Money, Money, Money


fire in the morning
Originally uploaded by kryn13

 

Just finished 'Merchants of Debt' by George Anders. It chroicles the rise of Kholberg Kravis Roberts & Co during the late 1970's and the 1980's. KKR was one of the originators, if the not the originator, of the debt fueled LBO.

I picked this one off the shelf because I thought it might be reflective of what is currently going on in the economy. Throughout the 1980's companies were purchased using debt funded by their own operations. Debt coverage ratios went from 7:1 to .7:1 in some cases. For a brief time it seemed like a good idea, at least for the financial architects who raked in huge fees. In the end, many companies couldn't pay for the crushing loads of debt they had picked up and they folded.

Sound familiar? Barely 15 years after the collapse of the junk bond market, we are in a real estate centered crisis centered on easy credit.

Somehow in this country we need to change the rules so that it becomes more attractive for our best and our brightest to create new enterprises, invent new things, and not try to get rich by pushing money around.

George Anders was with the WSJ until 2004, then he became West Coast bureau chief at Fast Company magazine and now is a contributing editor at Facebook...although I have no idea what that means.

KKR is still around and still buying companies. Still led by Henry R. Kravis and George R. Roberts, they appear to have changed their model a bit. They have a lot more employees now, 500 according to their website. And they appear to take a more active role in managing the firms they acquire.

On the Forbes 400 richest American's list

Henry Kravis is #49

George Roberts #57

Jerome Kohlberg is #321

KKR was going to go public but has delayed that due to the market conditions.

Lou Gerstner was brought in by KKR to run RJR Nabisco, famously covered in the book 'Barbarians at the Gate'. He conseqently went on to lead IBM then was chairman of the Carlyle Group for a few years.

Albert Dunlap was hired by KKR to turn around Lily-Tulip. I covered him before. That company became part of the Solo Cup Company in 2004.

Robert Rubin, who was involved in the RJR Nabisco debt collapse, became the Treasury Secretary under Clinton. He then went on to work at Citigroup where he got the boot in Jan 2009. There is some talk of him providing some service to Obama's administration. He was also named to Marketwatch's list of 10 most unethical people in business. Citigroup's stock has fallen from $27.32 to $1.50 in the past 52 weeks. It also just received its third bailout from the US Gov't which will include a 36% ownership stake.

Michael Milken, who is credited for inventing the junk bond market in the 1980's, is the 163rd richest person in America. KKR was his firms biggest customer. I may re-read some of the books I have on him and cover him in more detail.