How Wall Street Ticks 0
(Link fixed)
Eric Zorn talks with an expert about how “private equity” works and considers whether “parasite capitalism” would be a more descriptive term than “vulture capitalism.”
He points out that they borrow money from a successful business, use that money to buy said successful business, then suck it dry, carve it up, and sell the pieces, illustrating this with the story of his hypothetical “Zorn Co.”
OK, so Josh Co. is humming along. And Zorn Capital buys it for $100 million.
We cut a check for $20 million — our down payment. The other $80 million comes from a loan that Josh Co. takes out in effect to pay for its own purchase.
And that $20 million investment by Zorn Capital? Only $2 million comes directly from us, assuming this is a typical private-equity deal, says Kosman. The other $18 million comes from our investors, whom we charge a 2 percent annual investment-management fee.
Also, Zorn Capital will be charging Josh Co. an annual $50,000 “monitoring fee” to oversee the business.
But wait! There’s more! Follow the link for the rest of the story.
It’s sort of like getting the dogs to pay the ticks for services rendered.
