Private Equity Will Be Followed By A Revenge Posse
The whole U.S. economy has become rather gloriously mad, in the sense that none of it really makes any economic sense. Glorious in the sense that Deng Tsiao-ping must have had in mind when he said: "To get rich is glorious"; for the illusion of wealth has never been easier, faster or closer to hand. Just step on into the casino!
Central banks all over the planet are serving helpings of money like McDonald's cheeseburgers...over USD$2 trillion served in the last five years. Maybe they should put that up in lights. All a smart investor has to do is to get in line.
In the late '90s, the way to make money was to start a dotcom and take it public. Investors would give everything. Then...take the loot and speculate in property. Better yet, start a property fund. Who didn't want to be in property in 2000-2006?
And after that, it was a good idea to sell the property fund before lenders started asking questions, and move into private equity. Borrow a lot of money to buy a company. Then, have the company borrow a lot of money so it can pay you big fees, because you are such a genius. Then, sell the company to the 'mom and pop' investors in the public market.
But after that, get out of town - because each get-rich-quick era is followed by a posse with revenge on its mind.
After the tech bubble blew they strung up Bernie Ebbers and Frank Quattrone. Now that the bubble in subprime has blown up, they're chasing New Century (OTC:NEWC) and other lenders. It won't be too long before the bubble in private equity goes up too. And, not too far behind will be a mob clamoring for some kind of rough justice.
Already, we read in today's paper that French presidential candidate, Nicholas Sarkozy, is threatening 'predator' hedge funds with a tax on their speculative investments. It probably won't be long before his Anglo-Saxon confreres pick up the rope.
Bill Bonner
The Daily Reckoning Australia
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About the Author
Best-selling investment author Bill Bonner is the founder and president of Agora Publishing, one of the world's most successful consumer newsletter companies. Owner of both Fleet Street Publications and MoneyWeek magazine in the UK, he is also author of the free daily e-mail The Daily Reckoning.
Comment by Matt on 3 May 2007:
It's hard to believe what is going on. Rampant speculation spurred by rampant dollar creation. With out of control taxes to boot. Why do I even bother going to work in the morning? An honest day's work for an honest day's pay is gone. Close to 40% of my check get's taken out as taxes then the earnings that I do save are inflated away. We believe in prudence and live below our means. In return we are getting excessively screwed.