Monopoly with other people's money: the anatomy of the great financial banquet

Imagine a very simple scene.

Walk into a dealership, point to the nicest car in the showroom, and head straight to the checkout. Say to the salesperson casually:

«"I'll buy it! I'll finance it in my neighbor's name. I'll keep the keys for three years, drive around in it, and in the meantime, I'll dismantle the leather seats to resell them online. I'll also expect the neighbor to pay for gas, insurance, and parking. If the engine blows in a year, he'll keep the body, along with all the outstanding payments.".

Under the ordinary penal code, such a measure would guarantee you food and lodging at the state's expense within forty-eight hours.

In the golden world of high finance, however, it is called Leveraged Buyout. And not only is it legal: it earns you glossy magazine covers and the reverential label of “managerial efficiency wizards”.

There's a collective narrative floating undisturbed on talk shows: the idea that modern finance creates wealth out of thin air, magically multiplying opportunities for everyone.

A reassuring tale. Great for Sunday motivational classes.

The reality, once you strip away the glaze of English jargon and investor slides, has a completely different flavor.

We are faced with a gigantic sleight of hand where risk is separated from profit:

• The profit remains armored in the pockets of very few managers.
• Debts, losses and rubble end with millimetric precision on the backs of those who work, produce and try to make ends meet.

The Empty Box Trick: Buying a House and Making the Tenant Pay the Mortgage

Let's take the main mechanism of the private equity. The technique is as diabolical as it is proven:

1. A special purpose vehicle is created (the so-called NewCo), or a empty box with a ridiculous share capital.
2. You knock on the banks asking for a colossal loan, equal to’80 or 90% of the value of the company you want to acquire.
3. The target company is bought.
4. Soon after, the empty box and the real company merge.

By a true miracle of corporate engineering - fully accepted also in our legal system with the 2003 reform and article 2501-bis of the Civil Code - that monumental debt is loaded directly into the balance sheet of the newly acquired company.

Translated into hard cash: the company finds itself having to repay the loan used by others to buy it..

Cash flows that were previously used to carry out research, modernise plants, renew contracts or pay suppliers are being voraciously sucked up by the bank debt service.

Do you remember the parable of Seat Yellow Pages?

At the beginning of the 2000s it was a battleship, the undisputed leader in advertising and listings, with very solid operating margins.

A consortium of private equity funds acquired it, dumping the burden on her over 3.5 billion euros of debt.

When the shock wave of the Internet made paper tomes obsolete and massive investments were needed to convert to digital, the cash flow was already drained by interest payments..

The result? Preventive settlement, thousands of workers on the street and savings wiped out..

The fund managers? They had already cashed in years of rich commissions of management.

And when the company is still producing cash, the master strokes begin:

• Dividend Recapitalization: The company is forced to take on new debt solely to pay a huge extraordinary coupon to the fund.PDF+ 1
• Sale-and-leaseback: Warehouses, warehouses, and offices are sold to third parties to raise immediate cash. The company remains in the business, renting at sky-high rates. A tangible asset is transformed into a chain of fixed costs that will suffocate it at the first economic downturn. PDF+ 2

Efficiency measured on living flesh

The public defenders of the dogma will repeat to you that this is the sacred “creative destruction”, the necessary medicine that eliminates inefficiencies.

The numbers from independent econometric studies tell a very different story..

In the companies that ended up under these managements:

• Organic employment falls on average by 4,4%.
• Surviving workers suffer an average pay cut of 20% three years after the acquisition.

Economic value is not created: it is extract, subtracted from work to be transferred into pure financial income.

The matter becomes chilling when this approach gets its hands on sectors where human beings and not metal boxes are at stake..

A rigorous study conducted in the United States on federal Medicare data has analyzed what happens when RSA (residential health facilities for the elderly) they are bought by private equity funds.

To squeeze out enough margins to pay off debt and deliver promised returns, nursing and support staff are being cut..

And how do you compensate for the lack of workers alongside vulnerable guests?

Simple: increasing the administration of sedatives and antipsychotics by 50%.

The final count documented by the researchers is blood-curdling: over 20,000 additional deaths, a leap of the 10-11% of short-term mortality.

Spreadsheet optimization applied to people's lives.

From homes to Saturday shopping: speculation on the plate

Beware of thinking that these are games for sharks overseas, far from our daily lives.. The effects knock on our door every single day..

Think about the’housing emergency.

After the subprime collapse in 2008, financial giants have snapped up tens of thousands of foreclosed homes at bargain prices.

Then came the technology: the U.S. Department of Justice investigation into the software RealPage unmasked a true algorithmic cartel. Large competing landlords uploaded confidential contract data to a single platform. The algorithm dictated maximum rents at the neighborhood level and ordered deliberately leaving apartments vacant just to avoid lowering prices.

Rents doubled, evictions en masse, families expelled from urban centers. In Berlin, citizens overwhelmingly voted in a referendum to expropriate large speculative real estate complexes..

What if we look in the shopping cart?

In the early 2000s, financial deregulation opened the doors of commodity markets to pension funds and hedge funds..

People who don't own a tractor, don't run a mill and will never touch a barrel of crude oil have started betting on the rise of wheat, soybeans and corn with mountains of cash..

When the price of wheat soars on the financial markets without there having been any real famine in the fields, that oscillation becomes a invisible tax.

A blow that blindly hits those who have to buy bread, pasta or pay the heating bill.

Heads I win, tails you pay

The masterpiece of this model is the boldness of the rules of engagement.

The managers enjoy tailor-made tax regimes: their millionaire compensation (carried interest) has long been taxed at preferential rates as a financial gain rather than as normal income from work. In fact, a financial magnate found himself paying a percentage lower taxes than your trusted mechanic. Only now are some countries, such as the United Kingdom, struggling to close the loophole..

And what happens when extremely leveraged bets — like the famous Treasury Basis Trade, where people borrow forty or fifty times their assets to speculate on government bonds — threaten to bust the bank?

• Are speculators being allowed to fail? Not a chance.
• Central banks are stepping in, forced to pump trillions of dollars of extraordinary liquidity to avoid the collapse of the system.

Losses are socialized. The resulting inflation devalues wages and the public debt swells..

Earnings, on the other hand, remain rigidly privatized.

Waking up before the bill arrives

There's no point in moralizing with your finger raised. Speculators aren't comic book monsters: they're clear-headed operators who exploit a regulatory framework built specifically to allow them to do so..

The lethal trap is believing that all this doesn't concern us. Thinking that the middle class is safe in its own backyard, while in reality it represents the ideal hunting reserve for an apparatus that must continually extract value to feed its mountain of debt.

We can continue to distract ourselves with the controversies of the day, while someone removes the load-bearing beams of the building we live in.

Or we can begin to understand the rules of the game and demand a concrete change of direction:

• Stop tax privileges for those who buy companies only by loading them with debt.
• Immediate ban on cartel algorithms on residential rents.
• Hard ceilings on financial speculation on primary food products.

In my ideal world I still prefer the sincere vibration of a wooden and metal guitar string, the value of work done according to the rules of the art and the dignity of people to the voracity of a spreadsheet that destroys the future to collect quarterly dividends..

I seek beauty, everywhere. And if around us they try to monetize even our breathing, the only form of authentic resistance is to start building it again with our own hands.