U.S. Economic/Financial News

Private Funds Extolled for Gigantic Corporate Rip-Offs

A front-page piece in the Wall Street Journal July 25 heralds the superiority of today's private funds as the greatest thieves in history. Entitled, "New Owners Extract Stream of Charges and Dividends, Running Up Company Debt," the article begins with an amazing, if typical, case study—Burger King—which was losing money in 2002 when it was taken over by Goldman Sachs, Texas Pacific Group, and Bain Capital. The three vultures immediately paid themselves $22 million for "professional fees," an annual figure which reached $29 million by 2006. In February 2006, they announced they were selling the company, but first extracted $367 million as a special dividend to the owners, by having "their" company borrow the money. Altogether, they extracted $448 million from Burger King, the equivalent of their total investment, before they sold. The sale then netted $1.8 billion, triple their investment, leaving the company massively indebted. "These are the rules of the private-equity game, part of a growing wave of private money reshaping global financial markets," crowed the Journal.

Other firms looted in this way were Warner Music, Simmons Bedding, and Remington Arms. Since 2003, some $69 billion has been borrowed to pay dividends to equity funds, according to S&P. Hertz, bought by Carlyle, Merrill Lynch, and others in December as a profitable company, borrowed so much to pay the locusts that the interest payments alone put them in the red for the first quarter of this year. This, writes the Journal, shows "the ascendancy of private money ... with limited scrutiny from public regulators." Average annual return on locust buyouts was 24% in 2004 and 2005. Two thirds of the debt assumed for pay-offs to private equity funds is "speculative"—single B or lower, at the lower realms of junk.

LaRouche Right Again: 'Ground Zero' Housing Bubble Pops

The Washington Post July 26 provided more evidence of the collapse of the mortgage bubble in Loudoun County and the surrounding Northern Virginia region, which Lyndon LaRouche identified almost a year ago as "ground zero" for the "thermonuclear imposion" of the nationwide real-estate collapse.

The median price of homes sold in Loudoun Country dropped by 1.2% in June, compared to June a year ago. In June of 2005, there were 1,800 homes for sale in Loudoun; today there are 5,000 on the market. Where it took an average of 21 days to sell a house a year ago, it now takes 75 days. In Fairfax County and Washington, D.C., the number of unsold homes and time on the market have also increased substantially, with a particularly large supply of condos for sale.

With the market in the Washington metro area overflowing with houses for sale, the desperation of some homeowners is seen in the case of a Woodbridge, Virginia man who offered to throw in his brand new 2006 Toyota Corolla free to anyone who would buy his house. He figured that it would give him an advantage over those neighbors who are also trying to sell their homes.

Big Dig Tunnel: 'But, the Emperor Has No Clothes'

A safety inspector for the relevant company on the Boston Big Dig tunnel project wrote a memo in 1999 warning about the ceiling-bolt system which failed last month, falling on a car and killing one occupant. John Keaveney, a safety officer for the tunnel builder, Modern Continental Construction, said he became concerned after a third-grader on a class trip asked if the bolts were strong enough to support concrete. "I said, 'Yes, it would hold,' but then I thought about it," he told the Boston Globe.

Keaveney wrote in a 1999 document that he "could not comprehend how this structure could withhold the test of time." In the system design, multi-ton concrete ceiling slabs were fastened to the tunnel interior with bolts, held in place by epoxy. In a 2000 memorandum, officials of the construction company, which was subcontracting for George Shultz's Bechtel, noted an "apparent failure of the epoxy," which led to additional testing and repairs, the Boston Herald reported. Someone mailed the internal company memoranda to the Boston Globe.