Blackstone boss shares his capitalist angst

I agree w/the two previous comments…Blackstone is managing a health care company like an ordinary company. It isn’t the same. Why outsource jobs when the company is very profitable. I could understand if the financial situation demanded it, but it didn’t with Apria. I’m looking to move on and it is with a smaller health care company. This type of industry requires a company to be flexible to referrals and smaller organizations are going to much more adept at keeping our referrals happy.

I work for a company owned by Blackstone and I have never felt such heartless reorganization in my entire career. Is this really the time to oursource job to India to make sure that your profit margin doesn’t drop 1 percent? Is it not possible to make good business decisions with a heart and concern for American people’s lives and financial well being? This is not a chess game.

I’m an Apria employee and was just told on Tuesday 4/14/09 that it was Blackstones decision to close 8 Apria Billing Centers inorder to save money. They are shipping our work to India. After 10 years with Apria Healthcare I will be joining the rest of the U.S. on Unemployment.
How is shipping jobs to overseas suppose to help the economy in the U.S????

The problem with these large corporations that control a lion’s share of their market is their ability to manuiplate their own stock prices that general own benefit the CEOs and major stockholders and the little guys are left out and they now it….change is coming to corporate American and they do need more regulatory control by the government to combat greed and besides without the good ol US of A, they would not exist.

John

The problem with the global economy is down to how the stock markets work & how companies such as Blackstone use share price to make their money. If share prices were based on actual company values & profits instead of pure speculation and rumours then we would not have seen the huge dives in prices that we have seen.. The problem is that no one cares how a company is doing, only if those stocks go up/down by a few points. When the general public, who THINK they know what they are doing, suspect a fall in prices they panic & the problem gets worse exponentially. On the other side, company’s like Blackstone rely on the general ignorance of the public to ignore the real finances of a company, bet on shares going up & invest. What we are seeing now is the result of a lack of regulation, combined with ignorance and greed, which will not settle until share prices realign themselves with real values & potential dividends. Only if governments better control the markets will we put the shackles on investment companies/LBO’s & prevent this happening again.

It’s not government that’s the problem. It’s his industry and their lack of regulation that’s the problem. America didn’t have all these problems when the financial industry was a small part of our GDP. Back then, we used to create real wealth. Now, our financial industry creates wealth based on hocus pocus, wealth we now know was just a mirage.

A completely free market doesn’t work. What we need is a largely free market that is government regulated to be as much of a meritocracy as possible. Otherwise, you’ll have the current mess, where a bunch of well connected insiders get paid tons of money even when they perform poorly a la AIG and Merrill Lynch. What these financial people, like Blackstone, have managed to do is completely stack the decks to favor them.

Both Blackstone and Google are profitable companies, yet for the same amount of profit, Google’s managers pay double the taxes of Blackstone’s. And private equity companies like Blackstone still whine constantly that those tax breaks are needed to attract talent and investing, tax breaks that are unavailable to non-financial companies. Why the double standard?

Unfortunately, most of you view our current situations as a function of capitalism failing and not government intervention. The failure of our financial system is not a failure of free markets but a failure for the government to regulate properly. Free markets only fail when information isn’t transparent. There was a lack of transparency in the financial markets. The government regulation was concerned with how companies evaluated and managed assets. The free markets will take care of that if an appropriate amount of information was made available about assets. Take for example, if the govt. had forced all assets to be cleared through a clearing house at the end of each month. This would have allowed individuals to understand what assets were being purchased and therefore been evaluated properly. You are only kidding yourself if you think the collective will of free markets can be out performed by a sign institution (government).

While your system has hit a bump, if the government doesn’t mess it up, the free market will correct its self. You don’t have to look far or hard to find out the despair created by government controlled economies. A government is no different then a corporations. And over a long enough time horizon a fool will lead every government and corporation. Socialism and government controlled economies are putting all your eggs into one basket. Someday, when a fool runs your country, the bottom of that basket will fall out. This is also true for corporations but the difference is that in free markets you will always have some corporations (Wells Fargo, Goldman Sachs, Most of the Regional Banks) that won’t fall in the trap and make the same bad decisions.

For any one who wants to do away with free markets or greatly restrict them. Ask your self this “Do you want your past presidents making all your economic decisions?” In other words would you wanted George Bush over the past 8 years or Bill Clinton in the years before that making all your economic decisions. If the answer is no then you shouldn’t support a larger government encroaching on the free markets because that is what you would have gotten in those periods. And whatever you think of our past or current government leaders I promise that in a long enough time horizon we will have better and worse leaders.

These financial people don’t seem to realize that to the rest of the world (including a lot of non-financial people inthe U.S.) what has happened is that they got to do things they way they want,and it failed. They talk as though they should still be viewed as a GOOD THING. It’s remarkable how they still don’t understand that others see them as having failed. Their continuing arrogance constitutes part of why they are seen as failures, furthermore.
Until they understand this and respond to this new perception, their comments are virtually worthless to everyone except themselves and their unshakeable loyalists, except as continuing signs of their incomprehension.

Schwartzman was one of the leading advocates of outlawing short sales of bank stocks last fall. Now he’s whining about too much regulation. Be careful what you wish for Steve, the law of unintended consequences is a bitch.

I would also add that his 60th birthday party was a prime example of financial guys lording it over the rest of the populace. The country might be a little less concerned with pay caps (and pay back) if he’d shown a little more discretion with how he spent his money. If he put the $3MM he spent on his birthday party to some charitable use, the backlash might not be a strident as it is.

I don’t begrudge him the money he has made. He made it without government subsidies (at least not direct ones) and his LPs are all consenting adults. But you can’t talk out of both sides of your mouth, Steve. You either want the government to intervene in the markets or not. You conduct your private life in a manner that begets respect or not. Talk is cheap, walk the walk.

Schwarzman and his private equity pals are part of the reason we’re in this mess. They buy companies (with other people’s money)saddle them with debt, strip them down, and resell. They contribute little real value to the economy.

The subtext of Schwarzman’s “capitalism is under attack in U.S.” is that there is a risk that his ilk won’t be able to feed at the trough without restrictions like they used to the last couple of decades.

The last year has proved beyond doubt that “capitalism” in this country is a sham – it’s just a system rigged to transfer wealth from taxpayers to the well-connected few (like Schwarzman). Of course he should be worried when the unwashed masses try to upset the apple cart.

The hypothesis that if you increase someone’s pay from $1M to $10M you get better performance doesn’t hold water. Research has shown the opposite effect – That significantly increasing a person’s payoff leads to more stress and poor/short term decision making. For lower pay grades (say someone making minimum wage) I’m pretty sure the added pay would lead to better performance as it frees up the employee from worrying about keeping his/her house or putting food on the table. Paying huge salaries and bonuses to financial wiz kids robs shareholders (and these days the country as a whole) both in the short and long term.

Perhaps capitalism should have self regulated itself better.

The head of Blackstone should have been in a position to see or guess how rotton it had become.

If ” good capitalists” don’t step up to help self regulation they should not whine after the fact.

I assume Blackstone thinks that it is a good capitalist.

I appreciate the explanations!

Patricia/Peter, the explanation is that the vast majority of Blackstone’s available capital to invest does not belong to Blackstone or the partnership but to its investors (pension funds, endowments, wealthy individuals, etc…). Blackstone controls these assets for a period of time and is paid a fee to manage these assets.

Peter,

Yes, your market cap and be greater than the cash/investments you hold. A better measure is to look at the company’s book value (assets-Liabilities) as compared to the public float.

25 billion in capital is money from investors, not it’s own, remember that blackstone’s business is to invest other people money and getting a performance fee in return (actually they have more than 100 billion in assets under management).

Stock price $8.96 * 266.7M shares outstanding = $2.4B Market Cap

Peter—re your comment: The public stock-market capitalization of Blackstone is actually $9.3 billion. That’s a piece of the $25 billion-plus that the firm is waiting to invest.

You say Blackstone is sitting there with $25B. Their market cap is $3B. Can that be?

I was struck by the comment by Tony James that “if the U.S. government shackles the financial giants with rules and regs and pay caps, the whole industry will have trouble luring talent.” I heard the same thing from AIG, that if the bonuses weren’t paid, the good people would leave. My question is this: where would all these geniuses GO? Are there great job opportunities out there just drooling over the chance to hire these hugely paid people? Isn’t there a surplus of people qualified to do deals? I think this is a pitifully weak justification for continuint to overpay people in the financial sector.

“…he too expressed worry that if the U.S. government shackles the financial giants with rules and regs and pay caps, the whole industry will have trouble luring talent.” If Schwarzmann and James are worried about government shackles, they should make sure that the financial system works well when there are no or few rules, regs, and pay caps.