2009, Books, Non-Fiction

The Buyout of America (2009) by Josh Kosman

The problem with making big predictions in your book is that, when they either do not come true or only partially come true, you kind of look like an idiot. (I should say you “should” look like an idiot because we humans love to listen to people who’ve failed in their predictions time and again. But that is another story.) The fatal flaw of this book, published in 2009, is that the private equity-driven “credit crisis” of 2011 or 2012 didn’t happen, at least as Kosman foresaw it. And that makes this book pretty hard to read now.

So why did I read it? Well, I know very little about private equity and I realized that, though Kosman was rather hilariously wrong about his immediate prediction – a prediction he sometimes hedges – he still was going to give me some kind of (admittedly biased) summary of how private equity works.

And wow, private equity is stupid. (Well, it’s stupid for everyone except those in charge of the fund…) Some may say “how is a leveraged buyout any different than a mortgage?” At least in Kosman’s telling, a leveraged buyout is more like if I bought my house for way more than market value, putting a tiny percentage down, and then then I used the mortgage to pay myself a house management fee and, at the same time, I used that same mortgage to pay dividends to the people who had given me the money for the downpayment. (Because, of course, the downpayment didn’t come from me, it came from my investors.) And then, in order to increase the value of the house I, um, sell off parts of the property to other houses. Okay, the house analogy doesn’t hold for the job cuts, but you get how the mortgage analogy isn’t exactly accurate. It’s a far worse idea than a mortgage.

I find Kosman’s evidence far too anecdotal. Even when he presents tables, the evidence feels far less damning than he seems to think it is. (And it feels cherry-picked, except in the Appendix.) I think it’s possible to think leveraged buyouts don’t make any sense and think that Kosman doesn’t do a good enough job of assembling a case that they should be banned. My biggest issue is that this particular form of predatory capitalism doesn’t seem that much worse than many other forms. Kosman is clearly biased (admittedly) and the evidence just isn’t that good. Add to that the failed prediction of a massive private equity-driven credit crisis 10 years ago, and it’s just hard to take the thesis seriously.

There is probably a better book out there on the subject and if you know of it I’d appreciate it if you told me about it.


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