How to Lose Money and Come Out OK Anyway

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TIAA-CREF is buying Nuveen Investments for $6.25 billion from Madison Dearborn, a private equity shop that bought Nuveen in 2007. Nuveen has performed poorly since then, but insiders say that the TIAA-CREF deal ensures that the Madison Dearborn will at least break even on its investment. Felix Salmon is gobsmacked after running through the numbers:

So here’s my back-of-the-envelope math: you buy a company for $2.7 billion in cash, plus debt which you refinance a few times. While you’re running the company, it loses a total of $2.4 billion. And then you sell the company for $1.75 billion in cash. Total going out the door: $5.1 billion. Total coming in, at exit: $1.75 billion. Net loss: some $3.35 billion, give or take.

All of which raises some big questions about the WSJ’s claim that Madison Dearborn “will have at least broken even on its Nuveen investment”. If that claim is even close to being true, then at the very least we can’t take Nuveen’s public filings at face value at all….This is worth remembering, when private-equity types (think Mitt Romney) claim that their interests are aligned with the interests of the companies they buy. That certainly doesn’t seem to have been the case here. Nuveen is being sold with about $1.5 billion more debt than it started with, and with cumulative losses under Madison Dearborn’s ownership of some $2.4 billion. That’s not a great legacy for TIAA-CREF to inherit. If Madison Dearborn really is breaking even on this deal, that only goes to show the enormous disconnect between the economics of private equity companies — the wealthy rentiers of society — versus the economics of the real-world companies they buy and sell.

Of course, one possibility is that Madison Dearborn is just putting a brave face on things and reporters are taking it at face value. More likely, though, there are tax games of some kind that allowed Madison Dearborn to strip a ton of value out of Nuveen over the past seven years. I suppose they’re also benefiting from low interest rates, which means that Nuveen’s refinanced debt is less onerous now than it was in 2007.

In any case Salmon’s point is well taken. If you can break even after running a company as disastrously as Madison Dearborn has, there’s something pretty badly rotten about the entire world of high finance. But then, you knew that already, didn’t you?

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SIX TRUTHS

Reclaiming power from those who abuse it often starts with telling the truth. And in "This Is How Authoritarians Get Defeated," MoJo's Monika Bauerlein unpacks six truths to remember during the homestretch of an election where democracy, truth, and decency are on the line.

Truth #1: The chaos is the point.

Truth #2: Team Reality is bigger than it seems.

Truth #3: Facebook owns this.

Truth #4: When we go to work, we're in the fight.

Truth #5: It's about minority rule.

Truth #6: The only thing that can save us is…us.

Please take a moment to see how all these truths add up, because what happens in the weeks and months ahead will reverberate for at least a generation and we better be prepared.

And if you think journalism like Mother Jones'—that calls it like it is, that will never acquiesce to power, that looks where others don't—can help guide us through this historic, high-stakes moment, and you're able to right now, please help us reach our $350,000 goal by October 31 with a donation today. It's all hands on deck for democracy.

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