Thursday, January 21, 2016

PEU Schwarzman Shows Davos to be Insular Crowd

Blackstone Group co-founder Stephen Schwarzman expressed surprise at American voters finally reacting to the economic raw deal both political parties served up in the new millennium.  His ear comments came at the annual meeting of global tamperers in Davos, Switzerland, known as the World Economic Forum.

Treasury Chief Jack Lew, a product of Wall Street, stood front and center this morning at Davos.  He is but one in a long line of public servants with a storied investment banking career. 

Many returned to Wall Street or joined private equity firms, formerly known as leveraged buyout organizations.  Private equity underwriters (PEU) became ubiquitous during the George W. Bush and Barack Obama Presidencies.

America's Red and Blue political teams sucked up to the greed and leverage boys, giving them fundraising titles like "pioneer" and "super bundler."  In return PEUs got to keep their preferred carried interest tax treatment, something the general public has opposed for nearly a decade.

Private equity mavens started the "debt for dividend" strategy that public company CEOs twisted to "debt for shared buyback," borrowing to reduce the number of shares in public float.  This move manipulates income per share numbers by making it higher.  Companies, public and private, have loaded up on covenant lite cheap debt, facilitated by an extremely low interest rate environment.

Employees know the deal they've gotten from management this past decade.  They've seen co-workers tossed aside and valued benefits cut.  Some had their company bought and sold numerous times.  With each management iteration the gap between executive words and actions often grew to canyon spanning dimensions.  The people at the top got rich while worker pay stagnated.

Voters know the system is rigged when nearly every ex-politicians and public servant is now a senior advisor for a Wall Street or private equity firm.  We know who's deal has gotten better and better the last ten to fifteen years.  It's the PEU crowd, the Wall Streeter, the Davos Man.  It's not us.

Many thought President Obama's campaign rhetoric would begin to turn this tide.  After inauguration his language quickly changed and he steered his boat to the sweet spot in the current and rode it.  Voters are grateful there is anyone speaking to our pain, our needs, to our hearts.  The Schwarzman's of the world don't see us, much less hear or speak to us.

Asking Bloomberg to investigate the cause of voter anger, as if it's a sudden surprise, is laughable.  I started PEU Report in 2007 because I didn't see anyone writing about the seismic shifts in how business is done.  Someone noticed.

Readership varies, but that's not why I write.  A record must be kept.  The Schwarzman's can't be the only ones leaving their take for the world to digest or regurgitate.