduates being able to take out 7 digit loans
| to acquire/start/buy in to a practice, because it's seen
| as a low risk license to print money.
| bondarchuk wrote:
| The edge is far better service and less scammy practices
| (pushing unneeded treatments/medications etc..), at least
| from what I heard locally about Dutch vets.
|
| Incidentally in Belgium they just passed a law requiring
| each veterinary practice be owned by a veterinarian. Life
| could be simple...
| chii wrote:
| Taking the emotion out of the analysis, all i am hearing is
| that the PE uses more capital, but produces a cheaper, more
| efficient service.
|
| If the original small business owner sold, the money they
| got paid isn't gone - they could've used it to start
| another small business (or fund one as a VC themselves). I
| don't see how PE is stifling anything, but to produce a
| more intensely competitive environment.
| lapcat wrote:
| > produces a cheaper, more efficient service.
|
| More profitable perhaps, but not cheaper. In fact,
| usually more expensive, because the PE firms buy up all
| the clinics in a city, eliminating competition, and then
| they can set the rates to whatever they want. Needless to
| say, any "savings" are passed along to the investors, not
| to the consumers.
|
| > If the original small business owner sold, the money
| they got paid isn't gone - they could've used it to start
| another small business
|
| They're usually selling because of retirement, so they're
| not going to start another business. The issue here is
| that the business is not passed along to another new
| small business owner, it's passed along to a giant PE
| firm.
|
| > produce a more intensely competitive environment.
|
| In reality, to reproduce an environment with less
| competition and more consolidation, as mentioned above.
| ghufran_syed wrote:
| Great, that "less competition" means higher prices...
| Which means someone setting up a new clinic can benefit
| from those higher prices - oh look, now you have
| competition again.
| harperlee wrote:
| Sure, until they have no competition anymore, and raise
| the prices to whatever they want them to be, extracting
| 99% of value from what they offer with a huge moat that
| eliminates all competition. Then the consumer is left
| with no pricing negotiation and the experience is
| objectively worse for most of the society.
|
| The escape hatch for that is taxes to the powerful market
| entities, that revert value back to the less powerful
| market entities, but that's not popular in the U.S.
| TeMPOraL wrote:
| > _i am hearing is that the PE uses more capital, but
| produces a cheaper, more efficient service._
|
| You have to understand what "more efficient" means. It
| really means "it's shit and only getting worse, but isn't
| bad enough to abandon the service entirely". It starts
| with a corresponding price drop, and you either get a
| race to the bottom, or the competition gives up early, at
| which point the quality _continues to go down the drain_
| , but the price stays the same, as the provider pockets
| the difference.
| banannaise wrote:
| Because customers tend to almost universally agree that
| they create a worse service in the process. Scaled
| systems perform poorly in areas where people require
| customized service rather than a one-size-fits-all
| experience, and veterinary care is absolutely not a one-
| size-fits-all type of service.
| yoyohello13 wrote:
| Cheaper and more efficient does not mean higher quality.
| abosley wrote:
| Quantity has a quality of its own. Dude named Piketty
| wrote almost 2k pages about wrt capital accumulation. The
| opposite of what you propose is what actually happens.
| For another example, please see Amazon.
| random_ wrote:
| Vet is probably a very good example of economies of scale.
| I remember a vet in my town in Brazil complaining how hard
| it is if he get ill (or take vacations i presume), that he
| will lose his customers and how much he regretted not
| becoming a state employee.
| tbihl wrote:
| >what is your edge in this case where your competitor is
| now bigger and can handle things like a vet quitting as
| they have a bunch that roam from practice to practice. Or
| they can handle buying a new machine for millions while the
| bank won't lend to you due to your shrinking margins.
|
| To answer your rhetorical question:
|
| 1. People would rather deal with neighbors than with PE or
| megacorps, and will do so to the extent that the difference
| in price is tolerable (and to the extent that they even
| know their neighbors.)
|
| 2. Management layers and performance based incentives are
| huge costs that small enterprises should be mostly able to
| avoid.
|
| 3. Owning a business can have a really compelling advantage
| at tax time in the ranges of professional incomes we're
| discussing.
|
| 4. Owner-operated businesses should be able to integrate
| with family life, allowing dads to spend time closer to
| their kids, which should be another advantage in favor of
| professionals going it on their own.
|
| 5. Owner-operated businesses can also operate with much
| more efficient facilities (housing over top of business)
| when not forbidden by zoning or other regulations.
|
| On the other hand, people like steady salaries and set
| working hours. They like leaving work at work. And,
| especially as these professions increasingly see their
| schools dominated by women, many of these professionals
| really like stepping away from work or going part time for
| 5-10 years around their 30s.
| TeMPOraL wrote:
| RE 1: Customers have zero influence on this. If you have
| a pet, you'll need a vet, and if the owner of the owner-
| operated clinic next to you gets an offer they can't
| refuse... I can't imagine you'll find some other owner-
| operated clinic to visit out of spite, where the now-
| corporate one next to you is open, and perhaps even
| cheaper.
|
| RE 2-5: These are all rounding errors compared to
| economies of scale the PE-backed companies have. Also,
| those PE roll-ups target businesses whose owners are at
| the stage of life when they're just happy to take a big
| payout and retire. Tax time advantages and spending some
| time with kids (which is arguably less than salaried
| employees of the corpo-clinic will have) can't possibly
| beat being able to not work at all anymore, live
| comfortably, and have _all_ the time you want for kids.
| JumpCrisscross wrote:
| > _I can 't imagine you'll find some other owner-operated
| clinic to visit out of spite_
|
| No, but I did organise a few patients to grant our vet a
| loan to open a new facility. (It wound up creating some
| Michael Scott Paper Company drama between the vet and her
| former colleagues, which was interesting.)
| TeMPOraL wrote:
| People like you are our last line of defense on the
| ground. Sadly, I don't think there's enough of such
| people to hold the line against PEs doing targeted
| divide-and-conquer on specific market segments, one by
| one.
| tbihl wrote:
| >RE 1: Customers have zero influence on this. If you have
| a pet, you'll need a vet, and if the owner of the owner-
| operated clinic next to you gets an offer they can't
| refuse... I can't imagine you'll find some other owner-
| operated clinic to visit out of spite, where the now-
| corporate one next to you is open, and perhaps even
| cheaper.
|
| I have seldom gone to the nearest
| vet/pediatrician/hospital. Inevitably I try it, it's bad,
| and then I spend time driving to some place further away
| that I actually like. And I drive an average of 4000
| miles per year; with the median driver traveling some
| multiple of that each year, I can only assume that most
| people are way _more willing_ than I to shop around.
| Workaccount2 wrote:
| People in general do not give a fuck about anything
| besides price, and behind that, convenience.
|
| However, people spend a lot of time _talking_ about how
| they care about more than just price. The actual
| manifestation is tiny though.
| ethanbond wrote:
| People care about multiple things on different time
| horizons. There's nothing contradictory in saying, "I
| would prefer a world not owned entirely by one PE firm"
| and "I will generally seek the lowest acceptable prices."
| BeetleB wrote:
| > People in general do not give a fuck about anything
| besides price, and behind that, convenience.
|
| They do when it comes to their pets.
| tbihl wrote:
| First, you should be careful about thinking you know
| people _in general_ , and even if you could know such an
| abstract and totalizing thing, you don't need all the
| customers, just _enough_ customers, or even _plenty_ of
| customers.
|
| Also, the very fact of charity shows that people must
| care about something other than price. Paying higher
| prices to interact with your neighbors is just a much
| smaller step on the same road of doing things you think
| are beneficial but that won't maintain your bank account
| at the highest possible value at that exact instant.
| Farmer's markets are another example of the same.
|
| You're either looking at the wrong people or making the
| wrong changes, if you don't think anyone actually cares
| about anything other than price.
| 1980phipsi wrote:
| If the government increases regulations, then it tends to
| place a bigger burden on small businesses than big
| businesses for the same reasons you highlighted about
| overhead.
| gosub100 wrote:
| I haven't thought about it this way, I hope youre right.
| Here's what comes to my mind after PE buys vet clinic:
|
| - Analyze all the employees using a "system" to gauge
| "productivity metrics"
|
| - Pressure management to get rid of an employee or two to
| increase profits, making everyone else work harder.
|
| - Seek additional income streams from dubious "insurance"
| products that may or may not pay. Help market their
| products by spreading false information that insurance
| gives them "peace of mind".
|
| - Increase costs to see what the market will bear
|
| - Put all employees on a unified HR system that has a
| strict 1-size policy, little gotchas like "no health
| insurance for the first 60 days", limited PTO, etc. Ignore
| anyone who speaks badly because "this is company _policy_
| ". Give the business director a bonus when he finds new and
| creative ways to "maximize profits" at the cost of
| denigrating staff and making them work harder under more
| constrained policies.
|
| - Lock all dr's salaries and staff pay to the same scale
| because "policy". Work harder? Why try? I get paid the same
| amount either way. Employees game the system to work the
| minimum to avoid termination. Not because they love
| animals, those people quit in the first 60 days (which is
| why our health coverage doesn't kick in before then).
|
| - remove as much of their agency as possible, helping a
| poor persons injured dog is no longer acceptable, pay-as-
| you-go and sliding-scale billing are so 1990's, we have a
| _business_ to run, the policy is "put the animal down and
| move on to the next paying customer". House calls are a
| liability and take valuable time away from the business,
| effective next year they are no longer allowed.
|
| - appeal to emotion to upsell wealthy customers to services
| that promise to prolong the animal's life (but increase
| suffering and are medically unethical).
|
| - Fewer people go to the vet now because they can't afford
| it, more animals suffer so that rich men can have more
| profit.
| mortify wrote:
| It's not enough that large corporations use economy of
| scale to undercut smaller businesses. That would generally
| be a good thing for consumers. Instead, we're seeing larger
| companies use their influence to increase regulation: a
| cost they can absorb that smaller businesses cannot.
|
| We've seen this in medicine in the last 10 years. I know of
| no independent doctor's offices in my area. They looked at
| the cost to comply with electronic medical records
| requirements and joined a local health network.
| Sohcahtoa82 wrote:
| My wife works in a lab for a regional medical company. They
| just sold out their labs to a national medical lab company,
| effective January.
|
| She's only heard bad things about this other company. Her
| wage is basically guaranteed to stagnate, they're not as
| generous about PTO, and they contribute surprisingly little
| to health insurance plans.
|
| Oh, but I'm sure the management is flying away on a golden
| parachute.
| TeMPOraL wrote:
| If what's good for an individual short-term was also always
| good for them long-term, the world would've been an utopia.
| twobitshifter wrote:
| Usually what happens is that 60 something year-old founders
| have retained control and not shared profits with their
| employees. Looking to sell, the employees can't buy out the
| founder, and the founder finds PE with deep pockets. The fork
| in the road for keeping the company out of PE was passed long
| before the founder got to retirement age.
| scarface_74 wrote:
| Then the market should value those companies properly.
| Supermancho wrote:
| Not sure what you are saying here. Which companies? Why?
| michaelt wrote:
| For private equity to take a publicly traded company
| private, they've got to pay more for it than the public
| market values it at.
|
| For example, in 2016 Softbank was able to buy ARM for US$32
| billion, but that was only possible because the stock
| market priced it below US$32 billion.
| Pet_Ant wrote:
| > Newer companies like AirBNB and Uber went public at what
| could be their max market cap valuation of billions so
| investors wont' get much of a chance to make money from these
| companies.
|
| An argument I heard is that companies prefer to stay private
| longer to avoid the burden/oversight of SOX etc. The charitable
| interpretation is that they are too busy growing to be
| bothered, the less charitable is that they aren't capable of
| growing if they have to be accountable and forthright.
| tbihl wrote:
| The availability of VC will necessarily siphon off
| enterprises from other funding sources.
| 1980phipsi wrote:
| VC isn't a panacea and doesn't operate in a vacuum. If you
| raise the cost of going public and staying public, then
| that makes VC funding or going private more attractive. The
| VC funding may come with terms that are not expected by
| public company investors.
|
| But VC-backed companies is only one part of the private
| equity trend.
|
| The other part that is discussed is small owner-operated or
| partnership firms getting bought up by bigger ones. Here
| again, if the government increases regulations, then that
| tends to fall more strongly on small businesses than bigger
| businesses.
| tbihl wrote:
| I agree with everything you have said.
|
| I'll just add that, with the path of finding VC well-
| known and well-worn, we should expect greater difficulty.
| Even if we somehow reversed the trend of all institutions
| and bureaucracies to become over time larger and more
| cumbersome, that is, we streamlined government processes,
| we should expect an additional hesitation of growing
| enterprises to return to IPO, because VC is now a
| comfortable path for a significant portion of the
| roadmap.
| spiralpolitik wrote:
| It's worse than that. The 401k generation will begin think
| about retiring in the next few years. Most will discover that
| their 401K, despite maximum contributions, will be insufficient
| to retire on.
|
| This will either keep older workers in the workforce longer,
| preventing younger workers for getting into positions, or it
| will result in discrimination against older workers who will
| find themselves unable to get jobs, let go, or laid off to make
| room for younger, cheaper workers.
|
| The expectation for your 401k is that it's going to grow by
| 6-8% each year. If there isn't any room for growth in the
| market then it's going to be hard to deliver that going
| forward, compounding the problem for later generations who
| probably won't be inheriting anything from their parents.
| flashback2199 wrote:
| > Most will discover that their 401K, despite maximum
| contributions, will be insufficient to retire on.
|
| How will that happen when there has been so much growth in
| the S&P?
| toomuchtodo wrote:
| https://www.nerdwallet.com/article/investing/the-
| average-401...
|
| https://www.gao.gov/blog/growing-disparities-retirement-
| acco...
|
| https://www.gao.gov/financial-security-older-americans
|
| (401k plans were a way for capital to con Americans that
| ditching pensions was the way to go; pension contributions
| became shareholder profits, and most did not or could not
| contribute to 401ks in any meaningful fashion)
| flashback2199 wrote:
| Thanks for this pile of links...
|
| I don't believe what you're saying that 401k's are
| somehow not going to be enough to retire.
|
| Unless you meant retire where housing prices are rising
| the fastest.
| toomuchtodo wrote:
| You didn't read the links then. Median 401k balance is no
| more than $71k across all age cohorts. Assuming a 4%
| perpetual withdrawal rate (Trinity study), that is
| ~$2840/year in income.
|
| Per the GAO:
|
| > Even for those who do have access, traditional defined
| benefit pensions have become much less common as defined
| contribution plans, such as 401(k)s, have become the
| primary type of retirement plan. This shift has increased
| the risks and responsibilities for individuals in
| planning and managing their retirement. Yet research
| shows that many households are ill-equipped for this task
| and have little or no retirement savings. As of 2016,
| about half of households with a worker age 55 and older
| had no retirement savings, and 29% had no retirement
| savings or a defined benefit plan. Policymakers will need
| to consider how to best encourage expanded pension
| coverage, adequate and secure pension benefits, and more
| effective use of tax preferences to foster workers'
| retirement security.
|
| 40% of Social Security recipients have no other income.
|
| https://www.ssa.gov/news/press/factsheets/basicfact-
| alt.pdf
|
| https://web.archive.org/web/20231028173718/https://www.ni
| rso...
| flashback2199 wrote:
| I'm not following your reasoning
|
| Regardless of whether and how much private equity is
| affecting growth in prices of stocks for public
| companies, the S&P in which people's 401ks are invested
| has grown a lot, and will probably continue to
|
| Low balances in 401k's are therefore due to insufficient
| contributions and not insufficient growth in S&P prices
| the_gastropod wrote:
| This thread started as a response to:
|
| > The 401k generation will begin think about retiring in
| the next few years. Most will discover that their 401K,
| despite maximum contributions, will be insufficient to
| retire on.
|
| The maximum individual contribution--not counting
| employer contributions--is $22,500. Or if you're over 50,
| it's $30,000. If You're maxing out your 401k, you'll pass
| $71k after working just a few years.
|
| To retire with just $71k after working a typical career
| of 40 years, you'd have to save less than ~$600/year. In
| other words, saving $600/year--~4% of a minimum wage
| salary--is enough to surpass this median $71k number
| after a 40 year career and a conservative 5% avg return.
|
| I suspect most of these people have other savings.
| toomuchtodo wrote:
| > I suspect most of these people have other savings.
|
| Please show me the data, because all available public
| sources indicate this is not the case, and in my travels,
| the data confirms my conversations with these cohorts
| (because I am very curious). If they have other savings
| not showing up in the data, what and where is it? We
| cannot simply assume it exists. Hope is not a strategy.
| the_gastropod wrote:
| Well, for starters, we can look at the median net worth
| of Americans, which in 2019 was between $250k and $310k
| for the age groups we're talking about here. Is that
| enough? Still probably not, but it's a heck of a lot more
| than just $71k.
|
| https://www.federalreserve.gov/econres/scf/dataviz/scf/ch
| art...
| toomuchtodo wrote:
| If your net worth includes your primary residence, and
| you can't live off the equity, it is not retirement
| savings. It is dead capital, as you must live somewhere.
| Certainly, we can include it in your estate and net
| worth, but that's more pertinent to whomever is next of
| kin, not the person who needs cashflow for groceries,
| fuel, utilities, healthcare expenses, and so on. What the
| metrics represent is important, otherwise we are blinded
| to ground truth.
|
| I must strongly emphasize that vehicle equity is not
| retirement savings if you must keep the car for mobility.
| Home equity is not retirement savings if you must have a
| place to live and there is nowhere to downsize to, unless
| we are expecting 55+ to sell their homes and live in a
| van down by the river, burning through their housing
| proceeds and hopefully dying before it is exhausted.
| the_gastropod wrote:
| I think it's still perfectly relevant. Retirees who own
| their homes have lower expenses than those that must pay
| rent. If your net worth is 100% equity in your wholly
| owned home, social security will go a much longer way
| than someone with $71k in a 401k who must still pay rent.
|
| I don't know what point you're trying to make here. Is US
| retirement a mess? Yes. But I don't think the magnitude
| of bleakness is quite _as high_ as you're describing.
|
| While hardship exists, and I think we'd probably agree
| that there needs to be a much better safety net in place
| for people, I think it's also true that many capable
| people neglect to save enough for the future. And, to be
| honest, I think often it's because of rhetoric like
| yours. People are hopeless, and just give up trying.
| Reality is not that grim. Saving even $1M in a 401k over
| 40 years has been attainable for most people by following
| the boring "save 10%" strategy.
| danaris wrote:
| But a higher net worth due to _having_ equity in a home
| is not the same as having _fully paid off_ your home.
| There 's just not enough information in such statistics
| to make such a determination one way or another.
|
| You're welcome to assume that retirees have paid off
| their mortgages, but it's a wholly unsupported
| assumption, given just the information in this thread. If
| you want anyone else to give it credence, cite some
| sources for it.
| the_gastropod wrote:
| https://fivethirtyeight.com/features/how-many-homeowners-
| hav...
|
| Most Americans over 65 own their homes outright without
| mortgages.
| nradov wrote:
| Equity is equity. It's net worth that matters regardless
| of any mortgages. If a retiree has a mortgage payment
| then that's just one more housing expense to factor into
| retirement planning along with property taxes,
| maintenance, etc. For retirees with low interest mortgage
| it would be foolish to pay those off. And retirees who
| have substantial equity but need cash for living expenses
| can always take out a reverse mortgage.
| danaris wrote:
| That's completely backwards.
|
| In order to determine whether you can afford to retire,
| you need to be looking at recurring expenses, not
| illiquid assets. If you have an expected monthly income
| from your 401k of, say, $1200, but your mortgage payment
| is $800/month, it doesn't matter that you've got $150k
| already paid into it and only another 10 years left to
| go; you can't afford to retire _now_![0]
|
| Yes, it's theoretically possible (depending on how much
| equity you actually have, and your credit score) to take
| out a home equity loan to provide you with money to live
| on in your retirement, but a) there's interest payments
| to think of, which put you right back at the top of this
| post looking at monthly expenses, and b) if this is a
| significant part of your net worth (which, for many of
| these people, it _absolutely_ will be), this means that
| _at best_ you 're leaving your heirs with a bunch of debt
| and no house, and at worst the bank just won't let you do
| it in the first place. And while there is certainly a
| perfectly reasonable discussion to be had of whether it's
| better to use the money for yourself now, and not care
| about your family, making that selfish choice is far from
| universal.
|
| [0] No actual numbers were harmed in the making of this
| post. All numbers are entirely made up.
| nradov wrote:
| That's completely backwards. I don't think you understand
| how reverse mortgages work. It's not the same as a home
| equity loan.
|
| As for leaving an estate for heirs, that's a separate
| issue from retirement planning. There's no way to leave a
| bunch of debt to heirs. If you die with liabilities
| exceeding assets then any debt which remains after
| selling off assets is simply defaulted. The heirs will
| inherit nothing of significant value, but creditors can't
| force them to pay off the remaining debts either.
| c22 wrote:
| It's stashed in their depreciating vehicles and equity in
| their houses.
| ryandrake wrote:
| I know far too many people (albeit all younger than me)
| who readily admit to having zero savings--retirement or
| otherwise. These aren't destitute minimum wage workers.
| They're professionals with decent jobs, often whose
| employers have 401(k) programs. They just don't
| participate in them. They deliberately don't because they
| want to spend today and not lock up their money for an
| uncertain future. About half think they're going to die
| before retirement, and the other half have an overly rosy
| expectation of a future safety-net to help them. They are
| betting (unwisely IMO) that the USA will give in and not
| let an entire generation die on the street.
| the_gastropod wrote:
| I have close friends with this mentality, and it
| frustrates me to no end. 6-figure earners with severe
| learned helplessness.
| commandlinefan wrote:
| > no more than $71k
|
| Don't worry, I'm sure they'll get together and vote to
| distribute everybody's 401(k) balances equally among all
| retirees so that they people who did save will also end
| up with nothing.
| ebiester wrote:
| I always wonder about this 401k balance. How many people
| don't roll over their 401(k)s?
| jandrewrogers wrote:
| The term "retirement savings" is too narrowly defined
| here, since it only includes things like 401k, savings
| accounts, and pensions.
|
| Many people have their retirement savings entirely in
| rental real estate (I know several like this). Many
| people have small retirement accounts but millions of
| dollars in ordinary taxable investment accounts due to
| the myriad restrictions that the government places on
| what you can put into retirement accounts. All of these
| are outside the definition of "retirement savings",
| despite being actual retirement savings, but none of them
| are rare.
| nightski wrote:
| Who do you think the shareholders are? That's right, it
| includes 401(k) and retirement plan owners. It's a way to
| diversify your retirement beyond a single company. A
| pension plan in a company that can disappear and that can
| make investments on your behalf without any control is
| the big con.
|
| The fact that people contribute less to their 401(k)
| means they care less about saving for retirement, not
| that the plans themselves are a con. I personally don't
| even have a 401(k) because I am self employed and there
| are other options.
| toomuchtodo wrote:
| https://www.cnbc.com/2021/10/18/the-wealthiest-10percent-
| of-... ("The wealthiest 10% of Americans own a record 89%
| of all U.S. stocks")
|
| https://www.usnews.com/news/national-
| news/articles/2021-03-1... ("Median household owns $15k
| in equities")
|
| (unless you're wealthy, you are a token participant in
| the capital markets)
| nightski wrote:
| I'm fine being a token participant as long as it means
| I've been seeing significant gains over the past decade,
| which I have.
| toomuchtodo wrote:
| I'm not faulting the selfish position, simply pointing
| out the game is rigged for everyone except outliers (like
| yourself or the ultra wealthy). These are just facts, not
| feelings, when you review the data about who has
| sufficient cashflow for inflows into investments during
| accumulation phases as well as their current and
| potential future investment exposure to these asset
| classes.
|
| Congrats on the luck (no snark, honestly). But let us not
| extrapolate luck and personal anecdotes to solutions for
| systems. "In God We Trust, all others must bring data",
| working backwards from first principles, etc.
| nightski wrote:
| They aren't facts. The number of millionaires in the U.S.
| has exploded. Many are benefiting from the markets. It's
| not luck.
|
| The fact that many would rather spend than save does not
| change that these opportunities are for everyone. The
| best selling car in America is the F-150 which is quite
| expensive...
| toomuchtodo wrote:
| > They aren't facts. The number of millionaires in the
| U.S. has exploded. Many are benefiting from the markets.
| It's not luck.
|
| Are you sure it's not luck?
|
| https://blogs.scientificamerican.com/beautiful-minds/the-
| rol... ("The Role of Luck in Life Success Is Far Greater
| Than We Realized")
|
| https://www.technologyreview.com/2018/03/01/144958/if-
| youre-... | Ref: https://arxiv.org/abs/1802.07068
| ("Talent vs. Luck: The Role of Randomness in Success and
| Failure")
|
| https://www.pbs.org/newshour/economy/making-
| sense/analysis-i... ("Analysis: If you're rich, you're
| more lucky than smart. And there's math to prove it")
|
| https://www.marketwatch.com/story/when-you-realize-how-
| much-... ("When you realize how much luck goes into
| investing, you might change your methods")
| Retric wrote:
| Millionaire is a fairly trivial threshold these days.
| Social security is now paying some people 54k/year
| inflation adjusted which would take well over 1 million
| to safely generate.
|
| A couple living on social security + 2 million in assets
| may be financially secure but they are still middle
| class.
| gottorf wrote:
| > The best selling car in America is the F-150
|
| To be fair, F-150 and other pickup truck sales figures
| are buoyed by fleet purchases. The better figure to cite
| may be that the average new car transaction is now north
| of $48k; ten years ago, it was around $30k, and this rise
| has beaten general inflation.
| ensignavenger wrote:
| Do you have any stats that show that pickup truck sales
| are bolstered more by fleet purchases than other
| categories such as sedans and economy cars, both of which
| are also purchased widely for various fleets?
| ensignavenger wrote:
| I did a bit of research, and this is what I found:
|
| This article says about 20% of vehicles sales are to
| fleets. It says vans are the most popular fleet vehicles.
| It syas "light trucks" (which includes vans) outpace cars
| in fleet registrations at 22.5% vs 17.3%.
| https://www.autoserviceworld.com/fleet-registrations-
| continu...
|
| Based on that data, I see strong evidence that the F150
| is not boosted over other types of vehicles. I certainly
| found nothing to support the idea that it is, and if it
| is, it does not seem to be a strongly dominant
| consideration.
| beepbooptheory wrote:
| Do you think all prima facie economic problems can be
| resolved down to problems generally of individual
| responsibility/spending choices like this? Or just this
| one? Does the prosperity of some always assert the
| culpability of the rest with regards to their own
| poverty? Is the measure of person always relative like
| this?
|
| What does it mean to you to live in world with other
| people in general? Are we all fundamentally competitors
| like this? Winners and losers in a game of skill (and
| definitely not of chance)? Does the existence of losers
| reinforce the necessity or merit of the game, of the
| structure in question? Or are we trying to make everyone
| winners, trying to teach them to get it together enough
| to not buy all their flashy cars and such?
| nightski wrote:
| No I don't, but I do think in an ideal world it would.
| Not everyone wants to build wealth nor should they be
| compelled to. A society that gives people the options to
| do what they want (in the sense of building wealth vs
| spending it) would be ideal in my opinion.
| robertlagrant wrote:
| > > ("The wealthiest 10% of Americans own a record 89% of
| all U.S. stocks")
|
| This is tautologous. "Wealthy" means mostly "built, and
| still owns a decent chunk of, a company whose shares are
| highly valued".
|
| Also, I could, like my parents, own nothing in the stock
| market, but have a paid off house and decent savings and
| a state pension, and be doing well. Proportion of capital
| markets ownership is too skewed a metric to reason about.
| jwestbury wrote:
| > This is tautologous.
|
| No, it's not, and it's a problem that you're thinking
| this way. A tautology would be "Americans in the top 10%
| of wealth are wealthier than the bottom 90%." A tautology
| is necessarily true according to logic.
|
| Logic does not dictate that the top 10% own 90% of the
| equities. And, in fact, there's a strong argument that
| societies with extreme inequality in wealth distribution
| are structurally unsound societies (I don't mean that
| they're economically unsound, though I'd argue that,
| too).
| robertlagrant wrote:
| I'm saying "owning most of the stocks" is completely
| equivalent to "wealthiest". The exact percentage isn't
| important. It's not as though those wealthy people need
| to have lots of actual cash to be considered wealthy in
| such stats; they just need to own enough of a company
| that's providing lots of value, or due to, that drives up
| the wealth stat.
|
| > there's a strong argument that societies with extreme
| inequality in wealth distribution are structurally
| unsound societies (I don't mean that they're economically
| unsound, though I'd argue that, too).
|
| This just depends on how you define "structurally
| unsound" and "economically unsound".
| mambru wrote:
| This is not a tautology but a (not-so-good) measurement
| of inequality.
| margalabargala wrote:
| Pensions tend to be much more generous.
|
| They are also riskier.
|
| People see the generosity of pension plans and
| (understandably) want that, without having the risk.
| gosub100 wrote:
| > means they care less about saving for retirement
|
| They shouldn't be "caring" so much about the high cost of
| living I guess?
| clbrmbr wrote:
| Totally agree about diversification. Reliance on a
| company pension fund is terrifying.
|
| That said, the old pension model forced workers to make
| large contributions. The 401k model does not. (Unless
| your company has some amazing match deal... I've only
| ever seen shitty deals like 25% of up to 4% of salary,
| whereas more like a 30% savings rate is what's really
| needed.)
| frumper wrote:
| For comparison's sake. I have a pretty good pension plan
| and my employer contributes about 27% of my gross salary
| to it along with the 8% I contribute. If someone offered
| a 401k match of 300% on my 8% I'd call that a good deal,
| but what you described is what people more often get.
| fnordpiglet wrote:
| Pension plans hold equity and other assets from many
| companies. They are essentially like mutual funds with a
| defined annuity payout.
|
| Defined benefit plans should never have died out, they
| should have been part of a total mix. There is no reason
| you can't have pensions along side social security along
| side 401k/IRA plans. This gives retirees multiple avenues
| for payout each with their own risk profile. The 401k is
| a great idea as a retirement supplement for folks who are
| interested in saving more and managing investments. But
| many (most?) people are not sophisticated enough to (a)
| take advantage of tax deferred savings vs paying rent and
| buying food, (b) muck with investment options roll overs
| and all the like.
|
| We are about to see a mass humanitarian catastrophe over
| the next 20 years as the 401k dependent generations
| retire, social security buckles, and we learn why
| pensions existed to begin with all over again.
| lotsofpulp wrote:
| There is no difference between a defined benefit pension
| plan and a target date retirement fund, except you avoid
| the extra agency risk that comes with giving control of
| your savings to the board of the pension plan and its
| vendors.
|
| The only defined benefit pension plan that has a leg up
| on index funds is a taxpayer funded one, because it has
| the power to tax, assuming the taxing jurisdiction will
| remain sufficiently economically productive decades into
| the future (see Detroit for an example of one that did
| not and hence was able to cut benefits to DB pension
| recipients).
|
| Personally, I would only value a DB pension paid by the
| federal government, since it can always print money.
| Otherwise, give me my 0.03% expense ratio index funds.
| fnordpiglet wrote:
| Investment target date plans are optional and still
| include the challenges of people executing roll overs,
| taking loans, cashing out with penalties, and actually
| choosing the right investment target date plan. Pensions
| are not optional, you can't cash them out, you can't take
| a loan, and they don't require any logistics to maintain
| after you've moved on. The biggest flaw of 401ks is their
| optionality which allows present self to buy a new car
| making retired self homeless.
|
| You (and I) aren't the issue here - it's the majority of
| people who are unsophisticated. They are autopiloting
| through life, assuming social security is a retirement
| plan or that they'll save later when they're closer to
| retirement. This is an awful lot of people. The truth is
| as a society we will be carrying them in their old age
| because we didn't pay up front, instead we set up an
| optional plan assuming they would pay up front. Instead
| we will collectively be figuring out a way to deal with
| the massive underprepared aged population using present
| dollars rather than compounded dollars.
| saltcured wrote:
| I think you're conflating "mandatory participation" with
| "defined benefits". You seem to want a system that
| prevents future-damaging choices by participants.
|
| I think the other argument going on above is that
| "defined benefits" isn't actually possible without some
| escape mechanism (like tax collection) to provide the
| benefits when it turns out the fund didn't perform as
| well as hoped. When a private pension fund gets in
| trouble, its participants lose their safety. The others
| want a system that prevents future-damaging choices by
| fund operators, and see defined contributions as the only
| viable way to do this. You own a chunk of the fund and
| can transfer it to different stewards.
| onlyrealcuzzo wrote:
| The majority of domestically-owned S&P shares are owned
| by either pension funds or IRAs (401ks):
| https://theirrelevantinvestor.com/2020/10/25/who-owns-
| the-st...
|
| The foreign share is a roughly similar breakdown to the
| domestic share.
|
| How do you think Pension Funds get a return if not
| investing in equities in similar ratios to most people's
| 401k allocation?
| loeg wrote:
| The quoted excerpt is referring to only the subset who
| has maxed out their 401k contributions, whereas you're
| describing the median, who mostly have not. These are
| different groups. People who maxed out their 401ks for
| their working years and had vaguely reasonable investment
| options (mostly diversified stock funds) will be fine.
| And social security income should not be ignored.
| red-iron-pine wrote:
| > and most did not or could not contribute to 401ks in
| any meaningful fashion)
|
| burying the lede here, killer.
|
| to be clear, the 2% mgmt fee in a lot of 401k plans is
| terrible and is absolutely scamming the average folks.
|
| but you can't retire on something you didn't contribute
| to, either because you didn't or couldn't.
| nineplay wrote:
| Pensions have a lot of problems. They become handcuffs
| that keep workers at the same place no matter how unhappy
| they are, and employers know how to take advantage of
| that. It's easy to look back with rose-colored glasses
| but I know several people who dragged themselves though
| several years of misery to hang on to their pension
| funds.
|
| I wouldn't trade my 401k.
| arielweisberg wrote:
| Pension plans as they were are still kind of bad because
| they could be mismanaged in a variety of ways.
|
| Pensions are kind of always problematic because you take
| control away from people and give it to people with
| misaligned incentives.
|
| It's the same if you give people control over their own
| retirement because they can not contribute or mismanage
| how the money is invested. Defined contribution pensions
| are maybe an improvement on this because at least you
| know there is money there and can have a regulatory
| framework that is simple and heavily restricts how the
| money can be used. I would really like to see broad
| market index funds only. Dumb money should stay dumb.
|
| Maybe if you pull the responsibility up to the federal
| government you minimize the risk of mismanagement, but
| it's still pretty large.
|
| Seems like we are doomed to pick an option that is still
| risky and it's every person for themselves. You need to
| super save and not rely on any framework provided by
| others. And this is where 401ks shine. Sure I am stuck
| relying on the stock market, but I think the distribution
| of outcomes there are more in my favor than if it were
| managed by someone else. Whatever is in my 401k (or IRA
| or whatever) is owned by me and is heavily diversified.
| ryandrake wrote:
| > Pensions are kind of always problematic because you
| take control away from people and give it to people with
| misaligned incentives.
|
| Maybe I'm the weird one, but I don't necessarily want
| _control_ of my retirement fund. My primary requirement
| is that it exists when I need it. Somehow the financial
| industry convinced the public that being able to
| micromanage their retirement investment and pick their
| own stocks and mutual funds is somehow beneficial. I can
| probably count on one hand the number of people I know
| who find this kind of micromanagement interesting.
|
| I just want "money goes in" and "enough money eventually
| comes out" and I don't think I'm alone in that. You can
| accomplish that with a well-run pension, a well-run
| government plan, and so on. Lots of options that don't
| involve me having to decide between stock and bond funds.
| WkndTriathlete wrote:
| Having watched a close friend of my dad's sell at the
| bottom in 2007-2008 after he had retired, I understand
| your sentiment.
|
| However, before the advent of discount brokerages and
| widespread 401(k) plans investing really was only for the
| extremely wealthy and inept fund management - resulting
| in extremely high expense ratios - was rampant. Now
| investment is more accessible and ETFs are offering near-
| zero (or actually zero (!) - see FNILX) expense ratios on
| the strength of the economy, which has been a net win for
| a larger segment of the population than the 0.1%. We're
| up to 20% now!
|
| I would like to see a much larger percentage of the
| population to be able to get in on this opportunity.
| Doing away with wealth and income inequality will get us
| halfway there. Trust-managed investing addresses what
| you're asking for, where a company manages your
| investments and retirements for you at some level of
| expense ratio. (These companies exist today for
| retirees.)
| lotsofpulp wrote:
| >I just want "money goes in" and "enough money eventually
| comes out" and I don't think I'm alone in that. You can
| accomplish that with a well-run pension, a well-run
| government plan, and so on. Lots of options that don't
| involve me having to decide between stock and bond funds.
|
| It is called a target date fund.
|
| https://en.wikipedia.org/wiki/Target_date_fund
| spiralpolitik wrote:
| Two market crashes and badly managed 401k accounts won't
| help. Most trust that their 401k is correctly managed. This
| is often not the case.
|
| The merry-go-round of debt ceiling and budget
| confrontations in congress doesn't help. Any gains from
| this year are probably going to be wiped out by that
| continuing drama.
|
| Finally the increase in cost of living expenses and cost of
| long term medical care will quickly eat into your 401k once
| you stop contributing.
|
| The math looks ugly once you sit down and figure it out.
| nradov wrote:
| What do you mean by "trust that their 401k is correctly
| managed"? Those 401(k) plans are self managed. In most
| plans the investment selection defaults to a low-cost
| retirement date fund. There's no one to trust.
| spiralpolitik wrote:
| If you start at a company today the default setting would
| be for the 401k money to be invested in something like
| LifePath N or similar ETFs that are designed for
| retirement funds. Most people, lacking the knowledge to
| do otherwise will stick with that.
|
| So you are working on the assumption that LifePath or
| similar ETFs are going to be correctly managed for their
| cohort (shifting into safer investments as the retirement
| date approaches).
| njarboe wrote:
| Somehow the "safety" of bonds were not adjusted as yields
| reached and sometimes went below zero. A multi-year zero
| interest bond is not a very safe investment. I did have
| that default setting on a retirement account and got out
| of those LifePath type ETFs over a decade ago.
| nradov wrote:
| You appear to be confusing safety with investment
| returns. As an asset class, bonds with high credit
| ratings have a lower risk of losing capital than stocks.
| Those bonds will lose some value as interest rates rise
| but they very rarely go to zero. For investors
| approaching retirement age it's more important to
| preserve capital than to worry about interest rate risks.
| nradov wrote:
| Major passive target date funds are all correctly
| managed. Periodically rebalancing between the various
| component index funds to match a set ratio is not exactly
| rocket science. You can just read the prospectus and
| latest audit.
| throw0101c wrote:
| > _How will that happen when there has been so much growth
| in the S &P?_
|
| If you invested in an index fund, you will get very close
| to the S&P 500/Russell 3000/Whilshire 5000/ _etc_.
|
| If you invested in an actively managed fund, then the fund
| manager takes their cut, but also probably tries to be 'too
| clever' and doesn't get as good returns as a plain index,
| and so you're not getting as high returns.
| DontchaKnowit wrote:
| My 401k account offered by fidelity, using the highest risk
| investment strategy available to me, returned about 8
| percent during a period where the S&P did about 30%. and
| they took a 1.5% commission. Absolute fucking scam. took
| all my money out and ended contributions.
| wenebego wrote:
| You werent allowed to invest in the s&p 500 or any other
| low cost index fund?
| DontchaKnowit wrote:
| If I was, they did not make that clear at all. They had a
| set of about 14 different "packages" that were
| aggregations of different etfs and such that were
| available to invest in and that's it. I couldn't find any
| way to invest in a single stock or etf.
|
| They also told me I couldn't cash out my money until I
| left the company I worked for which I am pretty sure is
| untrue.
| bushbaba wrote:
| You can always do a S&P 500 fund in a 401k
| quickthrowman wrote:
| My 401k plan has an S&P 500 fund run by Fidelity that
| costs 0.015% a year in fees, FXAIX. If I didn't have
| access to a fund like this, I would demand to be given
| access to it.
| gymbeaux wrote:
| Past performance does not guarantee future results. You can
| find periods in the US stock market's history of years,
| even a decade or so, where the return on the DOW was
| essentially 0. Look at other countries and it gets worse;
| Japan's NIKKEI returned 0 between 1995 and 2020. 25 years
| of... dividend reinvestment I guess? Still nothing compared
| to the US stock market during that period.
|
| The stock market is a circus- that's common knowledge- yet
| we rely on it for retirement? Okay. That'll work until it
| doesn't.
| nradov wrote:
| The Dow Jones Industrial Average is a garbage index with
| components selected arbitrarily. No one in finance takes
| it seriously.
|
| No one can guarantee stock market returns, but over
| decades it's a lot safer than depending on pension
| contributions from a single company. And most 401(k)
| plans now offer target date mutual funds which
| automatically reduce stock exposure over time, thus
| reducing risk of capital loss as you approach retirement.
| danaris wrote:
| We're not talking about what people "in finance" know or
| care about. We're talking about regular people's
| retirement funds.
| nradov wrote:
| What's your point? Regular people's retirement funds
| aren't invested in the Dow. They mostly use target date
| funds.
| EVa5I7bHFq9mnYK wrote:
| If we are going to cherry pick, Nikkei-225 returned -6%
| between Dec 1989 and Feb 2023 (dividends reinvested and
| inflation adjusted). 33 years of negative returns.
| BeetleB wrote:
| > How will that happen when there has been so much growth
| in the S&P?
|
| Almost no one gave the obvious answer: Most 401 K plans are
| _not_ investing in the S &P. Many give you the option to,
| but it's not the default, and probably over 90% of workers
| are unaware of the fund.
|
| And quite a few do not even give you the option to invest
| in it.
| PKop wrote:
| The cost of real goods, energy, medical care etc will
| inflate to account for this, plus extracting the gains will
| involve selling..to whom? At what price?
| ilamont wrote:
| > despite maximum contributions
|
| The people with insufficient 401k balances aren't making the
| max. They're doing the minimum, starting too late, or
| selecting the most conservative investments such as bond
| funds (NAVs have collapsed) or cash. Many plans don't have
| good low cost index funds, so people are forced into actively
| managed funds some of which are complete garbage in terms of
| fees and returns.
|
| Workers living paycheck to paycheck (61% of the population,
| see https://www.cnbc.com/2023/07/31/61percent-of-americans-
| live-...) means that contributions aren't realistic for
| millions of people.
|
| Further, a lot of people don't understand how they work, and
| never contribute, even if they could. Even with matching
| contributions. Or, they don't trust them after the 2008
| collapse or a vague suspicion that the system is rigged
| against them. This is what I hear from my spouse; many of her
| colleagues won't touch the solid 401k investments offered by
| their employer.
|
| Some employers have made changes that makes it easier to get
| started, but many never will, assuming (wrongly) that social
| security is their retirement solution.
|
| Your predictions about older workers working longer is
| correct. You can see it now, seniors working at grocery
| stores into their 70s and even older.
| jandrewrogers wrote:
| > Workers living paycheck to paycheck (61% of the
| population
|
| According to US BLS and Federal Reserve studies, only about
| 15% of the population necessarily lives paycheck-to-
| paycheck. The median US household has a ~$12,000 surplus
| per year after _all_ ordinary expenses. Note that
| "ordinary expenses" includes car payments on a BMW, the
| latest iPhone, and other by-no-means-necessary
| expenditures, and also includes all healthcare costs.
|
| If 61% of the US population is living paycheck-to-paycheck,
| it isn't because they need to. Americans have very high
| income surpluses compared to the rest of the developed
| world. 15% of the population necessarily living paycheck-
| to-paycheck is still a lot of people, but it implies 85%
| are not.
| ilamont wrote:
| > If 61% of the US population is living paycheck-to-
| paycheck, it isn't because they need to.
|
| Consumers can share blame for not living below their
| means, needless wealth signaling, and financial
| illiteracy.
|
| But predatory entities are part of the problem, too - car
| dealers obscuring true costs of borrowing ("how much do
| you want to pay per month?"), credit card issuers jacking
| up rates to 37%, and real estate "investors" jacking up
| rents after buying mom & pop mobile homes and senior
| rental units knowing that tenants have nowhere else to
| go. Here's one example from Montana:
|
| _"I can't tell you how many calls I got from folks that
| were older, like older than 55 or 60, that had lived in
| their same house for decades, had the same owner for
| decades who never raised the rent," Huey said. "Then all
| of a sudden they lost their housing."
|
| Huey and other providers across the state have heard
| countless stories of homeowners turning their rental
| property into Air-BnBs or evicting their long-term
| tenants in order to house their own children in
| increasingly affluent communities._
|
| https://billingsgazette.com/news/state-regional/montana-
| seni...
| clbrmbr wrote:
| Re: predatory landlords: if they are not breaking the
| law, are they really blameworthy? Seems like the previous
| landlord was naive, or at least operating on an outdated
| worldview where local reputation mattered. (Hard to show
| up at the local Chamber or Elks or church when you are
| getting old folks kicked out of their homes).
|
| How to solve... I'd like to find a model to apply in my
| HOA to slow or reverse the corporate takeover of my
| community...
| renonce wrote:
| They are blameworthy for not getting public and sharing
| profits with regular people, rigging regular people by
| inflation
| inkcapmushroom wrote:
| >Seems like the previous landlord was naive, or at least
| operating on an outdated worldview where local reputation
| mattered
|
| Or maybe was an individual with a conscience who didn't
| want the old couple that had been in their property for
| 30 years living on the street. I guess you could call
| that naivety though.
| clbrmbr wrote:
| "Conscience", there's a word I haven't heard in a while.
| If an act is "unconscionable" well then it's legally
| indefensible. But the broader idea of "having a
| conscience" seems to have receded, to the point I don't
| really know what it means.
| clbrmbr wrote:
| Btw I love inky caps. Just had a marvelous flush of
| shaggy manes in the yard here, fed by wood chip paths.
| PH95VuimJjqBqy wrote:
| Just because the law allows it doesn't mean you should do
| it.
| drewcoo wrote:
| > Consumers can share blame for not living below their
| means, needless wealth signaling, and financial
| illiteracy
|
| That's a claim that marketing does not work and we know
| that's not true. It regularly defeats "personal
| responsibility" or no one would pay the marketers.
| tbihl wrote:
| This is over-hyped. Professionals who want out will
| overwhelmingly figure out how to save more, regardless of
| whether their investment returns are 5% or 9%. Most people
| are working for much more than a paycheck (though I believe
| they often fail to realize that), and stop working for far
| more varied reasons than achieving financial independence or
| a fully vested retirement plan.
|
| Sure, this will move some people at the margins, but most
| people will stop working from physical or mental frailty, to
| move across the country to be with grandchildren, or to
| preserve their limited energy to do things that they find
| more compelling than work. To the extent that they need to,
| they'll find lower-cost ways to live, probably including
| down-sizing, living with their adult children, renting rooms,
| or other informal arrangements within their communities.
| gymbeaux wrote:
| It's not over-hyped. If you play around with the numbers,
| the ~$22k per year (increases a little each year usually)
| you can put in a 401k is insufficient to retire on, even if
| you start at age 20 and max it each year till 55... unless
| the stock market goes up, up, up. One flaw is that you can
| only contribute that $22k to retirement if you have an
| employer and that employer offers a 401k plan to employees.
| Most do, but it also discourages entrepreneurship and gig
| work (which can be lucrative). Without a 401k, we are
| limited to contributing $6k/year to an IRA, which only has
| a tax deduction if you make less than $85k or so per year.
|
| Meanwhile 15% or so of our paychecks go towards social
| security, which many believe won't exist in 20 years,
| regardless of contributions you made.
|
| Finally, the cost of retiring heavily depends on two
| things- healthcare and housing. Many Americans remain
| employed until 65 when they are eligible for Medicare as
| their employer-provided health insurance is all they can
| afford. Prior to Obamacare, these individuals would simply
| be uninsured, but now it's "insured but it's ridiculously
| expensive" without their employer.
|
| As for housing... it's common to sell a single family home
| for X and use X/Y of that money to buy a smaller townhome
| or condo to live in until the day you die. This can work
| out well, adding tens or hundreds of thousands of dollars
| to the retirement account, but it relies on the person
| owning the home, having significant equity in the home if
| it's not fully paid off, and being willing and able to sell
| the house and downsize.
|
| The system is broken and in this software engineer-heavy
| forum, I think it's easy to forget that we make more money
| than most Americans. Heck, we make more money than most
| humans.
| nradov wrote:
| No one retires at age 55 unless they already have
| substantial wealth. The expectation is that you continue
| contributing until you retire at about age 67.
| BeetleB wrote:
| > It's not over-hyped. If you play around with the
| numbers, the ~$22k per year (increases a little each year
| usually) you can put in a 401k is insufficient to retire
| on, even if you start at age 20 and max it each year till
| 55
|
| Over the last 35 years, that would have netted you about
| $3M in today's dollars. You could argue that's not enough
| to retire on at 55 (although I'm sure many can), but if
| you keep it up to 65 that's $6M. Easily enough to retire
| on.
| symlinkk wrote:
| Not to mention Social Security kicks in once you hit your
| 60s.
| thunky wrote:
| Right, but that's also assuming the person is 100%
| invested in the stock market all the way up to their
| retirement. That's a lot of risk.
| Kon-Peki wrote:
| > discourages entrepreneurship and gig work (which can be
| lucrative)
|
| Self-employed folks can make both employee and employer
| contributions to tax-advantaged retirement accounts, and
| the aggregate yearly amount far exceeds what a W-2
| employee can contribute on their own.
| peteradio wrote:
| Maybe by then Canada will have some sort of MAID tourist
| visa.
| bluefirebrand wrote:
| Maybe it's time for a tech startup to invent the Futurama
| suicide booth. We could have a test market lined up.
|
| Combine it with a Cyberpunk 2077 crematorium vending
| machine and it sounds like a great one stop shop.
| bluefirebrand wrote:
| > preventing younger workers for getting into positions
|
| This won't matter anyways, or at least it feels that way.
|
| I have no real hope that jobs that open up above me will go
| to me or someone else in my cohort. What I think instead is
| one of three things will happen:
|
| 1) Those job responsibilities will be split among remaining
| people as much as possible, and effectively remain vacant
| with other people scrambling to take over part of it. They
| will receive a tiny pay bump at most.
|
| 2) Those job responsibilities will be filled by someone but
| pay nowhere near what the person retiring was making.
|
| 3) The job will be automated somehow.
|
| Maybe this is too cynical but I really do feel like companies
| are getting better at making sure employees make exactly the
| minimum they will tolerate faster than employees are becoming
| intolerant of how little they are paid.
| nradov wrote:
| Those are the things that happen in static or declining
| companies. If you see those things happening then it's time
| to look for a new job in a growing company, unless you're
| already close to retirement.
| bluefirebrand wrote:
| Most companies have ups and downs. Longterm stable
| companies tend to be static, short term success can turn
| into cratering failure in a hurry, and no company can
| grow forever.
|
| When you're interviewing, every company will swear they
| are growing rapidly and making oodles of money. How do
| you tell if they really are?
|
| If I could identify growing companies so easily I
| wouldn't work at all, just make bank on the stock
| markets, right?
| nradov wrote:
| It's easy to tell if companies are actually growing. For
| public companies just read their quarterly financials.
| For private companies look through LinkedIn to check the
| pace of hiring and promotions.
|
| Of course there are no guarantees. If your current
| employer stops growing then it's time to look for other
| opportunities.
|
| I don't understand your point about the stock markets.
| All other investors have access to the same growth data
| about public companies. The growth rates are already
| priced in.
| jimmydddd wrote:
| --Static or declining companies Including companies
| recently purchased by PE.
| HumblyTossed wrote:
| This is happening all over the place and is the reason
| for the huge productivity/wage gap over the past X
| decades.
| HumblyTossed wrote:
| > 3) The job will be automated somehow.
|
| If we're talking middle management, that's basically just
| an automated spreadsheet.
| bushbaba wrote:
| Honestly just see a lot more RV/Van dwellers in retirement.
| housing and healthcare are the greatest costs.
| trashface wrote:
| This is what I'm contemplating in the near future. My house
| mostly paid off, but I struggle to afford the maintenance
| and some stuff is starting to go seriously wrong, and
| younger people are moving into town with eye-popping
| incomes, driving up COL overall. But then I can't afford to
| rent either because my income is tiny. I understand RV
| living has many issues but there are likely no other
| options for me.
|
| Its "funny" that I'm not that old (40s) and I've now lived
| through 2 major housing crisis as an adult. Its the same
| number as my parents who are in their 80s, and they never
| even had to buy a house in a post crisis era. Housing was
| basically ez-mode for them their whole lives (as was
| healthcare). Only now are they having any difficulty, even
| with a defined-benefits pension, but they have me to help
| out, lucky them (not so much me).
|
| As for healthcare I've given up on that already. I might
| have one elective surgery next year, after that if anything
| major goes wrong with me, I'm dead. Not even really
| bothering with many doctor visits now, though I manage the
| prexisting issues I know about.
| mint2 wrote:
| Also all the older workers who do have enough used it to buy
| multiple investment properties, helping make house prices
| absurd.
| renonce wrote:
| Just wondering, how many U.S. citizens have considered
| retiring in another country, possibly a developing country? I
| live in an Asian country where the living costs are
| significantly lower than that of U.S., so as long as the US
| dollar remains strong you can expect 2~3X more purchasing
| power for the same dollars. Countries like Malasyia have
| favorable policies for foreign retired workers, such as easy
| retirement visa, world-class medical care, etc. Could be an
| ideal place for retirement in case 401k was insufficient for
| retirement in US.
| EVa5I7bHFq9mnYK wrote:
| Don't know why, but all those cheap countries are too hot
| for me. All the colder climate countries are well developed
| and expensive. Maybe the chain of derivation is cold ->
| hard to survive -> expensive -> developed.
| renonce wrote:
| What about getting an air conditioner?
| trashface wrote:
| I'm closer to retirement than probably most people here,
| and I have considered it, though I haven't specifically
| looked at any countries. One risk for me is the the
| potential for culture shock, as I haven't ever lived
| outside the US (and indeed have not been outside of US in
| over 20 years, and when I did it was to the UK, so not
| exactly a big difference from US).
|
| I also have to take care of my aging parents here, by the
| time I don't have to do that anymore, I could be near 60
| and really not in much condition to manage a big move like
| that. My own retirement might be...rather short at that
| point; there is no one to take care of me.
|
| My brother really wants us to try for Irish citizenship (we
| have distant relatives so its possible while one of my
| parents is still alive), but its highly unlikely we'd get
| approved and Ireland is not cheap nowadays. I've looked at
| Canada but there is a lot of red tape for US citizens to
| move there, especially ones who are already partially
| retired.
| EVa5I7bHFq9mnYK wrote:
| >> The expectation for your 401k is that it's going to grow
| by 6-8% each year.
|
| I have always been suspicious of the 6-8% figure, as it also
| includes an unknown number of insiders. They know when to buy
| and when to sell, so their returns are higher than 6-8%.
| Correspondingly, all non-insider returns are lower, such as
| 3-4%, but you will not be able to tell because statistically,
| it will still average out to 6-8%.
| wing-_-nuts wrote:
| >Most will discover that their 401K, despite maximum
| contributions, will be insufficient to retire on.
|
| The biggest problem I have with the 401k is that it was very
| clearly set up as a tax break for the upper class. It was
| then extended to be the primary retirement for everyone and
| it has oh so many footguns and ways to bilk retail investors
| along the way.
|
| 1. It's tied to your employer, and not universally available.
| 2. Even when it's available, it's not mandatory to save
| anything. It should at the very least have a decent default
| contribution with a 'I really know what I'm doing' opt out.
| 3. Investment options are often active funds with subpar
| performance and high fees 4. It's too easy for retail
| investors to panic and sell everything during a downturn.
|
| If the government were really intending to set up a defined
| contribution retirement plan, they should have just made the
| TSP available 'at cost' to everyone. Autoenroll everyone at
| 10% in a 'target date' index fund and don't let them touch it
| until their 60's unless they have a terminal illness or
| something. It really is that simple.
| supertrope wrote:
| Indeed. The switch from defined benefit to defined
| contribution puts investment risk and longevity risk on the
| individual. Australia has much better pension/retirement
| savings policy public in the form of Superannuation.
| Eumenes wrote:
| > Vet clinics, medial practices, engineering firms, etc all use
| to to thrive on being 20 person shops are now routinely being
| bought up by PE firms and rolled into larger companies which
| means far fewer entrepreneurs or chances for up and coming
| employees to buy into the firm from the founders, which helps
| stall careers.
|
| In the past 2 weeks, my local small biz autobody shop and
| furnace/HVAC company have been bought by large regional firms.
| The furnace company refuses to service your boiler w/o buying
| from their preferred oil supplier, and the autobody shop has
| adjusted their rates to essentially insure they only work with
| insurance claims.
| gymbeaux wrote:
| It's very common for auto body shops to only work with
| insurance claims. I think your best bet is to take the car to
| a dealership-owned body shop, especially if it's the
| dealership you bought the car from, or the same make.
| MisterTea wrote:
| > It's very common for auto body shops to only work with
| insurance claims.
|
| Right, because like health care they treat the insurance
| company like a giant pinata to beat free money out of. Ive
| seen auto shops lie about damages, things like claiming
| previous damage is part of a claim - anything to bilk them.
| Of course the clients don't see any moral issues because
| their car receives "free" work.
| Gustomaximus wrote:
| I've thought about this a bit. This concentration shift seems
| good for the economy in the short term but a massive loss for
| society as business increasingly becomes a chains or
| centralised. Especially in areas that are traditionally owner
| run like restaurants, pubs, vets, dentists, GP clinic,
| pharmacy, hardware etc. Capitalism is the best system but we
| too often forget a core tenant for govt to create a level
| playing field. We seem to have forgotten this and make it
| increasingly hard for small business which should be a
| significant driver of innovation and improvement.
|
| I think some possible solutions would be to;
|
| 1) Significantly lower taxes for smaller businesses vs larger.
| Even better bring personal rate inline to company rates... but
| this would be a very difficult shift for governments.
|
| 2) Tax benefits for companies listed and actively traded, so
| companies are encouraged to list and share wealth/growth.
|
| 3) A 'not in the national interest' law for companies that
| continually pay little to no tax where you would expect them
| to. Have tax department give something like a 3 year warning
| they are on the 'consideration list' and if things dont change
| the tax office can make them sell, or if they prefer close. And
| then they remain on said list for a couple decades or so to
| verify. This, while being risky for overuse, would be an
| effective tool on the worst tax dodgers and wielded in a
| limited capacity quite useful for those that have high end tax
| strategists that keep getting around the rules.
|
| 4) Limit investment ownership in residential so people dont
| spend their life trying to buy a house. This will allow people
| to take some business risk and invest in their entrepreurship
| far more easily.
|
| 5) Put a low market cap limit on core local business like those
| mentioned above like vets, dentists, GP clinic, pharmacy. Or
| maybe a progressively sliding scale annual asset tax past a
| value/outlet of X. Something that limits how big these
| organisations can get.
|
| 6) Stop large consumer distributors selling their own brand
| product. Not sure how to word this exactly but places like
| Amazon or large supermarkets, they should be a retailer of
| other business goods only. Stop them sticking their own rip-off
| product next to the other.
|
| Obviously a load more...
| jeffreyrogers wrote:
| I think it will be a cyclical thing. The PE firms actually do
| run those businesses much more efficiently, but they also
| become homogenized and that's offputting, which opens the
| door for new entrants to differentiate themselves.
| leishman wrote:
| It's because of cheap money flowing into Wall Street. The
| negative impact of ZIRP has only started to be felt.
| ikekkdcjkfke wrote:
| Where is all this money coming from?
| JumpCrisscross wrote:
| > _Newer companies like AirBNB and Uber went public at what
| could be their max market cap_
|
| Uber is worth 50%+ its IPO valuations.(EDIT: No it isn't.
| Sorry, jet lagged.)
| chollida1 wrote:
| > Uber is worth 50%+ its IPO valuations.
|
| Is it?
|
| I just looked at the chart and saw it went public at $45 and
| it currently trading at $45.
|
| Did it split at some point or issue a 50% div?
| ta1243 wrote:
| https://finance.yahoo.com/quote/UBER says opened at $41.91
| in May 2019 and is now $42.42
|
| Had it kept track with inflation it would be about $50 - up
| 15%
|
| Had it kept track with S&P it would be about $63 - up 50%
| slotrans wrote:
| No it isn't, as 30 seconds of research would show.
| globular-toast wrote:
| As John Kay put it, the stock market used to be a way for new
| businesses to raise capital, now it's a way for already
| profitable companies to cash out. The example he gives of one
| of the first ones is Google. So it's been going on for quite a
| long time now.
|
| The funny thing is now many of these companies _aren 't even
| profitable_. It's all driven by speculation.
| jeffreyrogers wrote:
| It's still how many new businesses raise capital. That's how
| the biotech industry works for example. (In biotech VC just
| gets you to the IPO stage and you don't cash out at IPO since
| typically those companies don't even have an approved product
| yet).
| Andrex wrote:
| > It's still how many new businesses raise capital.
|
| Should it be? Theranos stained biotech badly.
| jeffreyrogers wrote:
| Business and markets run on trust. The less trust you
| have the more overhead you have to verify that every
| claim your counterparty makes is true. That's expensive
| and means some worthwhile things become impossible to do
| profitably. It's a tradeoff and I think in general the US
| finds a good spot between regulation and ease of doing
| business, and the rest of the world benefits from it too.
|
| There are failures of course, but most of the big ones
| recently have been in private markets not the public
| ones.
| cs702 wrote:
| I agree!
|
| But I also think the rise in interest rates could help reverse
| this trend, at least somewhat.
|
| Consider: Until recently, interest rates in the US and other
| developed economies had only declined, in fits and starts,
| since the early 1980's.[a]
|
| Not coincidentally, the modern private equity sector was born
| in the 1980's.[b]
|
| Until recently, private equity firms had benefited from
| interest rates that only decline and valuation multiples that
| only expand -- for four decades!
|
| A lot of deals that "work" when rates only decline will stop
| working if rates don't. For example, there are a _lot_ of
| private-equity-backed middle-market businesses, including
| plenty of roll-ups, that were financed before rates went up,
| with such high leverage that the companies are now at risk of
| insolvency if rates don 't decline soon.
|
| If rates stay at current levels or (gasp!) continue to
| increase, I'd expect to see a significant _contraction_ in the
| number of private equity firms. Those private equity firms
| survive may have to become mainly _lenders_ , i.e., banks in
| all but name, and sooner or later will end up being regulated
| as such.
|
| ---
|
| [a] https://fred.stlouisfed.org/graph/?g=1aNbC
|
| [b]
| https://en.wikipedia.org/wiki/Private_equity#Private_equity_...
| jeffreyrogers wrote:
| Those companies are only at risk of insolvency if their debt
| is variable rate or has a balloon payment due soon. I imagine
| most PE firms are smart enough to avoid those risks. Banks
| are also incentivized to negotiate with debtors in those
| situations since the asset is worth more as a going concern
| than it would be in bankruptcy and banks don't want to
| operate a business (they have no expertise there).
|
| Most PE deals would work (with lower returns) without any
| debt. The debt allows them to diversify into more deals
| (since they put less equity into any given deal).
| cs702 wrote:
| > Those companies are only at risk of insolvency if their
| debt is variable rate or has a balloon payment due soon.
|
| Actually, most LBO-type deals are financed with a
| combination of bank and bond debt. A shocking number of
| bond deals will be maturing within 1-3 years, and have to
| be refinanced. The bank debt, senior to the bond issues, is
| typically variable-rate and (depending on deal size) split
| into tranches that must be repaid at different schedules
| over time. Many PE-backed borrowers in recent years decided
| not to enter into swap contracts to fix their debt rates.
| My understanding is that things could get ugly quickly if
| rates don't come down soon.
|
| > Most PE deals would work (with lower returns) without any
| debt.
|
| Actually, if a deal returns _less_ than the yield on
| corporate debt of similar risk, then the deal _does not
| work_. LP 's in the PE fund will correctly view it as a
| failure. The _raison d 'etre_ of PE funds is to earn
| returns above those yields. Moreover, if a portfolio
| company is already loaded with debt, finding buyers that
| will pay the _old_ multiples given the new rates will prove
| difficult, if not impossible -- similar to the situation
| many US homeowners that locked-in ~2% mortgage rates a few
| years ago face today: They cannot sell their home at the
| old valuation because prospective buyers are looking at
| mortgages that cost ~8% /year. Higher interest rates make
| it hard to impossible to "exit" at valuations that generate
| decent returns.
| jeffreyrogers wrote:
| I'll believe it when it happens. Banks/creditors don't
| want to operate these assets (no expertise there) and
| since the businesses are fundamentally sound for the most
| part there is no reason to force them into bankruptcy.
| "Extend and amend" (sometimes "extend and pretend") is
| what they called it after 2008.
|
| If they had unlevered yields below the corporate debt
| yield they would have negative leverage and debt would
| reduce returns.
| Aunche wrote:
| > Newer companies like AirBNB and Uber went public at what
| could be their max market cap valuation of billions so
| investors wont' get much of a chance to make money from these
| companies.
|
| Almost all of these companies were massively overvalued by the
| time they IPO'd. I for one am glad that regular people were not
| allowed to invest in Theranos or WeWork. Looser restrictions on
| investing would create even more dodgy company's whose primary
| goal is to scam retail investors, like what we've seen NFTs.
|
| > Vet clinics, medial practices, engineering firms, etc all use
| to to thrive on being 20 person shops are now routinely being
| bought up by PE firms
|
| IMO, this is a symptom and not a cause. Vet clinics and medical
| practices would be terrible investments if it were sufficiently
| easy to start new vet clinics and medical practices. Likewise,
| housing would be a terrible investment if it were sufficiently
| easy to build more housing.
| pas wrote:
| It's not terribly hard to start a clinic, but it just makes
| sense to consolidate, and it doesn't make much sense for
| anyone who's not a vet to start one (because of the relative
| pricing power of vets). But it's not bad for vets to be able
| to exit to PE after they have established the clinic.
|
| And after consolidation PE can make better deals with vendors
| (from pharma to insurance networks to maintenance).
|
| (Of course exorbitant rise in vet costs shows there's room
| for more vet clinics, but it's mostly a side-effect of a lot
| of rich people spending a lot on their pets.)
| Retric wrote:
| Don't forget about inflation when comparing these numbers. 300M
| in 1984 is 0.85 Billion today. Some companies IPO at huge
| valuations, but ShockWave Medical, Inc., had a 2019 IPO at
| roughly the same valuation as Microsoft and has seen 11x
| returns since then.
|
| Looking at the other 2019 IPO's you see a lot of volatility but
| many home runs. https://stockanalysis.com/ipos/2019/
| hnthrowaway0328 wrote:
| IMO this also impacts "large" institutional investors such as
| pension funds. A lot of them are going to hold the bag.
|
| I don't see a way to get out of it without a fundamental
| change.
| FireBeyond wrote:
| > we now have such concentration of wealth that the big PE
| firms can buy alot of what used to be small businesses and roll
| them up.
|
| When they don't decide to do a leveraged buy out and have the
| business help fund its acquisition.
|
| One small step away from Tony Soprano and the sporting goods
| store bust out.
| throw0101c wrote:
| See also "The United States of Bed Bath & Beyond" from last month
| (raiding a company for cash and creating debt, then declaring
| bankruptcy):
|
| * https://news.ycombinator.com/item?id=37652479
|
| "Bed Bath and Beyond files for bankruptcy", April 2023:
|
| * https://news.ycombinator.com/item?id=35700918
| xrd wrote:
| Or, Toys R Us.
| throw0101c wrote:
| 'The Toys "R" Us Bankruptcy and Private Equity':
|
| * https://www.theatlantic.com/magazine/archive/2018/07/toys-r
| -...
|
| * https://archive.ph/OH9QF
| epups wrote:
| I have been reading a lot of criticism of PE here at HN, with
| similar arguments as TFA. In the case of small companies - vet
| offices, medical practices, etc - it is usually claimed that a PE
| acquisition enforces a bunch of changes that are ultimely
| detrimental to the end product, like quality of care. However, if
| that's the case, shouldn't we see non-PE companies flourish in
| competition? Or PE firms emerging that respect the end product at
| the expense of short term profits?
|
| I understand why enshittification and all these others process's
| occur when you have a monopoly or a large market share. I fail to
| see why it should not be punished by the market when applied to
| easily disruptable sectors.
| lordalch wrote:
| When I moved and was looking for a new vet and dentist, I
| specifically asked each one about their ownership structure and
| didn't choose any that were owned by a PE firm.
| badcppdev wrote:
| This is the only solution in my opinion. Don't buy something
| cheap if it's from a crap company.
| Jill_the_Pill wrote:
| >> shouldn't we see non-PE companies flourish in competition?
|
| It's seldom clear to patrons WHY things have changed. People
| get stuck in their habits and are hesitant to start somewhere
| new, particularly with things like medical services. My mom
| wouldn't recognize PE as the source of a problem at her doctor,
| dentist, vet or mechanic.
| l72 wrote:
| The problem is the PE company comes in and buys basically every
| vet clinic or nursing home in a city, undercutting the
| independents. Once the independents retire, shut down, or
| eventually sell, then the enshittification happens.
|
| This has been a major problem in smaller communities where
| there is essentially no choice in services anymore.
| epups wrote:
| Oh, I see. So the market is effectively local, like a
| neighborhood or small community, which means a single entity
| can more easily dominate it.
| Nifty3929 wrote:
| "Undercutting the independents," or offering the independents
| a lot of money to stop being independent? Sounds like a
| windfall for those who sell to me.
| waythenewsgoes wrote:
| It all comes down to available resources. It takes capital and
| motivated founders to create new vet clinics. Few will want to
| spread themselves thin enough to cover many clinics unless they
| are in the same geographic area, and even then the market has
| saturation limits. However, if an entity essentially resembling
| Chase bank in terms of capital resources comes into your town
| and either buys out or undercuts you drastically until you
| appear to be uncompetitive, and you can't make your mortgage
| payments, or cover your whole staff and equipment, what are you
| supposed to do? PE can starve you out, they have the resources,
| these small businesses do not. There is no competition in this
| instance, just a slaughter.
| morninglight wrote:
| Private equity has made one-fifth of the market effectively
| invisible to tax collectors.
| flint wrote:
| Sarbanes-Oxley
| https://www.investopedia.com/terms/s/sarbanesoxleyact.asp
| TehShrike wrote:
| This article seems to be stretching really hard to find any way
| to connect private equity with "bad things".
|
| I found the "private companies are kind of like public companies
| pre-1929-stock-market-crash" take to be particularly incoherent.
|
| There might be a good steel-man argument for "privately owned
| companies are bad", but this article doesn't look like it.
| deepsquirrelnet wrote:
| I think the mistake is to assume that all private equity is
| bad. I'm sure there are good examples of what PE can do well.
|
| But for all of the consternation here about declining
| journalism quality, the things PE has done to local new sources
| is an abomination. If you're not aware of the part they are
| playing, you owe yourself a bit of education.
| aurizon wrote:
| Dentists, vets etc are being bought up and added to a corporate
| front. As long as there is a token vet/dentist as a corporate
| officer, they can roll up 1000 practices. Vet/dental fees have
| been going up 15-20% annually for 6-7 years. A large amount of
| 'granular' billing is occurring. The days when you took a pet for
| a vaccination for $30 are gone. Now you have a billed office
| visit, a billed examination fee and the vaccination fee = over
| $120 in all. Large numbers of people take their chances and allow
| their pets to live unvaccinated or even die painful deaths. All
| due to the monopolies these managed corporate practices enforce.
| I expect a lot of human medical concentration also occurs. To be
| true, the thicket of insurance paper work engendered by the
| intersection of the AMA, Big Insuro, big Pharma, and big Hospo
| are part of why Americans have the same (on average) age at death
| as Cuba, 30-35 places down the list of longevity as listed by
| wiki
| https://en.wikipedia.org/wiki/List_of_countries_by_life_expe...
| baby_souffle wrote:
| Is there a formal way to confirm if a practice has been bought
| out?
| aurizon wrote:
| Examine the receipt, there should be some details about LLC,
| Ltd, Corp or Inc that can be accessed online for provenance
| details?
| JumpinJack_Cash wrote:
| This is the sort of stuff that happens when you entrust your
| savings to someone else. Some 2000 firms and CIOs are doing the
| capital allocation which should be done by 350M people, many of
| them have been brainwashed or forced to part with their hard
| earned money using the lie that they are too inept to save and
| invest on their own.
|
| Private Equity is an industry that is only standing thanks to
| investments from pension funds which act as their LPs.
| no_wizard wrote:
| One critical thing to think about here: Often (though not
| exclusively always) PE firms are backed by leveraging debt to
| rollup up companies. This creates a big cycle of:
|
| - Acquiring massive debt against the new rollup entity
|
| - Using that debt for short term expansion, maybe even
| subsidizing the business model in some cases
|
| - Payouts to executives at the PE firms. There are instances
| where larger PE firms actually borrow from themselves via another
| entity so the debt payback goes solely to the PE firm under
| favorable terms to the PE firm.
|
| - Then, squeezing as much of the market as possible to service
| this debt via localized monopolies and/or cost cutting measures.
| Typically higher prices and worse service follows in short order
|
| - Finally, if they can't continue to service the debt, the debt,
| since being held by the new entity and not the PE firm directly,
| the entity declares bankruptcy to restructure the debt (or in
| some cases, absolve it entirely)
|
| PE firms can then rinse and repeat on this, over and over again,
| with little oversight or repercussions.
|
| Sometimes I feel like I'm in the wrong business
| alexpetralia wrote:
| And who is on the losing end in the bankruptcy? Who keeps
| underwriting these deals?
|
| It used to be syndicated bank loans (often repackaged into
| CLOs), but now it is jumbo private credit funds. The banks
| ended up losing (which is why they are retrenching from this
| space), but I don't believe private credit is (yet).
|
| https://www.ft.com/content/8962a5cc-2c4c-4e18-801c-9ad4e342f...
|
| https://www.wsj.com/finance/fed-rate-hikes-lending-banks-hed...
| renewiltord wrote:
| So there's a bunch of sucker lenders here who are giving money
| away. That's fine, I suppose, so long as the sucker lenders
| aren't governments and their banks.
| robust-cactus wrote:
| The praise for the public market in this article is a little
| disingenuous. Yes it has some nice properties but it's also a
| mess: 1. Algorithmic trading and the rules by which the big
| organizations play in the market make it rough for both companies
| and individuals 2. Margin trading seems to be making company
| stoke prices way more volatile 3. Overall corporations constant
| need to appease the shareholders (aka maximize profits) by law
| causes them to act like sociopaths at times.
| smeeth wrote:
| I've seen a lot of lamentation about PE eating the world, but
| very few people discuss *why* PE got so huge.
|
| PE is popular for one reason and one reason only: taxes. PE
| generally makes money on a trade called a leveraged buyout (LBO),
| where they take out a massive loan to buy a company. Because
| interest on debt is tax-deductible, going debt-heavy increases
| the take-home profits of the company (this is called a "tax
| shield"). Because the profits are higher, the value of the
| company is higher, and the PE firm makes money on their trade.
|
| What this means in practice is that if you run your company
| sustainably (low debt, lots of assets). You become a target for a
| PE firm to attempt a hostile takeover of the company, all while
| claiming (defensibly, actually) to be doing whats in the best
| interest of the shareholders. So good companies will try to ward
| off these attacks by taking on lots of debt and going asset light
| to minimize the value gain a PE firm might have.
|
| In short, both PE ownership and the brittle, debt-heavy nature of
| the American economy today can be traced to the tax advantaged
| nature of debt. For reasons I can't quite understand, nobody
| seems to be advocating for revoking this tax deduction. I can
| only surmise this is because everyone hates taxes.
|
| Thank you for coming to my TED talk, your take home exam is a
| short essay on what you think the mortgage interest tax deduction
| (started in 1913) did to household debt.
| onlyrealcuzzo wrote:
| > For reasons I can't quite understand, nobody seems to be
| advocating for revoking this tax deduction.
|
| Why can you not understand why the US would prefer people to be
| invested in the future of the US?
|
| That's essentially what putting your money into US debt means.
|
| You are in the interest of the US not exploding in the middle
| of the night.
|
| I do think that the typical 90% debt to 10% equity LBO ratio is
| toxic and should be regulated down. I can see this
| incentivizing the types that would put in 10M _now_ to get 100M
| _now_ - spending that on coke & hookers _now_ , and then
| hoping the US collapses and they don't have to pay anything
| back.
| pjmorris wrote:
| > Why can you not understand why the US would prefer people
| to be invested in the future of the US?
|
| I can understand investing in the future of the US. I add an
| interest in investing in the present of the US, e.g. wages
| that support the consumption needs of the populace, including
| but not limited to food, shelter, health care, and education.
| onlyrealcuzzo wrote:
| US wages dwarf _almost_ every non-tax haven in the world
| adjusted for taxes and the cost of living.
| pjmorris wrote:
| I'd be interested to see where you get your numbers. To
| my eye, wages for the median worker haven't gone much of
| anywhere in 20-30 years, while asset prices and other
| costs have gone up. I'd be happy for clearer vision.
| onlyrealcuzzo wrote:
| Where are you getting your data?
| https://fred.stlouisfed.org/series/LES1252881600Q -
| according to the Fed, real median weekly earnings are up
| almost 10% over 30 years.
|
| And why does it matter if they're going up?
|
| They dwarf everywhere else. US productivity per worker is
| arguably going down - mainly because actual working hours
| are going down.
| tim333 wrote:
| Presently I believe if you have a company making $1m profit
| and the company is owned by investors holding bits of paper
| classified as debt the whole $1m gets paid out. If they hold
| bits of paper classified as equity, 21% tax is deducted
| before paying out.
|
| Investing in US enterprise is good but favouring one type of
| paper over the other is dubious. If anything you might think
| the government would want to favour equity holdings as that
| makes the whole set up more stable in downturns.
| danielmarkbruce wrote:
| This is only one quarter right. Public companies can also take
| on a lot of debt.
|
| The bigger reasons are twofold: 1 - the biggest one is that
| pension funds etc get to avoid the constant vol in stock
| prices. They get to stick their head in the sand and imagine
| asset prices not moving around. 2 - the annoying parts of being
| a public company can be avoided (public eye, some sec regs,
| constant need to "grow" rather than generate cash).
| marcosdumay wrote:
| > PE is popular for one reason and one reason only: taxes.
|
| Well, I'd say it's zero interest rates.
|
| Any extra cost will reduce your profits. It doesn't matter if
| it's tax-deductible. The reason PE can get so big is because
| that extra cost is minimal.
|
| The PEs that insist on antagonizing their customers and depend
| on being large will be bankrupt soon enough now that being
| large is expensive.
| pjc50 wrote:
| For some reason I don't understand, the debt ends up on the
| balance sheet of the _purchased_ company, not the buyer. That
| 's why the debt repayments can be used as a sort of tax-free
| dividend.
| jeffreyrogers wrote:
| Because is secured by the company and serviced by the cash
| flows from the company. Since the debt only exists if the
| transaction (acquisition of the target company) goes through
| it is really the company funding its purchase through the
| issuance of debt.
|
| Btw you can get an SBA loan to purchase a small business. It
| works exactly the same way, and there are people who raise
| equity capital plus get an SBA loan to buy and run small
| companies, in effect they're running a very small PE deal and
| installing themselves as CEO.
| jeffreyrogers wrote:
| Hostile takeovers are a very small fraction (single digit
| percentage) of PE buyouts and have been for a long time.
|
| And if taking on debt were so advantageous in and of itself you
| would think the executives of these companies that solicit PE
| buyout offers would just issue the debt themselves and enjoy
| their increasingly valuable options packages.
| gamblor956 wrote:
| Interest payments reduce profits on both a tax and accounting
| basis, so the profits are _lower_ with increased debt.
| Otherwise, for example, Twitter /X would have been massively
| profitable after Musk acquired it with debt financing. (The
| _interest_ on that debt is over $1 billion /year, and is a
| large part of why Twitter/X is struggling.)
|
| When finance bros talk about "interest shields" they forget to
| include the interest payment in calculating the total cost of
| the shield. For example, if two companies are identical except
| that one has equity financing and the other has debt financing,
| the one with debt financing will always end up in a worse
| position after accounting for taxes _and debt service_ even
| though they will pay less in taxes. For companies that wish to
| remain a going concern, cash flow is more important than
| effective tax rates. It 's possible to survive for decades with
| a high effective tax rate, but negative cash flow can kill a
| company in months.
|
| That being said, I agree that allowing for corporate
| acquisition-debt to be deductible is the factor that
| artificially props up the entire private equity scam, since
| they use it to shield debt-funded "distributions" from the
| their victims and they generally load up their victims with
| more debt than is actually serviceable (see for example, Toys
| R' Us).
| j7ake wrote:
| Also many retail investors are passive, relying on ETFs.
|
| This means private companies take all the profits, and when there
| is sign of trouble, can dump their stock to the stock market, get
| it bundled into an ETF, and a passive retail investor will buy
| some through their monthly contributes to a popular ETF.
| RobotToaster wrote:
| Isn't capitalism great?
| hartator wrote:
| I wonder how it affects a BogleHead strategy to retirement.
|
| If the Sp500 (VOO, or VTI, VT) is less and less representative of
| the U.S. market, there is a case to be made that it's becoming
| disconnected more and more of the "real" economy. This is kind of
| undermining BogleHead strategy to just buy the full market as the
| full market is less and less accessible.
| nintendo1889 wrote:
| Buy bitcoin and forget the debt, if possible. Preach to the next
| generation do not go to school (public school is marxist-
| originated gov't propaganda at it's core; if not then why does
| the law require you to go to school in some areas _), do not
| acquire debt. Learn real skills and trades. Tune in, turn on, and
| drop out.
|
| _ I was home schooled until 4th grade. I finished my schoolwork
| in 2 hours and then played outside and read the encyclopedia the
| rest of the day.
| jmyeet wrote:
| This is the private equity model:
|
| 1. Borrow a lot of money;
|
| 2. Buy some company that is somehow deemed "cheap";
|
| 3. Cut costs and raise prices;
|
| 4. Load up the company with arcane debt that will blow up some
| time after the PE investors have cashed out; and
|
| 5. Based on the surface-level financials from (3), re-list the
| company to exit before it blows up.
|
| I'm not worried about PE because this isn't sustainable, for two
| reasons: if debt isn't cheap, it doesn't work and the debt burden
| only works so long as the SEC doesn't take a hard look at it.
|
| Remember the investors have to be able to cash out and pay back
| those loans. If no one buys the junk they create then this
| business model falls apart.
|
| I'm more concerned with the short to medium term effects of this
| such as the extortion of housing of our poorest and most
| vulnerable [1] (which people should absolutely go to prison for),
| buying up all your local vet clinics [2] and buying up medical
| practices [3], to name a few.
|
| All of this is just rent-seeking. This is what capitalism is.
| This is what capitalism does. It's the only thing capitalism
| does: intermedidation and rent-seeking.
|
| [1]: https://www.newyorker.com/magazine/2021/03/15/what-
| happens-w...
|
| [2]: https://www.thenation.com/article/economy/private-equity-
| pet...
|
| [3]: https://www.nytimes.com/2023/07/10/upshot/private-equity-
| doc...
| slotrans wrote:
| Hard to believe there are ZERO mentions of Sarbanes-Oxley in this
| whole article.
| braza wrote:
| One forgotten aspect of this PE taking over established
| businesses is that are the employees.
|
| I saw some cases where the company gave stock options for
| employees and kept everyone hanging due to a promise of an IPO
| and when the whole thing scrubs, the founders sells to the PE and
| the first measure is to expire all the options from the employee
| pool [1].
|
| Honestly I think the whole thing about options with the rise of
| PE and this brutal aspect to get best financial resources is over
| for any person joining wanting to have a more outsized exit.
|
| [1] - https://news.ycombinator.com/item?id=28561054
| sam345 wrote:
| Compliance costs and exposure to political risk is the primary
| driver of going or staying private in the US. A company
| immediately becomes a target for governmental and NGO political
| pressures once it becomes public. Now it no longer can focus on
| designing, producing, and selling the best products and services
| at a good profit for its shareholders, it must devote a
| substantial percentage of its efforts on hiring lawyers, PR
| specialists, and lobbyists. More recently the SEC has morphed
| from an agency whose primary goal was transparency of investment
| risk, to a cudgel for enforcing preferred political goals. Nobody
| wants a target on their back if they can avoid it. A company only
| goes public when it has no choice when it runs out of investors
| or shareholders need liquidity. Pretty ironic IMO that same
| voices that identified public corporations as the enemy are now
| lamenting their demise.
| cushpush wrote:
| Nursing homes and care centers suffer tremendously in the shift
| to private equity holdings. Corners cut, costs cut, staff
| released, everything is a skeleton crew, and then they want you
| to bring Grandma in..
| Damogran6 wrote:
| Retirement is 8-10 away. I was considering 'do I own my home
| outright' or do I 'buy a new home with a mortgage I never expect
| to fully pay off'
|
| This kind of BS makes me think owning the property would be safe,
| so I don't wake up one morning with a mortgage I can't pay.
| typedef_struct wrote:
| Working as intended
| happyjack wrote:
| After reading Thomas Piketty's theories on "Capital in the 21st
| Century," a lot of these issues have really come to light.
|
| Capital grows about 2-4% each year in real terms, while the
| economy (labor) in general grows 1-2%. i.e. if you own stuff
| (shares of companies, property (real or intangible), land, etc.
| etc.) your worth grow twice that of a working person. Compounded
| over 60 years (time after WW2), capital has grown ~100% more than
| labor. There is real generational wealth in America & the rest of
| the OECD world, and this wealth is growing at absurd rates. I'm
| not to lobby or claim that I have a solution or that wealth
| should be distributed. All I'm saying is there is a giant monkey
| in the room. And this isn't just and Elon or Bezos or Ivy League
| elite problem. There are even small $1-$10M blue collar
| businesses that no one could possibly start today even if you had
| the skills & knowledge with how money it would take to buy
| equipment, have a shop space / real estate, cash burn in the
| first few years, etc.
|
| I do think it is worrisome that businesses and its capital are
| largely going private. Public companies have much more scrutiny
| with the SEC, big labor, and has more checks & balances. It's
| also a vehicle for normal folks to invest money into a retirement
| plan; you can throw tens of thousands of dollars and actually own
| parts of major companies.
|
| I also think the economy of scale for PE is very worrisome. Many
| folks here have talked about Vet clinics, medical clinics, etc.
| When PE gets together, they can buy buy buy and bleed bleed bleed
| money until the competition is out, and then they can jack up
| prices to make the difference up.
|
| Thoughts / 2 cents.
| kwere wrote:
| A solution to this situation could be to force structured
| businesses with a certain base of revenues and employees to
| freely allow their employees to invest in the company and sell
| those shares in a public secondary market. Most countries have
| already complex accountacy regulations and public registries
| even for smaller businesses.
| happyjack wrote:
| What size, though? Are we talking 10 employees, 1000? Just
| curious.
| gamblor956 wrote:
| I used to have a number of private equity clients when I was
| still working at a firm.
|
| Private equity's business model is to profit from the destruction
| of people's livelihoods. PE partners are the most immoral people
| I have ever met (and for comparison, I used to work as a public
| defender representing murderers and sex offenders). If they could
| make a dollar by murdering a baby, most of them would do it with
| a smile.
|
| Yes, there are the occasional accidental success stories like
| Staples. But they _overwhelming majority_ of PE stories are
| viable companies being ripped apart for their "valuable assets"
| or saddled with crushing debt to fund the acquisition of the
| company and/or dividend payouts to their new PE owners.
| onewheeltom wrote:
| Because stock market "show a short term profit" every quarter is
| insane. The rationality of a 2 year old on cocaine (as I was
| told).
| zeruch wrote:
| PE could be "fixed" with one simple change, make them fiduciaries
| all the way down.
|
| (I mean, it would likely also nuke the PE domain, but I consider
| that a feature not a bug).
|
| PE is a pox that focuses on short-term, debt-riddled 3 card monty
| games, and should be annihilated. It's like the fecal byproduct
| of something Milken and Gekko would sire.
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