How Donald Trump Makes Money Off the Presidency

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Among the barrage of Donald Trump’s scandals, legislative failings, and Twitter tantrums, that appear in the news with constant regularity, there are plenty that seem to fall through the cracks. One of these concerns Trump’s businesses and his holding power as president. Despite promising to divest himself from his businesses while in office (he hasn’t), Trump is actively profiting from the presidency, which the founders never intended. While we still don’t have his tax returns to shed light on whether his behavior benefits his business’ ledgers, we know taxpayer money has been flowing to some of his businesses like Mar-a-Lago. However, despite the public seeing their tax dollars flow directly to the Trump Organization every time he goes golfing at his resorts and the rules being laid out in the Constitution, nobody has tried to stop this.

Previous presidents have disclosed and divested, so this hasn’t been a problem. After all, the Founding Fathers wrote protections into the US Constitution with emoluments clauses making it illegal for presidents to receive gifts from foreign governments or federal and state governments. Now Donald Trump did promise to release his tax returns during the campaign, and divest himself from his business while in office to avoid conflict of interests. After all, he promised to “drain the swamp” which his supporters think it meant that he’d stop corruption in Washington DC like limiting access to lobbyists, curbing deals with foreign governments, and refusing to profit from the White House. Yet, unlike his predecessors, he’s does nothing more than the legal minimum required.

However, we must understand that corruption and egregious abuses of power makes Donald Trump who he is. In fact, since he came to Washington DC, the United States has seen an unprecedented attack on presidential ethics. Trump campaign donors have gotten cushy White House jobs. Goldman Sacks bankers wrote the GOP tax plan. But most importantly, Trump hasn’t divested and most likely had no intention to in the first place. He doesn’t care about conflicts of interest. So he’s still making money.

First of all, the Trump Organization is huge private company with properties and business interests all over the world. But we don’t have a clear picture of exactly how big and valuable it is. According to a February 2018 Forbes report, Donald Trump rakes in at least $175 million a year from commercial tenants like the state-owned Industrial & Commercial Bank of China. But it’s impossible to say which companies pay him and how much because federal disclosure laws don’t require an accounting of where his businesses get their money. So we don’t know where the money’s coming from and how much he’s getting. Since he hasn’t released his tax returns either. And that’s a big problem since Trump probably has many conflicts of interest that could influence public policy. As Forbes noted, “Take any hot-button issue of the past year, and there’s a good chance Trump’s tenants lobbied the federal government on it, either in support of or in opposition to the administration’s position.” In fact, according to Forbes, at least 3 dozen Trump tenants have “meaningful relationships with the federal government, from contractors to lobbying firms to regulatory targets.”

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Here’s a CREW timeline of Trump trademark approval actions by governments overseas. Not the ones coming from China.

In addition, foreign governments have been quick to figure out how to get on Donald Trump’s good side. According to a January McClatchy article, they’ve “donated public land, approved permits and eased environmental regulations for Trump-branded developments, creating a slew of potential conflicts as foreign leaders make investments that can be seen as gifts or attempts to gain access to the American president through his sprawling business empire.” The Chinese government has granted Trump at least 39 trademarks since he took office while his daughter and senior adviser Ivanka has received 7 since she joined the administration.

Then there’s the fact the Trump Organization still sells real estate. Last summer, a USA Today investigation found that during the last year Donald Trump clinched the Republican presidential nomination in 2016, “70% of buyers of Trump properties were limited liability companies – corporate entities that allow people to purchase property without revealing all of the owners’ names. That compares with about 4% of buyers in the two years before.” According to the paper, overall in 2017, Trump’s companies, “sold more than $35 million in real estate … mostly to secretive shell companies that obscure buyers’ identities.” So since Trump became the Republican nominee and later president, mysterious investors have poured millions of dollars into his coffers.

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Since Donald Trump became president, the Trump International Hotel has become the go-to place for foreign visitors and anyone else wanting to curry favor with the White House. Not to mention, the GOP holds a lot of activities there. The lighting above the arch is by an anti-Trump protester.

Of course, the most obvious Donald Trump uses his position as president to promote his own business interest is through mixing and matching his presidential activities with his own properties while charging Secret Service and transportation costs to taxpayers. As Washington University professor Kathleen Clark told ProPublica, “Trump appears to be commandeering federal resources in order to maximize revenues at Trump properties, and he does this by visiting properties close to the White House. And when he travels to the golf courses in Florida, Virginia and New Jersey, other agencies that are involved in supporting the president end up spending money.” In fact, he spent 1/3 of his first year in office visiting his own commercial properties. Every Trump appearance at his properties is a marketing event. According to financial disclosures, Trump hotel revenue soared over the past few years. In 2015, records show just $16.7 million in hotel and resort revenues. In 2016, that income more than doubled to $33.8 million. Since Trump moved into the White House, Trump hotel income jumped about 80%, reaching $60.8 million in 2017. Sure in late 2016, Trump opened the Old Post Office Hotel in Washington DC despite the clear guideline that, “No elected official of the Government of the United States…shall be admitted to any share or part of this Lease.” Since then, it’s become the go-to hotel for any foreign visitor looking to win favors from the Trumps as well as headquarters to GOP activity in DC.

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TIME magazine has a good cover for Donald Trump’s DC hotel. Funny how they call it “The Swamp Hotel” since Trump promised to “drain the swamp.” Though I think he might’ve meant the Everglades than Washington.

But what the public doesn’t know is that Donald Trump wasn’t the only political and/or business figure to visit his properties. According to a January 2018 report by the Citizens for Responsibility and Ethics in Washington, during Trump’s first year in office, his properties hosted more than 100 executive branch officials, 30 members of Congress, and more than a dozen state officials. Trump’s properties also hosted events held by at least 40 special interest groups. At least 11 foreign governments and 6 foreign officials have appeared on Trump properties since 2017. The Kuwaiti Embassy held a National Day celebration in 2017 and 2018 at Trump’s D.C. hotel. While one Asian diplomat told the Washington Post shortly after Trump’s election that going to his D.C. hotel makes perfect sense, “Why wouldn’t I stay at his hotel blocks from the White House, so I can tell the new president, ‘I love your new hotel!’ Isn’t it rude to come to his city and say, ‘I am staying at your competitor?'” In the business sector, USA Today found that executives from 50 government contractors and 21 lobbyists hold Trump club memberships.

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This is a CREW graph on top campaign spenders at Trump properties. You can see Trump’s top the list. But Republican governors and politicians aren’t far behind.

The Center of Responsive politics sorted the spending of political committees at Trump properties with Donald Trump’s own campaign events topping the list. In 2017 alone, Trump’s 2020 campaign spent $760,064 at buildings he owns. And since Trump still owns these properties, he and his family make extra money every time he holds a fundraiser. Since Trump’s DC Hotel is only a block away from the Justice Department and close to the White House, anyone who wants to make a contribution to Trump’s pockets simply books events there. Same goes for New York’s Trump Tower and Mar-a-Lago. In 2016, the RNC spent $146,521 at Trump properties and $173,416 in 2017.

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Here’s a CREW map of members of Congress who’ve visited a Trump property. Kind of surprised to see Ted Cruz on there given what Donald Trump put him through. Yet, I don’t see Devin Nunes for some reason since he was on Trump’s transition team.

Before assuming office, Donald Trump vowed to donate his DC hotel profits from foreign governments to the US Treasury. However, to no one’s surprise months later, the Trump Organization admitted that tracking all foreign government money was “impractical.” But it promised to donate profits from guests self-identifying as foreign government representatives. Yet, in early 2018 the Trump Organization announced that it had donated profits from “foreign government patronage” after all but declined to disclose specifics like as the Washington Post speculated, “How much was donated? Which Trump properties were included in this accounting? Which foreign entities had paid money to Trump’s businesses?”

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Here’s a CREW map of foreign governments that have paid a Trump-owned entity since the inauguration. Includes China, India, Saudi Arabia, Japan, Turkey, and Malaysia.

Furthermore, neither Donald Trump nor his team have shied away from promoting his brand. After the 2016 election, Trump signaled he’d spend a great deal of time at his Mar-a-Lago in Florida. In turn, the club doubled its membership fees to $200,000 before taxes and charged $175 more to $600-$750 for its New Year’s Eve party. From January to August 2017, 2/3 of the 50 executives and lobbyist club members played golf on days Trump was. White House spokeswoman Kellyanne Conway promoted Ivanka brands on Fox News for God’s sake. During his first year in office, Trump mentioned his private businesses at least 35 times according to CREW estimates. Overall, their report found that political groups spent over $1.2 billion at Trump properties during his first year in office, after never having spent more than $100,000 “in any given year going back to at least 2002.” CREW chair and former Obama ethics czar Noah Eisen tweeted that the group’s report described Trump as “the most unethical presidency,” adding, “Year two has been even worse—& it’s just getting started.” In the fall of 2017, the Trump Organization debuted Trumpstore.com where you can buy all other-than-made-in-the-USA #MAGA gear, which is just another Trump family cash grab.

Nor is Donald Trump the only one in his family profiting from the presidency. In June 2018, the Washington Post reported: “Ivanka Trump and Jared Kushner, the president’s daughter and son-in-law, brought in at least $82 million in outside income while serving as senior White House advisers during 2017, according to new financial disclosure forms released Monday. Ivanka Trump earned $3.9 million from her stake in the Trump International Hotel in Washington, while Kushner reported over $5 million in income from Quail Ridge, a Kushner Cos. apartment complex acquired last year in Plainsboro, New Jersey. The filings show how the couple are collecting immense sums from other enterprises while serving in the White House, an extraordinary income flow that ethics experts have warned could create potential conflicts of interests.” Allowing Ivanka and Kushner retain their outside income sources is remarkable since Cabinet officials are required to divest themselves from their holdings or abide by strict rules imposed by a blind trust. Shortly after the inauguration, the State Department’s web page promoted Melania’s jewelry line. The Secret Service has even provided protection for Trump’s family as they go on business trips as well, with their expenses being paid on the taxpayer dime.

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Here’s a small snapshot of Donald Trump’s and his administration’s over 500 conflicts of interest. You many not be able to read everything on here. But it’s truly staggering.

So why is all this a problem? Because it’s against the rules at a constitutional scale. The presidency shouldn’t be a get-rich-quick scheme. No president or First Family member should use the Oval Office to enhance their wealth. With his business interests on his mind, Donald Trump is making decisions as a country’s leader and under the guise of what’s best for the nation. But since he won’t be in office forever, he’s possibly putting Trump Organization interest before public interest. As CREW Executive Director Noah Bookbinder put it, “Every decision President Trump makes in the course of his job is followed by the specter of corruption. Because of his steady stream of conflicts, we have to question whether each decision he makes was made in the best interest of the American people or the best interest of his bottom line.” CREW estimates that Trump has over 500 conflicts of interest, which a clear picture of a presidency being used to turn a profit and his businesses serving as access points to corridors of power. Bookbinder adds, “Just as we feared, President Trump is not only making money in spite of his official position, in many cases, he’s making money because of it.”

Of course, the courts need to hash out this though with Brett Kavanaugh’s confirmation to the Supreme Court almost a done deal, does this harm the public? (Absolutely). Is there any proof Trump’s violating the Constitution? (Yes, the Emoluments Clause which forbids the president from accepting money from foreign governments). Fortunately, the apparent Emoluments Clause violations haven’t gone unnoticed as several lawsuits work their way through the courts. It appears quite serious as Trump businesses are subpoenaed and ordered to preserve documents. 3-4 suits have been filed so far. Naturally, the Trump administration asked that they’d be thrown out. Again, a judge will decide if Donald Trump’s broken the law. As of March 2018, one suit has been thrown out in December while the others endure and may be gaining traction.

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Donald Trump doesn’t see anything wrong with profiting from the presidency. Since he sees himself having the right to the spoils. Nonetheless, making the presidency for sale greatly undermines our democracy.

So how is Donald Trump’s legal team defending profiting off the presidency? For one, despite how rich he is, we taxpayers are paying for lawyers to argue that Trump has a right to profit from his presidency. And according to a USA Today article, it all boils down to this: “The taxpayer-funded lawyers are making the case that it is not unconstitutional for the president’s private companies to earn profits from foreign governments and officials while he’s in office.” Further, “The government lawyers and Trump’s private attorneys are making the same arguments — that the Constitution’s ban on a president taking gifts from foreign interests in exchange for official actions does not apply to foreign government customers buying things from Trump’s companies. The plaintiffs, including ethics groups and competing businesses, argue the payments pose an unconstitutional conflict of interest.” Or to quote Trump before he took office, “The president can’t have a conflict of interest.” However, we must keep in mind that Donald Trump doesn’t see himself as constrained to any norm, rules, or even laws. He was born into wealth and privilege and sees himself exempt from certain restraints that get in his way that would land the average person in jail. Profiting off the presidency is political corruption at its finest and not at all normal. Yet, like any con artist businessman, Trump sees profit as natural and immediate spoils of office.

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This is a map of where Donald Trump owns property outside the United States. You can see that Russia is in bright yellow since it interfered in the 2016 election on Trump’s behalf.

Whether you can agree or disagree with Donald Trump’s actions, it’s very obvious he’s at least violating the spirit of the law. After all, he promised to step away from his interests but didn’t, implying he knew he should’ve before taking office. But it’s still hard to say whether or not a court will throw the book at him since there’s not much legal precedent here. However, since presidential ethics laws never foresaw a businessman president who wouldn’t follow political norms of divesting himself from his businesses, disclosing his taxes, and generally trying to avoid conflicts of interests, much of this may be legal.

Nonetheless, it’s more than just making sure that a president acts in good faith while in office. The real issue here is establishing precedent moving forward. While Capitol Hill seems fine letting Donald Trump get away with anything he wants including Emoluments violations, what can we expect from future presidents? While it’s a test for the courts, it’s also one for how much the public is willing to put up with from our elected officials. If we don’t put our foot down now, what happens when another more competent president goes out of bounds?

But what’s certain is that each day he occupies the White House, Donald Trump continues to profit from the presidency and possibly because he’s the man in the Oval Office. By promoting his business in an official capacity without shame and by offering access and influence to his businesses’ patrons, Trump sends a message to special interests and foreign government that his administration is for sale. This is no message an American president should send to the world since it shows that Trump’s support can be bought with patronage. While most Americans can’t even afford to stay at any of his resorts or visit his golf courses. This isn’t how American democracy should function. Nonetheless, the remaining years of the Trump administration are unlikely to be any different unless the American people and their Congressional representatives demand better.

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How Donald Trump Tried to Evict Rent-Controlled Tenants

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This is 100 Central Park South, which Donald Trump bought in 1981. During the 1980s, he had plans to demolish it for a tower of luxury condos. Unfortunately for him,, a group of rent controlled tenants lived there.

Donald Trump may be elected president thanks to receiving about 60 million votes, the Electoral College, and help from the Russians back in 2016. But in his hometown in New York City, he is almost universally loathed. The city may be a haven for liberals and elites but remember it’s the same place who elected Rudy Giuliani and Michael Bloomberg. Yet, Trump has been disliked in NYC for decades that Sesame Street parodied him as a sleazy villain since the late 1980s. Since he and his dad were indicted by the Justice for housing discrimination in the 1970s, the people of New York City have witnessed Trump concoct his dastardly and often at their expense. Over the years, Trump has preyed on them with false promises, exploited them, scammed them, and abused them for his own enrichment. He’s even inflamed racial tensions for his own benefit like his page long ad calling for the executions of the Central Park Five. At best, New Yorkers see him as a sleazy con artist who’s not to be trusted. At worst, they see him as a nightmare. If the people of New York City despise Trump, it’s not because the politics. It’s because they know exactly who he is and why he should’ve never become president.

At 35 years old, Donald Trump was the epitome of American business bravado. He had cut multi-million land deals, saved a blighted midtown Manhattan subway hub by overhauling a building near Grand Central Station that would become the Grand Hyatt New York, and was in the process of erecting the black-framed glass behemoth, the 68-story Trump Tower. After he destroyed the old Bonwit Teller Building including the Art Deco sculptures he promised not to. And with the labor of undocumented Polish workers who were paid less than $5 an hour and lived in squalid conditions.

In 1981, Donald Trump bought the Barbizon Plaza Hotel and a neighboring 14-story apartment building on prime real estate facing New York City’s Central Park. Addressed at 100 Central Park South he paid $13 million for, he had plans to tear down the buildings and replace them with luxury condos. It would be an audacious project and on one of New York City’s most desirable blocks. Two months later, he applied for a demolition permit to blow it up.

But there was one problem. In 60 of 100 Central Park South’s 80 apartments, rent-stabilized tenants already lived Central Park South building. Donald Trump describes renters as privileged, rich “yuppies” who unfairly benefitted from rent-control, claiming the rent he collected barely covered expenses. That’s why he installed cheaper lightbulbs to cut back. As he claimed, “If there’s one thing I’ve learned about the rich, it’s that they have a very low threshold for even the mildest discomfort.” To be fair, a low rent home a short walk away from Broadway theaters and Carnegie Hall is a pretty sweet deal. Dentist Dr. Michael Richman paid $700 a month for his apartment. Fashion designer Arnold Scaasi paid $985 for his mind-blowing, 6-bedroom with killer views of Central Park. B-movie actress and original Rockette Suzanne Blackmer paid $203.59 month for her 2-bedroom unit which wasn’t her primary residence. A 3-room apartment in the building overlooking the part could be as low as $436 a month. In New York City this was the stuff of legend.

In reality, while rich people did inhabit a share of these apartments, most of the tenants were either working people or middle class retirees living on fixed incomes and Social Security who’ve resided there for over 20 years. None epitomizes this like B-movie Suzanne Blackmer who’d many would think was living quite extravagantly. But that wasn’t the case for she was only living on $10,000 a year from Social Security, occasional acting gigs, and a pension from the Screen Actors Guild she earned by appearing in
over 60 films. Sure she may have had multiple residences, but she kept that apartment as a place to stay for her job.

Donald Trump often demonized the tenants as freeloading millionaires as a way to justify his harassment against the tenants at 100 Central Park South. It didn’t matter who they were. It was about getting the New York City public on his side. After all, New Yorkers would hate rich people getting very good deals on prime real estate given how expensive the city rents are. And it helped that a noted fashion designer, an architect, and a B-movie actress had units there for cheap rents. As Trump stated in The Art of the Deal, “Rent control is a disaster for all but the privileged minority who are protected by it. As much as any other single factor, rent control is responsible for the desperate housing crisis that has plagued NYC for the past 20 years.” Ironically, we should keep in mind that Trump has amassed his fortune thanks in large part to government handouts.
So in order to get his luxury condos, Donald Trump wanted to get them out. After applying for the demolition permit, he fired the building manager and replaced him with Citadel Management. According to The Art of the Deal, Trump claimed he chose a company that “specialized in relocating tenants.” While most landlords commonly try buying tenants out, Trump and Citadel Management tried to get the job done for free. At first, Citadel hired agents to constantly call tenants constantly, asking to show them other properties and convincing them that they’d have to move regardless. Most tenants refused for obvious reasons.

In the meantime, they did the bare minimum one could legally get away with in terms of upkeep. These included things like removing light covers, not cleaning up the lobby, ignoring repairs and maintenance, barring doormen from carrying up packages, and putting up aluminum foil on windows facing Central Park to give the building a run down appearance. Garbage filled the hallways and elevators as rats began to swarm. And tenants weren’t even allowed to erect a Christmas tree in the lobby. According to their 1982 lawsuit, tenants claimed that Donald Trump had cut their hot water and heat during New York’s freezing winters and stopped all building repairs. One said he allowed “a rodent infestation of the premises.” Another stated he imposed burdensome new rules in an attempt to force them out. However, building superintendent Anthony Ramirez, swore in court that Trump’s building managers gave him explicit instructions. “They didn’t want any repairs done. No cleaning. No accepting of packages.” As a result of the lack of maintenance, fashion designer Arnold Scaasi’s luxurious apartment was plagued by water leaks. One imperiled his art collection that included a 1926 Picasso and works of art by Claud Monet. And he wasn’t the only one. A 10 month water leak in Apartment 14B got so nasty that 2 brothers who grew up there saw brown and white mushrooms sprouting from their bedroom carpet. One told CNN Money, “It felt like we were under attack. Trump did his best not to repair anything.” Yet, Donald Trump refused to do anything about it.

On one occasion, when Donald Trump’s new building manager reported a burglary, dentists with apartment offices were ordered to send patients to a garbage-filled service elevator. Dr. Michael Richman refused to comply, complaining in court documents that Trump “mounted a campaign of harassment.” He then added, “Mr. Trump is willing to resort to any device or tactic to drive out the tenants from the building.” Trump’s lawyers fought back, questioning whether the dentist’s office even qualified for rent control.

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This is what the eviction threat from Donald Trump looks like. And he sent this to an elderly couple, by the way.

On New Year’s Eve, several tenants received “lease violation” warning letters. The previous owners had permitted renters to knock down walls and renovate their apartment units at least 10 to 20 years prior. He reversed the exception and gave renters only 12 days to rebuild the walls or face eviction. Another time, Donald Trump sued tenant Andersen Clipper for not paying rent despite that he actually did. New York City Judge Jay Dankberg dismissed the case as “spurious and unnecessary,” as well as blasted Trump for trying to “harass” Clipper and forced the huckster to refund 5% of his rent. He then wrote, “To most landlords happiness is having tenants who pay the rent each month without prodding or litigation. However, [Trump] is apparently searching for double happiness.” According to his estranged wife Nancy who remembers the lawsuits and the refusal to fix things, “It was really a horrible experience.” She then described Trump as “insensitive, rude, and just a generally nasty man. I would never have considered him presidential.”

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This is real estate lawyer David Rozenholc who represented the tenants at 100 Central Park South. Due to his aggressive litigation nature, he’s kind of like a Michael Avenatti in the real estate world. Also, Donald Trump sued his firm in retaliation for $150 million on corruption charges.

The renters weren’t going anywhere. After all, most of them were senior citizens on rent-control and with no other place to go. In response, they hired a particularly aggressive real estate lawyer named David Rozenholc and sued Donald Trump and his company, Park South Associates. New York state judges stepped in to put Trump’s lease violation notices on hold on at least 2 occasions. Since Rozenholc took advantage of a legal flaw to block Trump’s application to begin construction. He also sued Trump for harassing his clients and having management instruct the superintendent to spy on them. In return, Trump sued Rozenholc’s firm in a federal suit for racketeering and sought $105 million in damages, which was later dismissed since it was stupid.

In 1982 and 1983, Donald Trump put out newspaper advertisements offering to shelter homeless people offering them a dozen or so free apartments with “beautiful views.” But seeing how Trump often does seemingly charitable things on selfish motives, tenants saw the move as a ruthless attempt to drive them out. Trump denied it, telling the New York Times, “Some people think I’m just doing a number on the people in the building. That’s not true. I just want to help with the homeless problem. It’ll take two or three years to get everybody out, and in the meantime I’ll have more and more vacant apartments for the indigent.” He even offered to pay for nurses and medical supplies to treat the homeless. But New York’s Human Resources deputy administrator Robert Trobe told the Times that Trump’s offer did “not seem appropriate.” In end the city declined, questioning the wisdom of moving homeless people into a building headed for demolition. Though not without a refugee charity suggesting he house Polish refugees which Trump balked at saying his offer was only for those “live in America now, not refugees.”

Alleged spying took place, too. According to superintendent Anthony Ramirez, Donald Trump’s building manager told him monitor, “the personal habits of the tenants” and “keep a list on the tenants’ activities.” While Ramirez defend Trump on maintenance issues, spying went too far. He told the manager, “Sir, I have too many things on my conscience at this late stage in life, and I don’t need anymore headaches. I’m here to do my job and to do repairs to the building.” Apparently, Trump wanted to spy on the tenants in an attempt to dig dirt on them to use as blackmail or get them evicted. Trump denied this in a sworn 1985 affidavit. First, he claimed he didn’t directly run building owner Park South Associates (despite that corporate documents show he owned 60% of the company and was the only listed officer). Second, he swore he kept the building in tip-top shape with a previous New York housing agency inspection to back it up, finding that “all public areas were clean.”

However, the same state agency, the New York’s Division of Homes and Community Renewal went after Donald Trump, too. They sued, charging him of harassing tenants after the tenants sent a barrage of complaints alleging harassment, “drastic decreases in essential services,” and “persistent delay in repairing defective conditions with life-threatening potential.” Several even went on a rent strike. The New York City filed a similar suit months later, mentioning daily harassment, “wrongful acts and
omissions”, bogus nonpayment notices, and utilities that were turned off, by Trump’s agents. The city lost the injunction in September 1985 with the state Supreme Court justice stating, The danger of irreparable harm to the tenants seems to be minimal now that the challenged activities of the defendants are under the scrutiny of the various departments of the City of New York.

Yet, there was a glimmer of peace in 1985. According to court documents, Donald Trump and the tenants’ association leader discussed a potential deal. The renters planned to team up and buy the building for $15 million to free themselves from their dreaded landlord. You’d think Trump would accept this deal and everyone would live happily ever after. But no. Instead, he used that opportunity to accuse the tenants shady behavior like using harassment lawsuits to cover their real motivations. As his attorneys claimed, tenants were “waging a ceaseless guerrilla-type war… to coerce a bargain sale of the building,” He then sued them for $150 million, escalating the legal battle. In a 1985 New York Times editorial, Sydney Schanberg called Trump a “slumlord.” Trump’s lawyers responded in an op-ed attacking Schanberg, Rozenholc, New York City, and called it a “political maneuver in a mayoral election year.”

By 1986, Trump had spent over $1 million fighting the tenants and only $160,000 on repairs. Thankfully, he finally settled with the tenants’ association that year. He then cut his attorneys a $550,000 check and agreed to let the housing agency monitor repairs for 5 years. The tenants could stay in their apartments paying their preexisting rents. As Tony Schwartz detailed in a 1985 New York Times article, “how a bunch of rent-controlled and rent-stabilized tenants in an old building… have managed to do what city agencies, courts, colleagues, competitors, and the National Football League have never been able to do: successfully stand in the way of something Donald Trump wants.” He described Trump as “fugue of failure, a farce of fumbling and bumbling.”

However, the harassment still didn’t stop. Donald Trump may have gave up demolition, but he decided to renovate and later convert the building into condos instead. Elderly couple Alvin and Catalina Meyer, the wife plagued with emphysema and dying of cancer. So it was a particularly rude awakening when Trump’s construction workers woke Catalina up at 7 a.m. by drilling holes in the ceiling above her bed. The construction crew also set up a workstation in the apartment next door. Mrs. Meyer complained about the dust in the air. According to court papers, she claimed, “I am a very sick woman battling for my life. I have begged for reasonableness. The landlord will not be reasonable.” After nearly a decade of nonstop fighting, tenants started turning on one another. Trump told them he couldn’t fix the building’s heating system because Mrs. Meyer didn’t give construction workers access to their apartment. Fellow tenants told Meyer to back down while her lawsuit fizzled out when her own attorney left her.

The fighting died down in the 1990s, only to pop up again in 2000 when 72-year-old Carmel Rheingold sued Donald Trump in a New York State court for overcharging her $40,000 in rent over 4 years. He paid that money back. In 1998, Trump struck a deal with the building’s remaining inhabitants allowing them to either buy their apartments at a markdown or keep renting without further pressure to leave.

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A 1988 Sesame Street episode when Oscar the Grouch signs on with Ronald Grump is said to be based on this 1980s tenant dispute.

In the end, no judge ever ruled that tenants were being harassed. After all, Donald Trump settled but he didn’t get his way. The building remains in place to this day. According to city records, Trump’s company owns 18 units and his son Eric has an apartment on the top floor. At least 2 renters actually bought their apartments. But most died or moved away. Nonetheless, as of 2016, there are still tenants who still pay rent-control rates. Meanwhile the 106 Central Park South next door offers a glimpse of what Trump would’ve built at 100 Central Park South if he had the chance: largely luxury developments sitting mostly vacant accruing value for their super wealthy owners.
Donald Trump’s dispute with the tenants of 100 Central Park South remains a defining moment that shows his character in the minds of many New Yorkers. As New York journalist and author of Trump: The Deals and the Downfall, Wayne Barrett told CNN Money, “This was a concrete choice he made, knowing he would disrupt the lives of many middle income, elderly people. He has absolutely no excuse.” In 1987, Suzanne Blackmer said of Trump, “He has such an ego. He wants to be Jesus. He wants to be Hitler. He wants to be the most powerful thing in the world.”

Looking back, you can see Trump waging a different sort of campaign but with many of the same tactics he deployed during the 2016 campaign and his presidency like the threats, theatrics, and penchant for hyperbole. David Rozenholc said of Trump in 2016, “He knows how to negotiate, he knows how to use leverage and he’s very perceptive about his opponent’s vulnerabilities. It didn’t work against me, but when you deal with Putin and Iran, these could be useful qualities.” In The Art of the Deal, Trump acknowledged that he deliberately tried driving out tenants, but claimed most of them were exploiting undeserved government subsidies. He recalled getting rid of free telephone in the building’s lobby which he claimed tenants were using, “to call their friends in Gstaad and St. Moritz.” Yet, tenant Madelyn Rubenstein and 2 other residents at the time could only remember a pay phone in the building. Nor has Trump admitted defeat as he told The New York Times, “It was a long battle, but it was a successful battle. As usual, I came out on top.” Some may think that Trump’s slumlord past has little to do with his presidency, but the episode reveals Trump’s character as a man who sees dollars and cents over people’s lives. While his callous attitude has made him a marketplace success drawing fans from all walks of life, he’s profoundly unsuited for a very humanistic job of holding the American people’s best interests.

But more importantly, Donald Trump’s clash with the 100 Central Park South tenants shows that he’s not invincible. And he can be stopped. The rent-controlled tenants at 100 Central Park South fought hard to keep their homes for years and won. They hired attorneys. They took their cause to the media. They went on rent strikes. They applied pressure to state institutions into taking action. In the end, Trump had give up his plans to demolish the building and settle with them. If we band together in solidarity and resist Trump’s monstrous presidency and his unpopular, repressive policies. We may not be able to remove him from office, but we don’t have to let him get his way. In the name of freedom and democracy, let us all unite as Americans and stop this unrespectable man. once and for all.

When Donald Trump Screwed Atlantic City

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Amid the many Donald Trump scandals circulating in the news lately, whether it be on Russia, Stormy Daniels, his racist rhetoric, and anything else relating to his presidency, there is a strong tendency for the media to skirt many harrowing moments from his shockingly shady past. Now I get that it’s the media’s job to cover what’s currently going on in the world. Yet, that doesn’t mean many of these scandals don’t matter for a lot of them can tell us a lot about Trump’s character and abilities as well as what he really stands for. Nonetheless, Trump’s breadth of scandals is staggering with mafia tie allegations, unscrupulous business dealings, sexual assault allegations, racial discrimination, and alleged marital rape. All of which number in the thousands while spanning over 4 decades from the 1970s to the present day ranging from the trivial to the truly appalling.

Nevertheless, there are some Donald Trump scandals that are worth revisiting since they still carry negative repercussions to this day. In a time of obscene economic inequality, egregious corporate greed, rising costs of living, and diminishing labor power, Trump has styled himself in his 2016 presidential campaign as a successful businessman who many working class whites viewed as their champion despite the fact he’s neither. But none shows the negative effect Trump has had on many Americans than the debacles surrounding his casino empire in Atlantic City, New Jersey during the 1980s-2000s. In his career-long pursuit to increase his personal coffers, Trump has been involved with a wide range of businesses over the years. The sheer range of ventures may offer a superficial appearance of a broad array of mastery, that doesn’t mean he’s good at business. Since he wouldn’t be able to try his hand in multiple ventures if he wasn’t born wealthy to begin with. But like any expert con artist across industries, Trump has only mastered an essential skill of structuring deals financially beneficial for him regardless whether the underlying business succeeds and regardless what damage is done.

Nowhere else is this ability echoed than in his dealings regarding his casinos in Atlantic City when he was a chair of a publicly traded company. Since such role not only made him responsible for his own interests, but also those of his company’s shareholders. But rather than create wealth for business partners, Trump took advantage of investors who believed in him in order to benefit. As head of Trump Hotels & Casino Resorts, he ran the company to the ground, immiserating shareholders while walking away with enormous bags of cash. And he’s doing the same thing to the United States in the White House because his brand managed to impress over 60 million people willing to vote for him.

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Here are the remnants of Trump Plaza which closed in 2014. Without its glitzy lights, it seems like a rather basic abandoned building only taking up space in the city.

It’s not unusual for large business enterprises to be largely financed by people who didn’t found the company and don’t usually management. In fact, this is how many multinational corporations that shape our lives today get started in the first place. Yet, while starting and managing a successful company is one way to make a shitload of money, it’s not the only way. Another method is running a business that stays afloat for some years without being really profitable. You then treat yourself to a high salary and when it goes bankrupt, that’s the investors’ problem. While business failure is always a fact of life, giving oneself a cushy salary while everyone else suffers from their sins is a terrible way to do business. But it’s a scheme more common than people might think in a day of massive corporate debts, private equity, bailouts, and government subsidies for big businesses. We all remember how Wall Street bankers caused the 2008 Great Recession with their complicated financial schemes which ruined the lives of millions. People lost their jobs, their homes, and/or their life savings. Large financial giants like Lehman Brothers and Bear Stearns ended in bankruptcy. Yet, the bankers all gave themselves nice bonuses from their government bailouts while none of them received any prison sentence whatsoever. In fact, when a major business in America fails these days, it’s always the employees and communities who get screwed while the executives responsible for the company’s demise make out with the bag.

In any case, this is exactly what happened with Donald Trump’s casinos in Atlantic City. But unlike most capitalists in their business ventures, Trump focused more on personally profiting from his casino empire than building it into a successful business. And for that reason, the New York Times reported that Trump “was failing in Atlantic City long before Atlantic City itself was failing.” But they note, even as his companies floundered, he personally profited. According to the Times, “He put up little of his own money, shifted personal debts to the casinos and collected millions of dollars in salary, bonuses and other payments. The burden of his failures fell on investors and others who had bet on his business acumen.” Not to mention, he extracted management fees from the companies he was involved with, which he handsomely profited from while his companies suffered. In fact, his casinos never made a profit. In other words, it had the makings of a major con job.

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Here are the remnants of Trump Taj Mahal. With an unsustainable debt, it would never really turn a profit and eventually had to close amid a strike in 2016. It has since been bought by Hard Rock in 2017.

While most people know Atlantic City for its casinos, but many people don’t know that some of the people who live and work there blame Donald Trump for ruining their hometown. Now home to many shuttered and struggling casinos, the Washington Post has noted, “The unemployment rate of the city is already 9.2%, nearly twice the national average, and Atlantic County, N.J., is the nation’s mortgage foreclosure capital, meaning that many workers whose homes are underwater won’t be able to afford to move somewhere else to seek new jobs.” Trump has said, “Atlantic City is a disaster, and I did great in Atlantic City. I knew when to get out. My timing was great. And I got a lot of credit for it.” He further stated he personally got out of the Atlantic City casino business before it entirely collapsed, and that the collapse had more to do with the spread of legal gambling in other East Coast locations than with anything particular with his properties there. While that may be part of the reason, Trump at least contributed to Atlantic City’s decline, if not precipitated its perils himself. The Washington Post blames him for the “orchestration of a casino-industry bubble,” which he accomplished by “flouting local regulation, building the Taj with $700 million in junk bonds at 14% interest, defaults, [and] bankruptcies.” As we see now things didn’t turn out well for his business or Atlantic City.

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Here’s a graph of Donald Trump’s casinos and their projected costs to build. I didn’t get into the Trump World’s Fair since it basically closed after 3 years so. Yet, they were all financed by debt which was why they never turned a profit and eventually closed due to financial difficulties.

Now Donald Trump’s casino failures were inevitable because of the way he built his business. As the New York times reads, “assembled his casino empire by borrowing money at such high interest rates — after telling regulators he would not — that the businesses had almost no chance to succeed.” Yet, he made money from his ventures through 2 primary means. One was extracting management fees from companies doing business with him. The other was transferring personal debt to companies he controlled. At a business standpoint, this smells of a racket to me.

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Built in partnership with Harrah’s in the 1980s, Trump Plaza was the first Trump Atlantic City Casino. It was the scene of a notorious baccarat session where Akio Kashiwagi lost $10 million. But once Trump Taj Mahal opened, its fortunes would decline and never recover.

Donald Trump’s very first Atlantic City casino, Trump Plaza, was a partnership with Holiday Inn-owned Harrah’s for which he was paid a $24 million management fee. The place cost $210 million to build. The relationship wasn’t a cordial one. Trump convinced Harrah’s to remove itself from the name and thwarted attempts to build a parking garage on land in front of the casino since he wanted to attract high-rollers, not day gamblers. A year after its 1984 opening, the Holiday Inn sued Trump. He countersued alleging that it had had “badly bloodied” the Trump name with their mismanagement. Eventually, Harrah’s got out of the deal, selling its Plaza share to Trump for $223 million. Like he did with purchasing his marina casino, Trump bought the stake with borrowed money. He then left his first wife, Ivana in charge who took the casino’s only suite for herself. By the early 1990s, it was already hemorrhaging cash that Trump filed for bankruptcy in November 1992. The banks took a 49% stake in the Plaza for more favorable terms on the $550 million in debt the building had on it. By the time he emerged, he was $900 million in personal debt. Announced its closure in 2014 while Trump sued to have his name removed from there.

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Trump Castle (later Trump Marina) was built in partnership with Hilton Hotel. But since Hilton couldn’t get a casino license, Trump assumed full ownership. Out of all the casinos, it’s the only one still open but as the Golden Nugget due to new ownership since 2011.

Trump Castle was built in partnership with Hilton that cost $310 million to build. But when the New Jersey Casino Control Commission denied Hilton’s casino license application, it was forced to sell. Donald Trump took the offer. In the early 1990s, Donald Trump’s father Fred sent his lawyer there to buy $3.5 million worth of casino chips without playing them, in what amounted to an immediate cash infusion. State regulators later fined the casino $30,000 for it, but allowed the business to keep the money. As Trump Marina in 2011, it was sold for about a tenth its original worth under new management as the Golden Nugget.

In 1986, using borrowed money again, Donald Trump bought 10% of Bally Manufacturing. Bally sued him within days on accusations of antitrust and securities law violations. Trump countersued. In February 1987, Bally settled its litigation with Trump by buying back his stock at an inflated price and paying him a $6.2 million fee to go away to 10 years. Trump’s gross profit from the suit was $21 million. Since New Jersey law limited casino ownership to 3, Bally could block a takeover by buying a second gambling hall. So the company bought the Atlantic City Golden Nugget from Steve Wynn for a wildly inflated price of $440 million. Bally’s spendthrift reaction to Trump’s raid left the company drowning in red and unable to effectively compete in Atlantic City (or Nevada). And the raid compelled Wynn to leave town. Still, this shows that Trump’s casino scandals didn’t just affect his own.

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Financed by junk bonds at 14% interest under Donald Trump’s ownership, Trump Taj Mahal’s money woes would plague his casino empire to no end. A year after its 1990 grand opening, it was bankrupt due to unsustainable debts. During Trump’s ownership, it also had allegations of money laundering and links to Asian organized crime.

Trump Taj Mahal was built in partnership with Resorts Casino Hotel which had already sunk $500 million in its construction and hadn’t come close to finishing it. Donald Trump opened the casino using $675-900 million in patently unsustainable junk bonds at 14% interest. As David Clay Johnston wrote, “The shortage of funds was obvious inside the building. The long second-floor hallways leading to the New Delhi Deli and ballrooms were supposed to have marble columns. Instead, they were hastily covered with pink wallpaper. Many rooms were a mess, with hanging rods laying on closet floors, curtains that would not close and keys that did not match the doors weeks after the grand opening.” In addition to unsustainable debt, the casino was slapped with fines for “significant and longstanding” money laundering and had ties to Hong Kong organized crime. Unable to keep up with high interest payments, Trump Taj Mahal bankrupted within a year in 1991 which resulted in Trump losing half his interest in the casino and had to sell his yacht and airline. His creditors even put him on a budget of $5.4 million for a $65 million bailout per approval by the New Jersey Casino Control Commission.
Only 4 months after Trump Taj Mahal’s opening, the New Jersey Casino Control Commission reported that 253 Atlantic City-area subcontractors hadn’t been paid either in full or on time for the project. Trump owed $69.5-72 million, mostly to small family businesses. They had worked they hadn’t been paid for and they negotiated very small amounts to get paid. When Trump’s company declared bankruptcy in 1991, many small companies went out of business.

In 1995, the company Trump Hotels & Casino Resorts staged an IPO but began using some of the almost $300 million it had raised to clear Donald Trump’s personal loans, which amounted to $916 million due to his early 1990s bankruptcies. THCR’s sole asset at the time was the Trump Plaza Hotel and Casino which was already debt he personally guaranteed. Thus, not only did the company have debt from its own operations it had to pay, but also Trump’s personal debts. For a public company to have debt isn’t
unusual. But here you see Trump socializing his debts by making his personal debts his company and shareholders’ problem. And to a certain extent, the people of Atlantic City.

Yet, such leveraging off burdened THCR with millions of unsustainable debt.
In addition, $140 million of that money came from what Vox calls, “mom-and-pop investors” who’d later lose nearly everything for putting their confidence in him. Since stocks in the 1990s were the hot asset class that got so hot to increasingly attract naïve middle-class investors hoping to make a quick buck and unscrupulous financial racketeers hoping to make a quick buck off of them, Trump saw this mania as a perfect opportunity to escape from the legacy from his disastrous investments from the early 1990s. Since mom-and-pop investors don’t know shit about real estate tax law, they made the perfect suckers.

In 1996, THCR casino workers were encouraged to invest their 401(k) savings directly into Trump stock. By late 2003, the pool of employee retirement accounts held at 1.1 million in company stock. But shortly before THCR’s 2004 bankruptcy, the company’s retirement fund committee voted to sell the remaining shares in bulk to Merrill Lynch. More than 400 employees still held Trump stock when the force sale arrived and were sold at an average of $.57 per share. For an employee who put $1000 into a retirement account in 1997 when shares averaged $9.65 apiece, those savings had dwindled to $59. Three weeks after the forced sale and 2004 THCR bankruptcy filing, the share price was up to $2.04. None of the employees were able to profit from the gain.

Also inn 1996, THCR sold $1.1 billion in junk bonds to offset Donald Trump’s personal debt and buy 2 more ill-fated Atlantic City casino properties. In 1997, Donald Trump sold off Trump Castle to THCR for $490 million which according to the Times was “was based on optimistic profit projections and was about $100 million too high” while paying himself $888,000 for the deal. A Wall Street Journal report from 1997 describes Trump’s obscene pay package:

“Donald J. Trump received a $7 million pay package in 1996, including a $5 million bonus and a 71% salary increase, despite a more than 70% drop in the shares of Trump Hotels & Casino Resorts Inc. from their high last year.

“In addition to his bonus, Mr. Trump, the company’s chairman, received a salary of $1 million and another $1 million to cover services rendered by Mr. Trump’s privately held companies to Trump Hotels, according to the company’s recent filing with the Securities and Exchange Commission.”

THCR’s price dropped because it was unprofitable due to assuming $1.7 billion in debt thanks to the Trump Castle acquisition. Essentially Donald Trump had been paying a high salary for himself for running a company whose main purpose was taking enormous debts off of his personal balance sheet and shift them over to the company. He told the Journal, “Other than the stock price, we’re doing great.” The stock price would begin a long decline from which it never recovered. Nonetheless, this echoes how many Wall Street executives received generous pay packages following the 2008 crash that kickstarted the Great Recession despite how poorly their banks did that they were begging for government bailouts. While everyone else suffers the consequences from their greed.

In addition to assuming Trump’s personal debts and paying him an exorbitant salary, THCR also heavily purchased services from Trump’s privately-held companies, which doesn’t happen in most diversified enterprises. Normally, a company would buy the tie-ins at a discount and promote them for the customers. At least what I think. As the Washington Post reported:

“As the company spiraled downward, it continued to pay for Trump’s luxuries. Between 1998 and 2005, it spent more than $6 million to “entertain high-end customers” on Trump’s plane and golf courses and about $2 million to maintain his personal jet and have it piloted, a Post analysis of company filings shows.

“Trump also steered the company toward deals with the rest of the Trump-brand empire. Between 2006 and 2009, the company bought $1.7 million of Trump-brand merchandise, including $1.2 million of Trump Ice bottled water, the analysis shows.”

The Post then stated that a shareholder who bought $100 in DJT stock could sell them for about $4, which is a 96% loss. While investing that same amount of money to MGM Resorts would’ve yielded a $600 or 6 times the initial investment. Trump’s casinos even paid an annual $300,000 for the right to use his jet for transporting celebrities to gigs.

Nonetheless, the company went bankrupt in 2004 with $1.8 billion in debt. Shareholders saw their remaining stake’s value further reduced as creditors seized a large equity share. As a major shareholder, Trump lost out in the bankruptcy with his share reduced to 28%. But since unsustainable debts had previously been owed to him personally, it was a huge net win for him as his investors took further losses. THCR then changed its name to Trump Entertainment Resorts.

In 2009, Trump Entertainment Resorts filed for bankruptcy with $1.2 billion in debt after bondholders rejected Donald Trump’s last-ditch effort to retake control. He resigned from the board and ended up with just 10% of the company’s share after it emerged. He sold his remaining share to Carl Icahn who bought the casino out of its final bankruptcy in 2014 along with the other casinos under TER (or at least their debt anyway). Amid a strike by the casino’s union UNITE HERE Local 54 went on strike in 2016, Icahn closed the Taj before selling it to Hard Rock for $50 million the next year.

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This is a graph of Atlantic City casinos from 1999 to 2010. As you can see, while all Atlantic City casinos have suffered in recent years, Donald Trump’s have fared the worst. The green lines highlight the years the casinos filed for bankruptcy.

Based on these reports, what Donald Trump didn’t do was run a successful business even when other Atlantic City casinos did quite well. From 1997-2002 as revenues from other Atlantic City casinos rose 18%, Trump’s fell by 1%. Had Trump’s revenues have grown at the same rate, his company could’ve made interest payments and possibly register a profit. In 2007, the New York Times reported: “Over all, an index of casino stocks is up 268% since June 1995. Trump investors lost 93%.” Instead of turning a profit, the public company left a trail of losses for shareholders and bondholders as well as unpaid bills to contractors and subcontractors. Each time Donald Trump’s casino companies appeared in bankruptcy court, he persuaded bondholders to accept less money while he still added debt to his businesses. Furthermore, he didn’t even try offering high-quality amenities or first-class service that could’ve attracted more tourists in Atlantic City. For according to Trump’s longtime investment bankers at Donaldson, Lufkin & Jenrette, “The Trump name does not connote high-quality amenities and first-class service in the casino industry.” Rather, the Trump name connotes “the failure to pay one’s debts, a company that has lost money every year, and properties in need of significant deferred maintenance and lagging behind their competitors.”

Still, we must understand that whatever mistakes he made in his business career, his THCR episode was a tour de force. The total money Trump netted from salary, fees, cash paid to his other businesses, canceled personal debts, and overpriced assets bought is incalculable. And though it wasn’t perfectly legal since there were money laundering fines, securities law violations, campaign finance laws, and others, it was legal enough to work. Trump is an unscrupulous businessman who talked people into
lending him money to run casinos. Though the fact he was bad running casinos is nobody’s problem but anyone he owed money from.

However, given that gambling isn’t a normal industry, New Jersey let Donald Trump’s shenanigans slide in Atlantic City as part of a larger economic development scheme aimed at creating a stable job base for the resort town. Essentially in principle, it meant licensed casino operations not supposed to be running with the kind of excessive debt levels Trump used to keep his scheme running. New Jersey regulators had extensive discretion which they used to let Trump do whatever he wanted. In fact, they seemed largely uninterested in exploring Trump’s varied business relationship with Mafia-tied front companies, so they probably let other practices slide as well. Atlantic City was also complicit in Trump’s predatory business scheme since the leaders saw casinos as a way to solve its financial woes, which seemed to work for awhile. Until a predatory vulture capitalist like Donald Trump showed up.

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Here’s a graph from Newsweek showing Atlantic City casino job rates from 1997 to 2010. While the casino business is always a gamble which hasn’t been doing well in recent years, Trump’s casinos cut far more jobs than every other casino there in that timespan.

Had Donald Trump really kept the interests of other people invested in or running his company, his casino empire might not have been so detrimental to Atlantic City. After all, Trump Castle had its own TV show at one point while Trump Plaza had a famous Japanese gambler losing $10 million there along with other events. Instead, Donald Trump used Atlantic City to privately enrich himself while his casinos floundered in unsustainable debt. With each bankruptcy, he was slowly forced out of the business as a result as he tried to hold onto his casino empire as late as 2009. Eventually management drove him out since he was failing long before Atlantic City itself went down. While Trump’s profitable business failures do indeed demonstrate his business prowess, provided if it’s a long shell game to make himself rich at others’ expense. But even the most successful cons will eventually be found out once the marks realize they’ve put in their fortunes for gains that will never materialize. Donald Trump may repeatedly deny that Atlantic City’s current failures have nothing to do with him since he’s gone. Yet, it was his gamble that blew the city to this degree in the first place. It was his promise that attracted thousands of workers and their families to this place, building developments, shopping malls, and schools to accommodate the new community that was to serve Trump’s personal seaside empire. People were beholden to him, manipulated by him, and played as cogs in his machine that would benefit nobody but himself in the end.

The casinos’ massive debts remained unmanageable as before that subsequent managers couldn’t manage them properly before they shuttered. When Donald Trump’s casinos eventually closed down so did the resort town’s lifeblood. Thousands were left without jobs and the city penniless. Today, Atlantic City remains neglected according to the New Yorker which, “has been attributed to a bloated municipal payroll,” to “the suffocating effect of the casinos, which are boxed off from the city and are designed to keep patrons inside losing money rather than outside spending it,” and to the “the thorny old problem of race or the dreary question of the structure of municipal government statewide.” Trump isn’t responsible for all these problems, but from his racism to profiting off unprofitable companies, he didn’t set a good example. But as one investor noted in The New York Times, Trump lent to companies the gilt sheen his name projected, yet ultimately, “drove these companies into bankruptcy by his mismanagement, the debt and his pillaging” of assets.

To the Honorable United States Representative Conor Lamb of the Pennsylvania 18th District

Dear Congressman Lamb:

As your constituent of the 18th District, I have been satisfied with your efforts to represent the interest of Southwest Pennsylvania in ways your hypocritical sellout predecessor Dr. Tim Murphy ever could. Though you may not be my representative for much longer due to a new congressional map, I wish you the best of luck beating Keith Rothfus. As a liberal who supports gun control and environmental protection, I know you may not share my views on everything. But since I live in a heavily red district, I know I have to make due with whoever Democrat has a fighting chance in the polls and be as inoffensive to the electorate as possible. Unlike Murphy, your support for affordable healthcare and unions seems genuine while you appear very keen on fixing the opioid crisis ravaging our nation. From looking at your priorities list, you seem honestly committed for actions that benefit working Pennsylvanians and their families.

However, while your site states that you have a bias for action, I am not sure if any of your stated goals are feasible at the moment. You may be today’s Senator Jefferson Smith in Washington, but sometimes a fresh face with good ideas can only go so far. You may be willing to work with anyone to protect our people and bring good jobs. But so has any politician willing to work across the aisle for the greater good. Yet, sometimes it does not matter whether you are willing to work with those who do not agree with you. But whether those on the other side are willing to work with you. And from what I have seen with the Obamacare repeal nightmare last year and since, I honestly believe that as long as Donald Trump is in office and Republicans control both houses of Congress that our nation’s problems will not get better and even exacerbate in years to come.

Yet, if there is anything requiring direct action by our leaders in Washington, then it is on the matter of Donald Trump in the White House. I am painfully aware he enjoys a credible following among a significant contingent in the 18th district since so many in my community, neighborhood, and extended family have disturbingly supported him and continue to do so despite all the unconscionable things he’s said and done. I know you make it a priority not to criticize Trump by name in your public life out of reluctance to offend potential constituents and voters. However, as my US Representative who genuinely cares about the issues affecting working Pennsylvanians and their families, I strongly urge you do. Now you do not have to talk about Russia or Stormy Daniels. Nor do you need to address his other numerous scandals and controversies. But I do believe if you really care about and respect your Trump-supporting constituents, you need to at least tell them the cold, hard, truth they do not want to hear: that the man they see as their champion has no interest in solving their problems and is not on their side. Trump knows how to give wins to interest groups he actually cares about, many of these are large corporation who support unpopular measures such as letting health insurance companies discriminate against those with preexisting conditions, doing away with key environmental regulations protecting our access to clean air and water, letting financial advisers deliberately give their clients bad advice on their money, eliminating essential banking regulations that will pave way to another recession someday, getting rid of key labor protections like those against wage theft, and handing a sweetheart tax cut deal boosting corporate profits to record levels.

But more importantly, you need to address the undeniable fact that Donald Trump has never been the friend of ordinary working Americans and never will. Throughout his entire career he has reaped in millions from the remains of failing businesses at the expense of investors, small businesses, and American workers. For decades, according to a 2016 USA Today article, Trump has been subject to at least 60 lawsuits along with hundreds of liens, judgements, and other government filings documenting people accusing him of failing to pay them for their work. These include a Florida dishwasher, a New Jersey glass company, a carpet company, a plumber, painters, 48 waiters, dozens of bartenders and other hourly workers at his resorts and clubs, real estate brokers who sold him his properties, and even several law firms that once represented him in these suits and others. Since 2005, Trump’s companies have also been cited for 24 Fair Labor Standards Act violations for failing to pay overtime or minimum wage according to the US Department of Labor at the time. In addition, USA Today’s review found more than 200 mechanic’s liens on wage theft claims filed by contractors and employees against Trump, his companies, or his properties since the 1980s. These range from a $75,000 claim by a New York heating and air conditioning company to a $1 million claim from a president of a New York City real estate banking firm. For Trump Taj Mahal casino project in Atlantic City, New Jersey Casino Control Commission records state that at least 253 subcontractors weren’t paid in full or on time, if at all. These comprise of workers who installed walls, chandeliers, and plumbing.

Nor do all these wage theft cases date from the 1980s. In May 2016, Trump Miami Resort Management LLC settled with 48 waiters at Trump National Doral Miami golf resort over failing to pay overtime for a 10-day Passover event. The lawsuit contended that some even worked 20-hour shifts. In Trump’s facilities at California and New York, bartenders and wait staff have sued with a range of allegations from not letting workers take breaks to not passing along tips to servers. And in January 2017, several contractors who worked on his D.C. Hotel project with renovating the Old Post Office on wage theft claims.

In sum, these actions paint a picture of Donald Trump’s sprawling organization consistently failing to pay small businesses and individuals before tying them up in court and other negotiations for years. Sometimes Trump’s team financially overpowers and outlasts much smaller opponents by draining their resources that some give up the fight or settle for less, some declare bankruptcy, and some end up out of business entirely. Of course, Trump and his associates have shrugged off these wage theft claims on the excuse that they did a terrible job despite that he often offered to rehire those same contractors again. But the sheer number of companies and others he hasn’t paid either suggest two things. His companies have a poor tract record hiring workers and assessing contractors. Or more likely as alleged in dozens of court cases that Trump’s businesses renege on contracts, refuse to pay, or consistently attempt to change payment terms after the work is done.

Mind-boggling wage theft practices is just one way Donald Trump has screwed his over ordinary Americans. Though he has done well after his multiple Atlantic City casino bankruptcies, his own casino employees have collectively lost millions of dollars in retirement savings after Trump Hotels & Casino Resorts’ value plummeted. According to a class action lawsuit filed against the company following its 2004 bankruptcy, starting in 1996, THCR encouraged its employees to invest their 401(k) savings in company stock. That same year, it sold $1.1 billion in junk bonds to offset Trump’s personal debt and buy more ill-fated casino properties in Atlantic City. Then when the stock price neared its nadir amid bankruptcy, the company forced its workers to sell at a huge loss. More than 400 employees lost more than a combined total of $2 million from their retirement accounts. One worker who put $1,000 into her 1997 retirement account had her savings withered to just $59 by 2004. Trump has never had to declare personal bankruptcy but the company he set up to operate his Atlantic City casinos went through numerous corporate restructurings to reduce its debt load. Since Trump used his company as a means to of transferring his personal debt, issuing rounds of junk bonds to build cash that would erase them. As he prospered, his companies floundered. In other words, he put up little of his own money, shifted personal debts to his casinos while collecting millions of dollars in salary, bonuses, and other payments. Any burden of his failures fell on his investors and others who bet on his business expertise. While Atlantic City casino employees had their retirement savings wiped out, the share price rose from $.57 to $2.04/share, and Trump kept his $2 million salary after THCR emerged from bankruptcy, and took in more than $44 million in compensation over the course of 14 years he served as the company’s chairman.

Despite how many publications like the Washington Post, The New York Times, The Wall Street Journal, USA Today and others have done stellar work on reporting Donald Trump’s history of corrupt business practices which have left a trail of destruction and destruction in its wake, especially in Atlantic City. But I was deeply disappointed by how little the televised media and our leaders in Washington have touched upon his sordid history of corruption and abuse of power which I strongly believe are the core of his character and give an idea of what he really thinks about his white working class base. To him, they are just a means to the end meant to be cast aside once they’re no longer useful to him. I know their racial resentment and anxiety over demographic change was the main reason why so many of them voted for this unrespectable con artist to the presidency. But I think another big reason why he is in the White House today is the fact that many Americans don’t seem to take corporate crimes as seriously as they should since they hurt those with the least resources to defend themselves. Yet, when corporate executives steal from their employees and use their company to leverage debt and free themselves from responsibility for their bad decisions, ordinary working Americans suffer. And that is especially the case when workers are underpaid and in precarious situations that will result in termination if they ever dare complain or challenge their bosses. Trump’s crimes may be egregious but he’s far from the only man in Corporate America who’s screwed over his investors and employees. Wage theft is so endemic in this country that the average American has either been a victim of it or knows someone who has. And even when caught, employers who steal from their workers usually face little or no consequences. Since no Wall Street banker has been convicted for causing the Great Recession, I think addressing Trump’s shady business practices is a conversation is sorely needed on Capitol Hill and in our public squares, at least to make an example out of him.

I know criticizing Donald Trump in front of your constituents won’t be easy for you. I understand you don’t want to alienate potential voters. Yet, if not enough people in Congress don’t address Trump’s abuses of power and corruption as a businessman, including what he did to Atlantic City, then I deeply fear he might be on his way to winning a second term as president. Since the Constitution limits presidents to serving two terms, it’s very possible that Trump won’t need his white working class base anymore to retain power in the White House. I really don’t want to face the prospect of a Trump reelection victory. I have been through that nightmare once in my life resulting me crying myself to sleep afraid of what would happen to me and waking up early when I couldn’t sleep anymore. As a young woman on the autistic spectrum, I was almost inconsolable over the notion of losing my Medicaid coverage when the American Healthcare Act passed the House until the Senate’s ACA repeal plan died on the floor last summer. Since finding a job is difficult for me at the moment, I don’t ever want to go through that again. And since Medicaid is so essential for fighting the opioid crisis in this country which is now a national emergency, neither do you.

I know you are a good man and are nothing like the good for nothing piece of shit in the White House. You have made sacrifices to your country such as your time in the Marines and you support the welfare of those who served. And I do believe you care about ordinary Americans and their families. However, being a true advocate for your constituents shouldn’t just be about making stump speeches on what potential voters might want to hear. Though I know you do your best to fulfill the promises you’ve made. I am aware you don’t want to cause controversy among the public in Southwestern Pennsylvania. And considering you won your seat in a highly-contested special election by 755 votes, I wouldn’t blame you.

However, there comes a time when you must state the inconvenient truth that might make your constituents view you as a pariah in anger, which may put your political future at risk. Yet, if you want to prove that you’re truly on your constituents’ side and that you’re willing to put their interests first, then you must make a compelling, respectful, honest case to prove that Trump is taking them for suckers and has no intention to fix their problems. His history as a corrupt businessman who’s exploited employees and investors to enrich himself perfectly illustrates this. In fact, I have compiled a blog post in The Lone Girl in a Crowd highlighting decades worth of his corruption scandals with links if you’re interested. Yet, however vague and substance-lacking they were, Trump campaigned on some ideas similar to yours and promised similar things which unlike you, he had no intention to deliver. Many voters in the 18th District fell for it hook, line, and sinker. Living in a rural area, I witnessed the worst of it with people in my community flaunting Trump signs everywhere I went, of which I found deeply distressing. But even then, I knew Trump was working his art of the con since I had been conducting research on his past and building a case against him. Nonetheless, if you truly respect Trump voters, then you must tell them the truth, even if it brings you fits of rage from potential voters already sold on his brazen lies and false promises or costs your nascent career. Your constituents in Southwest Pennsylvania deserve nothing less.

Asking you to criticize Donald Trump at the risk of losing your career may not be the wisest of requests. Yet, with the Republican Party so deep in his support for this unrespectable man, I am desperately pleading you to stand up to him on behalf of the people in your district. Yet, while you denounce him as a fraud, assure your voters you will work with him if that’s possible and do everything you can to protect them against his cruel and hostile policies that only benefit him, his allies, and his corporate backers. Trump may value loyalty of his subordinates and supporters, but that doesn’t mean he will return the favor for he’s known to stab people in the back once they cease being useful to him or suddenly become a liability. And though he will provoke controversy to please his base, he will not go out of his way to help his supporters in any meaningful way that doesn’t benefit him in return. Since you’ve been a Marine, I’m sure you can show him what true loyalty means as you represent constituents who may not have voted for you and may not be able to give you anything in return.

The World According to Stock Photography

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While much of my blog has been filled with posts teeming with outrage over what my country has become since President Pussy-Grabber was sworn in to encouraging ICE to separate families at the border and putting children in cages, tent cities, and concentration camps, we should try to maintain our sanity with some fun now and then. No matter how hard it might seem to be. Nonetheless, like Lord Hamsterhair Cheetohead lately, stock photography is everywhere since it consists of photographs that can be licensed for public or commercial use. Whether used in marketing, advertising, or design as long as it’s not illegal or harmful, many graphic designers, web designers, and other professionals frequently take advantage of stock images to fill their design needs. Anyway, most often you’ll find stock photos on professional websites and greeting cards. In fact, it’s a whole industry which started in the 1920s as a way for professional photographers to market outtakes from commercial photo shoots. But many pro photographers today take photos exclusively for stock purposes since a large portfolio can earn a considerable amount of money each month from selling their images through a photography website. Even if the photographer doesn’t add new photos on a regular basis. Still, they have a reputation for being notoriously cheesy and generic with bland happy faces in their diverse workplaces of harmony and in their seemingly perfect but bland families. But there are some stock photos that are too ridiculous to explain or don’t seem to have any applicable purpose whatsoever. So for your reading pleasure, I give you an assortment of crazy stock photos. By the way, some of these might not be safe for work.

  1. “Do you know how to work this thing?”

I’m sure these guys have no idea to function as a news crew. Or they’re just goofing off.

2. Anyone can be a princess.

However, this guy seems to be really pushing the envelope. Still, he rocks the red sash.

3. So what do they call if you cross a dog and a frog?

Yes, I know it’s photoshopped. But you have to wonder about the mad scientist who’d create this freak of nature.

4. It’s been said his brains are made of noodles.

Granted, I love pasta and noodles. But this isn’t the kind candlelight dinner I’d want to participate in.

5. Not all snails travel at a snail’s pace.

This one practically gallops. Oh, wait, why does this one have legs?

6. Apparently, The Shape of Water didn’t get a stellar reception on a small budget.

This is why using CGI is important. Because simply kissing a fish is just ridiculous.

7. There are centaurs and there are these.

Somehow a horse head with a human lower body doesn’t look so good. And I think the centaur would agree with me.

8. Some chick just got puffed.

Guess someone decided to get a large blue fro. The other can’t help but stare.

9. Apparently, Swamp Thing decided to leave the swamp and get a regular job.

Though he’s got a tendency to track in leaves now and then. Here you see him fetching a file.

10. When you’ve been in a car wreck but the boss insists you show up for work on Monday.

Yeah, you can’t really do your office job after you’ve been injured in a number of places. But I guess his workplace doesn’t have paid sick leave.

11. When you’re robbing the place and want to show some color.

From Outbound: “A jaunty cravat makes any robbery a special occasion.” And here he’s stealing a hard drive.

12. Bertha always saw herself as a queen.

She’s even wearing a pink dress and a tiara. But she thinks she looks fabulous.

13. This astronaut has a flight to catch in space.

I see he’s got his luggage with him since he can’t do his laundry at the ISS. Still, why is he wearing a space suit?

14. It’s nice that Jerry has decided to make dinner tonight.

Heard his secret sauce is from an old family recipe. It’s said to include a tablespoon of arsenic, a teaspoon of strychnine, and just a pinch of cyanide.

15. This dog breed is known as a Jacques Rousseau Terriere.

He’s easy to distinguish from the Jack Russell with his curly mustache, his taste in French bread and wine, and his penchant for berets, paintings, and arthouse films. And he doesn’t care for pretentious cheap dog food either.

16. Apparently, the mime has just managed to escape from the jaws of death.

And by “jaws” I mean large chomping mouth of teeth you’d find at a dentist’s office. Doesn’t seem thrilling does it?

17. Seems like this chimp is quite the chatterbox.

“And then I told him, ‘Dude, chill down. It’s not worth flinging your poo over.'”

18. Didn’t know you could play frisbee with your pet turtle.

Apparently, they’re really great at playing fetch for some reason. Don’t really see why since they move like, well, turtles.

19. Wonder how many pictures did they take of him?

Even this kid is baffled. And he sat for the other pictures.

20. Her face is a little cracked.

Let’s hope that her delicate eggshell face cracks don’t lead anything to spill over. Because that would really make a mess.

21. Wearing a watermelon helmet changes everything.

This is especially when you’re wearing goggles and stick your tongue out. Wonder if he’s high on life.

22. And now, a stop-motion version of Romeo and Juliet by director Wes Anderson.

Yes, it consists of two people wearing animal masks and dressed in hipster clothing. Don’t think this will go well for Wes. Unless he casts Owen Wilson as Friar Lawrence.

23. With romantic dinners, there are just some foods you shouldn’t make out with.

Sharing a kiss during a romantic dinner a la Lady and the Tramp is romantic. Sharing a kiss during a chicken dinner is just plain disgusting.

24. Crazy Larry will clean your car and keep it nice and polished.

But don’t you leave anything in it. Or else he’ll take it and pawn it off for some extra cash to support his meth habit. He’s also had an infamous reputation with the ladies and a record of sexual misconduct.

25. During desert nights, beware of the fierce and dreaded cattysnake.

Known to hang around pumpkin patches for some reason. But while they may be cuddly, their bites are deadly.

26. “Take that, you pathetic puppy!”

I kind of feel bad for the dog here. I mean how is anyone going to take him seriously after getting the crap beat out of him by a guy in a banana costume?

27. When your baking has caused your stove to burst into flames but you don’t have a care in the world.

The smoke detector is on the fritz like crazy. But instead of getting the fire extinguisher or calling the fire department, he’s watching the stove burn with a glass of wine.

28. Want to eat a slice of bread with nails?

Of course, you want to eat that. Because you’d find swallowing all those nails as painful as hell.

29. You’re never too old to have fun.

Since when do they have rocking horses in adult size? And since when do old men enjoy going on horsey rides?

30. When you just have to get that last selfie while your friend is about to be burned for a human sacrifice.

“I know you’ll be burned to death, Kyle. But for now, let’s remember the good times before I get the hell out of here.”

31. “Greg, I don’t think you get the meaning of ‘Casual Friday.'”

I mean he’s showed up with messy hair and no shirt. And I’m not sure if he’s even wearing pants or shoes.

32. “Ahhh, grass!”

Yes, she enjoys lying in the grass. Then again, she could be murdered in the middle of nowhere.

33. “Wanna see my pineapple dance?”

Funny, how that one pineapple is conveniently placed in her crotch region. Not to mention, she’s wearing a winter hat.

34. When you’re in a tender embrace with your significant other but are considering other options.

Indeed, they’re hugging each other while checking their phones. Guess that’s modern dating nowadays.

35. “Help! I’m trapped in a jar with exclamation points!”

And I guess she’s trying to figure her way out of there. Though she might be running out of ideas.

36. “Answer the question or I’ll shoot!”

Not exactly the best way to deal with the big questions. Shoot first never works well.

37. “It’s a bird, it’s a plane, it’s Business Man!”

Flying in the air faster than a speeding printer and more powerful than a server filled with memoranda. Flying through the sea of finance and willing to save the day from a calamitous paper jam.

38. Presented The Bachelor: Equine Edition.

Watch a bunch of mares compete for the heart of this dashing stallion at this lavish stable. Or as it’s better known: Study Duty.

39. Since she was a little girl, this demonic goblin had a dream to dance.

Here she does her Black Swan dance for the Transylvania Ballet Theater. Graceful isn’t she? Wonder if she’d do well with Gollum.

40. Ever heard of Wendy of Wendy’s? Turns out she has a brother named Wendell.

He’s a certified public accountant at some firm in Cedar Rapids. They don’t talk about him much.

41. “If we should go down, we’ll die together.”

For God’s sake, the two have guns pointed at each other? You can guess they’re going to blow each other’s brains out eventually.

42. A well-dressed mouse should always stand for a portrait.

Though why she has human hands, I have no idea. Though she strikes a regal pose.

43. If you can’t get Bill Nye the Science Guy, here’s Lab Guy Larry.

He’s kind of a poor man’s Bill Nye. Except way more careless and prone to bites from skeletons.

44. This nun seeks prayer and meditation under the sea.

Don’t know how she can be underwater without scuba gear. Not to mention, look serene in that heavy habit.

45. This pampered pooch always has to shop till she drops.

Carrie Pawpaws just has to have those designer dog collars. Not to mention, those fine rawhide bones and squeaky toys.

46. After a career terrorizing Gotham City, the Joker decided to work for Wayne Enterprises as an accountant.

Now whenever he wants to terrorize Gotham, he just embezzles money and commits insider trading. Because white-collar criminals seldom get punished.

47. Open wide for this puffer fish.

Uh, those fish are actually poisonous. So trying to eat one like that is a very easy way to die. But this woman doesn’t get the memo.

48. This boxer has become the reigning champion of his sister’s bedroom.

Or he might just have a girly taste in decorating. You never know. But he doesn’t seem bothered by it either way.

49. Some days you just need to relax with some Post-It Notes.

Notice she has nothing written on them. But she doesn’t give a damn since she’s in her happy place.

50. When you find out that your longtime crush is in a relationship on social media.

Indeed, she feels dead inside. But she can’t really look away. I know she’s getting carried away. Yet, get her time.

51. “Thank God, I saved the crucial paperwork!”

Still, when you’re out in the water, saving the paperwork is the least of your worries. For God’s sake, you’re better off trying to find dry land.

52. “Now, class, when I ring the bell, settle down and I’ll give you candy.”

Not sure if employing Pavlov’s techniques will help. This especially goes if they’re in high school.

53. “Sit down, class, let’s get busy on those physics problems.”

If I had a teacher like that in school, I’d suspect I was in a porno. And that one of my classmates was about to fall victim to statutory rape. Then again, it’s best not to judge by appearances. But come on, would any school let a teacher dress like that?

54. “Sit down, kids, it’s time to learn.”

I guess you won’t have a good time in this guy’s class. Behave or he’ll introduce you to his friend, Mr. Longstick.

55. In the future, people will spend hours marveling and contemplating on corn.

Now I know where that family got their idea for their crazy futuristic corn people Christmas card. Didn’t know it was from a stock photo that made no sense.

56. “All right, don’t move! This is a raid!”

Man, armed robbers and murderers really do start young these days. Also, don’t mind the hand above. My guess is that person is dead.

57. You’ll always have a good time in a string quartet.

Yeah, I don’t think it’s like Sex and the City with stringed instruments and old timey costumes. Yeah, I know it’s really crazy.

58. When it rains, she barely touches the chair.

This stock photo was brought to you by the power and imagination that comes with brown acid. Because someone must’ve been tripping balls to come up with this photo idea.

59. “Paint me like one of your French girls.”

Maybe he should take off his clothes first. Then again, it would still be kind of silly. Except if he had rock hard abs. But I can’t imagine that.

60. For some reason those trapped in jars will either panic or try to get out.

The businessman is especially panicky. The construction worker’s just scaling the walls.

61. I’m positive she’s going out with a bang.

Because that’s what happens when you light a dynamite stick with a cigarette. It’s sure to be explosive.

62. “Oh, shit, I’ve burned the chicken!”

Yet, she’s not wearing oven mitts. While smoke is coming out of the oven.

63. Walk on the moon? That’s so 1969.

So this astronaut has decided to bike on the moon. Not sure if the tires will retain air in the vacuum of space.

64. This Christmas Santa is ditching his sleigh and reindeer for a magic jet.

Because he needs a more efficient way to deliver all those presents on one night. Unfortunately, Rudolph and the other reindeer may not see it that way.

65. Is there a fire? Call the fire lizard.

Well, maybe if the fire is confined to a small tree. Comes complete with his red hat and fire extinguisher.

66. Don’t have a defibrillator? A pair of irons will do.

Still, he seems very excited to use them on his patient. Kind has crazy eyes and a weird smile. This doesn’t look good.

67. Introducing Captain Waggles of the U.S.S. Doggypaddle.

Here he is with a lifejacket and fingers up. Wait a minute, dogs don’t have fingers.

68. It’s said those who live in glass houses shouldn’t throw stones.

And that people who work in glass offices with glass dividers shouldn’t have sex on the job. Let’s hope neither are married with families.

69. When you’re a TV, it’s always dinner for one.

And I see she’s looking at a TV screen. Kind of twisted if you ask me.

70. Didn’t know that farts can leave a cloud of gas.

And it’s drifting to the flowers. Well, at least we aren’t around when the cheese was cut.

71. “Hello, darkness, my old friend….”

Yet, he lies in his bed on a sheet cake which will get his face covered in icing. But he’s laying awake in existential dread and loneliness.

72. When you’re in the buff and you need to feed your cat.

Notice how the fridge door is conveniently placed over him. Just so he can give his cat some meat.

73. “Okay, let’s put our helmets together.”

Yet, they’re clad in high heels and dresses. Not exactly what you’d wear on a motorcycle.

74. Chipmunks like to get it on at the copier.

Don’t know about you. But I’ve got a feeling those at the office will be seeing some chipmunk porn sometime in the near future.

75. Today’s Special: Head.

And she’s in a styrofoam tray covered in plastic wrap. Just like meat at the grocery store.

76. Seems like her lower body isn’t attached to the rest of her.

Yet, she seems to awe at that after the magician sawed her in half. Unfortunately, he couldn’t put her back together.

77. “Excuse me, you dirty whore, but that’s my boyfriend you’re fucking.”

The guy’s like, “Honey, you’re early. Nancy and I were just having a discussion on….adoptions.”

78. Sometimes you can type what you want from the screen.

And the cat’s just staring dumbfounded at the screen. Like it must’ve accidentally drank a milk dish with acid.

79. “Wanna share a cold one with me on the road?”

This guy’s getting so busted if police pull him over. Because drunk driving is dangerous and has killed people.

80. If you want to keep your kids safe on the internet.

My mistake. If you see your kid in night-vision goggles and a tinfoil hat, you best send your kid to a therapist. Otherwise, he might grow up into a full-blown conspiracy theorist like Alex Jones.

81. This guy really wants to see what’s in this laptop.

On the bright side, at least he can’t steal your online data. Only commit deliberate physical sabotage.

82. Behind a dumpster in an alley, an astronaut seeks a horse genie.

The genie grants the spaceman 3 wishes in exchange for a lifetime supply of hay and sugar cubes. Also it shits gold.

83. Someone’s in deep denial on their baldness.

Since he’s using a comb that he doesn’t need. Because he already shaves his head.

84. “All right, Eileen, let’s settle this with an umbrella fight on the roof.”

However, they’re attempting a showdown during a thunderstorm. Not the smartest thing to do, especially if lightning strikes one of them.

85. Here’s the new face of Wall Street Finance with an office at Suite 666.

Still, ladies, I’d stay away from that guy if I were you. Since his looks could kill while his demonic eyes show he’s up to no good.

86. “Jason, I didn’t know your dick was that huge!”

Please don’t tell me that guys look at each other’s dicks in the men’s room. Because I don’t know what to make of this photo.

87. You’d almost swear he takes after his father.

The resemblance is so uncanny. Maybe because they photoshopped the dad’s face to the son.

88. This takes getting canned to a whole new level.

Having to work in a trash can must really suck. But this guy’s taking it in stride.

89. Harry Potter and the Philosopher’s Malware.

Apparently, wizards can now use and repair computers. While Harry’s not hunting dark wizards, he’s working part-time as an IT guy at the Ministry of Magic.

90. When you have to return to work from a business summit at a nudist colony.

Yeah, that has to be embarrassing. And he only has a briefcase to cover his genitals. Too bad everyone else will see his butt.

91. “Come on, y’all! Let’s take the tennis court back from the jocks!”

With a tennis racket in one and an AR-15 in the other, Bridget leads the punk tennis revolution. It was a glorious moment for goths, punks, and emos everywhere.

92. At the office some men may deflate and lose their spines.

And here is a 100% accurate depiction of a Republican Congressman in Trump’s America. If you’re represented by one, it’s time to vote them out of office in November.

93. Ever have to be deep in thought against a toilet in the middle of the desert?

From Bored Panda: “This is the state of mind one enters at 3am after having crawled home from that awesome night out, spent the last half hour hugging the bowl, then suddenly you become the universe, the whole universe and everything in it.”

94. “Help! I’ve fallen and I can’t get up!”

Where’s Life Alert where you need it? Also, Grandma’s not coming to Christmas this year.

95. “Must sniff donut sugar..”

Seems like someone has a problem with white powder donuts. Someone better give her an intervention.

96. Old people enjoy their retirement with a gun over a rabbit that’s cared for life.

It’s only a matter of time until they get the gun back together and shoot the rabbit dead. So run, bunny, run! Or it’s kill the rabbit and rabbit stew.

97. The Lord taketh, the Lord poseth for selfie.

I can’t even list all the things wrong with this. Also, can I see a selfie of Jesus with his disciples at the Last Supper?

98. Now you can surf the net while riding the waves.

Still, I don’t think he’ll fare so well when he has to ride the big wave. But at least he’s sent his 3rd quarter expense reports.

99. “Just one more picture before we shut the trunk for our escape.”

Luckily for Marvin, his kidnappers were dumb enough to post a photo of a him in a trunk and brag about abducting him on social media. So police will find him and bring him home in no time.

100. When you’re baking cookies while trying to survive the fallout from the apocalypse.

Though the cookies might be a bit radioactive. But sometimes that’s a risk you must be willing to take in the bunker.

The Strange Matter of Stock Buybacks

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Within the last 40 years as economic power shifted from workers to owners, corporate profits take of the US economy has more than doubled. Yet, despite corporate profits at an all-time high, job growth remains anemic, wages are flat, and the country can’t even afford its basic needs. A $3.6 trillion budget shortfall has left many roads, bridges, dams, and other public infrastructure in disrepair. Federal spending on economically crucial research has plummeted by 40%. Public college tuition has more than doubled since the 1980s, burying recent graduates under $1.2 trillion in student debt. Not to mention, many public schools along with police and fire departments are dangerously underfunded. So where did all the money go? After all, public companies have nearly $2 trillion in cash just sitting on their balance sheets. So Corporate America has the resources to deploy a lot of money, invest in new technologies to draw growth, give workers a much-needed raise across the board, hire and train employees, build new facilities, pay off loans, pay shareholders, and pay taxes to the government.

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Since the 1980s, stock buybacks have grown in popularity on Wall Street as this graph shows. As Sen. Elizabeth Warren told The Boston Globe, “stock buybacks create a sugar high for the corporations. It boosts prices in the short run, but the real way to boost the value of a corporation is to invest in the future, and they are not doing that.”

But no. Instead, companies keep spending more and more money on stock buybacks. Once illegal and considered insider trading until 1982, stock buybacks have become increasingly popular especially since the 2008 recession. Today, these buybacks have become one of the biggest trends in the post-financial-crisis stock market and the largest source of net demand since 2009. Since 2010, 1,900 companies have spent money on buybacks and dividends with a combined return of capital to shareholders for them equaling 113% of capital spending. So much that a growing number of companies are borrowing money to fund the buybacks. Thanks to Donald Trump’s massive corporate tax cuts, American companies have lavished Wall Street with $171 billion of stock buyback announcements this year, a record high. All in all, Corporate America has pledged 30 times more buying back its own stock than investing in its workforces. Thus, the money these companies make through their financial manipulations drives record-level profits.

Proponents say they reward these long-term shareholders by effectively increasing their company ownership and help boost a stock’s value by raising its earnings per share. When there’s no other compelling use for a company’s cash, this is a better alternative than risky spending or other big investments. But its critics think that buybacks only make things look better than they seem. Indeed, the EPS rise but not because earnings are growing. In other words, they just exist to make shareholders feel better but nothing really changes. Even some of their fiercest proponents claim they’re overused. And in recent years, evidence shows that buybacks haven’t helped boost stock values at all. Other critics argue that buybacks result in companies acting more like banks that hold assets and earn interests and less like a business making money off selling goods and services. Or invest their profits in their workforce and other productive ventures. According to the Academic-Industry Network’s William Lazonick, “Buybacks are not beneficial or necessary to household savers with diversified investments. The only ones who benefit are those who dump shares and are strictly in the business of timing.”

What are stock buybacks?

Also known as a “share repurchase,” is a company’s buying back its shares from the marketplace. Think of it as a company investing it itself or using its cash to buy its own shares. The concept is simple: because a company can’t be its own shareholder, it absorbs repurchased shares and reduces the number of outstanding shares on the market. When this happens, each investor’s relative ownership stake increases on the company’s earnings.

How are stock buybacks carried out?

They’re made in 2 ways:

1. Tender Offer– company may present shareholders with a portion of all their shares within a certain time frame. This will stipulate both the share number the company wants to repurchase and the price range they’re willing to pay (almost always at a premium to a market price). When investors take up the offer, they’ll state how many shares they want to tender along with the price they’re willing to accept. Once the company has received all the offers, it’ll find the right mix to buy the shares at the lowest cost. Tender offers can be a way for executives with substantial ownership stakes and care about a company’s long-term competitiveness to take advantage of the low stock price and concentrate ownership in their own hands. This can free them from Wall Street’s pressure to maximize short-term profits and allow them to invest in the business. But they should only be made when the share price is below the company’s intrinsic value of its productive capabilities and the company is profitable enough to repurchase the shares without impeding its real investment plans.

2. Open Market– company buys shares on the open market just like an individual investor would at market price. It’s important to know that when a company announces a buyback, the market usually perceives it as a positive thing, causing the stock price to shoot up. 95% of buybacks are these. Yet, they often come at the expense of investment in productive capabilities and aren’t good for long-term shareholders. When I discuss stock buybacks, I’m usually referring to the open market variety which used to be illegal and considered insider trading until 1982.

3. Dutch Auction– an alternative form of tender offer which specifies a price range within which the shares will be bought. Shareholders are invited to tender their stock if they wish at any price within it. The firm then compiles the responses, creating a demand curve for the stock. The purchase price is the lowest price allowing the firm to buy shares sought in the offer. And the firm pays that price to all investors who tendered at or below that price. If the share number exceeds the number sought, the company buys less than all shares at or below the purchase price on a pro rata basis to all tendering at these rates. If too few shares are tendered, the firm either cancels the offer or buys back all the tendered shares at the maximum price.

Why would a company want to use buybacks?

A firm’s management may tell you that a buyback is the best use of capital at a time since their goal is to maximize returns for shareholders. Buybacks generally increase shareholder value, at least on the surface. The prototypical line in a buyback press release is “we don’t see any better investment than in ourselves.” This can sometimes be the case but it’s not always true. Nonetheless, there are still sound motives driving companies to buy back shares. Management might think the market has discounted its share price too deeply due to weaker-than-expected-earning results, an accounting scandal, or a poor overall economic climate. Thus, when a company spends millions of dollars buying up its own shares, it means management believes the market has gone too far discounting its shares. More importantly, share buybacks can be a fairly low-risk approach to use extra cash since reinvesting money into R&D or a new product can be very risky. If these hard-earned investments don’t pay off, then that hard-earned cash goes down the drain. Using cash to pay for acquisitions can also be perilous. Mergers hardly live up to their expectations.

Another reason is that companies don’t want to just sit on money, much for the same reason that investors don’t like holding piles of cash either: inflation erodes cash value, so putting it to work makes sense. During periods of economic growth, it’s better to allocate profits to capital (like a factory) or labor as an investment to the firm’s future. But it’s also risky because the economy could worsen. Though I’m not sure if I actually agree with this since I think stagnant wages are part of why the economy isn’t getting any better. So in periods of economic uncertainty, companies choose to give the cash to their shareholders, which should’ve went to their workers. As the head of S&P Investment Services Mike Thompson told Business Insider in 2016, “In an environment like this return cash to shareholders keeps them pleased with the short-term gains while not committing to large investments that could hurt performance.”

Increased Shareholder Value– there are many ways to value a profitable company but the most common measurements is Earnings Per Share (EPS). If earnings are flat but the number of outstanding shares decreases.

Increased Float– as the number of outstanding shares decreases, the remaining shares represent the float’s largest percentage. Increased demand and less supply means a potentially higher stock price.

Excess Cash– buybacks are usually financed with a company’s excess cash, demonstrating that it doesn’t have a cash flow problem. More importantly, it signals that executives feel that cash re-invested will get a better return than alternative investments.

Improving Financial Ratios– or improving metrics upon which the market seems heavily focused on, which is questionable. If reducing shares isn’t done to create more value for shareholders but rather make financial ratios look better, the management likely has a problem. However, if a company’s motive for initiating a buyback program is sound, its financial ratio improvement in the process might be the result of a good corporate decision. For one, share buybacks reduce outstanding shares. Once a company buys these, it often cancels them or keeps them as treasury shares. They also reduce assets on the balance sheet and increase return on assets and equity. They also improve a company’s price-earnings ratio as the market often thinks lower is better.

Dilution– another reason for a buyback may be a company’s wish to reduce the dilution often caused by generous employee stock option plans. Bull markets and strong economies often create a very competitive labor market. So companies have to compete to retain personnel and ESOPs which comprise of many compensation packages. Stock options increase the share number when exercised, which weakens a company’s financial disposition.

Price Support– companies with buyback programs in place use market weakness to buy back shares more aggressively during market pullbacks. This reflects confidence that a company has and alerts investors that it believes the stock is cheap. Often a company will buy back its stock after taking a hit, which is an overt action to take advantage of discount prices on its shares. This lends support to the stock’s price and ultimately provides security for long-term investors for rough times.

Higher Stock Prices– an increased in EPS will often alert investors that a stock is undervalued or has the potential for increasing in value. The most common result is an increase in demand and an upward movement in the stock’s price.

Tax Benefit– while a buyback is similar to a dividend in many ways, it has a major advantage over dividends of a lower capital gains tax rate. Whereas dividends are taxed at ordinary income tax rates.

Does that mean stock buybacks are good?

Not necessarily. Sometimes buybacks can be a great thing if a stock truly is undervalued and represents the best possible investment for a company. But a company must meet certain specific conditions:

1. The stock should be trading at price to economic book value below 1, meaning that the company is buying back shares for cents on the dollar.

2. The company’s balance sheet and free cash flow should be strong enough to support a buyback without jeopardizing future liquidity or investment opportunities.

3. The company should have more cash than it does profitable investment opportunities.

One company meeting all three criteria is Oracle who bought back $8.1 billion in stock (5% of its market cap), reducing outstanding shares by 120 million. Its shares currently trade at a PEBV of 0.9, meaning it’s buying back shares at a 10% discount rate to their zero-growth value. With $50 billion in excess cash on its balance sheet and $9 billion in annual free cash flow, Oracle has more than enough cash on hand to support its buyback program, and more than it could reasonably hope to profitably invest in the near term as of 2016. Oracle’s buybacks don’t just serve their shareholders’ interests, they also benefit the overall economy. When a company with excess cash and few investment opportunities buys back its stock, it puts that cash back in the marketplace for individual investors to distribute to companies needing capital. In buying back billions of dollars in its own stock, Oracle cheaply retired its shares without comprising its ability to invest in future growth.

While there are buybacks that make sense from a capital allocation standpoint and serve the investors’ best interests like in Oracle’s case, these are normally the exception rather than the rule. In fact most companies buying back stock aren’t in Oracle’s situation. If a company merely uses buybacks to prop up ratios, provide short-term relief to an ailing stock price, or get out from under excess dilution, watch out. Oftentimes, they can be a downright bad idea and can hurt shareholders. This can happen when buybacks are done in the following situations:

1. When Shares Are Overvalued– companies should only pursue buybacks when their shares are undervalued. A company that buys overvalued stock destroys shareholder value and would be better off paying that cash out as a dividend, so that investors can more effectively invest it. As Warren Buffett said to Berkshire Hathaway shareholders in 1999, “Buying dollar bills for $1.10 is not good business for those who stick around.”

2. To Boost Earnings Per Share– since buybacks can boost EPS, a company stock buyback in the market reduces outstanding share count. This means earnings are distributed among fewer shares, raising EPS. Thus, many investors applaud share buybacks since they see increasing EPS as a surefire approach to raising share value. However, contrary to popular belief, increasing EPS doesn’t raise fundamental value. Companies must spend cash to buy these shares. In turn, investors must adjust their valuations to reflect reductions in both cash and shares. Sooner or later this cancels out any EPS impact. In other words, lowering cash earnings divided between fewer shares won’t produce any net change to EPS. Of course, a major buyback announcement generates plenty of excitement since a prospect of even short-term EPS can give share prices a pop-up. But unless the buyback is wise, the only gains go to those investors selling their shares on the news. There’s little if any benefit for long-term shareholders.

3. To Benefit Executives– many executives get the bulk of their compensations from stock options. As a result, buybacks can serve a goal: while stock options are exercised, buyback programs absorb the excess stock and offset dilution of existing share values and any potential reduction in EPS. By mopping up extra stock and keeping EPS, buybacks are a convenient way for executives to maximize their own wealth as well as maintain share value and options. Some executives may even be tempted to pursue share buybacks to boost share buybacks to boost the share price in the short-term and sell their shares. In addition, big bonuses that CEOs receive are often linked to share price gains and increased EPS. Thus, they have an incentive to pursue buybacks even when there are many ways to spend the cash or when their shares are overvalued.

4. Buybacks Using Borrowed Money– the temptation using debt to finance EPS can be hard to resist for executives. The company might believe that the cash flow it uses to pay off the debt will keep growing, bringing shareholder funds back into line with borrowings in due course. If they’re right, they’ll look smart. If they’re wrong, investors will get hurt. Moreover, managers assume that their companies’ shares are undervalued regardless of the price. When done with borrowing, share buybacks can hurt credit ratings, since they drain cash reserves that can serve as a cushion when times get tough. One of the reasons given for taking on increased debt to fund a share buyback is that it’s more efficient since the debt’s interest is tax deductible. However, all debts must be repaid at some time. Because what gets a company into financial difficulties isn’t lack of profits but lack of cash. With debt, buybacks become more complicated which doubles the risk since a firm’s leverage levels may cause financial distress in the future and harm shareholders in the long-term.

5. To Fend Off an Aquirer– in some cases, a leveraged buyback can be used as a means to fend off a hostile bidder. The company takes on significant additional to repurchases stocks through a buyback program. Such leveraged buybacks can be successful in thwarting hostile bids by both raising the share value and adding a great deal of unwanted debt to the company’s balance sheet.

6. There Is Nowhere Else to Put the Money– it’s very hard to imagine a scenario where buybacks are a good idea, except when a company feels like its share price is far too low. But if the company’s right about undervalued shares, they’ll probably recover anyway. Thus, companies buying back shares are, in effect, admitting that they can’t invest their spare cash flow effectively. Even the most generous buyback program is worth little for shareholder if it’s done in the midst of poor financial performance, a difficult business environment, or a decline in the company’s profitability. By giving EPS a temporary lift, share buybacks can soften the blow. But they can’t reverse things when a company is in trouble.

Why do companies actually use buybacks?

In theory, corporations should have a distinct advantage over the rest of the market when buying back shares. After all, executives know their industry, the company’s challenges, and their strategic plans better than anyone else. This should enable them to buy their stock when it’s cheap and not when it’s overvalued.

But most companies carry out buybacks for reasons that have nothing to do with maximizing shareholder value. Pressure to hit short-term earnings targets and executive compensation plans often incentivize the wrong metrics which often push companies to buy back stock when it’s most expensive and the money could be better used elsewhere. This is what the Harvard Business Review calls “The Overvaluation Trap.” Data shows that companies buy back more stock during booms and sell them during market crashes. In this way, less like the knowledgeable executives and more like panicky and underperforming investors.

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This 2016 Forbes graph of GE stock buybacks and its valuation. You can see that instead taking the traditional investor advice of “buy low, sell high,” they actually have bought high and sold low. As a result, their stock has lost value.

A graph from Forbes shows this value-destroying behavior for General Electric by comparing between the amount of money spent buying back shares and the price to economic book value, a measure of growth expectations embedded in the stock price. As this graph illustrates, GE bought back an incredible $12.3 billion worth of stock in 2007, just before the market crashed. At the start of the bull market in 2009, the company sold off $600 million worth of its own stock. Throughout the last decade, you can see a high correlation between how expensive GE’s stock is versus current cash flows and how much stock the company buys back. Overall, in the last decade, GE bought back $44 billion of its own shares (17% of its market cap). Yet, its stock fell by 15% over that same time. By inefficiently utilizing valuable capital to buy back stock at inflated prices, GE destroyed value for long-term shareholders. When a company’s equity is overvalued, its executives have to scramble to justify that expensive price. One way to do that is by artificially boosting the EPS through share buybacks. As this Forbes graph above shows, GE does this effectively as the company managed to hit or beat EPS in 15 out of past 16 quarters.

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Business Insider’s graph on IBM also shows how buybacks might make the EPS look good as the number of outstanding shares drops. Despite that the net income has fallen, which isn’t a good sign in most businesses.

Another case is IBM who spent $4.6 billion in 2015 and $125 billion in the decade prior as of 2016. According to a Business Insider graph, from 2010 to 2015, its total share count was down by about a fifth while earnings per share rose 15%. Yet, in that same period, IBM’s actual income went down 11% as sales fell, too. As a result, IBM has lost about $50 billion in market value since 2013, or about 30%.

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Since executive pay is often tied to stock compensation, top Wall Street execs have often been pressured to do buybacks to increase their coffers. Even if it makes no strategic financial sense. It’s part of a phenomenon called greed. This is a Bloomberg graph of IBM’s CEO compensation.

Also, many companies have executive compensation packages incentivizing excessive share buybacks, either directly or indirectly. In GE’s case, a percentage of its bonuses depends on the company returning a certain amount of cash to shareholders. In 2014, executives had to make sure combined dividends and buybacks hit at least $10 billion to get their full bonus, even if that decision made no strategic sense. But it makes perfect sense in regards to greed. Because when share prices go up, CEOs reap a bonanza so the value of their pay also rises in what amounts to a retroactive and off the books pay increase on top of their already humongous compensation packages. As a result, the very people we rely on to make investments in the productive capabilities that will increase our shared prosperity are squandering most of their companies’ profits for their own prosperity. The Academic-Industry Network’s William Lazonick told The American Prospect, “All of those trillions of dollars flowing out of companies are being used to build the war chests of hedge-fund activists for further buybacks or [giving them more] money to play around with on derivatives. When you connect the dots, it’s part of bigger process. This is really a long-run problem that helps to explain concentration of income at top because it’s getting made off the stock market.

Other companies incentivize share buybacks through emphasizing metrics that can be easily manipulated and have little impact on shareholder value. For example, Cisco executives are judge in part on their ability to grow adjusting operating income, adjusted EPS, and operating cash flow. That term “adjusted” is crucial since Cisco uses metrics for judging executive performance exclude share-based compensation. Meaning that executives can pay employees (and themselves) with stock instead of cash, buy back shares to offset dilution, and increase these adjusted metrics to improve real operating performance. In 2015, Cisco bought back 155 million shares. But after effects of employee stock compensation, it only reduced the total outstanding shares by 38 million. So all those buybacks are just trickery executives use to boost their own bonuses.

And it’s not just GE, IBM, and Cisco. According to FactSet data by Andrew Birstingal, the performance of companies engaging in buybacks has been disappointing. “In the past year, companies repurchasing shares saw an excess weighted cumulative return of -1.9% relative to the benchmark, while companies not repurchasing shares saw a return of 9.8% relative to the benchmark,” he said in 2016. On a three-year horizon, those companies buying back shares ended up with a -2.9% return against 11.5% gain for those not buying back stock. A study found that companies completing buybacks outperformed their benchmark before 2001. Yet, those who completed buybacks between 2002 and 2006 didn’t generate better returns since that time than those who didn’t. Based on this research, buybacks aren’t helping share prices in either short- or long-term.

However, the cost of buybacks doesn’t just come from overpriced stock losses, but also from missed opportunities to invest growth and innovation. Over the past decade, AT&T bought back $50 billion in stock which could’ve been used to improve its wireless network quality and catch up with Verizon which doesn’t buy back stock. All those buybacks didn’t keep AT&T from underperforming versus Verizon and the broader market. We tend to think of buybacks as a sign of success proving a company has plenty of cash to throw around. In reality, they amount to admission of failure for a company buying back stock signals the market that it lacks profitable investment opportunities.

So what’s the deal with stock buybacks and the economy?

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Stock buybacks don’t give any incentives for companies to use profits in improving their enterprise and raising workers’ wages. The frequency of buybacks have led to increased economic inequality and more money going to the 1%.

Before the Security and Exchange Commission loosened regulations that gave companies an ability to repurchase stock without facing charges of stock manipulation and a shift toward stock-based compensation toward top executives, corporate money flowed through the broader economy in the form of higher wages or increased investments in plants and equipment. But today, these stock buybacks drain millions of dollars of windfall profits out of the real economy and into a paper-asset bubble. This inflates share prices while producing nothing of tangible value. Corporate managers have always been pressured to grow earnings per share, but where once the only option was the hard work of actually growing earnings by selling better products and services, they can now simply manipulate their EPS by reducing the number of outstanding shares. As a result, it has become a gigantic game of “keep away” with CEOs and shareholders tossing a $700 billion ball back and forth over American workers, whose wages as a share of GDP have fallen in almost exact proportion to profits’ raise. Since buybacks give firms no incentives to share their profits with the workers who truly invest in these companies, pouring their lives into them each day for pay increases and stable opportunities. Or the taxpayers who have an interest in whether a corporation that uses government funding can turn a profit that allow it to pay taxes. As the Academic-Industry Network’s William Lazonick told The American Prospect, “The issue is what are they not doing when they do stock buybacks. What they’re not doing is keeping people employed longer, paying them more, and giving them more benefits. There’s a direct connection between the decline of those norms and the rise of buybacks and the legitimized ideology of ‘Shareholder First.’” Over the last decade, 94% of company profits have gone to shareholders through buybacks and dividends.

This practice isn’t just unfair to Americans, but also to individual harmful to both companies and the American economy. A 40-year obsession with “shareholder value maximization” stock buybacks and excessive dividends have reduced business investment and boosted inequality. Now almost all firms carry out investment through retained earnings. Thus, diverting cash flow to stock buybacks has inevitably resulted in lower rates of business investment. And since the 1980s, corporations have bought back more equity than they’ve issued, representing a net negative equity flow. In other words, shareholders aren’t providing capital to the corporate sector like they should. They’re extracting it. Meanwhile the shift to stock-based compensation helped drive the 1%’s rise by inflating the ratio of CEO-to-worker compensation from 20 to 1 in 1965 to 300 to 1 today. Labor’s steady falling share of GDP has depressed consumer demand, resulting in slower economic growth. It’s mathematically impossible to make the public- and private- sector investments necessary to sustain America’s global economic competitiveness while flushing away 4% of its GDP year after year. If the US is to achieve growth distributing income equitably and providing stable employment, government and business must take steps bringing stock buybacks and executive pay under control. The nation’s economic health depends on it.

What should be done about stock buybacks?

The federal government must reorient its policies from promoting personal enrichment to enhancing national growth. Such policies should limit stock buybacks and raise the marginal rate on dividends while providing real incentives to boost R&D investment, worker training, and business expansion.

According to a 2014 Harvard Business Review, a good first step would be an extensive SEC study of the possible damage that open market buybacks have done to capital formation, industrial corporations, and the US economy over the past 3 decades. For instance, during the amount of stock taken out of the market has exceeded the amount issued in almost every year. From 2004-2013, this net withdrawal averaged $316 billion a year. Overall, the stock market isn’t functioning as a funding source for corporate investment.

Another measure we need to do is reining in stock-based pay which should be very limited. Many studies have shown that large companies usually use the same set of consultants to benchmark executive compensation and that each consultant recommends that the client pay its CEO well above average (which is what CEOs want to hear). Thus, compensation inevitably ratchets up over time. They also show that even declines in stock price increase executive pay. So when a company’s stock price falls, the board stuff even more options and stock awards into top executives’ packages, claiming that it must ensure they won’t jump ship and will do whatever necessary to get the stock price up. A 1991 SEC decision allowing top executives to keep gains from immediately selling stock acquired from options only reinforces their overriding personal interest to boost stock prices. Because corporations aren’t required to disclose daily buyback activity, it gives executives the opportunity to trade to trade undetected on inside information about when buybacks are in progress. The SEC at least should stop allowing executives to sell stock immediately after options are exercised. And incentive compensation should be subject to performance criteria reflecting investment in innovative capabilities, not stock performance.

But more importantly, we must transform boards determining other executive compensation. Boards are currently dominated by other CEOs with strong bias toward ratifying higher pay packages for years. When approving enormous distributions to shareholders and stock-based pay for top executives, these executives believe they’re acting in shareholders’ interests. And that’s a big part of the problem. The vast majority of shareholders are simply investors in outstanding shares who can easily sell their stock when they want to lock up gains or minimize losses. Since taxpayers and workers are the people truly investing in the productive capabilities of corporations, they need to have seats on boards of directors. Their representatives would have the insights and incentives to ensure that executives allocate resources to investments in capabilities most likely to generate innovations and value.

If business leaders want to maintain broad support for business, they must acknowledge that a corporation’s purpose isn’t to enrich the few, but to benefit many. Once America’s CEOs refocus on growing their companies over their share prices, shareholder value will take care of itself and all Americans will share in the economy’s benefits. The corporate allocation process is America’s source of economic security or insecurity whether its people like it or not. If Americans want an economy in which corporate profits result in its shared prosperity, the buyback and executive compensation binges will have to end. Sure executives will complain like whiny babies. But the best executives might actual get satisfaction being paid a reasonable salary allocating resources in ways sustaining the enterprise, providing higher standards of living to the workers who make it succeed, and produce tax revenues for the governments providing it with crucial perks.

The Vultures of Wall Street

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For the United States in 2017, the economy is growing, unemployment is low, and consumer confidence is at a decade-long high. Though this would normally create a retail boom, more chains are filing for bankruptcy and rated distressed than at the height of the Great Recession. Cities across the country are facing 6,800 store closings which has become known as the retail apocalypse. This year 19 retail companies have declared bankruptcy including Radio Shack, The Limited, Payless, and Toys “R” Us. Naturally people like to point at Amazon but e-commerce sales in the second quarter only hit 8.9% of sales. So it’s not like these stores are necessarily hurting for business despite declining sales. Besides, most of the retailers already have online stores.

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Here’s a chart on the stores closing due to the retail apocalypse. Though we often blame Amazon for this and declining sales, the real cause for this is far more insidious than you can even imagine.

However, the real reason why so many companies are sick has little to do with technological disruption. Rather with debt and a predatory financial scheme. Over the past decade, private equity firms bought numerous chain stores and loaded them up with unsustainable debt payments as part of their business strategy. Billions of dollars of this debt comes due within the next few years. As Bloomberg wrote in a recent article, “If today is considered a retail apocalypse, then what’s coming next could truly be scary.” The retail sector has already lost hundred thousand jobs from October 2016 to April 2017. In the following June, 1,000 stores closed within a week. And it will only get worse. This year only $100 million in retail debt came due this year. But there will be $1.9 billion next year and $5 billion on average due between 2019-2025. This threatens retail sales and cashiers who make up 6% of the entire US workforce and a total of 8 million jobs. And since these workers aren’t confined to any one region, the entire country will share their pain. In the Pittsburgh area where I live, 26.8% of retail loans are delinquent. States like Michigan, Illinois, West Virginia, and Ohio are among the hardest hit where retail employment has declined over the last decade and those will likely spread. Meanwhile, any states like Florida, Arkansas, and Nevada have overly relied on retail for job growth and will feel more pain as the fallout deepens. States like Alabama, Louisiana, New Hampshire, Mississippi, and South Carolina have the highest concentration of cashiers. As the debt comes due, expect more displaced low-income workers, shrinking local tax bases, and investor losses on stocks, bonds, and real estate.

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The tragedy of Sears is a major example of how private equity can be so insidious. Once a retail bastion, it’s now facing bankruptcy thanks to overbearing debt and mismanagement by hedge fund manager Eddie Lampert.

The most famous example of this is Sears which is now closing hundreds of stores and facing bankruptcy. Once a bastion in America’s consumer-based economy, it has been run to the ground by none other than hedge-fund king Eddie Lampert. A former Yale roommate of Treasury Secretary Steve Mnuchin, arranged the Sears-Kmart merger and immediately started shifting revenue to shareholders. In addition, he spent $6 billion on stock buybacks to reward investors and raise the share price. More importantly, Lampert personally lent billions to Sears Kmart which increased its corporate debt. As its in-store sales lagged, Sears sold off major assets like its Craftsman brand tools and Land’s End outdoor equipment to pay for the loans. He also split ownership of 266 Sears and Kmart buildings into a real estate investment firm called Seritage. Last year, Sears and Kmart stores paid $200 million in rent on these properties they once owned which ate up its operating revenue. Even as Sears’ very existence is in question, Lampert will likely come out ahead. He’s enjoyed fees from all the lending to Sears and he’ll recoup more money in any restructuring even if Sears has to sell off inventory to do it. As Seritage’s shareholder, Lambert’s hedge funds can profit from higher rents charged to new retail outlets moving into shuttered Sears and Kmart locations. In fact just this year, a Kmart near where I lived and used to shop closed down and I knew some people who worked there.

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This is a Kmart store in Rostraver Township, Pennsylvania that’s near where I live. On June 7, 2017, it was announced this store was closing. I’ve shopped at this place on many occasions and knew some of the people who worked there. Kind of a shame. I’ve also heard that the Kmart in Mount Pleasant Township closed earlier this year as well. Kind of a shame.

Sears’s mismanagement reflects an ongoing pattern of private equity takeover artists benefitting from crippling the companies they purchase. Golden Gate Capital and Blum Capital, the 2 firms behind Payless, paid them $700 million in dividends in 2012 and 2013 on the company’s back. Payless filed for bankruptcy this year and closed 400 stores. Toys “R” Us filed for bankruptcy in September unable to sustain between $400-$500 million in annual interest payments on $5.2 billion long-term debt. Private equity firms, including Bain Capital and longtime firm Kohlberg Kravis Roberts, stripped out nearly $2 billion in cash as debt levels rose. And Toy “R” Us’s profitability was increasing when it filed for Chapter 11 since sales in the toy sector had been rising annually by 5% over the past 5 years.

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Toys “R” Us wasn’t among the worst casualties in the retail apocalypse. But its filing for bankruptcy in September came as a shock because its profitability had increased and its business was mostly stable. However, the real reason was that the toy store chain was overburdened with debt to private equity firms that bought it out in 2005.

What you see is a robbery in progress. Private equity firms borrow massively to buy companies and use corporate cash reserves to pay themselves back. Workers contributing the value to the business see nothing but the possible job cut since companies usually cut staff to service the debt. When the company collapses under the borrowing weight, all workers lose their jobs even when sales are up. Though troubled retailers have billions of borrowings on their balanced sheets like Sears, sustaining that load will only become more difficult even for healthy chains like Toys “R” Us. Private equity firms defend that their business model returns companies to fiscal health thanks to superior management. But this isn’t what we see in the retail apocalypse. Retail firms typically roll over debt to buy time and avoid bankruptcy. However, interest rates have increased since the last set of buyouts several years ago, making that prospect more expensive. Now these overleveraged companies are finding it difficult for anyone to agree to refinance. As a result, delinquent payments on shopping centers and other commercial real estate have spiked as high as one quarter of all loans in some parts of the country.

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This is a map from Bloomberg showing the concentration of retail jobs all over the country from 2016. Due to private equity overleveraging, the retail apocalypse will only get worse as debts come due. This could mean millions of Americans losing their jobs.

Yet, private equity firms don’t receive a lot of attention which is why I devised this handy FAQ for you to look at. If there is a reason we should care about private equity firms, is that they play a huge role in our economy. Though not all PE firms aren’t predatory finance schemes, many are. And the fact they’re less regulated than banks only exacerbates matters when these vulture capitalists put a company under. Predatory financial schemes hurt everyone. They kill jobs and businesses as well as ruin communities and whole economies. As of 2012, private equity firms own companies employing about 1 out of 10 Americans. This makes them hugely important since they’re basically America’s biggest employers. If you work for a PE-owned company, you might stand a chance of losing your job within the next few years. Now I’m not a fan of corporate America and have the criticized the retail industry for mistreating their workers on shit wages, unpredictable schedules, and anti-union activities. But I understand the retail industry does play a key role in the US economy. Even a shit job like cashier is a job nonetheless. And people rely on these jobs to support their families. Thus, I believe we need to understand what these private equity firms do and how many of them can be a business’s best friend or its worst nightmare. So here is a handy FAQ for reference. Besides, since millions of Americans will lose their jobs over private equity activities, they should know the truth as to why.

What is a private equity firm?

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This is a diagram of a private equity firm business model. Though I suppose more of an advertisement since it seems to create a positive image.

A private equity firm is an investment management company that provides financial backing and makes investments in the private equity of startup or operating companies through an array of loosely affiliated investment strategies. Usually described as a financial sponsor, each firm takes a bunch of money for a private equity fund and buys up these companies. They do this by usually matching rich people and institutions with more money than they know what to do with to middle market companies who need access to a steady flow of cash. First, the equity firm buys the company through an auction. Second, the firm then increases the company’s value whether through upgrading its accounting system, a procurement process and information technology, or laying off workers and closing unprofitable operations. In return, the private equity firm will receive a periodic management fee and a 20% share in the profits earned. With their investors, private equity firms will acquire a controlling or substantial minority position in a company and then look to maximize that investment’s value. And they generally receive a return on their investment through one or more of the following (if they’re lucky):

Initial Public Offering (IPO)- company’s shares are offered to the public, typically providing a partial immediate realization to the financial sponsor and public market into which it can later sell additional shares. Through his process, a privately held company transforms into a public one. IPOs are usually used by companies to raise the expansion of capital, possibly to monetize investments of early private investors, and become publicly traded enterprises. Companies selling shares are never required to repay its capital to public investors who pass money between each other afterwards. Although an IPO offers many advantages, there also significant disadvantages such as the costs usually associated with the process and the requirement to disclose information that could provide helpful information to competitors. Details of the proposed offering are disclosed to potential purchasers in the form of a lengthy document known as a prospectus. Most companies undertake an IPO with assistance from an investment firm acting in the capacity of an underwriter. Since underwriters provide several services like help with correctly assessing share value and establishing a public market for shares.

Merger and Acquisition (M&A)- one company is sold for either cash or shares in another. As an aspect of strategic management, M&A can allow enterprises to grow, shrink, and change the nature of their business or competitive position. From a legal perspective, a merger is a legal consolidation of 2 entities into one. Whereas, an acquisition occurs when one entity takes ownership of another entity’s stock, equity interests, or assets. From a commercial and economic point of view, both types of transactions generally result in consolidation of assets and liabilities under one entity and the distinction is less clear. A transaction legally structured as an acquisition may lead to placing one party’s business under the other party’s shareholders’ indirect ownership. At the same time, a transaction legally structured as a merger may give each party’s shareholders partial ownership and control of the combined enterprise. This deal may be euphemistically called a “merger of equals” if both CEOs agree that joining together is in the best interest of both of their companies. Meanwhile, when the deal is unfriendly (like when a target company’s management opposes the deal), it might simply be seen as an “acquisition.”

Recapitalization- cash is distributed to the shareholders (in this case the financial sponsor) and its private equity funds from a company’s cash flow or raising debt or other securities to fund the transaction. As a type of corporate reorganization involving substantial change in a company’s capital structure which may be motivated for a number of reasons. Usually, the large part of equity is replaced with debt. In more complicated transactions, mezzanine financing and other hybrid securities are involved.

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As you can see from this infographic, private equity is widespread. As you can see, they’re a major presence in the US economy. Of course, the industries they invest most into are consumer and information technology, which should surprise anyone.

But we should understand that often the effort to fix up the company fails and bankruptcy is the outcome. So while the rewards are great so are the risks. Back in 2012, The Wall Street Journal did an analysis of the 77 businesses Bain Capital invested during former Governor Mitt Romney’s tenure. It found that 22% either filed for bankruptcy or shut down within 8 years of Bain’s investment. Even several companies that initially provided Bain with huge profits later ran into trouble. Of the 10 deals producing more than 70% of Bain’s gains, 4 eventually filed for bankruptcy. But the companies that succeeded were hugely profitable as the Journal concluded that Bain turned $1.1 billion into $2.5 billion in gains in the 77 deals.

So they’re like hedge funds?
Not exactly. Private equity firms characteristically make longer-hold investments in target industry sectors or specific investment areas where they know a lot about. They also take on operational roles to manage risk and achieve growth through long-term investments. Private equity firms and investment funds shouldn’t be mistaken for hedge fund firms which typically make shorter-term investments in securities and other more liquid assets within an industry sector but with less direct influence and control over a specific company’s operations. And hedge fund firms usually bet on both the up and down sides of a business or an industry sector’s financial health.

What is a private equity fund?

Private_Equity_Fund_Diagram

This is a diagram of a generic private equity fund. The private equity firm acts as the general partner while the limited partner investors usually supply the cash for the investments.

Private equity funds usually have a general partner (GP) raising capital from cash-rich institutional investors like pension plans, universities, insurance companies, foundations, endowments, and high-net-worth individuals investing as limited partners (LPs) in the fund. Before buying the company, the GP (who makes all the fund’s decisions), devises a plan for how much debt to use, how the company’s cash flow will be used to service the debt, and how the PE firm will exit at a profit. The private equity firm typically has very little of its own money at risk, only investing 2% or less in the fund while the LPs put up 98% of the equity. But it claims 20% of any gains from these companies’ subsequent sale. Among the terms set forth in the limited partnership are the following:

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Though I’ve already shown a private equity fund’s basic structure, here’s a more detailed chart. You can see the kinds of partners who invest as well as the strategies used.

Term of the Partnership- usually a fixed-life investment vehicle that’s 10 years plus some number of extensions.

Management Fees- annual payments made by investors in the fund to its manager to pay for the private equity firm’s investment operations (usually 1% or 2% of the committed capital to the fund).

Distribution Waterfall- the process in which the returned capital will be distributed to the investor and allocated between the Limited and General Partner. This waterfall includes the preferred return, which is the minimum rate of return (e.g. 8%) which must be achieved before the GP can receive any carried interest, which is the profit share paid to the GP above the preferred return (e.g. 20%).

Transfer of an Interest in the Fund- Private equity funds aren’t intended to be transferred or traded. Though they can be transferred to another investor but such transfer must receive the fund manager’s consent and is at the GP’s discretion.

Restrictions on the General Partner- the fund’s manager has significant discretion to make investments and control the fund’s affairs. However, the LPA does have certain restrictions and controls and is often limited in the type, size, or geographic focus of investments permitted, and how long the GP can make new ones.

Can you describe each private equity firm investment strategy?
Certainly. Here are some in depth descriptions of some major strategies. Though they’re not the only kind of ways private equity firms invests.

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The main investment strategy private equity firms uses is the leverage buyout. This involves buying a company with a combination of equity and debt and using its cash flow as collateral. In fact, it’s usually on the company to pay back the debts. This practice has been prone to plenty of overleveraging and abuse like in the case with Sears.

Leverage Buyout (LBO)- a financial transaction in which a company is purchased with a combination of equity and debt so its cash flow is the collateral used to secure and repay the borrowed money. Since the debt costs less than capital and equity, it serves to reduce the acquisition’s overall financing costs. After all debt costs less than capital and equity because interest payments reduce corporate income tax liability while dividend payments don’t. So the reduced financing costs allows greater gains to accrue to the equity, and as a result, the debt acts as a lever to increase the equity’s returns. Though usually employed when a financial sponsor acquires a company, many corporate transactions are usually funded by bank debt which can also represent an LBO. It could take many forms like management buyout (MBO), management buy-in (MBI), along with secondary and tertiary buyout among others. It can occur in growth situations, restructuring situations, and insolvencies. Though LBOs mostly occur in private companies, they can be employed with public companies, too (in a so-called PtP transaction-Public to Private). As financial sponsors increase their returns by employing a very high leverage (like a high ratio of debt to equity), they’re incentivized to employ as much debt as possible to finance an acquisition. In many cases, this can lead to “over-leveraging” in companies in which they don’t generate enough cash to pay their debt, leading to insolvency or to debt-to-equity swaps in which the equity owners lose control over their business to the lenders. This is the main strategy most private equity firms use and typically finance a buyout of a company with 30% equity and 70% debt. Private equity funds use the acquired company’s assets as collateral and put the burden of repayment on the company itself.

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This is a diagram illustrating how start-up companies are typically financed. First, the new firm seeks out “seed capital” and funding from “angel investors” and accelerators. Then if it can survive the “valley of death” (when the start up’s trying to develop on a “shoestring” budget), the firm can seek venture capital financing.

Venture Capital (VC)- a form if financing provided by firms or funds to small, early-stage, emerging funds either seen as highly profitable or potentially so. VCs invest in these early-stage companies in exchange for a return or an ownership stake in those they invest in. They take on the risk of financing risky startups in hopes that some of the firms they support will eventually succeed. The typical VC investment occurs after an initial “seed funding” round also called the Series A Round. A VC will provide this financing in the interest of generating a return through an eventual “exit” event such as the company selling shares to the public for the first time in an IPO or through its merger or acquisition (a.k.a. “trade sale”). In addition to angel investing, equity crowdfunding, and other seed funding options, VC is attractive for new companies with limited operating histories that are too small to raise capital in the public markets and haven’t reached the point where they could secure a bank loan or complete a debt offering. In exchange for the high risk that VCs assume by investing in smaller and early stage companies, they usually get significant control over their decisions along with a portion of their ownership (and consequently value). They also often provide strategic advice to the firm’s executives on its business model and marketing strategies. Additionally, VC is also a way in which the private and public sectors can build an institution that systematically creates business networks for the new firms and industries so they could progress and develop. The VC institution helps identify promising new firms and provide them with finance, technical, expertise, mentoring, marketing “know how,” and business models. Once integrated into the business network, these firms are more likely to succeed as they become “nodes” in the search networks for designing and building products in their domain. However, VC decisions are often biased as well as exhibit an instance of overconfidence and illusion of control like entrepreneurial decisions in general.

Growth Capital- a private equity investment (usually minority investment), in relatively mature companies that are looking for capital to expand or restructure operations, enter new markets, or finance a significant acquisition without a change or control of the business. Companies seeking growth capital will often do so to finance a transformational event in their lifecycle. Unlike VC-funded companies, growth capital companies usually able to make a profit but can’t generate sufficient cash to fund major expansions, acquisitions, or other investments. Because of this lack of scale, these companies generally can find few alternative conduits to secure capital for growth. Thus, access to growth equity can be critical to pursuing necessary facility expansion, sales and marketing initiatives, equipment purchases, and new product development. Growth capital can also be used to affect a restructuring of a company’s balance sheet, particularly to reduce the amount of leverage (or debt). Growth capital is often structured as the preferred equity, though certain investors use various hybrid securities including a contractual return (like interest payments) in addition to an ownership interest in the company. Often, companies seeking that growth capital investments aren’t good candidates to borrow additional debt, either because of the stability of the company’s earnings or existing debt levels.

Mezzanine Financing- any subordinated debt or preferred equity instrument representing a claim on the company’s assets that’s senior only to that of common shares. It can be structured as either debt (usually an unsecured or subordinate note) or preferred stock. It’s often a more expensive financing source for a company than secured or senior debt. The higher cost of capital associated with mezzanine financing is due to it being unsecured, subordinated (or junior) obligation in a company’s capital structure. Should that company default or go bankrupt, mezzanine financing is only paid after all senior obligations are satisfied. Additionally, since it’s usually a private placement, mezzanine financing is often used by smaller companies and may involve greater leverage levels than issues in the high-yield market which involve additional risk. But in compensation for the increased risk, a mezzanine debt holder requires a higher return for their investment than a more senior debt holder.

Distressed Securities- securities over companies or government entities experiencing financial or operational distress, default, or are under bankruptcy. As far as debt securities, this is called distressed debt. Purchasing or holding distressed debt creates significant risk due to the possibility that bankruptcy may render such securities worthless (zero recovery). Deliberate investment in distressed securities as a strategy while potentially lucrative is significantly risky as the security may become worthless. Doing so requires significant levels of resources and expertise to analyze each instrument and assess its position in an insurer’s capital structure along with the likelihood of ultimate recovery. Distressed securities tend to trade at a substantial discounts to their intrinsic or par value and are considered below investment grade. This usually limits the number of potential investors to large institutional investors like hedge funds, private equity firms, and investment banks.

Why would anyone invest in a private equity fund?

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Though private equity has earned a reputation as corporate saboteurs outside Wall Street, this kind of investment is quite popular among investors. As you can tell from these stats, the notion of private equity won’t go away soon.

Private equity funds are illiquid and managed by active investors. Those familiar with common index funds such as those of ordinary investors might hold in their investment portfolios might lead you to believe a private equity fund investment is foolish. But private equity funds do have a number of good advantages.

1. Taking companies private is incredibly profitable- When a private equity firm takes a company private from the public market, it has 100% of the ownership and thus can claim all its profits and control all capital allocation. Thus private equity firms have unlimited control over what goes on in the company unlike public equity investors. So they could claim all cash flows in the company.

2. Equity returns in short time frames- It wouldn’t be wise to invest in a portfolio of 100% stock if you’ll need the money within the next 5-7 years. Yet, since private equity firms take companies private, they reap the full ownership benefits (profits) and then resell the companies within 5-7 years in the future. During this time period, private equity investors receive equity-like returns in a time period that would only be safe for fixed-income investments.

3. Leverage- Private equity funds take money from investors and then leverage it with bank loans and bond issues from their newly acquired companies to boost returns for their investors. If a private equity firm takes a company private at 10x earnings of 10% per year, it can do very well for its limited partners by leveraging those earnings with cheap debt. It’s kind of like buying real estate, which when leveraged with bank loans, can be an excellent one.

4. Exits- Private equity funds are designed to exist only for a period of spanning less than a decade. When the fund reaches the end of its designed life, it “exits” its holding by selling them. A common exit is to sell a private equity position to a competing firm or to list private companies on the public markets through an IPO.

Why would a company seek private equity financing?

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Here’s a cycle of private equity financing from a firm’s site. Though this seems more catered to investors and has a rather positive spin on it.

Private equity financing provides several advantages to companies such as the following.

1. Active involvement- Unlike other funding options, private equity firms are much more hands on and will help a company reevaluate every aspect of their business to see how it can maximize its value. Having experienced professionals in a business can also result in major improvements.

2. Incentives- Private equity firms need a business to succeed since they borrow a lot of money to make their investments and have to pay that back and generate a return for their investors. Individual partners in private equity firms often have their own money invested as well and make additional money from performance fees if they make a profit. So they have strong incentive to increase a company’s value.

3. Large amounts of funding- Private equity can provide larger amounts of money than other options since deals are usually measured in hundreds of millions of dollars. This kind of money can have a massive impact on a company.

4. High Returns- Combinations of major funding, expertise, and incentives can be very powerful on companies. According to a 2012 study by the Boston Consulting Group, more than 2/3 of private equity deals resulted in the company’s annual profits grow by at least 20% while nearly half of the deals generated a profit growth of over 50% a year or more.

5. Patient Investors- Since private equity firms invest in a company to make it more valuable within a number of years before selling to a buyer appreciating the lasting value created, their investors are less concerned with short-term performance targets though they do have their eyes on the prize. Sometimes such firms are also known to offer private equity back office services to other firms or companies needing them for investments.

What are the disadvantages of private equity financing?
At the same time, private equity financing come with an array of disadvantages such as the following.

1. Dilution/Loss of Ownership Stake- Other funding options let the owner still stay in control of the company despite the investment’s costs. A company may receive much more money with private equity, but the owner has to give up a large share of the business. Private equity firms often demand a majority stake and sometimes leave the owner with little or nothing in ownership. It’s a bigger trade and one many business owners balk at.

2. Loss of Management Control- Beyond money, a business owner can lose direct control of their company. The private equity firm would want to be actively involved which can be a good thing. But it can mean losing control of basic elements in the business like setting strategy, hiring and firing employees, and choosing the management team. Since the private equity firm’s stake is usually higher, the loss of control is much greater. This is especially true when it comes to the private equity firm’s “exit strategy” which might involve selling the business outright or other options that don’t form part of the owner’s plans. Then there’s the fact that private equity decision-making has been shown to suffer from cognitive bias such as illusion of control and overconfidence.

3. Different Definitions of Value- Private equity firms exist to invest in companies, make them more valuable, and sell their stakes in large profits. Mostly this can be good for the companies involved since any business owner would want to create more value. But a private equity firm’s definition of value is very specific and limited since it’s focused on a business’s financial value on a particular date about 5 years after the initial investment when the firm sells its stake and books a profit. Business owners, by contrast have a much broader definition of value with a longer-term outlook and more concern for relationships with employees and customers as well as reputation. Such difference can lead to clashes.

4. Eligibility- Private equity firms look for particular types of companies to invest in which have to be large enough to support those major investments and offer potential for large profits in a relatively short time frame. This means that a company must have very strong growth potential or it’s in financial difficulties and is currently undervalued. A business that can’t offer investors a lucrative investment within 5 years will struggle to attract interest from private equity firms.

5. Debt Accumulation- Private equity firms use significant amounts of debt to perform deals in financial markets. This can significantly damage not only the company who has to pay for the debt but also to investors and financial markets as well. Not to mention, they charge their companies a bunch of hidden fees. They also make the companies sell their real estate and pay a higher rent to remain on the property, too.

6. Lack of Transparency- Though oversight on private equity firms has increased since 2008, they’re still less regulated than more traditional forms of financing. Private equity also adheres to some practices that alarm politicians. One tactic is a fee-waiver conversion which intentionally directs a greater amount of an investor’s capital away from higher-taxed fees and into a more favorably taxed category.
So what’s with the vulture capitalist reputation?

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Though not all private equity firms are vulture capitalists, there are plenty of large firms that have acquired such reputation. One of these was Mitt Romney’s Bain Capital as you can see on this cartoon chart.

Private equity firms are notorious for making money for their investors without regard to stakeholders in the business. In most cases, private equity firms acquire the kinds of companies that are already in poor financial health, lack a competitive environment, or have poor managers. They want to acquire companies cheap and that means buying companies they believe have more value than Wall Street is willing to realize. Sometimes this means buying companies everyone knows will go out of business. Sometimes a private equity fund performs as advertised using reasonable amounts of debt and providing access to management and expertise and financial resources. This usually involved smaller companies with few assets that can be mortgaged but many opportunities for operational improvements.

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This is Joshua Kosman. In 2009, he wrote a book called The Buyout of America arguing that private equity firms are terrible and will cause the next credit crisis. In his intro he writes, “I believe the record shows that PE firms hurt their businesses competitively, limit their growth, cut jobs without reinvesting the savings, do not even generate good returns for their investors, and are about to cause the Next Great Credit Crisis. Leadership is needed to rally opposition to close the tax loopholes that make this very damaging activity possible.” So far this year’s retail apocalypse is proving him right.

However, the reality is that private equity firms almost always buy larger and profitable companies that already have modern management systems in place as well as substantial assets that can be mortgaged. Here, private equity firms use debt and financial engineering strategies to extract resources from healthy companies. This earns them a reputation for using strategies that critics say play out more as “vulture capitalism”- a phrase that some people use to describe the process where investors make enormous profits while needlessly laying off workers. Private equity investors may increase their investment in companies they own by replacing senior management, reducing the workforce, selling off assets, and essentially gutting the company for profit. A private equity firm could buy a sizeable company, load it up with debt, and then take the money out. After improving their short-term earnings through cuts, it can borrow money and pay itself a dividend. In good times, it can collect a disproportionate share of the investment returns. But this can set up that company for failure and financial vulnerability. If the debt can’t be repaid, the company, its workers, and its creditors bear the costs. Yet, even when a company fails, a private equity firm still makes money. For instance, from 1987-1995, 22% of the money Bain Capital invested in funds raised went to companies that eventually went bankrupt. But Bain made $578 million, comprising of the bulk of these companies’ profits. Under Mitt Romney, 4 of Bain’s 10 biggest investments ended up bankrupt yet the firm still made a killing. Today, it’s no surprise that private equity activity’s often said to focus on short-term profits over a company’s long term health.

But do they improve businesses? According to author Josh Kosman, that may not be so. Out of the 25 biggest buyouts in the 1990s, 52% of those companies ended up bankrupt. Among the 10 biggest, private equity improved only one of the businesses. In 3 cases, the results were mixed while the other 6 companies would’ve been better off had the private equity firm not acquired them. A report from Moody’s back in 2012 showed that in the 40 biggest leveraged buyouts that took place from 2005-2008, these companies saw a revenue increase by 4% while their strategic peers saw profits rise by 14%.

Another criticism is that studying private equity returns is relatively difficult since private equity funds don’t disclose performance data. As these firms invest in private companies, it’s difficult to examine the underlying investments. Comparing private equity to public equity performance is challenging because private equity fund investments are drawn and returned over time as investments are made and subsequently realized. Commentators have argued that a standard methodology is needed to present an accurate picture of performance, to make individual private equity funds comparable and so the asset class as a whole can be matched against public markets and other types of investment. There’s also a claim that private equity firms manipulate data to present themselves as strong performers, making it even more essential to standardize the industry. It’s even worse that private equity firms aren’t as regulated as banks.

Can you describe some shady private equity firm financial engineering practices?

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Here’s a chart on the rates in which private equity firms have stripped assets on retailers. Much of this took place in the mid-2010s. Through junk bonds and leveraged loans to fund special dividends to PE owners, retail stores have lost billions in their assets. What a shame.

Certainly. After a buyout, private equity firms often engage in financial engineering that further compromise their portfolio companies. They might have companies take out loans at junk bond rates and use the proceeds to pay themselves and their investors a dividend. They might split a real estate rich company into an operating company and a property company. They then sell off the real estate and repay investors while the operating company must lease back the property and pay the (often inflated) rent. As you can see, this is what Eddie Lampert did to Sears. They may require their companies to pay monitoring fees to the PE firm for unspecified services. Paying these fees reduces the companies’ liquidity cushion and puts them at risk.

What happens to portfolio companies and workers?

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Here is a list of companies private equity firm KKR owns. Some of the these brands you might recognized, especially Toys “R” Us which filed for bankruptcy.

In these situations, financial engineering results are predictable. In bad economic times, these companies’ high debt levels (especially in cyclical industries) make them seriously vulnerable to default and bankruptcy. According to one economic study, roughly a quarter of highly leveraged companies defaulted on their debts during the last recession. Though the financial crisis officially ended in 2009, bankruptcies among PE-owned companies continued through 2015. In 2007, a PE consortium acquired Energy Future Holdings which defaulted with $35.8 million in debt in 2014. In 2006, a PE acquired the Las Vegas-based Caesar Entertainment whose long-term debt more than doubled by mid-2007. In 2015, it declared bankruptcy putting over 30,000 union workers at risk. Rigorous econometric studies back these job loss cases. One study found that through 2005, PE-owned establishments had significantly lower employment and wages post buyout than comparable publicly-traded companies. Though PE-owned establishments experienced higher wages and employment growth than their counterparts in their buyout year. But employment rates at PE-owned companies were 3-6.7% lower after 2 years and 6% lower after 5 years.

What happens to the Limited Partner investors?

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Here’s another chart detailing which companies private equity owns. Many of these will surprise you. But some of them won’t.

Private equity fund performance depends importantly on how investment returns are measured. Private equity firms use the “internal rate of return” (IRR). Finance economists use the “public market equivalent” which compares returns in PE investments from comparable stock market ones. Recent academic studies find that buyout funds don’t deliver outsized returns to investors. Despite industry claims, private equity funds haven’t beaten the stock market since 2006. A recent study indicates a downward trend in PE performance finding that the median PE fund outperformed the S&P 500 by 1.75% in the 1990s and by 1.5% in the 2000s. Private equity returns also need adjustment for PE investments’ greater riskiness. Industry analysts and most investors assume that private equity fund returns should exceed stock market returns by 3%. More than half of US PE funds have failed to meet that standard over the past 25 years. Average PE returns are upwardly skewed by top quartile funds’ outperformance. But recent research shows it’s no longer possible to predicts which funds will outperform the stock market. GPs with top quartile funds have about a 25-cent chance that their next fund will do the same. Same goes for GPs with bottom quartile funds.

What should the US do about private equity firms?
We must hold our politicians responsible for the looming retail apocalypse. After all, our tax code privileges debt by making corporate interest payments tax-deductible. Private equity firms that gut companies and walk away receive tax subsidies to pull it off. This incentivizes them to borrow even more to run the game again. Even more importantly, we need to look at these asset-stripping schemes with more skepticism. The Securities and Exchange Commission can and should police these designed-to-fail corporate bonds resulting from these leveraged buyouts. The SEC should also go after banks underwriting these deals and earning fees off of companies’ misery.

The House Republican tax bill proposed a cap on deductibility on interest payments over 30% of a company’s earnings. The Senate bill defines earnings in such a way to reduce that cap even further. This should discourage some debt-fueled buyouts which private equity firms don’t like. However, the GOP tax plan exempts real estate companies which leaves a gaping loophole. This could help private equity firms that split their business’s operating side from the property side like Sears did. And enable them to put all the borrowing onto the property side and keep deducting the interest. Not to mention, most of the Republican tax bill is a piece of shit that punishes most Americans who don’t own a yacht. So I wouldn’t advocate the Republican tax plan to crack down on private equity anytime soon.

Nevertheless, don’t expect that Donald Trump will do anything about and we shouldn’t be surprised. The Trump administration will likely continue aiding wealthy financiers through regulatory neglect since those people are their donors. Recently, Comptroller of Currency Keith Noreika broke with a years-long crackdown on high-risk corporate lending, signaling that these private equity firms should issue more debt. It’s a shame we don’t have regulators willing to protect workers, investors, and the economy. Because private equity is accelerating a decline that will affect millions in every major city. To do nothing is to let it continue.