The point of a leveraged buyout is to buy a company, do something to make it more valuable, then resell it at a profit. What exactly that “something” is depends on the company, but usually involves improving its efficiency (layoffs and other cost-cutting are the easiest ways). Yes, this sucks for those on the receiving end of a pink slip.

The big problem is that leveraged buyouts have little downside risk. Since most of the financing is debt, the buyout guys have very little of their own money at risk so they act very aggressively to make the company as valuable as possible before they resell it.

- don’t have to pay back debt
This is misleading. The debt will get paid back in one of two ways, either with the profits of the company they bought or from the proceeds they get when the company is resold. But, if the debt is secured by the assets of the company, if something goes wrong then the debt-holders will liquidate the company to recover their investment.

- company pays less tax because of all the debt
This one’s true, but it’s not a bad thing. The company pays more interest, which is tax-deductible (as are all other expenses of the company). But someone out there will be receiving the interest, which is taxable, so overall tax revenues for the government aren’t significantly changed.

- capital gains tax less than normal tax
I don’t know US tax law, but this is true in Canada. This is the only real loophole in the whole video. It’s something Warren Buffet has talked about a lot (that he pays a lower tax rate than his secretary).

*wildwestshow

Adding video to channels (Wildwestshow) - requested by Eklek.