Erm, Polly?

You on Ed:

To stop giving government contracts to asset strippers such as Southern Cross that buy and sell your granny was no more than common sense.

A Our Man in York has pointed out:

We know the answer for market processes: bankruptcy and loss of investment, followed, normally, by a reorganisation of the assets. Again, the norm is that this is done by those \”asset-stripping predators\” Miliband so hates. They buy the assets at a distressed price and then put them to better use. In the case of care homes, there\’s not much you could do to change the use, so the acquirer simply tries to run them better than their predecessor.

We have seen the market processes in action quite effectively with Southern Cross. I would hazard to say that, in fact, so far from being a black mark against private-sector care, this is a positive sign, showing responsible error-handling by market participants.

Or, for those hard of understanding. The solution to Southern Cross was asset stripping.

Company has a bunch of assets. Contracts to run care homes, staff, systems etc. Company screws up on how they run them (specifically, S. Cross messed up on whether to own or rent the homes themselves and the contracts by which they did so).

So, what happens next? The asset strippers move in. The contracts to run care homes are reassigned, the staff moves to another employer. We have, or various people have, stripped the assets from S. Cross.

Granny is still being cared for in the home which she lives in. Nurses, carers, bed pan emptiers and cooks are still turning up to work. Buildings are still there.

All that has changed is the ownership and management of some of these assets: they\’ve been stripped out of the previous hulk and insterted into new formations.

Or, for the seriously hard of understanding: asset stripping is a reaction to failure and it\’s a reaction to failure that works very well indeed.

Just think what would have happened if the asset strippers had not existed.

So, S. Cross goes bust and all the contracts lapse. All the staff are laid off. All the contracts to run care homes cease. Food stops being delivered. Adult nappies are no longer changed. Tens of thousands of elderly are left rotting and starving.

Umm, isn\’t it better that some sharp cookies buy into these assets, strip them, than this happens?

9 thoughts on “Erm, Polly?”

  1. Isn’t it better“?

    How horridly utilitarian of you. Polly is merely expressing her deontological position that market = bad.

  2. I think what she is referring to is the PE types, who tied southern cross down with a load of debt and dodgy rental agreements with landlords.

    However she doesn’t say any of this.


  3. The alternative ending is not quite right. It should read “So, S. Cross goes bust and all the contracts lapse. All the staff are laid off and have to be paid benefits. All the contracts to run care homes cease. Food stops being delivered and is instead supplied by the council. Adult nappies are no longer changed in the care home but in a hospital. Tens of thousands of elderly are forced to move to hospitals, back with relatives, or in other care homes which are probably already near full, all a time when they are at their most vulnerable.”

    So the council (read taxpayer) has to pick up the tab.

    When using the asset stripping method the investors are the ones who lose out, but they are the ones taking the risk.

  4. Let me guess where they want this to lead – the munificent state does it all and then there’s no need for those nasty capitalists.

  5. Its one of those irregular verbs: I am an ethical businessman, you are an asset stripper, he is the unacceptable face of capitalism.

  6. Ed’s speech showed why he will never be elected as prime minister. I cannot remember hearing a speech by a would-be prime minister so lacking in understanding of business. What is a “good” company? What is a “bad” company? The terms are so facile it was no wonder the jounralists there could not get anyone to clarify who they were talking about.

  7. Am I the only one to smile when the debate about “good” and “bad” companies uses Rover as an example. On the Jeremy Vine show on Radio 2 at lunch time Pheonix were held up as a ‘bad’ company since they ran Rover into insolvency whilst lining the directors pockets. Yet the key point is that when BMW ditched Rover Jon Moulton’s Alchemy Private Equity partnership were the ‘bad’ company, looking to shrink Rover to just produce MG sports cars and use the BMW dowry to give handsome redundancy to the other workers, whilst Tower’s Pheonix Four were the ‘good’ company committed to keeping volume car production at Longbridge. The government weighed in on Pheonix’s side and the rest was history and the Rover workers got only statutory redundancy when the end came. We still could have UK owned car production in Longbridge but for Stephen Byers.

    The point is what seems now to be a ‘good’ and moral business case may well turn out to be the wrong choice, both economically and morally. Yet Labour can’t grasp that fact. Milliband wants to regulate with the power of hindsight, something the good Lord hasn’t given him, or anyone else for that matter.

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