How private equity and the ‘1 percent’ help the ‘99 percent’

A great take from economic analyst Ed Yardeni on just how private equity makes the American economy stronger (bold for emphasis):

Professionally, I tend to “hang out” with institutional investors. So it was very interesting to spend the past couple of days with international turnaround professionals in Palm Beach at The M&A Advisor’s Distressed Investing Summit and Turnaround Awards Gala. I was on a panel titled, “Distressed Investing in Europe and Beyond.” Wilbur L. Ross was a keynote speaker.

No one said, “Greed is good.” I did hear one investment banker say that Chapter 11 is good. Bankruptcy is better than liquidation. He observed that in America the legal system is sensibly designed to restructure distressed companies rather than to shut them down. I heard lots of heart-warming stories about how these fearless capitalists took lots of risks to turn companies around by replacing incompetent or corrupt managers with their own management pros.

Yes, in some instances, these fine folks had to fire other fine folks to boost the productivity and competitiveness of their acquired companies. That’s the heartless part of these heart-warming stories. However, in most cases, there were happy endings, which averted both the total liquidation of the enterprises and the termination of all their workers. The remaining employees certainly benefitted when their restructured companies were revived.

When these turnaround artists succeed, they can get very rich by taking their companies public or by selling them to other companies. Again, some workers may lose their jobs in the process, but it beats the alternative. That’s just one important example of how the 1% really do help the 99%. At the end of last year, Wilbur Ross, who is a private-equity billionaire, observed that entrepreneurship and capitalism didn’t cause the financial crisis: He added, “Tearing down the rich does not help those less well-off. If you favor employment, you need employers whose businesses are flourishing.”

In my presentation, I noted that during the 1930s everyone was wiped out. There were lots of distressed assets without anyone to buy them and restructure them. Today, one of the main sources of the economy’s resilience is the availability of so much private equity to purchase and revive distressed companies. Too bad Mitt Romney, who made his fortune as a private equity investor, hasn’t figured out yet how to explain this to the public.

Mitt Romney might want to memorize this.