{"id":7383,"date":"2015-04-18T06:54:39","date_gmt":"2015-04-18T11:54:39","guid":{"rendered":"http:\/\/olduvai.ca\/?p=7383"},"modified":"2015-04-18T06:54:39","modified_gmt":"2015-04-18T11:54:39","slug":"money-printing-and-the-bane-of-financial-engineering-how-the-biggest-lbo-in-history-blew-up","status":"publish","type":"post","link":"https:\/\/olduvai.ca\/?p=7383","title":{"rendered":"Money Printing And The Bane Of Financial Engineering\u2014\u2013How The Biggest LBO In History Blew-Up"},"content":{"rendered":"<h3 class=\"entry-title\"><a href=\"http:\/\/davidstockmanscontracorner.com\/money-printing-and-the-bane-of-financial-engineering-how-the-biggest-lbo-in-history-blew-up\/\" target=\"_blank\">Money Printing And The Bane Of Financial Engineering\u2014\u2013How The Biggest LBO In History Blew-Up<\/a><\/h3>\n<p>Financial engineering is one of the worst ills perpetuated by the Fed\u2019s regime of cheap debt and money market subsidies for speculation. And these deformations are turbo-charged by the tax code which creates a powerful bias toward loading capital structures with tax deductible debt, and to delivering returns as lightly taxed capital gains rather than ordinary income. \u00a0In fact, stock buybacks and LBOs are the bastard offspring of the IRS and Federal Reserve.<\/p>\n<p>Indeed, it would be safe to say that in an honest free market with a neutral tax regime, LBOs in particular would be as rare as a white buffalo. That\u2019s because they inherently cause waste, inefficiency and malinvestment\u2014\u2013the opposite of market driven results.\u00a0 These deadweight losses to society are, in turn, the product of a symbiotic arrangement of convenience between an avaristic breed of money\u00a0manger\u2014\u2014private equity funds\u2014\u2013and institutional investors, such as pension funds and insurance companies, which have a desperate need for yield in a financial system where returns on conventional fixed income securities are systematically repressed by the central bank.<\/p>\n<p>Private equity managers are tax-enabled speculators. Their winnings come in the form of a 20% carried interest on the thin slice of equity at the bottom of an LBO capital structure. This 20% share of the return earned by the limited partners (LPs), who actually put up the money and bear the extreme risk of being pinned under a mountain of debt, might arguably be considered generous. But\u00a0there is no way that it should be considered a capital gain. It is nothing more than the service fee earned for managing other people\u2019s money.<\/p>\n<p>&nbsp;<\/p>\n<p>&#8230;click on the above link to read the rest of the article&#8230;<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Money Printing And The Bane Of Financial Engineering\u2014\u2013How The Biggest LBO In History Blew-Up Financial engineering is one of the worst ills perpetuated by the Fed\u2019s regime of cheap debt and money market subsidies for speculation. And these deformations are turbo-charged by the tax code which creates a powerful bias toward loading capital structures with [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[2],"tags":[195,303,305,4803,432,443,4804,4805,538,4806,3054,4807,783],"class_list":["post-7383","post","type-post","status-publish","format-standard","hentry","category-economics","tag-debt","tag-fed","tag-federal-reserve","tag-financial-engineering","tag-internal-revenue-service","tag-irs","tag-lbo","tag-money-market","tag-money-printing","tag-speculation","tag-stock-buybacks","tag-tax-deductions","tag-taxes"],"_links":{"self":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/7383","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=7383"}],"version-history":[{"count":1,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/7383\/revisions"}],"predecessor-version":[{"id":7384,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/7383\/revisions\/7384"}],"wp:attachment":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=7383"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=7383"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=7383"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}