Going Private:

it came in the mail I often quip that reader mail is one of the things that keeps me blogging. It is, but sometimes not in the way that I would expect. Going Private has in past, and continues to be, an occasional lightening rod for some of the more spoiled of capitalism's children. Insofar as much of my writing centers on the fact that there is no such thing as a unicorn that defecates skittles, the delicate sensibilities of many a market-must-go-up-at-any-cost "capitalist" are torn asunder. This provokes a good deal of amusing (if not particularly illuminating) ~~hate~~fan mail, written, doubtless, on a high end PC with 30" flat panel monitor bought on credit. I suppose the consoling feature of letters like these is that they suggest that the enemies of capitalism are mostly a poorly read collection of rabble, confined to intellectual debate on the level of "you are an idiot." If this is true, there may be hope yet. I can only guess that the urge to mail things like this to me is very much like the religious types who promise me "I will pray for you," upon learning that I think their anthropomorphic vision of god is a freshly steaming load of unicorn skittles.

Acting on the theory that these works, and my replies to them (which, fortunately or unfortunately, tend to sink somewhat to the level of the original author), have some entertainment value, I reproduce for you one of the most recent editions to my collection of trite hate mail (and the reply thereto):

On Thu, 29 Jan 2009 09:47:08 -0600 Paul <[email protected]> wrote:

Just wanted to say I just read your blog post "Death of Cook" and I found myself feeling a bit emotional afterward.

I admired very much the point -- which I think hasn't been made nearly enough in this debate -- that Friedman's key insight was that freer markets bring power to keep repressive regimes at bay, of from forming in the first place.

But now that entire economic world has collapsed, leaving the Chicago School with as much credibility as the alchemists or the flat earthers or Phil Gramm, it must be so difficult for the devotées such as you to deal with the fact that what you've studied and come to believe in is now just so much intellectual rubble, which no amount of desperately grasping at any government entity you can to try to hurl blame at, as you do with Fannie Mae or the Fed, can make go untrue.

Or as PK puts it, now that you've paid your tuition, you've learned you've invested your education with Bernie Madoff.

It's palpable in your post how bitter you are. I'm genuinely sorry about that, and only hope that as you move on in life, you can find somewhere to utilize your talents in a less futile way than defending the decaying corpse of a dead School.

-L

Dear "Paul" (who signs his emails with "-L"):

Your email is long on glib cliche, very short on fact and totally lacking in analysis. While I am not sure if these effects were intentional (at first I thought your piece a clever bit of satire, until I got halfway in) they do make your writing remarkably unremarkable in the way it absolutely typifies comments of this kind.

While I understand that attacking markets and finance is what all the cool kids are doing today, doing so with something that approaches compelling and reasoned argument is (as you demonstrate here) rather more difficult.

The fantasy that the markets that melted down were anything remotely resembling "free markets" has created a lot of masturbatory material for the new socialists (and worse). It is, however, totally divorced from fact and as a consequence you might have to work to get some of that genetic material out of your hair. (I'm told baby shampoo works wonders). Given that you fail to address these aspects of my missive (odd since I spent a lot of time and "ink" outlining them) I must conclude that you either:

1. Have limited reading comprehension skills (public schools perhaps?);
2. Did not read the piece in any detail (ADD?); or,
3. Have avoided these points because they derail your position (basic cowardice).

None of these bode well for your intellectual prowess. Or maybe you were just too lazy to pen a thoughtful reply. It is, of course, a great conceit to cram useless blather into the inboxes of strangers. It is a bit of time hijacking. Be that as it may, I try to reply to such nonsense where possible. Call it a weakness I have: the inability to pass up the opportunity to discipline other people's insolent children.

If the most fundamental misunderstanding of the issues at hand here were not enough, you attribute to me views which I do not hold, positions I have not defended and associations I do not maintain. This, given the tenor of the rest of your note, doesn't really surprise me.

I am indeed, as it happens, bitter. Bitter to watch the new political class rise to power in a miasma of anti-capitalist rhetoric, to watch the renewed belief that the correct "super men" will fix the problem by adjusting the levers of the economy to suit them (as if this hadn't caused the crisis in the first place) and the cult of personality that accompanies such fantastic and feverish belief. (Already members of the Cabinet are forgiven their felonious transgressions because there is "important work to be done"). In a sense, your prose here is a perfect example of this twisted mindset. You attack a school of which you demonstrably have little or no understanding, and rely on cliche and stereotype to brand those with views divergent from your own. In short, you have no meaningful intellectual insight whatsoever to offer. That you are typical of what lurks out there in the dark, vengeful and misguided malice of public opinion does leave me bitter. Bitter, and revolted.

But, thankfully, there are tools like the NASDAQ index of bailed out companies, credit default swaps, short selling and put options so that those of us paying attention can bet heavily against this new regime (and by this I mean both sides of political system), and, sadly, against the prospects for the United States for the next five years. So far that's proving among the most profitable of endeavors, even matched against the obscenely high remuneration of Private Equity. If you had really been reading my stuff for some time you would have noticed that I saw the train coming back in 2007. Many of us did. At the time I invited readers to bet against the system. I hope some did. You, clearly, were not among them.

Yes, I'm afraid the palpable glee for the misfortune of finance professionals- that jealousy driven joy that literally oozes from your prose like so much thickened bile, is also based on a fantasy: that I join the many bankers and finance professionals who languish in the aftermath of heavy handed government intervention in the real estate market. Some of us, you see, saw it coming. Some of us, you see, do not now live in oversized and now negative equity homes for which we overpaid at the height of the market with easy credit. Some of us didn't surround ourselves with flat-panel displays bought at the expense of large balances on 18.5% APR credit cards. Some of us, in short, were paying attention.

Interestingly, no one had many complaints about Wall Street, or the like, when they could buy $750,000 in house at 6.2% with $60,000 in income. You enjoyed with great enthusiasm the trappings of the bubble on the way up, so it is not surprising that you will point anywhere at all to avoid looking in the mirror now that it is on the way down.

It is good that you seem to enjoy the way of things to come, because you are going to be enjoying them for a long time. Not so for those of us who planned carefully and have carefully collected the wherewithal to leave, if (god forbid) it should come to that.

Yes, it is good that you seem to enjoy the new socialist paradise that awaits you- because you are going to be stuck with it for some time.

Thanks for taking the time to write. Reader mail is what reminds me that the blog is worth writing.

-ep

Verm As long-time Going Private readers will no doubt be aware, the blog ebbs and flows with my workload, interest and the size of my intriguing, alarming or amusing stories backlog. Given the fact that Going Private is only days away from its third birthday, and has been in the midst of a down cycle, I thought it a good time to revisit the blog, and to ask the question: "Is it worth it to continue any longer?" This is not an easy question to answer by any means.

I have recently, gotten a flurry of offers to place advertising on the site. In my experience, this sort of thing hints that a blog may have peaked, and the long, winding, downhill road towards "selling out" may be around that next bend. Interestingly, hate mail has increased proportionally in the same period, some of it so caustic and vile that even Laura the Debt Bitch would blush on absorbing the prose. I am still working on a model that explains both of these on the theory that they are both somehow related to the credit crunch. The second seems to fit nicely in that model, the first, not so much. Either way, I generally respond to the ad requests by quoting insanely high prices for the right to corrupt this space- very much in line with my personal, inflated valuation of it and therefore likely to be prohibitively expensive for any buyer. I'm not sure if I am pleased or alarmed that recent offers have not been deterred either by my initial high price or by my totally gratuitous and subsequent doubling of that price. In past I have remained committed to keep Going Private ad-free despite these inordinately large offers. It really looks and feels much purer that way and, since the blog has been a labor of love and despite the very poor risk:reward ratio on the returns I get from writing it, I never really expected it to generate revenue, aside from my occasional experiments with the "tip jar." As an aside, in the past, if nothing else, the value of the tip jar is that it has managed to guilt me away from closing the blog on those few days a year when it seems pointless to maintain it any longer.

Rumors of a book deal for this author were actually something other than baseless, but heretofore I have declined to pursue any sort of publishing, for reasons probably beyond the scope of this forum, except to say that I feel like a book deal would have detracted from the purity of the blog, which has always been about providing free content on the subject matter herein. This choice, of course, pushes the risk:reward ratio the wrong way.

The landscape of private equity has also changed. In one sense it is the best of times for private equity right now, but there are a very few, that is a vanishingly small number of firms who managed to keep their heads down over the last 18 months, and managed not to succumb to the temptation to buy assets at their top with mounds of leverage and are therefore are well positioned today, though they likely sacrificed a ton of LP money in the bandwagon months leading up to the crash. Careless firms are imploding, a flight to quality ensues, and LBO firms are in their element now, baring a much longer winter for credit markets (which I do not foresee). There are bargains galore out there, and snatching those up and making something of them is what LBO firms do best. Where matters got out of control it was when this basic premise was ignored and the massive returns to large firms spawned dozens or hundreds of copycats, none of which really seemed to understand what LBO firms actually do well. Unfortunately, that has poisoned the well for the few firms still "fighting the good fight."

One difficult lesson to learn in the last 12 months was how shallow even what I will call "pure" LBOs are. In essence, the VP and Associate tier of a firm must face an almost Faustian bargain. Partners are directly incentivized to close deals, as these are often the metrics on which partners are compensated, and any carry, even that in a flagging firm, is value (albeit illiquid) in the bank. Set this against the VP and Associate corps, who are a force designed (in theory) to scuttle deals, to find that one reason not to do this deal, and to save the firm from these mistakes through their careful and complete analysis and due diligence. Given the expense of diligence, LBO firms start looking at a company with the premise that it will be a good investment. The onus is on the due diligence team to pop that expectation bubble. It grows hard to imagine how such an incentive structure can result in much good. It takes a VP or Associate of incredible testicular fortitude, no matter what her gender, to tell the advocate Partner- who is possessed of a massively powerful personality and got to be the advocate Partner in the first place because of some personal connection or interest in the deal- that the target firm stinks like the primate house during a zookeeper strike and that the employees have been throwing feces at each other with about as much gusto for several years- yet this is what is expected of them.

I am aware of only two firms that have sought to rectify this dynamic. One, with which I am most intimately familiar, actually gives large bonuses to members of the due diligence team who discover a risk, oversight or problem during diligence that scuttles a deal. This has the dual effect of encouraging Associates and VPs to look for such "gotchas" much harder, and to make it hard for the Partners to take out their frustrations on the newly recognized Associate who won what this firm calls the "Saved Our Bacon Award." All this is a somewhat drawn out way to express the simple fact that the financial work in an LBO firm is less than an intellectually stimulating environment for the middle-class employees- at least after the initial novelty has worn of in the first 12-18 months. Searching for dirty laundry and running through the same basic DCF template over and over again gets trying. But then, I suppose it is my mistake for having carried a distinctly modern mind (in that it tends to grow restless and wander) into a doggedly repetitious business.

A recent increase in exposure for me, and the blog, has also caused some problems, and increased the risk that the single most essential factor in my continued work on the blog will collapse, that being my anonymity. It was with the best of intentions that I agreed to talk on one occasion or another to the press. Unfortunately, those interactions were a bit more risky than I had bargained for. Suffice it to say that I would do that much differently in the future.

Finally, my interests in finance have drifted quite significantly since I began this little adventure 3 years ago. There is little reward in LBOville for the ability to identify and capitalize on original and novel investment ideas. The kind of skills that LBOs demand do not, after a sense, require much creativity. It was not quite a year ago that Armin quipped to me (with what now looks like alarming foresight) that I would eventually "outgrow private equity." Interestingly, this was also the entry ("Cascades Are a Poor Excuse for Stupidity") where I quipped:

It strikes me as quite tortured to label a market actor who possesses so little actual information about the contemplated transaction that he or she might be caught up in a cascade as "rational." Particularly where, as here, the costs of an erroneous decision are extremely high and the decision is not forced.

Reviewing this yesterday against the backdrop of recent hate mail branding me a staunch adherent of Efficient Markets Theory, the Chicago School, a Republican, (I am none of these) and everything else that frustrated permabears believe is wrong with the world this week, it occurred to me that I either have utterly failed to convey my position on these matters, or a large portion of my readership (or my vocal readership) hasn't bothered to read a damn thing I write.

Perhaps more importantly, I find myself spending more time thinking about matters like market efficiency, or more accurately, market inefficiency, the consequences thereof along with ways to capitalize thereupon. Posts like Death of Cook, Bourgeois Pigs, Why Social Investing is the New Tech Bubble, Loan Baby, Loan, Dual Class (Corporate) Citizens, Fairing Up General Aviation, Escaping Modern Debtors Prisons, Anatomy of a Meltdown, and most particularly Liquid Reflections, Liquidity Feedback Loop, Deep Debt Impact, Kierkegaard, Scientologists Private Equity, There's No Such Thing as a Risk Free Lunch and Liquefying (and then Liquidating) the Illiquid, have become my favorites. (I will only admit to Tick Tock, Tick Tock being a favorite under enhanced interrogation methods). Without being too self-congratulatory, reading over many of these suggests a level of prescience that I am not all together comfortable with, but leaves me just curious enough about to want to write more of them. Given the current environment of anti-capitalist, anti-finance fervor, I suppose this shift wouldn't be particularly popular. But then, perhaps that's exactly the reason to do it.

There are other reasons to keep writing. Recent changes in, shall we say, the "regulatory and political environment" seem to suggest a wealth of material for Going Private to chew on in the future. The rather spectacular disintegration of a daughter company or two (and the wild success of a few as well) have also presented plenty of fodder- as have some recent antics of Laura the Debt Bitch, to the extent those topics remain interesting.

But I fear that what I will tend to pen going forward will look less like the early years of Going Private. Less LBO discussion, more views on inefficiency and the like. More "hedge fund like" ideas. It concerns me that this will give the lie to the title of the blog "Going Private," and pull the focus away from the central early center of gravity for the blog and the central motivation for its creation: illuminating the world of leverage buyouts. Readers may or may not enjoy this, I simply do not know.

I also have some reservations about continuing on the Typepad platform. While Typepad has been wonderful most of the time, recent and not-so-recent changes revolving around limitations on what can be displayed and how much of it can be displayed have soured the management over here on the prospects for Typepad. Clearly, Typepad is a victim of its own success, and has had to moderate its customer's access to "CPU intensive" features, like displaying more than a month of "recent posts." This is rather annoying when you sometimes only post 1 or 2 entries a month. If I continue, it will be on a different platform. This could be amusing, however, as it would certainly be time for some redesign and to inject some variety into the blog, if continuing is a good idea at all.

This presents several questions:

1. Should I bother to continue?
2. Is it worth the headache to port the entire blog to a new platform?
3. If not, should the old blog just use its last entry to point to the new blog (if there is one)?
4. Did anyone pick up the anonymous message in a bottle I dropped into the sea off the coast of Tortola?

I have no idea. Especially about #4.

[Art Credit: Johannes Vermeer, "The Astronomer," (1668), The Louvre, Paris]