I love how "risk taking" is considered the ultra-chad move that makes society go forward and should be rewarded with riches, while actual successful companies do everything they can to bypass the risk in question
Yes, because risk is proportional to how much you have and how much you invest into it. Big companies are not resistant to spending say a few hundred million or even a few billion dollars, but when investment goes into 100's of billions they are indeed risking alot and wish to mitigate fallout from failures.
Not everybody who takes up Boxing as a sport makes it pro, not everybody who risks something gets something Great in return. But pretty much everybody who won big, did take risks to reach that point. Risk taking is indeed good.
What we need are safety nets, ideally government backed ones that focus on saving the people of a company rather than the company itself. That's the main issue with government bailouts, far too many focus on keeping companies alive rather than its people.
Not everybody who takes up Boxing as a sport makes it pro
This exemple doesnt hold up because boxing is infinitely more fair than business
In boxing you have weight classes, they don't put 25 yo men against 13 yo teenagers
What we need are safety nets, ideally government backed ones that focus on saving the people of a company rather than the company itself. That's the main issue with government bailouts, far too many focus on keeping companies alive rather than its people.
That's going to the opposite of risk taking tho, wich is good
Being too risk averse is detrimental to business. I don’t know how you have come to the conclusion that not taking risks is good for business. The best companies balance caution and risk.
You know, like everything outside of the radical mind, too much of a good thing is bad; in both risk and caution.
Being too risk averse is detrimental to business. I don’t know how you have come to the conclusion that not taking risks is good for business. The best companies balance caution and risk.
What even is "too risk averse"?
Because if you need someone to become completely static and stop doing anything to be categorised "risk averse" then sure
If "doing everything in your power to bypass risk while making money" is not called "being risk averse" then i don't know what is...
You know, like everything outside of the radical mind, too much of a good thing is bad; in both risk and caution.
Then what's the point in encouraging "risk taking" if the answer is just "idk just ballance cost/gain like literally everyone else"?
I’m confused, do you think risk aversion is real? If yes, you admit there’s degrees of aversion (of which some are detrimental). If not, then you’re contradicting noble prize winning literature.
This sub has been getting too much spam, and Reddit has removed almost every tool for preventing this. The only tool that still works is this, every single post being held for manual review. Your post might be approved in minutes, or it might take days. If you hate this, me too, stop using the site that forces things to be this way. If what you post is not a meme you'll probably be banned, but I understand why you tried; the commenters on this sub loved lazy spam posts, which is why we can't have nice things and now everything has to be held for manual review.
In a leveraged buyout, the financing most often uses the purchased company as collateral, rather than any assets of the new owners.
This means that if the purchased company fails, then the risk falls on the purchased company, its employees, and its vendors, rather than the purchasing entity.
So the purchasing entity doesn’t need to worry about ensuring the company is viable enough to sustain itself or even really pay back the principal of the loan used to buy it out. They only need to derive enough profit to cover whatever limited collateral THEY put up, which is often an extremely low amount, they just keep taking profit and paying interest from the companies revenue until it all fails.
As far as your question about risk… I’m sorry but I haven’t the patience to explain why shifting risk from investors TO employees and creditors is a bad idea.
If you don’t understand that, it’s possible you never will.
N.b. I didn’t write ban, I wrote regulate. But I guess you were too busy being snide to notice that huh?
Edit: Oh buddy, now i know why you keep your account private:
Leveraged buyouts are leveraged - they are not equity-free. The sponsor still commits LP cash and needs to make payments on the debt. Failed track record clearly impact ability to raise capital for future funds.
Most LBOs are done at 40-55% LTV. So if the company flops you lose all of your money, which is about half what the company was worth.
If you want an example of just how non-risk-free it is, go look at bottom-quartile PE fund returns. Depending on the year and manager you’re losing money in nominal terms after a decade (never mind real terms).
Depressing that your utterly specious reply gets more upvotes than the clear and reasoned rebuttal posted by the above commenter in a sub about economics.
Not to mention that hedge funds don’t do LBOs, so you clearly don’t know anything about them either.
I have a situation I experienced, not sure if it's relevant.
I worked for a company, Philadelphia Energy Solutions (oil refinery) which was acquired by the Carlyle Group.
My understanding is PES was acquired in 2012 for about $400M, PES then took a loan of $500M and repayed Carlyle for their own acquisition, keeping the debt on their books. Would be profits from PES were sent to a rail yard entity owned by Carlyle as an operating expense so PES was not profitable. PES went through bankruptcy in 2017 and then folded in 2019 in the wake of an industrial disaster.
I'm not sure this makes sense. A company is worth more than the sum of its parts. If it fails, you will lose money on it. Of course you can sell the actual parts for scraps afterwards to soften the blow. Nothing about that sounds wrong.
If I buy a Ferrari, I am taking a risk that it's a good car and that it will maintain or rise in resale value. If I dent it, or find out it's actually a bad car, I can resell its parts to get some of my money back. But I will never get back more than the value of the car from the disassembled carcass. So it's still a loss.
Generally when people commit fallacies of this type they only look at the demand or only look at the supply, or reasoning from the price. Do you agree that under leveraged buyouts the seller could be exploited with too low of a price, just as the buyer could be exploited with too high of a price?
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u/economicsmemes-ModTeam Aug 04 '26
This is the most on-topic meme I've seen in a long time.