NCAA Championship Worthy College Sports Treats (Second Edition)

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Now that the festivities are over, it’s time we await the Bowl season which takes place around New Years. If you’re an American, you know very well that the NCAA Div. I football playoffs usually consist of 4 teams competing for a championship. How they’re selected, I don’t know. But it’s certainly not fair that Ohio State didn’t get a spot despite winning their conference while Alabama did despite not winning theirs. Yes, we know it should be a playoff style with conference champs playing each other. But I’m not sure why the NCAA ever does this. However, if a Div. I college football team wins it conference, they should have a shot at the championship. Hey, it’s only fair. Anyway, for your reading pleasure, I give you another assortment of college sports treats. Sure some of them might be cookies and cakes but hey, I have to deal with what I can find. Enjoy.

  1. Wolverine fans might want to get a load of this cake.

This one is covered with yellow icing and has the Michigan logo. Seems spectacular as a DIY.

2. Gator cookies always make a tasty Florida treat.

Well, University of Florida treats that is. Includes the logo, gators, footballs, and more.

3. Bet no Volunteers can resist this cake.

And it seems to have the cream orange and white polka dot patterns on the tiers. Yeah, I know it’s a horrifying color combination.

4. Care for some Oregon hoodie cookies?

Because Oregon Duck cookies wouldn’t look badass enough. Okay, I’m probably kidding on that one.

5. Bet this stadium cake is a dream for a Texas A&M fan.

Well, if your college mascot is an Aggie, then this is probably a better option. Still, you have to marvel at the detail

6. I’m sure anyone from BYU might get a load of this cake.

Yes, I know this is a Mormon school founded by the leader responsible for founding Utah. But still Brigham Young had a bunch of wives which doesn’t do him any favors.

7. Ohio State cupcakes should always match a cake of Brutus Buckeye.

Though to be honest, Brutus Buckeye is kind of creepy. But at least some of these cupcakes don’t have his likeness.

8. A Georgia cake should be on the gridiron.

This one has the logo on top of the gridiron sheet. Their mascot may be a bulldog, but the large G stands out.

9. Texas Christian fans would adore these cookies.

This one includes footballs and the state of Texas. Because we all know how much Texans love their football.

10. How about a cake from Oregon?

Notice how they don’t have a duck on it. But yes, the logo is rather stellar.

11. Coyote fans will adore this Arizona cake.

Yes, I know I have a lot of college sports cakes on this post. But I have to deal with what I have.

12. For those rolling the tide, you’ll surely go for these sweet Alabama cupcakes.

Though many aren’t happy with Alabama making the playoffs. But the houndsooth is a nice touch.

13. If you’re a Seminoles fan, you’d probably enjoy these Florida State cake pops.

These are covered in white icing and red and gold sprinkles. Only the plain white ones have the “FSU” on them.

14. For Baylor Bears, get a load of these cookies.

Yes, these are for women’s basketball. But as far as college sports go, I usually don’t specify.

15. No tailgate party should go without these Texas A&M cake pops.

Well, these seem professionally made. Yet, appear easy and not too flashy.

16. You can be rather cavalier about this Virginia cake.

This is from the first public university founded by Thomas Jefferson himself. And yet, their mascot is a term used for royalist supporters of the English King Charles I.

17. Mountaineers can never resist a cake like this.

This one is decorated with blue stars along the base. A stellar cake for any graduation.

18. This Mississippi State cake really rings a bell.

And it’s certainly a cake of a bell as far as I see it. Not sure what’s the significance.

19. Anyone from Auburn will roar over a cake like this.

This cake just depicts Aubie lounging on some brick wall. It’s probably not a cake most Tigers fans will get anytime soon.

20. For cause of celebration, this Nittany Lion cake might come in handy.

This one has 2 tiers and depicts the Nittany Lion. And it’s decorations are quite festive.

21. You’d almost think these Razorback cupcakes are high on the hog.

After all, these are from Arkansas while razorbacks are hogs. And yes, they have a rather vicious reputation.

22. I’m sure Oklahomans would want these cookies sooners.

Since their team’s the Sooners. And I guess these cookies have a lot to do with football.

23. This football cake has the classic Tar Heel touch.

This comes from the University of North Carolina in case you’re wondering. And yes, the football is on the turf.

24. This Nebraska stadium cake is a Husker’s dream.

No, I am not familiar with Nebraska in any sense of the state. But this cake is quite spectacular to see.

25. You can always dessert like a champion with these Notre Dame cookies.

And I guess this one pertains to football which the college is best known for. That along with Catholicism and Irish stereotypes.

26. Perhaps an Ohio State cake with Brutus’s face may suit you?

Well, one without Brutus Buckeye’s face on it. But here it serves as a tier.

27. You can’t guess the matter with these Kansas Jayhawks cookies.

Includes the Jayhawk, a stadium scene, and a football. Perfect for any Kansas plate.

28. Try chomping on this beaver cake from Oregon State.

Includes a beaver on the front. And let’s just leave it at that. Because beavers don’t always refer to these rodents.

29. A Volunteer cake should always have a bow on top.

Once again, it’s another creamcicle cake of two tiers. And no, orange and white don’t go well together.

30. Penn State cookies are always a Nittany treat.

Consists of 2 Nittany Lions and the Penn State logos. Available in the University Park region.

31. You can really sink your claws in this Cincinnati cake.

Well, their team is the Bearcats. So the claws on the C is only fitting.

32. Perhaps a sheet cake from Ohio State may suit you.

Too bad this school didn’t make the Div. I playoffs despite winning its conference. I know it’s not fair.

33. Always need a few buckeye nuts on a OSU stadium.

Well, the nuts on this one are made of peanut butter and chocolate. But it nonetheless seems tasty.

34. Care for a helmet cake from Central Florida.

You don’t hear much about this school but it’s in Orlando. So there’s a strong chance many of its students work at Disney World.

35. You can’t do wrong with an M cake for Michigan.

This is undoubtedly a wedding cake. As you can see with the bride and groom helmets.

36. May I suggest this Wolverine stadium?

This one uses yellow and blue candy for the crowds. And yes, it’s Wolverine supreme.

37. You’d be insane not to miss this Louisville Cardinal cake.

Of course, you hear more about Louisville during March Madness. But this cardinal is rather fierce.

38. A toilet paper tree should be on every Auburn cake.

Not sure what the significance of that is. Maybe toilet papered trees in Auburn is to couch burnings in West Virginia.

39. No Auburn grad could resist these cookies.

Well, they’re blue graduation caps with orange tassles and AU on them. And they come in a dozen.

40. Perhaps this Purdue sheet gridiron cake will certainly be a Boilermaker’s special.

This one has gold and black on the edges as well as black goal posts. I’m sure fans would want it.

41. How about rebelling on a cake this Ole Miss stadium?

This is mostly in blue and red with the white stadium walls. Yet, it’s quite a treat.

42. Perhaps your Texas cake should receive the chocolate treatment.

Yes, I know plenty love their Longhorns. But I kind of think this is ridiculous.

43. This Michigan tower cake is truly epic.

This one has a tower, a football, and the Michigan logo. Definitely the envy for any Wolverine fan.

44. Nothing makes a big game dessert like these TCU cupcakes.

This one has a lot of purple decorations including a couple of cowboy boots and flowers. Love these.

45. Any Ohio State mom would want these cookies.

Yes, I know this is for Mother’s day. But yes, there are plenty of moms who love sports.

46. You’d put a ring on this Texas A&M cake.

Yes, they have to have fancy cakes like these. People in Texas must really love their college sports.

47. This WVU football helmet cake will certainly score.

Great for any tailgate or couch burning party. Okay, maybe not the couch burning one.

48. Michigan cookies make a fine addition to any Wolverine dessert platter.

Includes ones of khaki pants, footballs, and jerseys. The outfit is the craziest one of all.

49. You’d almost think these desserts were kind of hokey.

That’s because the Hokey is the mascot for Virginia Tech. And yes, it’s a chicken while the cupcakes have chicken prints.

50. Support your LSU Tigers with this purple and gold cake.

Includes purple stripes and gold paw prints. And all in LSU Tiger glory.

51. No one can miss these Baylor cookies.

These consist of the logo, Texas, the bear paw, hearts, and some expressions. And all covered in white, gold, and green icing.

52. Grace these Auburn cookies on your dessert platter.

Yes, these cookies are probably for a graduation. Yes, they’re professionally made. And yes, they include the logo.

53. TCU fans will adore this horned frog cake.

And yes, it’s purple per TCU colors. Still, this is quite interesting to look at.

54. The O in Oregon always looks good on the gridiron.

Well, that’s a clever way to use the O. And yes, this is for birthday.

55. With Ohio State, you have the O’s for tiers.

Includes the chocolate buckeyes and leaf on top. Too bad this will only be used for a Bowl game for 2018.

56. Bulldog fans would drool over these Georgia cookies.

All they have is just a black G on white with red edging. And yes, they’re perfect for any Georgia dessert platter.

57. Speaking of Georgia, care for this ferocious cake?

Yes, it looks quite mean like a junkyard dog. But that’s pretty much intentional.

58. These TCU treats come bite sizes.

These are all purple with the TCU letters on them. And yes, they come in wraps.

59. You’ll need plenty of nuts for this Ohio State cake.

As I said before these nuts are made from peanut butter and chocolate. But in this case, they surround the cake.

60. This Louisville Cardinal cake shows its cardinal pride.

Yes, this is professionally made. But you have to admire the intricate design on this one.

61. Alabama fans prefer a cake as mighty as the Crimson Tide.

And yes, it has a football on top. This cake was probably used for the NCAA for putting them in the Division I playoffs, hypothetically speaking.

62. At North Carolina, nobody can resist this Tar Heel gridiron cake.

I know I have shown a lot of these stadium cakes for this post. Yet, some of these are about as unique as they are incredible.

63. Redwolves fans may want these Arkansas State cookies.

Indeed, these are for volleyball. But they nevertheless count. Even if college volleyball games aren’t televised outside cable and public access.

64. You’d find that both sides of this cake form a U.

Well, this is from the University of Miami. Yet, this one seems rather simple to assemble.

65. For March Madness, you might enjoy this cake for Louisville.

This one has the Cardinal smack dab in the center. After all, as I said, basketball is what Louisville is best known for.

66. Illini fans might enjoy a bite out of this cake.

This is a cake of Chief Illiniwek who served as the school’s mascot until recently for obvious reasons. Though it’s quite the design which will be devoured.

67. This Osceola cake is perfect for the Seminole fan.

Yes, this is a Florida State cake depicting Osceola on a horse. Because Osceola was the head of the Seminole and fought whites trying to take over their land and send them to Oklahoma. Or kill them.

68. For a Blue Devils basketball games, these cookies will do nicely.

Duke is another big basketball school. Includes jerseys and hearts in blue and white.

69. This Ohio State cake is in pure Buckeye glory.

Has a helmet on top of a patch of turf. Great for winning your conference but not making the playoffs.

70. Bearcats fans will rave on this cookie cake.

Well, a Cincinnati Bearcats fan. Though this more or less resembles a cat getting electrocuted in my opinion.

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SantaCon Costumes Are Coming to Town (Third Edition)

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Around this time of year, people from across the country put on their yuletide duds to paint the town red and green for the SantaCon pub crawl. Now while its participants call it a time of revelry and fun, those in New York City particularly see it as a boozefest full of drunken brawling, vandalism, public urination and disorder. This has resulted in fierce community resistance save from those who make money off it as well as the disavowal of those who originated it. Though to be fair, plenty of fun events have devolved into an excuse for drunk partying like Cinco de Mayo and Saint Patrick’s Day. Hell, you can even say the same for Christmas and New Years, which in that case, had been filled with drunken incidents centuries before SantaCon was a thing. Anyway, a 2011 article from Gothamist called the Santa celebration an “annual drunken shitshow” that “has steadily devolved from cleverly subversive to barely tolerable to ‘time to lock yourself in your apartment for the day.’ ” And a 2017 report from the New York Daily News stated the event, “endures an annual backlash from New Yorkers repulsed by the sight of Santas vomiting or urinating in the street in years past.” Let’s just say Wikipedia has leaves a section of New York City incidents over SantaCon with many hilarious reports of this yuletide debauchery. This doesn’t mean we can’t get any fun out of it. For we totally can since you find plenty of creative costumes in their midst, which is where I come in. So for your reading pleasure, please enjoy these SantaCon-type costumes.

  1. Nothing makes winter like an enchanting snow globe.

Well, at least she has “North Pole” on the base. And she has a Santa coat and striped tights.

2. “Frag-gil-lee. Must be Italian.”

Yes, she’s dressed up as the infamous leg lamp from Christmas Story. Still, tights don’t provide adequate insulation in freezing weather.

3. Guess the birthday boy isn’t all too impressed.

Well, Christmas is supposedly Jesus’s birthday. Still, he doesn’t seem like he’s about to chase moneychangers at some temple anytime soon.

4. Perhaps you’d like a couple of gingerbread?

Though the outfits seem kind of short. Yet, both these women hold candy canes to match.

5. How about a Santa mascot for size?

Yes, it’s a cartoonish costume with an eye space at the hat. It’s also kind of creepy.

6. Tulle is always great for a costume Christmas tree.

Both of them also have lights on their trees as well as a star on their heads. Both women can surely stand out.

7. Watch out for this red suited gangster.

He has a candy cane and he’s not afraid to use it. Also, the suit is in pinstripes.

8. A Christmas tree dress will certainly stun.

This is a strapless dress with a skirt consisting of tinsel, snowflakes, and baubles. Not sure if anyone should wear it to SantaCon. But it’s surely stunning.

9. For once, Santa would just like to relax.

Guess this is what Santa would wear when he’s at some golf course in an exotic location. Let’s hope it’s not Mar-a-Lago.

10. Don’t look now, but I think there’s an Abominable Snowman creeping up on the candy cane guy.

You know the Abominable Snowman from the Rudolph the Red Nosed Reindeer special. And yes, I have a very bad feeling about this.

11. These Christmas presents tastefully wrap themselves.

Both wear tutus and shiny tops. And they even come with large gold tags.

12. What could Christmas ever be without the Grinch and Cindy Lou Who?

Though I don’t think the Grinch costume is incredibly flattering. But Cindy Lou is quite lovely.

13. Apparently, even reptilians enjoy the SantaCon celebrations.

One of them even wears shorts. Then there’s some Santas with white fros.

14. If you want to dress as a snow queen, there’s always a costume of Elsa.

Yes, I know so many girls want to be her for Halloween. But at Christmas, Elsa won’t be in high demand. So you can just let it go.

15. Sometimes with Christmas trees, less can be more.

Well, these two wear short green dresses. But they also include the stars, tinsel, and lights.

16. Don your red and green apparel for this year’s SanatCon.

This is a pretty original costume. She has green hair, a hula hoop, and an outlandish outfit. Is either an elf or a resident from Whoville.

17. Santa comes in riding on Rudolph.

I don’t know about you. But considering that Santa is overweight, he shouldn’t be riding on a moose, let alone a reindeer.

18. In this Santa getup, you can be a darling of the holiday pub crawl.

Yes, it’s a sexy Santa girl costume. Not sure if Mrs. Claus would wear this though.

19. Apparently, the Grinch decided to go casual.

Though a green T-shirt is better than makeup. Still, you have to like what they did to their dog.

20. Who thought that Santa could rock in a fedora.

Okay, maybe not. But he certainly seems like he’s straight from a rock group like ZZ Top.

21. Make sure your presents are carefully wrapped.

She’s wearing a dress of gift bows. The guy’s wearing a gift box with a giant bow.

22. This snowman costume can make SantaCon extra frosty.

Yes, it’s a sexy Frosty the Snowman costume. And yes, it comes with a short skirt that’s not good for freezing weather.

23. Perhaps you might want to be a rather saucy Mrs. Claus.

Comes with candy cane striped tights. Still, Mrs. Claus shouldn’t be sexy.

24. Toy soldiers come in all shapes and sizes.

Though the women have the high hats, the men have the fuzzy ones. But they’re all dressed in the traditional uniform.

25. Apparently, Santa has come out of his grave.

Of course, you’ll probably have an undead Santa among ranks. Mostly consists of a Santa suit with a zombie face.

26. If you can’t wrap, you can always gift bag.

Those must be pretty large gift bags. And you can even use tissue paper.

27. Santa Claus isn’t the only Christmas figure to don a long beard.

Yes, this is the Ghost of Christmas present from the Dickens story. So he’d be perfect for SantaCon.

28. My, he sure has a long candy cane.

Okay, I know this is quite risque. But SantaCon isn’t known for its wholesomeness anyway. In fact, it’s just the opposite.

29. You don’t need much to dress as a toy soldier.

They mostly used T-shirts to decorate here. Add the fake hair, mustache, and hat.

30. For a cold day, why not dress as a Christmas caroler?

Okay, this isn’t a conventional caroler costume. Mostly because it has a short skirt.

31. You can always let it snow in your little globe.

Well, that’s kind of cute. Like the “North Pole” base. Though a globe doesn’t really make tasks easier for this Santa’s little helper.

32. A reindeer should always come in a red skirt.

Well, a red tutu of tulle. She’s also wearing red antlers to match.

33. A Christmas tree always needs to sparkle with tinsel.

She’s even wearing presents as shoes. Still, she can’t shake off that shine.

34. Santa and his missus can always stand out in furry, white robes.

Okay, this is probably the Russian Dede Moroz and his wife. But both are in furs and wield long staffs.

35. You haven’t seen nothing from this super Santa.

Though I can’t see how Santa could be Superman. Because both men have totally different body types.

36. Ice queens always love it when it snows.

Well, I suppose they work for some winter park. But they have lovely blue hair and dresses to imitate ice.

37. You might want to bundle up in this candy cane coat.

Well, it’s a flashy candy cane coat and boots. But there’s barely anything in between.

38. Didn’t know Cindy Lou Who was dating Buddy the Elf.

Well, they’re not given age gaps and the different universes they live in. But these two are quite cute together.

39. You can always decorate your own tree dress for the holidays.

She’s wearing tinsel and baubles along with a star on top. Doesn’t light, but she’ll go on the post.

40. While Christmas as Santa Claus, Hanukah has it’s own chicken.

Not sure what the chicken has to do with this Jewish tradition. But I have an inkling suspicion this guy was made up.

41. These toy soldiers are always on duty.

Since they’re wearing pale green over their red pants. They also use candy canes as guns.

42. Of course, everyone could use some shade.

This is a rather clever leg lamp costume. Just need a black coat, stockings, and a lampshade hat.

43. It’s MC Santa time.

Yes, this is Santa as MC Hammer. Though note the other Santa with the chimney hat in the background.

44. Sometimes Santa enjoys delivering presents to those under the sea.

Actually, I don’t think he’s even in the water. But he has a Christmas tree in tow.

45. Wrapping paper can be an excellent substitute for fabric.

Technically, no. But since it’s Christmas, it’s best to let it slide since they’re dressed as presents.

46. Santa’s sleigh team is all assembled.

Well, these ladies are all in a sexy reindeer costume. Though to be fair, female reindeer do have antlers this time of year.

47. This Who girl always loves to dress in pink.

Though to be fair, Whos always have a unique style to them. You especially see this with women’s hairstyles.

48. When in doubt, you can always go to SantaCon in your pajamas.

So they actually have Christmas onesies for adults? Not sure if I’d even wear that.

49. To scare the kids, may I suggest a Krampus costume?

Even comes with a sack for the kiddies. Yes, this a really messed up outfit you can buy.

50. Don’t forget to wear your best stockings.

And I suppose this guy took it literally. Though he doesn’t necessarily make a bad stocking stuffer.

51. You can always shimmer in a pink Santa dress.

At least this one comes with tights. But you have to wear a coat with this on.

52. Hipster Santa will always give you what you want.

Don’t forget he puts roaches inside bad kids’ stockings. Because coal is just too mainstream.

53. Sometimes you get more with less on a Christmas tree dress.

Includes bows and baubles on the skirt along with gold tinsel. Comes with red transparent stockings.

54. Seems we have Rudolph pulling Santa’s sleigh.

Don’t worry, they’re just two friends playing around. Though the woman playing Rudolph must be freezing her butt off.

55. An oblong box is a perfect way to present yourself.

It’s a present costume, possibly consisting of mostly foam inside. Yet, it’s in red with a green ribbon.

56. Though you can easily make your own presents with a box.

These boxes just have wrapping paper, ribbons and tags. And they only cover their upper bodies.

57. You should always go all out as a Christmas tree.

He’s even wearing lights and tinsel. Though I hope he doesn’t step into mud since it would totally ruin it.

58. Let these Santas guide you on the 4 stages of life.

And yes, they seem to revolve around Santa Claus. Yet, you have to love their hats.

59. Seems like a couple of Na’vi are basking into the holiday cheer.

Too bad their blue paint costume hasn’t been relevant since 2009. Though James Cameron vows to make sequels.

60. Perhaps you’d like to dress as a couple of driedels.

Finally, a costume depicting an actual Hanukah symbol. But don’t try to spin these two.

61. These Santas just came from the deep.

Well, they’re diving helmets. Though you wonder if they can see through the windows.

62. The mighty Santathor will always be there to save Christmas.

And he comes wiht his hammer Mjingle to vanquish the Grinch stealing it. Wait a minute, Thor’s a Norse god, isn’t he?

63. Seems like everyone wants to follow that one reindeer.

Though one of these is Ralphie who just shot his eye out. Still, the Santa seems a bit sketchy.

64. You can always keep warm with a cup of Starbucks.

Well, she’s dressed as a Starbucks holiday cup. Guaranteed to infuriate conservatives and Fox News.

65. Christmas trees should always dress alike.

And all these ladies wear stars and bright green hair. Dresses are decorated with baubles and tinsel.

66. This soldier is a real nutcracker.

You can tell because she’s holding a bag of nuts. Though she seems quite pretty compared to the regular ones.

67. You can never have enough tulle for a Christmas tree costume.

Wonder how she sits down. Outfit even lights up. Lovely.

68. You could always go as an elf from Santa’s workshop.

Makes you wonder what the North Pole’s dress code is. Still, sexy elves belong in Lord of the Rings, not Christmas.

69. Seems like Santa has gone Steampunk.

So does he ride on a mechanical sleigh with automaton reindeer? Still, this is great.

70. If you like gingerbread, you might adore this dress.

Yes, I know it’s another sexy costume. But at least it has a candy cane blouse and tights.

71. Now this snowman looks really frosted.

Okay, that’s pretty creepy. Yet, it’s a great use of cotton stuffing.

72. Looks like that’s someone from Santa’s pit crew.

Well, someone has to repair Santa’s sleigh. And yes, that person’s wearing a mechanic’s suit.

73. Sorry, but on Christmas the guy has to wear the pink bunny suit.

Yes, this is A Christmas Story couple. And yes, the woman is a leg lamp. Still, the pink bunny costume cracks me up.

74. Looks like Santa Claus has gone evil.

And he wears horns and a long red robe with a hood. He’s even got a lady assistant with him.

75. These people wish you a merry Kiss-mas

Think of it as KISS dressed up in Santa suits. And you basically get this.

76. Seems like Jack Skellington is passing on his own Christmas cheer.

I have to admit this is just so cute in its own way. Just hope this little Santa doesn’t give away shrunken heads to the kids.

77. No, Ghost of Christmas Present, please don’t go open robe.

And yes, he has his dick in a box. Jesus Christ, this is just messed up.

78. You can always don a couple of advent calendars.

Well, that’s a rather simple idea for SantaCon. Very original to say the least.

79. Now you have a Santa in grayscale.

Because a grayscale always goes in a black and white photo. Though we live in a world of color.

80. Looks like Clark Griswold’s had trouble with the lights.

Yes, this is from the cover of Christmas Vacation. And yes, you can actually get electroshock if you’re not took careful.

General Ripper Sings Like a Canary

 

In the biggest development yet in special counsel Robert Mueller’s investigation into potential collusion between the Trump campaign and Russia, former National Security Adviser Michael Flynn agreed to a plea deal with prosecutors on Friday, December 1, 2017. The legal move poses the most direct threat to the Trump presidency itself so far. Flynn pleaded guilty to a single count of lying to the FBI on or around January 24 about conversations with then-Russian Ambassador Sergey Kislyak in December 2016. However, Flynn did not admit to colluding with Russia during the 2016 presidential election. Nevertheless, Flynn’s plea deal will strengthen Mueller’s sprawling probe into the Trump team’s possible criminal acts and Russian ties.

Of course, once Paul Manafort and Rick Gates were indicted while George Papadopoulos pleaded guilty, it was only a matter of time when Michael Flynn would flip. In fact, it’s been speculated for weeks that Flynn wanted to protect himself from a more serious criminal indictment. As with Manafort, Mueller had a solid case against the retired general. Earlier this year, Flynn offered to testify in exchange for full immunity from prosecution but Mueller refused. On November 23, The New York Times reported that Flynn’s lawyers told Trump’s lawyers they could no longer share information. Four days later, ABC News reported that Flynn’s lawyers met with Mueller’s team, a strong sign a plea deal was imminent.

Michael Flynn’s plea deal is the most significant moment in Mueller’s probe to date since he is the first person who had actually served in the Trump White House to admit breaking the law. Nor was he just any old official either since Flynn’s role as national security adviser is one of the highest-level and most powerful posts in Washington. The retired three-star general temporarily had enormous influence over Donald Trump’s early policy and personnel choices. And due to his unique ties to both the Trump campaign and Trump White House, he’s particularly well-suited to answering the Mueller probe’s central questions on whether the Trump campaign knowingly colluded with Russia and if Trump obstructed justice by trying to derail the FBI’s investigation. Flynn’s plea deal gets Mueller closer to finding that out. Now Mueller gets Flynn to talk along with an admission of guilt. Obviously, this is bad news for Michael Flynn but it could be even worse news for Donald Trump. As legal expert Asha Rangappa noted, “When you flip somebody, you’re using them to go up the chain. This suggests that Mueller’s investigation is going to go into the even-tighter inner circle of the campaign and possibly the administration.”

A retired lieutenant general who served in the Army for over 30 years, Michael Flynn is a quintessential General Ripper. Hell, take General Jack D. Ripper’s line “I can no longer sit back and allow Communist infiltration, Communist indoctrination, Communist subversion and the international Communist conspiracy to sap and impurify all of our precious bodily fluids,” and replace each mention of “Communist” with “Islamic” and you basically have Flynn. And let’s just say if it weren’t for his soft spot for Russia, he’d feel right at home among the trigger happy military brass in Dr. Strangelove. Anyway, in 2012, he was named head of the Pentagon’s intelligence arm, the Defense Intelligence Agency. During this time, he clashed with other Obama administration officials who viewed him as sloppy with facts and incompetent with management. Soon he was pushed out and resigned from his post in 2014. Technically, President Barack Obama fired him but you know how they do things in Washington. Furious, Flynn began his post government public life commenting on foreign policy and military issues in the media, becoming infamous for his extreme Islamophobic rhetoric. For example in February 2016, he tweeted, “Fear of Muslims is RATIONAL.” Such language combined with his poor DIA track record made Flynn a pariah in the mainstream foreign policy community. For the Trump campaign that championed a Muslim ban, he was a perfect fit.

In fall 2015, Michael Flynn began occasionally briefing Donald Trump on foreign affairs and his involvement in the campaign gradually deepened. By late May 2016, he was mentioned as a potential vice presidential pick for Trump. In July of that year, Flynn gave a now ironic speech at the Republican National Convention in which he riled the crowd with “Lock her up.” But while Flynn advised the Trump campaign, he operated a lobbying and consulting firm called the Flynn Intel Group which importantly, also employed his son. He was also a frequent guest on the Russian government’s English-language propaganda outlet RT, where he’d often espouse the idea that Russia and the US should team up against Islamic extremism. And it’s Flynn’s lobbying and work for the Russian government which first led into dangerous legal territory. In December 2015, Flynn traveled to Moscow for a gala celebrating RT’s 10th anniversary. He sat next to Vladimir Putin and delivered a speech about his foreign policy vision. For his services, RT paid Flynn a $45,000 speaker’s fee while Russian companies him $22,500 for speeches during the same trip. Now that in itself isn’t necessary illegal. However, Flynn reportedly lied about the source of the payments in his security clearance renewal form, claiming they came from “US companies.” Lying on this form is equivalent to lying to federal investigators which is a felony and perhaps one of the reasons why Flynn took the plead deal. In August 2016, an entity called Inovo BV hired Flynn’s consulting firm. Though it claimed to be Dutch company, Inovo BV turned out to be a shell corporation for a wealthy member from the Turkish government. Flynn seems to have continued working for Turkey until November at the earliest while Ankara paid him at least $530,000. Under the Foreign Agent Registration Act, Flynn had to publicly disclose any lobbying work for the Turkish government when he started. His FARA paperwork said he worked for a Dutch company, not the Turkish government. In March 2017, Flynn filed paperwork correcting the error, admitting that Inovo really paid him to work on behalf of Turkish interests. If that’s all he did, then Michael Flynn would’ve been fine. After all, the US government typically doesn’t arrest people for filing incorrect FARA paperwork after they correct it. But if there’s more undisclosed lobbying for foreign governments like more Turkey payments or undisclosed Russian activity than he revealed in March, then he’d be in deep shit.

Still, you’d think Flynn’s legally questionable shenanigans would’ve ended in November 2016, when Donald Trump made him his national security adviser in his new administration. Though outgoing Obama officials warned the Trump transition team about appointing the guy. But if anything, it got worse. Throughout the transition, Flynn had several contacts with Kislyak. In one early December meeting at Trump Tower, he and Jared Kushner talked to the Russian ambassador about setting up a secret channel through which they can communicate. On December 29, 2016, the day Obama announced sanctions on Russia in response to the country’s hacking efforts, Flynn and Kislyak reportedly exchanged 5 phone calls. One of the discussion topics was sanctions. But Flynn reportedly told Vice President-elect Mike Pence and others on the Trump team that sanctions never came up in his calls with the Russian ambassador, spurring them to make false statements to that effect in public. This conversation between Flynn and Kislyak is part of the just-released document Mueller had sent to court.

On Donald Trump’s Inauguration Day, Michael Flynn’s former business partner allegedly bragged that he told him that Trump would quickly lift US sanctions on Russia, which would pave way for a controversial plan to build nuclear plants across the Middle East with Russian help. While this is an explosive but unverified allegation coming from a whistleblower cooperating with House Democrats, there have been reports over the last few months that Flynn continued to promote this Middle East nuclear project after the election and even as national security adviser. In the Trump presidency’s first week, Flynn was questioned by the FBI in which he denied contact with Kislyak during the transition. That same week, then acting-Attorney General Sally Yates warned the White House that intelligence showed Flynn had lied about his conversations with Kislyak and he was vulnerable to Russian blackmail. Unsurprisingly, the Trump White House did nothing about this until it leaked to the press a few weeks later, when they were spurred to fire Flynn on February 13, 2017. Then there’s an entirely separate matter of whether Flynn improperly acted on Turkey’s behalf during the transition or while in office. According to the Wall Street Journal, Mueller is investigating an “alleged plan” in which Flynn and his son would be paid as much as $15 million for forcibly removing Fethullah Gulen, a Muslim cleric living in Pennsylvania, from the United States and delivering him to Turkey. Flynn discussed this possibility with Turkish government representatives at a December meeting during the transition as incoming national security adviser.

Altogether, there’s plenty of circumstantial evidence that Michael Flynn broke the law. The plea deal where he’ll admit to lying to federal investigators confirms he did and he’s trying to get a lighter punishment. The best Flynn can do is tell Mueller everything he knows abut Trump and Russia. The next important question is whether other Trump officials aided Russian efforts to interfere with the 2016 presidential campaign. If there was collusion, Flynn most likely knows about it. This is why Mueller wanted Flynn to strike a deal. Particularly, one where Flynn agreed to a lesser sentence in exchange for giving an honest accounting of what he knows about Trump-Russia ties. Sure getting Papadopoulos to agree to cooperate with Mueller’s team was pretty awesome. But getting Flynn to flip is a much bigger prize.

And it’s possible that Flynn has more Russia ties than known since there’s already some reporting suggesting we don’t have the full Flynn and Russia story. In June, The Wall Street Journal reported that a Trump supporting GOP operative and private equity executive Peter Smith embarked on an effort to track down Hillary Clinton’s infamous 30,000 or so deleted emails during the fall of 2016 and contacted Russian hackers to ask if they had them. Smith wasn’t part of the Trump campaign. But according to sources, he told people working with him that he was coordinating with Flynn. While trying to recruit for the effort, Smith also distributed a document naming the Trump campaign as one of the 4 groups involved. Another piece of information pointing to Flynn was that US officials were aware of some intelligence that Russian hackers had at least discussed sending leaked emails to Flynn through a third party. As Shane Harris wrote for the Wall Street Journal: “Investigators have examined reports from intelligence agencies that describe Russian hackers discussing how to obtain emails from Mrs. Clinton’s server and then transmit them to Mr. Flynn via an intermediary, according to U.S. officials with knowledge of the intelligence.” Smith died this year, reportedly by his own hand and Flynn hasn’t said anything about the Journal report. Nevertheless, all this is enough to raise serious questions about just what Flynn knew about this or any other attempted outreach to Russian hackers or other Russian entities. However, we don’t know yet if this led to actual collusion implicating Flynn or anyone else on the Trump team. Perhaps Smith made his effort seem important by name dropping Flynn, rather than working closely with him. In addition, Smith’s efforts to find Clinton’s deleted emails have failed since they never surfaced.

Michael Flynn’s is also central to determine whether Donald Trump obstructed justice as president, essentially by unlawfully interfering with former FBI Director James Comey’s inquiry. Since Flynn is a central character in this entire drama and fate could shape Trump’s. As Rangappa told Vox, “I think Flynn’s value to Mueller is less on the collusion part and has more to do with obstruction of justice. If Trump had any knowledge of any kind of criminal liability that Flynn may have had — and he was trying to get Comey to drop the investigation — that essentially seals Mueller’s obstruction case.” After Flynn was fired, Trump held a counterterrorism meeting with his national security officials which ended when he ordered everyone except then-Director Comey to clear the room. According to Comey’s written notes, Trump asked him to lay off the investigation into Flynn’s Russia statements. He said that Flynn “is a good guy” and urged the then-FBI director “to see your way clear to letting this go, to letting Flynn go.” Comey refused so Trump eventually fired him a few months later.

Flynn’s testimony could help answer if Trump wanted to protect him out of fear on what he might know. It’s not enough to show that Trump didn’t like where the Russia investigation was going. A prosecutor or member of Congress pushing for impeachment would need to show that Trump actually tried to cover up some kind of wrongdoing on his part to establish an obstruction case. As federal prosecutor Alex Whiting explained the specifics of Trump’s relationship with Flynn matter a great deal, noting: “Did [Trump] know that Flynn’s story was an important piece in the larger picture, one that he did not want revealed? Or did he know that the FBI’s pressure on Flynn could force him to give up other incriminating evidence? Far from simply acting to shield a former subordinate and ally, was Trump actually just trying to protect himself, and those close to him? If the answer to any of these questions is yes, then Trump’s actions will have a very different feel to them, and his potential defenses much harder, if not impossible, to swallow.” Flynn may know the answer to Whiting’s questions which Mueller will likely hear soon.

Still, former US attorney Preet Bharara isn’t convinced that Michael Flynn received “a sweetheart deal of a lifetime” in exchange for hugely important cooperation. On the latest podcast episode, the former New York prosecutor disputed that the relatively light charge against the former 3-star general clearly showed he must’ve agreed to provide especially valuable information to Mueller’s investigation. Bharara refers to his own experience supervising similar high-profile cases.  He claimed, “When we had evidence against somebody and wanted them to flip, we made them plead guilty to every bad act that they had ever done. Especially if we were later gonna be alleging other people had engaged in that activity as well.” Such actions, the former prosecutor argues makes a witness like Flynn more credible in court if he has to testify against someone else. “Otherwise, the only thing the jury will know for a fact about your witness is that he is an admitted, convicted liar,” he said. What he suspects is that Mueller doesn’t’ have anything else on Flynn that might stand in court. But he also suggests that Mueller is “holding back on other charges to which Michael Flynn will plead guilty if and when they form the basis of charging some other folks.” In other words, certain potential charges against Flynn could implicate others in Trump’s team as well and that Mueller’s team just isn’t ready to make those charges yet (and may never be). Yet, this case could be different than Bharara’s own past prosecutions. For one, Mueller’s potential endgame might be impeachment referral rather than a high-profile court trial. In addition, Mueller could be concerned about Trump’s pardon power, possibly holding off some potential charges against Flynn so he could bring them later, in case of a pardon. And seeing how quickly Trump pardoned infamous former Maricopa County Sheriff Joe Arpaio, Mueller might’ve taken a cue.

On Saturday December 2, 2017, Donald Trump tweeted that he fired his former National Security Adviser Michael Flynn because he lied to the vice president and the FBI. If that’s the case, Trump knew that Flynn lied to the FBI when he asked then FBI Director James Comey to drop his inquiry into Flynn and then fired him when he failed to do so. This could play into an obstruction of justice case against him. Looking into Trump’s history which shows unparalleled disrespect for the rule of law, committing obstruction of justice shouldn’t come as a surprise. Donald Trump’s corruption is mindboggling beyond any measure that anyone could imagine. He has already abused his power as president in order to enrich himself as well as constantly lies about everything whenever he opens his mouth. But should Mueller’s team find compelling evidence if the Trump team engaged in a criminal conspiracy to help hack Hillary Clinton’s email (since stealing documents is illegal), violated campaign finance laws through soliciting foreign help like from the Russian government, or committing crimes against the investigation itself like witness intimidation, perjury, obstruction of justice, and the like, Mueller can convene a federal jury and seek a criminal indictment against the person. If the grand jury signs off, that person is then arrested and charged. Eventually Trump can be forced to make a terrible choice. He could risk a close associate or family member going to jail or possibly making a deal with federal prosecutors in return for testimony that could incriminate others. Or he could use his pardon power to shield his cronies from federal charges. Should he go the second route, expect a massive political conflict with Congress because of the obvious impropriety of President Pussygrabber pardoning family members or close associates for crimes committed to help him win the presidency in the first place.

Then there’s the question of what happens if Mueller finds evidence of criminal behavior by Donald Trump himself. Granted that Trump is a narcissistic sociopath with a history of abusing his power for his own enrichment, disrespecting the rule of law, and getting away with egregious corruption practices, this is extremely likely. As special prosecutor, Mueller has the legal authority to file charges against any Trump associates or family members. But there’s another legal debate as to whether it’s constitutional for prosecutors to indict a president on criminal charges. Because no state or federal attorney has ever indicted a president on serious criminal charges and we have no Supreme Court precedent to answer that question. Mueller would likely sidestep that whole minefield and simply make a report to the House of Representatives documenting evidence of Trump’s “high crimes and misdemeanors,” the constitutional standard of impeachment. Should Mueller’s report contain damning evidence, it would put a lot of pressure on the House to begin impeachment proceedings. In short, Mueller could take the first step toward ending Trump’s presidency. So Trump really needs to be afraid. Especially since Mueller is currently looking into his business practices and finances which contain plenty of shady stuff less wealthy people have been arrested for.

 

An Urgent Call for Action to Save Net Neutrality

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On Wednesday, November 22, 2017, Federal Communications Commission Chairman Ajit Pai released his draft order to eliminate net neutrality. In short, this order will eradicate net neutrality rules and abandon the court-approved Title II legal framework serving the basis for the successful 2015 Open Internet Order. These regulations prevented internet service providers (ISPs) from blocking or slowing down access to websites or services as well as bans them from offering so-called fast lanes to companies willing to pay extra to reach consumers more quickly than competitors. The proposal’s most significant change is to strip the FCC’s authority to regulate broadband as a utility and shift that responsibility to the Federal Trade Commission, which can’t create the hard and fast rules ISPs must follow. But the FCC will simply require ISPs to be transparent about any blocking, throttling, or pay prioritization which they would evaluate based on whether or not the activity is anti-competitive. However, the proposal will also ban state and local governments from imposing their own net neutrality rules to replace federal regulations or lack thereof. A vote on this measure is scheduled on December 14 and it’s expected to be passed and implemented on a party line 3-2 vote. Ironically called, “The Restoring Internet Freedom Act,” is basically everything that ISPs could want. But it is a policy that will take away every safeguard we need to protect the open internet we’ve always had. Since it will give ISPs the power to kill off their competition, choke innovation, charge more for various content, suppress political dissent, and marginalize voices of racial justice advocates and others organizing for change. Essentially, Pai’s proposal is thin on substance and reasoning, cruel, willfully naïve, as well as not grounded in reality. Yet, should the FCC has its way, Pai’s plan will change how Americans experience the internet and for the worse.

Under the existing regulations the FCC passed in 2015, there are clear hardline rules forbidding telecom companies from unethical business practices. These rules are reinforced with strong but flexible safeguards that the 2015 order built in for other schemes ISPs might use now or invent in the near future to interfere with internet traffic. With the exception of scant transparency rules, Pai plans to “eliminate the conduct rules adopted in the Title II Order — including the general conduct rule and the prohibitions on paid prioritization, blocking and throttling.” This leaves internet users entirely without protections and relying on ISPs to behave and avoid exploiting their internet gatekeeper status. It’s clear in the “The Restoring Internet Freedom Act” that Pai and his fellow Republican colleagues at the FCC want to allow telecom companies to legally block and discriminate internet content. In other words, “restoring internet freedom” means restoring the ISPs’ own freedom to offer “curated services” rather than their broadband customers’ rights. Thus, Donald Trump’s FCC wants to let the most-hated and worst-rated companies in America block and edit online speech.

It shouldn’t surprise anyone that Pai wants to end net neutrality to enrich his buddies at Verizon where he worked as an attorney. But he’s often used flimsy arguments that even without oversight and prohibitions against blocking and discrimination by claiming, “transparency substantially reduces the possibility that ISPs will engage in harmful practices, and it incentivizes quick corrective measures by providers if problematic conduct is identified.” After all, he states that these large telecom companies have, “publicly committed not to block or throttle the content that consumers choose.” Except that public commitments don’t mean a damn thing to them. Besides we all know these telecom companies want to end net neutrality so they control whatever their customers say or do online. Discriminating against the content consumers to is the whole damn point. Telecom companies have the technology to scrutinize over every piece of information we send or receive online like websites, email, videos, internet phone calls, or data from games or social networks. They can program computers routing information to interfere with the data flow by slowing down or blocking traffic and communication they don’t like while speeding up traffic they do that pays them extra for the privilege. And as far as Tim Wu is concerned, “transparency” is basically a euphemism for “doing nothing.” But the FCC factsheet states that “Internet service providers didn’t block websites before the Obama Administration’s heavy-handed 2015 internet regulations and won’t after they are repealed.” However, before the 2015 order put firm rules on solid legal footing in place, ISPs blocked content, throttled websites, and used their power to rig the market in their favor. These cable and phone companies have taken every chance they could get around net neutrality laws and have already shown us exactly what they’ll do if we let them. Numerous incidents of abuse include:

  • AT&T pressuring Apple into blocking the Skype app on all iPhones, complaining that Skype was being unfair by “not operating on a level playing field,” or in other words, having a better product that AT&T couldn’t compete with. So they just blocked people from using it. And they weren’t the only ones to do so either since ISPs from around the world followed suit and most didn’t just stop at Skype either. In fact, they blocked every program you could use to make online phone calls altogether.
  • Madison River Communications blocking voice-over-internet protocol (VOIP) Vonage which filed a complaint to the FCC after hearing a slew of customer grievances. The FCC stepped in to sanction Madison River and prevent further blocking. But it lacks the authority to stop this kind of abuse today.
  • Comcast, Verizon, and Metro PCS slowing down Netflix. In 2011, Metro PCS sent out an ad boasting that anyone who signed up for their cheapest plan would receive “YouTube access.” Though it might seem good on paper, it actually meant that if you weren’t willing to pay for the expensive plan, the company will block every other video streaming site on the internet. Because they advertised users could “preview trial video content” but not actually watch it for $10 more. And if users paid $20 more, they could access 18 different video streaming websites. Verizon has also been caught slowing down Netflix users. Sure they didn’t make it impossible to watch a movie, but they made it slow enough so no one could waste bandwidth by watching a video in HD. Comcast has done it, too, which is particularly troubling since they own TV networks and have some clear reasons wanting to keep Netflix from succeeding. And they refused to slow down until Netflix paid money. So basically Comcast just blackmailed their competition by sabotaging them and refusing to stop until they paid them. And by the way, this was before net neutrality and thus perfectly legal.
  • Canadian ISP Telus blocking its customers from seeing their workers’ union website called “Voices for Change” which listed their complaints and demands during a 2005 strike. Oh, and they blocked 766 other websites hosted on the same server. In other words, Telus censored an entire section of the Internet because they didn’t like what people were saying. And since there was no net neutrality at the time, the Canadian company suffered zero consequences other than a media tongue lashing.
  • British ISP Plusnet telling charging their customers extra for playing online games. The company set up a tier of different data plans asking their customers to decide if they wanted to be able to surf the internet, stream videos, play video games, or do all 3. And if they weren’t willing to pay for the premium package, they’d be charged extra. And Plusnet didn’t just block video games in the cheaper plans either. They also blocked VPNs, forcing employees who remotely connect to their offices to pay more. And unless you were willing to pay for the most expensive plan, they slowed down peer-to-peer programs like Bit Torrent so badly they hardly worked at all.
  • AT&T censoring words from Pearl Jam’s Eddie Vedder when he sang “George Bush, leave this world alone” and “George Bush find yourself another home,” on account of preventing youth visiting the website from being exposed to “excessive profanity.” Though the song contained none. Of course, they later blamed it on an external website contractor hired to screen the performance.
  • Verizon cutting off the pro-choice group NARAL text-messaging program since they didn’t want to service programs from any group “that seeks to promote an agenda or distribute content that, in its discretion, may be seen as controversial or unsavory to any of our users.”
  • Comcast and Cox Communications blocking VPN. In 2001, these companies updated their terms of services declaring from now on that their customers had to agree not to use a VPN unless they were willing to pay for it. Since VPN lets you connect to another network, which for a lot of people means it’s a way to connect to their office from home, this resulted in a lot of people working from home being suddenly blocked off from how they made their livelihood. And when people called and complained, they didn’t receive much sympathy. Comcast basically said that anyone working from home was going to have to upgrade to their “@Home Pro Package” which started at $95 a month. Essentially, if you worked from home, you had 2 options: either start paying for the most expensive plan Comcast had or get a new job.
  • Verizon blocking Google Wallet. In 2011, Verizon developed its own digital wallet which was going to change the way people made purchases by letting people make purchases with a simple wave of their phone. And they were pretty sure they’d make a fortune, too. Except for two things. First, their product’s name was “Isis” which was about to become less marketable for reasons I need not discuss. Second, Google had already released an identical product called Google Wallet which basically doomed Verizon’s Isis from the start. So when Verizon realized they couldn’t beat Google fairly, they blocked Google Wallet on all Verizon phones, essentially making it impossible for their customers to pick their competition over them. Unsurprisingly, Verizon was accused of breaking net neutrality laws. But since they technically blocked Google’s hardware instead of its software, they got away with it. So there’s every reason to believe if Verizon could block an app that’s competing with one of their own, they’d take it.
  • Comcast deliberately blocking BitTorrent. In 2007, Comcast was caught blocking peer-to-peer programs like BitTorrent, eDonkey, and Gnutella through deep packet inspection to block file transfers from customers using these networks. As a result, any Comcast customer trying to share files from one computer to another would find that their internet connection inexplicably kept dropping. At first, Comcast denied it. However, national tests conducted by the Associated Press confirmed the company’s actions as unrelated to network congestion since blocking took place at times when there wasn’t any. Not to mention, enough people had spread proof online, Comcast couldn’t keep up the lie. Though the company wasn’t apologetic either since they claimed that blocking these peer-to-peer programs like BitTorrent was “necessary.” In their defense, Comcast blocked applications often used to trade videos like pirated content, despite that most of what they blocked on these networks was legitimate. And Comcast has strongly hinted that they’ll do it again. After all, they have promised to that they “will not block, throttle, or discriminate against lawful content” once net neutrality is repealed. But as far as they’re concerned, peer-to-peer programs like BitTorrent fall under “unlawful content.” So once net neutrality is out of the way, Comcast is shutting these programs down.
  • Verizon shutting down Wi-Fi hot spots. When the technology to turn your phone into a Wi-Fi hot spot came out, Verizon Wireless started offering it as an add-on. For an extra $20 a month, their customers could use their phone’s data plan through another device like computer. Only problem was that there wasn’t any reason to give Verizon that $20. There were already all kinds of apps available letting people turn their phones into Wi-Fi hot spots for free. So since Verizon couldn’t really compete with these apps, they just shut them down. And they put pressure on Google to remove every Wi-Fi hot spot app from the marketplace. Thus, in other words, Verizon literally shut down 11 smaller businesses because they couldn’t compete with them.
  • Windstream and Paxfire redirecting Google Searches. In 2005, Windstream Communications tried to get their own search engine on the market and compete against Google and Yahoo. However, their search engine was so awful that there was absolutely no reason anyone would really want to use it. So they set up a redirect. That way, any Windstream customer who typed something into Google would just be forcibly redirected to the Windstream search engine instead of getting Google results. And Windstream wasn’t the only company to do this. Paxfire started accepting bribes from companies to redirect Google searches. So for instance, if any Paxfire customer googled “apple,” they’d be just forcibly sent to apple.com. Didn’t matter if they were looking for information growing apples or apple pie recipes. Their users would be looking at iPhones and they couldn’t do anything about it.
  • AT&T, Verizon, T-Mobile, and others running zero-rating schemes that advantage their own content. These are sponsored data programs to third party content providers to pay ISPs to exempt their data from customers’ data caps and at less favorable terms than they offer their affiliates.
  • Verizon admitting plans on censoring the internet. While most companies trying to end net neutrality try to hide what they’re up to, Verizon has directly and unambiguously said that they want to end net neutrality so they can censor free speech. In fact, a Verizon attorney told the FCC that they believe as broadband providers, they “transmit the speech of others” and deserve the right to what they call “editorial discretion.” Because the attorney claimed, “Just as a newspaper is entitled to decide which content to publish and where, broadband providers may feature some content over others.” In other words, Verizon doesn’t give a shit that everyone has a right to express themselves on the internet. In fact, they want to decide what goes online and what gets censored. Even when the FCC pushed them and asked if they planned on blocking websites, the Verizon attorney still didn’t deny that his company planned on censoring the internet, claiming, “But for these rules, we would be exploring those types of arrangements.” And that’s what will happen if net neutrality goes away. This isn’t a paranoid fear or a worst-case scenario, it’s straight out of their mouths.

If Pai’s FCC really wanted to guarantee that ISPs can’t charge tolls to access content, prioritize certain websites and services, create fast and slow lanes, and censor political speech, then it wouldn’t repeal net neutrality. In fact, Pai’s plan to end net neutrality doesn’t even conceal this. When it comes to letting ISPs dividing the internet into fast lanes for the few who can pay an extra toll and slow lanes for everyone else, his order actually celebrates the idea. As Pai writes, “We anticipate that lifting the ban on paid prioritization will increase network innovation [because] the ban on paid prioritization agreements has had … a chilling effect on network innovation.” Only the FCC and the ISP boardrooms would call slowing down websites and apps “innovation.” As far as they’re concerned, “restoring internet freedom,” will lead to “better, faster, and cheaper broadband for consumers and give startups that need priority access (such as telehealth applications) the chance to offer new services to consumers.” Except that creating fast and slow lanes will do absolutely no such thing. Yet, this is exactly the “trust the cable company” future Pai envisions for the internet which puts a ridiculous amount of faith in ISP promises.

Since the internet was available to the American people, there have always been a need for laws protecting people’s rights on the internet. Laws protecting these rights are in what’s called Title II of the Communications Act. These were updated on an overwhelming bipartisan basis in both houses of Congress in 1996 to establish the legal definition and duties that still do and still must apply to broadband service. Broadband internet access is what the law refers as a “common-carrier transmission service.” This lets internet users transmit what information they choose to and from the points of their selection and that the ISP must transmit the content without unreasonable discrimination. This is how broadband customers see the service ISPs offer and sell them. That’s the service we all need to have any chance of connecting and communicating with each other and accessing all the internet has to offer. The Obama FCC followed the law and fulfilled its congressionally mandated duties by returning to Title II and to the proper understanding of broadband internet access as a telecom service. A Federal appeals court reviewing the agency’s reason upheld that decision twice. Pai’s draft order fails to assess the proper history as well as the FCC’s steps and missteps past which explain Congress’s true intent and meaning of the law. But the best Pai can think of are ahistorical references to Clinton-era interpretations of an internet ecosystem long since gone, along with a smattering of ISP talking points and legal arguments courts just shot down last year. Talking about how the FCC treated AOL’s dial-up internet service in 1998 and pretending that this reasoning should apply to ISPs like Comcast and AT&T that control the physical networks we use to get online today just doesn’t cut it. Nor does the ridiculous claim that just because ISPs transmit internet speech and information, the broadband access line itself must be an information service, too. Pai’s justifications are simply attempts to ignore the reality of modern broadband internet services that people depend on today. And we still need rules guarding against the ISPs’ incentive and ability to discriminate. By abandoning the Communications Act and possibly punting federal oversight of net neutrality to the FTC, Pai turns back on the FCC’s sound legal framework for preventing discrimination online as well as abdicates its responsibilities and using the worst legal arguments it can find to justify his actions.

Another major argument the Pai order offers for all this upheaval is the supposed harm that a Title II framework has hurt broadband investment, thus slowing the expansion of nationwide internet access. It’s likely that Pai just made it up that’s only backed by a handful of lobbyists and corporate shills willing to lie or concoct supposed evidence for this alleged economic downturn. However, broadband investment doesn’t run on regulation alone. It doesn’t decline because the FCC restores the same kinds of protections against discrimination that have been kept in in place continuously for a wide range of Title II voice and broadband services for the past several decades. If you take the broader view, broadband investment has already been declining before net neutrality was in place. Besides, the stories ISPs tell their investors are very different from what they tell the FCC. In fact, Securities and Exchange Commission filings reveal an increase in internet investment since 2015 according to Free Press. Even so, whether industry investment should be the dominant measure of success in internet policy is kind of irrelevant considering the larger issues at hand.

Fortunately, there has been strong opposition to Pai’s terrible plan. During the FCC comment period, 98.5% of individual comments support keeping net neutrality rules. #Net Neutrality has trended globally on Twitter and was the top trending hashtag in the United States. Redditors representing a dizzying range of political philosophies and subcultures spoke out. In fact, the most popular post in the Reddit NASCAR group’s entire history is about the need to save net neutrality. Since last Tuesday, Americans have made over 500,000 calls to Congress urging their lawmakers to condemn Pai’s plan. Now Capitol staffers feel so besieged that a few reached out and asked pro-neutrality groups to make the calls stop. And on Saturday after Thanksgiving, Maine’s Senator Susan Collins became the first GOP senator to publicly oppose Pai’s proposal, joining scores of Democratic leaders who’ve spoken up in the last few months. As of today, there are 600 protests in the works in all 50 states in cities including Atlanta, Boston, Denver, Des Moines, Miami, New York City, Salt Lake City, San Francisco, and Wichita. And since Pai once worked for Verizon (officially), people are organizing outside corporate-owned Verizon stores all across the country. On Cyber Monday, hundreds of businesses and organizations sent a letter calling on the FCC chairman to reverse course and scrap his plans to repeal net neutrality rules. They wrote, “Without these rules, internet service providers will be able to favor certain websites and e-businesses, or the platforms they use to garner new customers, over others by putting the ones that can pay in fast lanes and slowing down or even blocking others. Businesses may have to pay a toll just to reach customers. This would put small and medium-sized businesses at a disadvantage and prevent innovative new ones from even getting off the ground. An internet without net neutrality protections would be the opposite of the open market, with a few powerful cable and phone companies picking winners and losers instead of consumers. The current rules provide the protections necessary to protect net neutrality and ensure the internet remains a free and open marketplace that encourages innovation and supports robust competition.”

Yet, even if the FCC votes to kill net neutrality, a federal court challenge is inevitable given overwhelming support for a free and open internet. Even if that suit remains in the US Court of Appeals, the outcome could very well drag on for another year and a half or more. And there will certainly be numerous lawsuits filed in reaction to the “Restoring Internet Freedom” Order. While the telecom industry will undoubtedly have an army of lawyers, they don’t have a strong case. For one, allowing ISPs to practice internet censorship akin to the Chinese state by blocking its critics and promoting its own agenda is anathema to the internet’s and America’s founding spirit. In fact, you can argue such censorship is unconstitutional under the First Amendment since it violates freedom of speech. Second, the Pai’s proposal is such a drastic reversal of net neutrality policy and is based on weak evidence to support the change. Government agencies aren’t free to abruptly reverse longstanding rules which many have relied on without good reason like a change in factual circumstances. A mere shift in FCC ideology isn’t enough. Because according to the Supreme Court, a federal agency must, “examine the relevant data and articulate a satisfactory explanation for its action.” Since the 2015 net neutrality rules are a huge success by most measures, the case for killing them would need to be very strong. Except that it isn’t. It’s very clear that Pai’s rationale for eliminating the net neutrality rules is that telecom companies need to earn even more money than they do despite enjoying generous profits for years. Third, because Pai’s FCC is killing net neutrality outright, the chairman will have to explain to a court not just the shift from 2005, but also his reasoning for destroying basic bans for blocking and throttling which have been in effect since 2005 which the entire internet ecosystem has relied on. This will be a very difficult task since there is a long history of (often concealed) anticompetitive throttling and blocking that the FCC has had to stop to preserve the internet economy’s health. Pai needs to explain why we no longer have to worry about this threat and he can’t just say, “you can trust your cable company” either. Fourth, the FCC is acting contrary to public sentiment which may embolden the judiciary to oppose Pai’s plan. While telecommunications policy doesn’t always attract public attention, net neutrality does. And since 76% of Americans support it, the FCC is on the wrong side of the democratic majority. In our times, the judiciary has increasingly become a majoritarian force which can prevent narrow, self-interested factions from getting the government to serve shameful ends.

Nevertheless, net neutrality assures Americans a free and open internet which has become crucial in our everyday lives. It has overwhelming support among the American public. For the FCC to repeal net neutrality rules goes against the will of the people. Pai wants to eliminate the Title II classification of ISPs as common carriers and leave these telecom companies to run the internet as they please. Repealing net neutrality will only give ISPs power to control what users experience online such as deciding who gets heard, which sites we can visit, what connections we can make, and what communities we can create. And they can throttle access, stall opportunity, and censor content that they don’t like. Most Americans believe you should go where you want on the internet without interference from your ISP, which net neutrality guarantees. Repealing net neutrality will only benefit a few giant corporate executives and lobbyists standing to profit from it. And such action will only stand to harm internet users, consumers, and businesses who depend on internet service for their day-to-day lives. No giant telecom corporation should have the power to control what you access online. American voters deserve a free, open, and neutral internet supporting democracy and economic growth. If you depend the internet for your livelihood, you need net neutrality. If you enjoy streaming video, social media, or playing online games, thank net neutrality. If you enjoy shopping on Amazon and want businesses to have a level playing field, net neutrality is for you. If you want to freely surf the web with the same rights and privileges as everyone else, then the assault on net neutrality must be stopped once and for all. The internet is for everyone and is the most important resource in the world with our exchange of information exalted over any physical and social barrier. We must stand together and fight for it.

The Great American Tax Swindle

Last week, the United States House of Representatives passed the Tax Cuts and Jobs Act which seeks to dramatically cut corporate taxes and consolidate benefits for individuals. In addition, the legislation eliminates the alternative minimum tax and estate tax as well as pare back certain individual deduction. This bill would also offer a new tax rate for owners of “pass through” businesses like LLCs and partnerships whose income from their businesses is taxed as personal income. It’s very clear that the House Republican tax bill will disproportionately benefit wealthy Americans, who’d more likely profit from corporate tax cuts more than non-wealthy Americans and likely exploit the pass-through rate by setting up dummy corporations. According to the Tax Policy Center, the absolute richest Americans such as the top 0.1% earning at least $5 million a year, would receive an average income tax cut of 3% which can translate into $320,640. The middle fifth of taxpayers earning between $54,700 to $93,200 a year would get a 0.5% income boost which will only consist of $360. Nearly half the cut will go to the 1%. Though 61.4% of Americans would receive a tax cut by 2027, 24.2% will see their taxes rise by an average of $2,080. Nevertheless, this bill will almost certainly not become law in its current form since the current version will certainly increase the budget deficit by trillions over 10 years and beyond. But it nevertheless, reflects the Republican Party’s values and priorities which don’t translate into the kind of tax reform America needs as well as disproportionately punishes hardworking Americans and the poor for no reason. Because this isn’t a tax reform bill with ordinary Americans in mind, but major Republican donors and corporations.

Who Wins:

Corporations– Since they’re the main focus on most of the tax cuts. According to the Joint Committee on Taxation, cutting the corporate tax rate from 35% to 20% (like this bill does), costs nearly $1.5 trillion over 10 years. They also gain new, more favorable treatment of income earned abroad, which either isn’t taxed or taxed at an even lower rate than 20%.

The Wealthy, Particularly the Ultrarich– Because they tend to earn a disproportionate share of their income from capital (like stock sales and dividends) and thus benefit from cuts to the corporate tax, which is largely a tax on capital. Should the corporate tax also reduce wages (as some conservative economists allege), corporate tax cuts still disproportionately help the wealthy as huge wage shares go to high earners, not low or median-wage earners. In addition, the pass-through cut could lead some wealthy people who either own pass-throughs or create new ones to shelter some of their income from high rates. Both Tax Policy Center analysis and the Joint Committee on Taxation confirm that the richest Americans will receive the biggest cuts as a percentage of their income.

People Making Mid-to High Six-Figure Incomes– They should arguably count as wealthy or rich, too. By raising the threshold for the 39.6% rate on individual income to $1 million for couples, up from $470,000 today, those with incomes in the $600,000 to $700,000 range will receive a sizeable reduction alongside to the low-end tax cut they get because the new 12% bracket will apply to income now taxed between 15% or 25%. The Tax Policy Center finds that once you reach the 95th percentile like earning $304,600 a year or more, over 70% of them get tax cuts in 2027, with the average change amounting to 1.4-3% of their income.

Pass-Through Companies– Companies like the Trump Organization get a new very low rate. Though the bill includes some provisions meant to prevent rich individuals from using this tax break to shelter income, it only limits the benefit in many cases. Overwhelmingly rich owners of these pass-throughs will still come out ahead. We know this because Kansas entirely eliminated state taxes on pass-through companies which mainly resulted in people to simply reclassify their income to dodge taxes while not actually starting any new businesses.

Heirs and Heiresses– Because this bill first reduces the estate tax (through increasing exemption and applying it to even smaller sliver of the ultrarich) and then eliminates it entirely. Keep in mind this is on those who earn at least $5 million anyway.

Who Loses:

Blue State Residents– Since they will pay higher taxes since this legislation eliminates state and local income/sales tax deductions while somewhat curtails those for property taxes. Wealthy people benefitting from these deductions will likely see this tax hike offset by the other tax cuts in the package. Though this may leave a silver lining when you realize that many blue states are home to Wall Street, Silicon Valley, major media organizations, Hollywood, many large corporations, and high earning Americans like Donald Trump.

The Housing Sector– Since it faces a new limit on mortgage interest deduction. Though the rate cuts largely make up for this in regards to some individual taxpayers, it reduces the incentive to build and buy homes, which could affect lenders, construction workers, real estate firms, etc.

Poor Families– Though they were rumored to receive a tax cut due to change in the refundability formula for the child tax credit, that measure didn’t make it in the bill. Because that credit only goes to families with $3,000 in earnings or more and phases in slowly. Though some in Congress did push to lower the threshold to $0, they didn’t succeed. Instead, the bill includes a provision denying the child tax credit to American citizen children whose parents are undocumented immigrants. Because Republicans don’t want undocumented immigrants having anchor babies to take advantage of that tax credit. Despite that fear of deportation keeps more undocumented immigrants from seeking benefits their citizen children could desperately use. Furthermore, fees extracted by tax preparers standing between the low-income and earned income tax credit aren’t deductible under this plan.

Higher Education– The House bill eliminates student loan tax exemptions and treats graduate tuition reimbursements as income. The Senate bill contains an excise tax on earnings of big university endowments. This will increase the cost of college for many students, result in more borrowers struggling to pay their loans, grad and doctoral students in terrible financial situations, as well as hit colleges and universities hard. Not to mention, such measures will dramatically hurt the economy in the long run by undermining human capital developments and creating a less educated workforce. In addition, it might even cost lives by impeding biomedical research.

Workers– The Republican tax plan treats union dues as taxable income. Poor and middle class people will also see their taxes increase across the board, especially if they earn between $40,000 and $75,000 a year. In addition, it taxes contributions to 401 (k) plans.

Healthcare– The House bill proposes eliminating medical deduction exemptions which will devastate many middle-class families with an illness. Republican Senators are proposing to repeal Obamacare’s individual mandate which will result in 13 million people uninsured, hurt enrollment in Medicaid and Obamacare exchanges, increase premiums on those who purchase insurance, and increase preventable deaths by 15,600 people per year. Not to mention, the Senate bill cuts alcohol taxes which are effective at reducing drink driving, violent crime, and liver cirrhosis while increasing them saves thousands of lives per year. Add to that cuts to Medicaid by $18 billion by 2021 and Obamacare subsidies. All this will only make the healthcare markets worse, not better.

The Deficit– As the Joint Committee on Taxation has reportedly determined that the House Republican tax bill will cost $1.51 trillion over 10 years, which is what the House/Senate allocated for the bill. But it’s still a sizeable increase in public debt.

As you can see, this Republican tax reform effort reflects the conservative allergic reaction to progressive taxation and goes beyond undoing the most progressive gains achieved during the Obama and Clinton administrations. 3 changes stand out in this legislation. First, these taxes are far more focused on owners than workers, even by Republican standards. Second, they take advantage of the ambiguity on what counts as income. Third, it weaponizes that vagueness to help their friends and hurt their enemies. Though to be fair, I’m not sure who counts as which in this scheme. After years of pushing for a safety net that works through the tax code and keep more social democratic forms at bay, Republicans now seem willing to even demolish even those modest protections, some of which benefit many of their voters. And they make it clear that a welfare state based on tax credits and refunds, rather than universal commitments, is all too vulnerable.

The House “reform” bill illustrates that Republicans understand how the economic game’s rules are shifting toward capital and away from labor (even from the rich’s labor). Since 2000, income growth among the 1% has accrued people making their money from owning money, stock, and other financial instruments, rather than to people making money via skills and labor. As a result, corporate profits have skyrocketed since then and increased faster during the Great Recession. However, such growth hasn’t trickled down to ordinary Americans. Wages have been flat since 2000 and recession recovery featured the weakest business investment of the postwar period. This marks a genuine shift in the economy’s organization which economists still struggle to understand. But the Republican tax plan supercharges these changes which are about benefiting not just the well-off, but those well-off because they own capital.

But why? Because the Republican tax plans mainly focus on corporate income tax reductions which will largely benefit concentrated owners of stock, passive owners of pass-through businesses who don’t actively work for the firm, and those inheriting their money. We should also understand that foreigners hold about a third of US-based stock, meaning there will be a significant amount of benefits not going to US citizens. In fact, the Institute of Tax and Economic Policy estimates that foreign investors would receive benefits roughly equal to those going to the bottom 3/5 of Americans.

Much of the Republican tax plan involves changing the definition of “income” in various ways. Now most people usually think of income as whatever their salary is. But it’s more complicated than that. And Republicans are redefining different kinds of income to benefit their friends as well as harming their enemies. Under the plan, Passive owners of pass-through entities get their income redefined in a way that minimizes taxation. Those inheriting money get their inheritance redefined to hide it from taxation. And those wanting to stuff money away to send their kiddies to private school, get that savings defined as non-income, too. All these are payouts to key Republican constituencies.

But Republicans are also defining income in other ways to punish their opponents. State and local tax deductions Republicans want to repeal primarily benefits those in blue states where those taxes are higher. They also want to treat graduate education tuition reimbursements as income, hitting higher education (which is home to climate scientists and the “politically correct” anti-right) hard. Union dues would suddenly become taxable income. And fees extracted by tax preparers who stand between low-income people and the earned income tax credit aren’t deductible under their plan.

Yet, it’s not just their opponents they want to punish either. House Republicans also propose eliminating all of the medical deduction exemption which would be devastating for middle class households with an illness. And the latest Senate tax bill calls for eliminating the individual mandate which could result in 13 million uninsured. In short, not only are Republicans are using the tax code to swipe at the Affordable Care Act, they also want to do away with their own tools for making medical expenses more bearable. In the past conservatives have explicitly stated that they hoped the growing use of tax-deferred 401(k) savings plans would weaken support and possibly replace Social Security. But today’s GOP almost reduced the cap for 401(k) contributions. What about the Adoption Tax Credit that was part of the 1994 Republican Contract with America? Well, the House tax plan got rid of that, too. And what about students investing in their own educations through student loans? The bill also puts student loan tax exemptions on the chopping block. Tax exemptions, deductions, and benefits are usually considered regressive, poorly targeted, and too reliant on the market. But they do form a coherent social insurance system for middle-class and upper-middle class families. Many of them number among Republican voters. Yet, it’s this very safety net via tax code that Republicans have declared war on in their new tax bill. They could’ve crafted these various deductions into a more coherent system, they’re axing them to cut taxes on the rich. Republicans are so indebted to capital owners that they’d destroy their system in order to appease them. Even if it means proposing a tax plan whose benefit are permanent for owners yet expire for everyone else. They’ve taken the worst trends in the American economy and hit the accelerator.

Let’s not kid ourselves. Trickle down economics has been implemented in US tax policy time and time again since the 1980s and has been shown not to work. When you cut taxes for the rich, you don’t create jobs nor raise wages. If anything, the rich just become richer while corporations make higher profits. Meanwhile, wages remain stagnant while ordinary Americans increasingly find themselves less able to adequately support themselves thank to inflation and rising costs of living. But according to free market purists, market competition should ensure low prices. Except that it doesn’t, especially if it results in large corporations expanding that they either become monopolies or conglomerates. Corporate increases in profits and size don’t translate into higher wages, more jobs, or lower prices. Nor will it benefit the economy or solve any of its problems. The Republican tax plan’s regressive nature is reason enough to oppose it. Should the United States run a deficit, then it shouldn’t be to reduce taxes paid by those at the top. Given recent economic developments, it’s especially irresponsible. Corporations are flush with cash thanks to large profits and aggressively low interest rates. But they’re not investing. Thus, these large tax cuts for corporations will have very little effect on the economy and only amplify the deleterious trends we’re still trying to comprehend.

I don’t doubt that the United States needs to reform its tax code. Wealthy Americans and corporations shouldn’t be the main beneficiaries in tax legislation. If anything, the rich should be made to pay more taxes as well as be held accountable for tax evasion and other financial shenanigans like everyone else. Should we need to eliminate deductions or benefits, let it be rich stuff like any measures pertaining to private jets. After all, if you could afford a private jet, you don’t need subsidies or tax breaks. In addition, we need to tax capital gains from which the wealthy primarily earn their money. The American people deserve better than an egregious tax scam that only benefits the few at the expense of the rest.

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.

Toys R US To Close 87 Stores

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.

Leveraged_Buyout_Diagram

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.

Startup_Financing_Cycle

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.

Have You No Sense of Decency?

On Thursday, November 9, 2017, the Washington Post revealed that Alabama Republican Senate frontrunner Roy Moore had allegedly made sexual advances on or engaged in sexual activity with a number of teen girls as young as 14 while in his 30s during the late 1970s. The next day, another woman came forward alleging that Moore sexually assaulted her at 16 and showed his signature on her high school yearbook as proof. For any politician, allegations of pedophilia would’ve resulted in nothing less than widespread condemnation and an end to their political careers. In an interview with Sean Hannity, Moore has called the Washington Post story, “completely false and misleading,” he said he “didn’t dispute” that he “dated a lot of young ladies.” He noted that he “recognized the names” of at least two of the women named in the Post investigation. On CNN, former prosecutor Tessa Jones stated, “it was common knowledge that Roy dated high school girls,” and that “everyone we knew thought it was weird.” She then added, “We wondered why someone his age would hang out at high school football games and the mall.” A dozen people in Gadsen, Alabama remarked on how Moore used to frequent the mall and was reportedly banned for trying to pick up teenage girls.

Not surprisingly, politicians from both parties are calling for Roy Moore to step down from the Senate race against Democrat Doug Jones. The Republican establishment has severed all ties to Moore. But Moore still has a chance to win while many of his supporters have remained noticeably silent. Those who did speak out dismissed the allegations as a Democratic plot or smear campaign and questioned the report’s timing weeks ahead of the December special election. His brother even compared the guy to Jesus. Others implied that Moore’s acts aren’t that bad because, according to Alabama State Auditor Jim Zeigler, “Mary was a teenager and Joseph was an adult carpenter.” He then added, “There’s just nothing immoral or illegal here. Maybe just a little bit unusual.” Really? A little unusual? When Brietbart Milo Yiannopoulos earlier was caught speaking light on pedophilia, nobody remarked how it wasn’t illegal or immoral. In fact, he lost his book deal with Simon and Schuster, lost his spot at CPAC, lost speaking gigs, and had to resign from Brietbart. In short his career was ruined. But here we have Moore who’s reputed to date teenage girls and people rise to his defense.

To invoke Mary and Joseph to excuse pedophilia is absolutely disgusting on so many levels. First of all, it implies that Roy Moore’s desire and behavior toward these teenage girls was normal (even if the Alabama age of consent is 16). Except that a 30-some-year-old man’s conduct toward teen girls is not. In fact, an adult dating teenage girls is immoral and in some states illegal, especially if the girl is 14. If a grown man pursues teenage girls, it’s about control. Second, using religion to excuse such egregious behavior is nothing short of abhorrent whether it involves Mary and Joseph or not. People have used religion to justify so many horrid things like terrorism, slavery, oppression, as well as all-out war and genocide. Third, to use Mary and Joseph to explain child molestation accusations is a textbook example of blasphemy, especially among Catholics. Regardless of what you believe about these two, most Christians believe they didn’t have premarital sex. Mary was a virgin when she became pregnant with Jesus. Even if she was a teenage girl and he was an adult man, Joseph’s willingness to stay with the pregnant Mary wasn’t an endorsement of underage sex. Furthermore, Ziegler’s defensive statement totally ignores the cultural context of Mary and Joseph’s relationship.

Even without the sexual assault allegations, Roy Moore is a terrible candidate who shouldn’t have won the Republican Alabama Senate nomination in the first place. A former chief justice of the Alabama Supreme Court, he’s best known for his history of fringe views, religious extremism, and refusal to obey federal court orders. He gained national spotlight by installing a large monument of the Ten Commandments in the state’s Supreme Court building and refused to remove it despite federal court orders, which resulted in his removal from office in 2003. But he ran for his old job in 2012 and won it back. But then in 2015, he refused enforce the US Supreme Court’s decision legalizing gay marriage which resulted in his suspension from the bench again and later his resignation. And while he once called being gay as “detestable,” his extremist views don’t just denigrate the LGBT community, He’s also stated that Muslims shouldn’t be allowed to serve in Congress and that some American communities in the Midwest lived under Sharia law. He’s even a birther while his foundation has held events for Neo-Confederates that “promoted a history of the Civil War sympathetic to the Confederate cause, in which the conflict is presented as one fought over the federal government violating the South’s sovereignty as opposed to one fought chiefly over the preservation of slavery.” In 2007, he proclaimed that state involvement in early childhood education was characteristic of totalitarianism. Then there’s a campaign speech over racial divisions in which he said, “Now we have blacks and whites fighting, reds and yellows fighting, Democrats and Republicans fighting, men and women fighting. What’s going to unite us? What’s going to bring us back together? A president? A Congress? No. It’s going to be God.” Stuff like that alone should make any candidate unelectable. But since Alabama is a deeply conservative state, it’s entirely possible that conservative Alabama voters will back Roy Moore despite everything. In fact, a recent poll showed that 29% of the state’s voters say the allegations make them more likely to vote for Moore because of the sexual allegations. Whatever that means, it’s not an encouraging sign.

Still, the fact Republicans stand by Roy Moore despite the recent sexual misconduct allegations is extremely troubling. Of course, Alabama Republicans are defending him because they don’t want that Senate seat to go to a Democrat, let alone a former US Attorney who successfully prosecuted the 2 remaining KKK perpetrators of the 16th Street Baptist Church bombing which killed 4 black girls. Because that would mean weaker control of the US Senate. Since Donald Trump ran for president, the Republican Party seems to think that the ends justify the means, especially among his white evangelical supporters. During the 2016 campaign, a Public Religion Institute poll found that the percentage of white evangelicals who thought immoral personal acts should disqualify a candidate from office fell from 64% in 2011 to 49% in 2016. By this time, the culture wars have become so toxic that many evangelicals saw getting “their guy” in power is more important than ensuring that “their guy” lives up to evangelical Christian standards of sexual morality. Now this isn’t just apparent among conservative evangelicals, but these facts indicate where the Republican Party is going. Sure they may call themselves good holy Christians and indeed they may be. But their support for Moore seems like they’ve sold their souls to the Devil. You have to wonder if they have any sense of decency to dump this guy. Or are they just too keen about holding power to care.

Whether their candidates fail to denounce white supremacists, sexually assault women, steal from employees, beat up reporters, have no qualifications, run fake charities, commit rampant fraud, enlist foreign power to meddle in election campaigns, or sexually prey on teenage girls, Republican voters tend to excuse, defend, and/or vote for them. No matter how reprehensible a candidate, they’ll support that person if they believe the right things, are in their party, and give these voters what they want. Even if their candidate wasn’t the person they wanted, they’ll support them anyway since anyone is better than a Democrat. However, voting for a thoroughly despicable candidate who shouldn’t be in office will only make you seem like you’re abandoning your principles for your own selfish interests and don’t care about the consequences. Supporting a candidate like Roy Moore or Donald Trump in any capacity will only make other people think less of you, especially if they win and turn out to be as bad as people said they are or worse (like in Trump’s case). In fact, I already think less of the people I know who voted for Trump which include friends, relatives, neighbors, and others in my community because supporting that unrespectable man in any capacity is completely indefensible. Personal morality might not be everything. But if a candidate’s personal behavior pertains to neglecting responsibility or inflicting terrible harm on others, then they shouldn’t be elected to public office. And from how I see it, it would be better for the Republican Party if conservative voters in Alabama dump Roy Moore and let the Democrat win. It might not be politically expedient to do so, but at least it shows they have a shred of character that many of his vocal supporters seem to lack.