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Robert Reich on the Role of Private Equity

Friday, May 25, 2012

Former labor secretary and professor of public policy at UC Berkeley, Robert Reich discusses the role of private equity - such as Bain Capital - in our economic system, and other news of the day.

Guests:

Robert Reich

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Comments [36]

David

For those of you who would like to understand exactly what firms such as Bain Capital do, rather than listening to the nonsense espoused by Reich and others, here's a very interesting study:

http://www.amazon.com/Vulture-Investors-Revised-Updated/dp/0471361895/ref=sr_1_1_title_0_main?s=books&ie=UTF8&qid=1337979754&sr=1-1

May. 25 2012 05:03 PM
David

Jack Jackson from Central New Jersey, you asked, "The economy grew at one rate, the wages of the average salary grew at a rate closer to inflation. The system does NOT self-correct. How do we fix it?"

Here's the answer. (And it's one that Banksters' puppet Reich will never tell you.)

http://mises.org/books/fed.pdf

May. 25 2012 05:01 PM
David

Robert "the Fourth" Reich strikes again.

“It is no crime to be ignorant of economics, which is, after all, a specialized discipline and one that most people consider to be a ‘dismal science.’ But it is totally irresponsible to have a loud and vociferous opinion on economic subjects while remaining in this state of ignorance.”

May. 25 2012 04:58 PM
rich at the shores from palma beach county

why don't you get josh kosman on the air to give his views about bain and private equity. he wrote a critical book about the industry titled "the buyout of america : how private equity will cause the next great credit crisis". he gives hair raising examples of predatory private equity firms feasting on the remains of perfectly healthy american manufacturers and tossing the bones and the workers on the junk pile.

part of the problem is the agressive risk takers will always try cutting corners. it will force even well-meaning competitors to do the same to keep up. it's called a race to the bottom.

May. 25 2012 02:25 PM

Thank you Mr. Reich!!

I breath of sanity.

May. 25 2012 12:20 PM

Joe from nearby~

Ol' CheezleWhiz is a moron - don't waste the keystrokes...

Pathetic.

LOL!!!

May. 25 2012 12:19 PM

We have moderated a comment. Please remember to stay on topic, be civil, and be brief.

May. 25 2012 11:25 AM
Chris from Amityville

to Jack Jackson
I don't favor a flat tax. Like Ron Paul, I favor an income tax at its historic low rate: Zero%.

May. 25 2012 11:25 AM
Chris from Amityville

Jack Jackson wrote:
"Highest rate today is 35%."
I stand corrected. Since I'm not in that bracket, I mus-remembered it. But 35% still is higher than the revenue optimizing rates of 18.5% to 28%.
"That 15% FICA bite is now only 13%"
But that's 13% of pretax income. So the bite looks like 15% of post tax income, depending on bracket.

"7.5% is paid by the employer, not the worker,"
The worker must earn the employer enough to pay the tax. And if all employers didn't pay the tax, the market would favor giving those earnings to the worker. So the worker pays the employer's 7.5% share.

"so your 54% number is way, way off. Think more like 32%."
49%. But 49% still is higher than the revenue optimizing rates of 18.5% to 28%.

"...at least quote a rate the covers ALL of the government expenditures."
You didn't include the Federal Reserve bailout of the international banks since 2007: $16.1 Trillion (now known from a partial audit.)
http://sanders.senate.gov/newsroom/news/?id=9e2a4ea8-6e73-4be2-a753-62060dcbb3c3

May. 25 2012 11:13 AM
Chris from Amityville

Corrections to previous rushed typing:
"But a 54% tax on wages is way above the Laffer curve optimization of 18.5% to" [38%] "28%, AND reduces government revenues."
"cuve" should read Laffer Curve.

Reich advocates sufficient regulation to hamper small entrepreneurs who can't afford a team of lawyers. Excessive regulation favors the large crony capitalists over small businesses. Ayn Rand defines an economic system, where the government controls privately owned means of production, as Fascism.

May. 25 2012 10:46 AM
Truth from Maplewood

Brian, why do you keep saying Obama people are moving away from him on this subject? The clip you played of Ratner was the same words I heard from Obama, almost word for word. I hope you're not doing what the rest of the media does, create stories instead of report or investigate. Please don't, I love your show!

Also, I don't believe private equity is the issue. What I'm hearing as the issue is, how has Romney's work in private equity prepare him for a presidency? These are two totally different positions and require different acumens and perspective.

Please let's all stay on topic and stop creating fights just for the fun of it.

May. 25 2012 10:45 AM
John A.

Sounded like a particularly good day for R.R. - Thanks WNYC!
-
I would add that that any time you allow investing in negative outcomes, that that allows for some members in society to "put down arms" against such negative outcomes, so a portion of society is working against the common good.

May. 25 2012 10:44 AM

Kudo's for Robert Reich for opening up the conversation on the overbearing power of Wall Street. I expect all these comments from those who earn a living on Wall Street to raise objections to his arguments. However, his scholarship cannot be disregarded since counterarguments are mostly based on self-interest.

May. 25 2012 10:41 AM
Taher from Croton on Hudson

OK, here is a suggestion: check out “ Bad Money: Reckless Finance, Failed Politics and the Global Crisis Of American Capitalism.” by that “Marxist” Kevin Phillips.

May. 25 2012 10:36 AM
Jack Jackson from Central New Jersey

@Chris from Amityville -

1) Your numbers are off. No one pays 39%. Highest rate today is 35%. That 15% FICA bite is now only 13%, 7.5% is paid by the employer, not the worker, so your 54% number is way, way off. Think more like 32%.

2) If you are going to sell that flat-tax noise, at least quote a rate the covers ALL of the government expenditures. Try 43%. I got there by dividing $3.2T (the current gov't expenditure) over total national income. $7.5T)

Please bring a better game next time.

May. 25 2012 10:34 AM
jawbone

http://www.pkarchive.org/trade/company.html

An archived link for the Krugman piece John from NYC references, A Company Is Not a Country.

May. 25 2012 10:33 AM
Phil from downtown

@caller "David"
Omg dude- you seriously need to lay off the koolaid. Sounds like you're making tons of $$$ partaking in the or_gy of private equity.

As for your ridiculous claim about POTUS being "anti-capitalist"-
1. Corporations set an all-time record for profits in 2010, broke it in 2011, and may break it yet again in 2012
2. Corporations share of total federal tax revenue also reached their lowest point since 1934: 7.3% of total fed. revenue.
3. Average CEO pay @ private corps for 2011 was $10 MILLION!

POTUS isn't anti-capitalist, he's in favor of capitalism that's healthy, not sick.
So please, get serious.

May. 25 2012 10:32 AM
Janet from NJ

If private equity firms were so good for the economy their growth would not be so grossly out of step with the rest of the economy. The de-regulation that began under Regan, with companies being bought out,work-force reductions in the name of efficiency,physically canabalized by selling off equipment and real estate assets, then wholly sold off (i.e. dumped) has expanded now to the government. The very infrastructure of our government is being dismantled and no one seems to notice, all for the sake of a handful of incredibly rich profiteers. The very best government that money can buy is in no way the very best government for the people of the United States. Tax rates on income and tax on capital gains are backwards. Tax realistically,publicly fund elections to get money out of politics and regulate the financial industry.

May. 25 2012 10:31 AM
james

Reisch is completely off base. Not all PE is leverage buy out. This is just a classic over generalization to convenient comparison to wall street investment banking. Reisch is completely wrong when he says that PE firms do not invest their own money, in fact just the opposite. The insurance companies, pension funds, endowments and charitable trusts, which are all the true investors in private equity (because they need a return on their investment in order to continue to fund pensions, insurance payouts and fund university operating expenses) require the fund managers to invest its own capital alongside the limited partners.

May. 25 2012 10:31 AM
Chris from Amityville

So Government tax incentives creates the problem, and reich says we need more Government regulation to solve the problem that government created.

May. 25 2012 10:30 AM

David's "good points" Brian ???? That was a nonsense rant.

David please look up Tony Soprano explains Bain Capital's 'Bust Out' roots in Criminal takeovers via loan sharking, etc.

May. 25 2012 10:30 AM
Chris from Amityville

The lower capital gains tax rate reflects the ease of avoiding a capital gains tax. If the tax is too high, it's not worth selling the asset and incurring the tax.
Most wage slaves need to eat, so an income tax rate of 15% Social Security + 39% income tax is not as easily avoided. But a 54% tax on wages is way above the Laffer curve optimization of 18.5% to 38% reduces government revenues.
The answer is to tax all at 18.5%. Then these debt heavy dividend avoiding games are less attractive.
[I know Reich denies the Laffer cuve, but he is contradicted by history.]

May. 25 2012 10:26 AM
JWBanner from NYC

I wish Mr Reich would write an "Economics for Dummies" book. The moving money around is the essence of a shell game, and the fact that these entities are being rewarded for it are definitely part of the problem both in the effect of further removing capital from where it could benefit real entrepreneurship and curb the extreme stratification of society. But there has still not been enough discussion about the state of the economy in terms of what sort of jobs might be created if "balance" were restored. Manufacturing, whether here or shipped overseas, has changed radically with the advent of better technology. There needs to be a real look at the way the world works, what is truly needed. Businesses need customers, not only investors, and the engine of demand is driven by the middle class, is it not? That somehow the argument is pitting one part of the whole against the other really ends up harming both ends, ultimately. The world still is round, and if driven to the ultimate end what we are doing now is unsustainable.

May. 25 2012 10:26 AM
Marc Beallor

For Robert Reich: You say in some cases private equity is just shuffling the decks (moving money around) but wouldn't it actually be skimming more of the cream off the top of the new wealth created through economic processes (so that instead of going to people or entities who need it, it enriches Bain, et al?

May. 25 2012 10:26 AM
jawbone

Ack! Should be:

This is NOT our father's kind of Democrat.

May. 25 2012 10:26 AM
John from NYC

Regarding Romney and the discussion, reminds me of was an article by Paul Krugman some years ago in the Harvard Business Review titled "A Country is Not a Company".

May. 25 2012 10:26 AM
Butler from New Jersey

Bravo Robert Reich. He succinctly described the current, "casino capital market style" in the USA and proposed a viable remedy.

May. 25 2012 10:24 AM
jawbone

Glenn Greenwald quoted from Obama's "The Audacity of Hope," where Obama admits he feels very comfortable among and respectful of the very, very wealthy.

Even gets the percentage down, well before Occupy Wall Street.

http://www.salon.com/2012/05/21/democrats_and_bain_2/singleton/

QUOTE:

Increasingly I found myself spending time with people of means – law firm partners and investment bankers, hedge fund managers and venture capitalists. … As a rule, they were smart, interesting people, knowledgeable about public policy, liberal in their politics, expecting nothing more than a hearing of their opinions in exchange for their checks. But they reflected, almost uniformly, the perspectives of their class: the top 1 percent or so of the income scale that can afford to write a $2,000 check to a political candidate. … They had no patience with protectionism, found unions troublesome, and were not particularly sympathetic to those whose lives were upended by the movements of global capital. … I know that as a consequence of my fundraising I became more like the wealthy donors I met.

End QUOTE

We shoulda known -- and some of us did. This is our father's kind of Democrat.

May. 25 2012 10:24 AM
Jack Jackson from Central New Jersey

Dr Reich -

The average salary in 1962 was $2.50. On that $5,000 the average worker could do a lot of things. Pay his mortgage, feed his family, have a yearly vacation, pay his healthcare, save for his kids education - wouldn't need too much since they could pay as you go, and save for a retirement.

Fifty years later, the average salary (around $43,000) doesn't cut it. Yet if average pay had held even with the growth of the economy average pay should be $115,000!

The economy grew at one rate, the wages of the average salary grew at a rate closer to inflation. The system does NOT self-correct. How do we fix it?

May. 25 2012 10:23 AM
John West

RR,

It used to be that a purchase of a companies stock allowed it to invest in itself and further its presence in the business world. Later, I would pull it out and be rewarded for my risk in doing so. Now, sliding money in and out of a stock can produce financial reward, but the capital injection can hardly help the company that is involved? Do we need to tax investments accordingly?

May. 25 2012 10:22 AM
ROB from westchester

If we were to go back to the earlier financial system, would the US be able to compete in the global market? Is the genie out of the bottle?

May. 25 2012 10:20 AM
jawbone

Since the Democratic Party focused on getting most of its money for the ever escalating cost of campaigns from Biggest Money, it has ignored most of its (now former??) base, such as workers, the poor, unionized labor, working people in general, and has focused on satisfying the Ultra Rich, Big Banksters, Big Anything.

Democrats try to fool its (former??) base every election by talking like, well, real Democrats, not Republicans Lite. An increasingly few Democrats still act as if they're in the Democratic Wing of the Democratic Party, not the Money Wing -- but they get about as much attention from the leadership as the base does -- or as Moderate Republicans get in Republican caucus.

Obama even blew out the very idea of public funding, which had been in place for the presidential general election. Since Big Money knew full well only a miracle or miracles would elect a Republican president in 2008, they knew they had to get a Blue Dog to Conservative Democrat in the presidency. They also knew an known Blue Dog would not run well, so Obama fit their bill to a "T": He looked liberal, seemed anti-war, sounded --well, hard to pin down, but his speeches could be taken several ways. Basically a blank slate and voters could be fooled that he was not the One Percent wannabe and suck up that he is.

Alas.

May. 25 2012 10:13 AM
Edward from NJ

The real question isn't whether private equity is good or bad. It's whether the skills involved in successfully running a private equity company are also the skills involved in successfully governing a nation. Can Reich comment on that?

May. 25 2012 10:10 AM
Joe from nearby

Brian-
Please ask Dr. Reich whether he's seen the youtube vid called "Tony Soprano Explains Bain Capital" and if so, what is his impression.
I'm serious. It shows how Bain is a bane on our economy because it's just a legalized "bust-out" racket.
Why is it illegal for mobsters to cannibalize businesses, but ok for the white shoes crowd to get away with it?

May. 25 2012 09:57 AM
Joe from nearby

@"Martin Chuzzlewit"-
And your point is what...that it's a tough economy out there?
That US corporations are sitting on trillions in cash which they were supposed to use for hiring workers, but they take the easy way out by playing the market?
That you're out trolling again?
That your screen name is phony?
What??

Please enlighten us with your "amazing" insights.

May. 25 2012 09:52 AM
Martin Chuzzlewit from Manhattan

Brian- Ask Mr. Reich about his comments last week on the future for graduating students in the OBAMA JOB MACHINE (LOL).

"Members of the Class of 2012 – YOU’RE SCREWED”...... Robert Reich at Huffington Post (!!!!) 5/18/12

“As a former secretary of labor and current professor, I feel I owe it to you to tell you the truth about the pieces of parchment you're picking up today. You're going to have a hell of a hard time finding a job. The job market you're heading into is still bad. Fewer than half of the graduates from last year's class have as yet found full-time jobs. Most are still looking. That's been the pattern over the last three graduating classes. But even when you get a job, it's likely to pay peanuts.

Contrast this with the class of 2008, whose members were lucky enough to get out of here and into the job market before......."

http://www.huffingtonpost.com/robert-reich/student-loans-graduation_b_1528320.html

May. 25 2012 08:55 AM

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