Thes raiding operations were justified by a fascistoid-populist demagogy that accused the existing
management of incompetence, indolence and greed. The LBO pirates professed to have the interestsof the shareholders at heart, and made much of the fact that their operations increased the value of
the stock and, in the case of tender offers, gave the stockholders a better price than they would have
gotten otherwise. The litany of the corporate raider was built around his committment to "maximize
shareholder value;" workers, bondholders, the public, and management were all expendable. Ivan
Boesky and others further embroidered this with a direct apology for greprogress in human affairs. ed as a motor force of
An important enticement to transform stocks and equity into bonded and other debt was provided
by the insanity of the US tax code, which taxed profits distributed to shareholders, but not the debt
paid on junk bondsthe demolition of the US corporate tax base, contributing in no small way to the growth of federal. The ascendancy of the leveraged buyout therefore proceeded pari passu with (^)
deficits. Plutocrats are always adept in finding loopholes to avoid paying their taxes. Ultimately, the
big profits were expected when the companies acquired, after having been downsized to "lean and
mean" dimensions, had their stock sold back to the public. KKR reserved itself 20% of the profits
on these final transactions. In the meantime Kravis and his associates collected investment bankingfees, retainer fees, directors' fees, management fees, monitoring fees, and a plethora of other
charges for their services.
The leverage was accomplished by the smaller amount of equity left outstanding in comparison
with the vastly increased debt. This meant that if, after deducting the debt service, profits went up,the return to the investors could become very high. Naturally, if losses began to appear, reverse
leverage would come into play, producing astronomical amounts of red ink. Most fundamental was
that companies were being loaded with debt during the years of what the Reagan-Bush regime
insisted on calling a boom. It was evident to any sober observer that in case of a recession or a new
depression, many of the companies that had succumbed to leveraged buyoutusury would very rapidly become insolvent. The Reagan-Bush regime was forced to argue thats and related forces of
supply-side economics and Bush's deregulation had abrogated the business cycle, and that there
never would be any more recessions. This is why the "recession" (in reality the exacerbation of the
pre-existing depression) that George Bush was forced to acknowledge during late 1990 was so
ominous in its implications. The leveraged buyouthandwriting on the wall was clear by September-October of 1989, ts of the 1980's were now doomed to collapse. Thehe first year of George Bush's
presidency, when the $250 billion market for junk bonds collapsed just in advance of the mini-crash
of the New York Stock Exchange.
All in all, during the years between 1982 awere completed within the borders of the USA, for a total capitlization of $1 tnd 1988, more than 10,000 merger and acquisition dealsrillion. There were in (^)
addition 3500 international mergers and acquisitions for another $500 billion. [fn 6 ] The
enforcement of antitrust laws atrophied into nothing: as one observer said of the late 1980's, "such
concentrations had not been allowed since the early days of antitrust at the beginning of the
century."
George Bush's friend Henry Kravis raised money for his leveraged buyouts from a number of
sources. Money came first of all from insurance companies such as the Metropolitan Life Insurance
Company of New York, which cultivated a close relation with KKR over a number of years. Met
was joined by Prudential, Aetna, and Northwest Mutual. Then there were banks like ManufacturersHanover Trust and Bankers Trust. All these institutions were attracted by astronomical rates of
return on KKR investments, estimated at 32.2% in 1980, 41.8% in 1982, 28% in 1984, and 29.6%
in 1986. By 1987, KKR prospectus boasted that they had carried out the first large LBO of a
publicly held company, the first billion-dollar LBO, the first large LBO of a public company via
tender offer, and the largest LBO in history, Beatrice Foods.