Skye Sepp sent me this inter\u00adest\u00ading post from com\u00adput\u00ader virus and inter\u00adnet secu\u00adri\u00adty wiz Niko\u00adlai Bez\u00adnoukov, who has impec\u00adca\u00adble first-hand knowl\u00adedge of many finan\u00adcial and indus\u00adtri\u00adal corporations:<\/p>\n
Typ\u00adi\u00adcal sce\u00adnario for the last 18 years:<\/em><\/p>\n Jan\u00adu\u00adary - March - Wid\u00adget Co. pays out $300 mil\u00adlion to PEI<\/span> its new own\u00ader as a div\u00adi\u00addend. PEI<\/span> then repays $200 mil\u00adlion to Bank1. PEI<\/span> now has $100 mil\u00adlion cash, and has done noth\u00ading for it. Wid\u00adget Co, how\u00adev\u00ader, now has to pay $20 mil\u00adlion in inter\u00adest per year to Bank2. PEI<\/span> now has $100 mil\u00adlion cash.<\/em><\/p>\n July - August - Decem\u00adber - Recap: Mean\u00adwhile, PEI<\/span> start\u00aded this lit\u00adtle scheme with $20 mil\u00adlion and now has $550 mil\u00adlion in cash. But the busi\u00adness is still viable, as Wid\u00adgets can meet its expenditures.<\/em><\/p>\n 5 years later - It does\u00adn\u2019t help. The com\u00adpa\u00adny has no stores of fat, it goes bust. The bank loans sour. Peo\u00adple lose their jobs, the pen\u00adsion\u00aders can\u00adnot be paid. The mon\u00adey they invest\u00aded is now in the hands of PEI<\/span> who has no legal liability.<\/em><\/p>\n PEI<\/span> then declares the sec\u00adond com\u00adpa\u00adny (the one that bought the Widg\u00adits Co assets) into bank\u00adrupt\u00adcy, as its assets are now exceed\u00aded by its expen\u00addi\u00adtures and can\u00adnot meet its pay\u00adments to Bank1. He sells off the Patents and oth\u00ader assets for $100 mil\u00adlion. PEI<\/span> now has $650 mil\u00adlion in cash. He then, being the own\u00ader of Bank1, writes off the appar\u00adent loss on his tax\u00ades, and is repaid by the Fed\u00ader\u00adal gov\u00adern\u00adment through the FDIC<\/span>. The SEC<\/span> refus\u00ades to inves\u00adti\u00adgate, as the pri\u00adma\u00adry inves\u00adtiga\u00adtive agency is staffed by his for\u00admer employ\u00adees at Bank1. He then resigns from Bank1 under a shad\u00adow of scan\u00addal relat\u00aded to the loss\u00ades incurred by Bank1 in its deal\u00adings with company2, exer\u00adcis\u00ades $100 mil\u00adlion in stock options, and is \u201coffered\u201d anoth\u00ader $50 mil\u00adlion as a gold\u00aden para\u00adchute to ease the dis\u00adcom\u00adfort of being with\u00adout work and as bonus\u00ades for the increase in rev\u00adenue to Bank1, which were gen\u00ader\u00adat\u00aded by his own busi\u00adness deal\u00adings with Widg\u00adits Co.<\/em><\/p>\n This hap\u00adpens 100 times so the banks are bust too, but get bailed out by the tax\u00adpay\u00ader (that\u2019s those guys who lost their jobs and pen\u00adsions at Widgets).<\/em><\/p>\n PEI<\/span> lives hap\u00adpi\u00adly in The Bahamas with the $950 mil\u00adlion which he \u2018earned\u2019 in a fab\u00adu\u00adlous year of \u2018val\u00adue cre\u00adation\u2019 made pos\u00adsi\u00adble by the pow\u00ader of free and light touch reg\u00adu\u00adlat\u00aded mar\u00adkets. He pays no tax\u00ades on the income, as the income was gen\u00ader\u00adat\u00aded by a com\u00adpa\u00adny that is incor\u00adpo\u00adrat\u00aded out\u00adside the Unit\u00aded States.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":" Skye Sepp sent me this inter\u00adest\u00ading post from com\u00adput\u00ader virus and inter\u00adnet secu\u00adri\u00adty wiz Niko\u00adlai Bez\u00adnoukov, who has impec\u00adca\u00adble first-hand knowl\u00adedge of many finan\u00adcial and indus\u00adtri\u00adal corporations:<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"wp_typography_post_enhancements_disabled":false,"footnotes":""},"categories":[1,8],"tags":[],"class_list":["post-3304","post","type-post","status-publish","format-standard","hentry","category-a-blog","category-aq-blog-2010"],"_links":{"self":[{"href":"http:\/\/www.philpaine.com\/index.php?rest_route=\/wp\/v2\/posts\/3304","targetHints":{"allow":["GET"]}}],"collection":[{"href":"http:\/\/www.philpaine.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/www.philpaine.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/www.philpaine.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"http:\/\/www.philpaine.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=3304"}],"version-history":[{"count":7,"href":"http:\/\/www.philpaine.com\/index.php?rest_route=\/wp\/v2\/posts\/3304\/revisions"}],"predecessor-version":[{"id":12110,"href":"http:\/\/www.philpaine.com\/index.php?rest_route=\/wp\/v2\/posts\/3304\/revisions\/12110"}],"wp:attachment":[{"href":"http:\/\/www.philpaine.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=3304"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/www.philpaine.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=3304"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/www.philpaine.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=3304"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}
A Pri\u00advate Equi\u00adty Investor (PEI<\/span>) has $20 mil\u00adlion. He uses it as secu\u00adri\u00adty to bor\u00adrow $200 mil\u00adlion from Bank1 (of which he him\u00adself is CEO<\/span>) to buy a com\u00adpa\u00adny we shall call \u201cWid\u00adgets Co\u201d. Wid\u00adgets Co. is a sol\u00adid man\u00adu\u00adfac\u00adtur\u00ading busi\u00adness with assets of land, fac\u00adto\u00adries, patents, a brand, good will, and no debts.<\/em><\/p>\n
Wid\u00adgets Co., under \u201cNew\u201d own\u00ader\u00adship, bor\u00adrows $300 mil\u00adlion from Bank2 \u2014 no prob\u00adlems, it\u2019s a sol\u00adid busi\u00adness \u2014 but here comes the bit where it all goes crim\u00adi\u00adnal, but not illegal.<\/em><\/p>\n
Wid\u00adget Co. by direc\u00adtion of it\u2019s new own\u00ader (PEI<\/span>), sells its assets: land, patents and so on to anoth\u00ader com\u00adpa\u00adny (company2) con\u00adtrolled by PEI<\/span> and incor\u00adpo\u00adrat\u00aded in the Bahamas, which then leas\u00ades them back to Widg\u00adits co. for $30 mil\u00adlion a year, with the pur\u00adchase financed by Bank1. The sales bring $200 mil\u00adlion which Wid\u00adgets also pays out in div\u00adi\u00addends to PEI<\/span> its own\u00ader. PEI<\/span> now has $300 mil\u00adlion in cash, plus that $30 mil\u00adlion annu\u00adity gen\u00ader\u00adat\u00aded by the leas\u00ading operations.<\/em><\/p>\n
Wid\u00adget Co\u2019s Pen\u00adsion Fund is \u2018restruc\u00adtured\u2019 bring\u00ading a liq\u00aduid $150 mil\u00adlion onto the bal\u00adance sheet. Wid\u00adgets has lia\u00adbil\u00adi\u00adties to its pen\u00adsion\u00aders with lit\u00adtle to back them. $150 mil\u00adlion is paid out to PEI<\/span> as a spe\u00adcial div\u00adi\u00addend. PEI<\/span> now has $450 mil\u00adlion cash, which he deposits into his accounts in the Bahamas and Switzerland.<\/em><\/p>\n
PEI<\/span> sells the busi\u00adness to a pen\u00adsion fund, for $100 mil\u00adlion. Far less than he paid as it now has a lot of debt, but, it is a good busi\u00adness. PEI<\/span> now has $550 mil\u00adlion cash. He deposits this mon\u00adey in the Swiss banks.<\/em><\/p>\n
Wid\u00adgets now has $300 mil\u00adlion in debt which gives rise to $20 mil\u00adlion a year in inter\u00adest pay\u00adments to bank2, plus $30 mil\u00adlion in leas\u00ading pay\u00adments to com\u00adpa\u00adny owned by PEI<\/span>. It has pen\u00adsion lia\u00adbil\u00adi\u00adties and the pen\u00adsion fund is almost worthless.<\/em><\/p>\n
Sad\u00adly hard times come. Turnover drops, prices drop, costs are cut, peo\u00adple lose their jobs, includ\u00ading engi\u00adneers, man\u00adagers, the shop floor and the sales team who did real work for years, cre\u00adat\u00aded real val\u00adue, invent\u00aded the patents, built the brand.<\/em><\/p>\n