Sunday, December 17, 2017

Bloomberg Charts Rise of the Billionaire Greed + Leverage Boys

For the last twenty five years the rich grabbed the lion's share of income gains.  This was a reversal of a thirty year period that began after World War II where the bottom 90% income earners received the majority of income gains. 

The recent "Rich 'R Rewarded" time period saw the birth of the greed and leverage boys and their subsequent proliferation.

Leveraged buyouts (LBO) first emerged as an important phenomenon in the 1980s. As leveraged buyout activity increased in that decade, Jensen (1989) predicted that the leveraged buyout organizations would eventually become the dominant corporate organizational form.
After junk bond king Michael Milken went to jail LBO got rebranded as private equity underwriters (PEU).  Prosecutors allowed Milken to keep most of his ill gotten gains.

The first private equity wave began in 1982 or 1983 and ended in 1989; the second began in 2003 or 2004 and ended in 2007.
University of Chicago Business School professors predicted PEUs would remain part of our economic landscape:

We expect that a significant part of the growth in private equity activity and institutions is permanent.
Michael Milken touted private equity as the major employer in America, holding eight of the top ten employers slots.

Twenty five years is a long time for the top to be milking nearly all of income gains.  Despite the predictions of PEU permanency, this too shall pass. It may take a decade or more, but their decline will come.