Is private equity another name for feudalism?

http://uk.blog.360.yahoo.com/blog-CnyQK0...

I would not say that the idea presented in the blog is completely without some merit. But one really needs to ask why is it that private equity succeeds. There are two reasons, I believe. One is cheap money, which we can thank the Fed for. Without cheap money there would be no private equity. But when these private equity firms can borrow billions of dollars for a song, that is a great incentive. Also that borrowed money is written off their taxes as a business expense. Second is that generally the companies they take private are ones that are extremely poorly run. In other words the assets are cheap provided that they can be managed to get the most out of them. The current management being salaried lackies that draw their pay checks whether they perform or not is one of the drawing cards of private equity. How they make their money is to take a poorly performing company over, make it more valuable and then sell it back to the public.

One of the failings of publicly owned companies is that management is not really accountable to the share holders in most cases. The board of directors which are supposed to be elected by the shareholders are in fact appointed by current management and, if you will, rubber stamped by the shareholders. The only real recourse that shareholders have is to sell their shares. They do. That drives the price down to where a private equity investor can then come in and buy distressed goods for 50 cents on the dollar, kick out current management, turn the company around then sell it back to the public at perhaps even $1.50 on the dollar if they have done a real good job. And it helps greatly if that private equity entity can manage to borrow 90% of the purchase price. That makes their return 3000%. And the rich get richer.

I would say that there is a problem with growing inequality.

I do not think that private equity changes things very much. It does make some people very rich, but there are plenty of other mechanisms for doing this.

It can appear that private equity changes ownership structures by taking listed companies private, but they usually re-list the companies after a few years to get their money back.

No and So what?