US Fed policy only enriches private equity and not companies, American people - report

By Rizza Sta. Ana

Dec 06, 2013 02:53 PM EST

In an article published on Reuters, the article cited differences on how the quantitative easing policies of the US Federal Reserve had affected the average American and the private equity industry.

After getting laid off after 13 years at BWAY Corp factory in Macon, Georgia, around 70 workers faced foreclosure and mounting debts as hiring in the private sector was not a robust environment. On the other hand, Chicago-based Madison Dearborn Partners LLC, who owned BWAY, was able to reap benefits from the latter despite the need to shut the company down. Madison Dearborn only shelled out just USD294 million of the USD915 million acquisition deal of BWAY back in June 2010, with the plastic and metal container manufacturer funding the rest of the acquisition via high-risk debt. After a few months, the private equity firm awarded itself USD138.4 million in dividends stemming from the junk-bond sale of BWAY that the former helped arranged. Last last year, Madison Dearborn sold BWAY to another private equity firm for USD1.24 billion in a leveraged buyout deal. In order to generate a dividend payout for new owner Platinum Equity LLC, BWAY sold more junk bonds.

The rise of demand in high-risk, high-yield investments like BWAY's junk bonds was said to be fueled by the quantitative easing. The US Federal Reserve's multitrillion-dollar bond-buying program was designed to aid the economy by shoring it up and creating more jobs after the US suffered greatly from the 2008 financial crisis. Private equity owners were able to have easy access to credit that they are able to generate profits by dividend payouts and reduce their own risks. However, the article said in effect, the Fed's monetary policies had a negative effect on the companies owned by private equity as they incur large amounts of debt. This in turn will translate to more shutdowns, and clearly, more layoffs rather than jobs for the American people.

Research firm FridsonVision LLC high-yield expert and chief executive Martin Fridson said, "(The Fed's) real intention was capital investment would be stimulated, jobs would be created, incomes of the 99 percent would rise, (but was) not clear how effective that has really been. It's certainly clear that those who are wealthy enough to own a substantial amount of assets have been made even wealthier by the Fed policy."

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