Thursday, April 9, 2009

Yo ho ho ho and a bottle of Chteau Lafite Rothschild

The venture capitalist; if you ask a Republican they will tell you that this is a forward thinking individual that provides capital for a risky new venture that holds great promise for society. (a compassionate conservative funding the cure for disease for example) While they sometimes actually do this, most new ventures in the past were things like the dot-com bubble.

What they have been doing the past eight years with current tax laws and total lack of regulation is become nothing less than pirates, plundering and looting across the corporate seas. They take a relatively modest investment and match it with 10 to 1 financing and go out and acquire controlling interest in a business. Then they sell off any marketable assets that the company holds and borrow money against what they can’t sell. Then spin off the remaining shell with the entire debt load (including the original loan that they are now no longer responsible for) and take the entire profit as capital gains which are then taxed at a maximum of 15%. The Republicans keep insisting that the capital gains tax rate be reduced to zero to "stimulate business". In the old days (when we were a prosperous nation) short term capital gains were taxed at 66%.

You might think that a bank wouldn’t want to loan money for this purpose since the debt ends up attached to a company that will almost certainly fail in the long term. The trick to that is the loan gets shredded up and mixed with all sorts of other debt and sold as securities. It’s even considered high grade debt at the time because it’s attached to a long standing corporation with an excellent credit rating; of course now it’s called a toxic asset.

This simple, risk free process has made a lot of rich Republicans into billionaires; in the old days the pirates would have been hunted down by the Navy and hanged from the yardarm.