Grubstakers - Episode 27: Private Equity and the Death of Toys R Us feat. Josh Kosman

Episode Date: August 7, 2018

For this special episode Josh Kosman, author of The Buyout of America: How Private Equity Is Destroying Jobs and Killing the American Economy, joins us to offer an explanation of what private equity is and why so many of the billionaires we cover are involved in it. We also discuss the bankruptcy of Toys R Us, how much blame private equity deserves for the wipeout of 33,000 workers, and what we might expect to happen if private equity owned companies continue to go bankrupt. Buy Josh's book: https://www.amazon.com/Buyout-America-Destroying-American-Paperback/dp/B00ZY8KWV0

Thank you for joining us today on Grubstakers. We have a special episode where we cover private equity extensively, then the Toys R Us bankruptcy linked to Bain Capital, and all of this is lovingly dumbed down for Andy Palmer and myself by our special guest, author of The Buyout of America, Josh Kosman. All that and more right now on Grubstakers. and marketing and they taught me what it was like growing up feeling targeted for your race and that's just that's just not true you know i love having the support of real billionaires hey welcome back to grub stakers the podcast about billionaires. Sean P. McCarthy here, joined by...

Yogi Boyle. Andy Palmer. Steve Jeffries is out this week, but we have a very special guest for you, the author of The Buyout of America, How Private Equity is Destroying Jobs and Killing the American Economy. Josh Kosman is here. Thanks for having me. And we got Josh Kosman here because just in the way of background, we've been doing this podcast on billionaires.

And when you start researching who the billionaires are, you start running into all these weird industries that you don't understand. And you start seeing that a bunch of the billionaires, for some reason, work in private equity. And we've done a few episodes on private equity at this point. And we've realized perhaps our listeners are not, perhaps they are trepidatious about having high finance capitalism explained to them by three failed open micers. And so, so we got Josh Cosman, who literally wrote a book on private equity, and he's here. Someone say the book. The book. I don't know. It's very impressive to me because after like 10 pages of a short story, I'm totally burned out.

So to meet someone who not only actually finished a book, but about like a concept like private equity, I'm pretty much in awe here. But we got an expert here, and this will be kind of more a general private equity episode so that this is the canon episode. All our previous private equity episodes, if we made terrible mistakes, those don't count anymore. Yeah. Because now we have an expert and a co-signer. So if we make mistakes on this episode, it's on you and your reputation. So we'll talk a bit about private equity generally, and we'll also talk about the Toys R Us bankruptcy,

which you might have heard about. They shut all their stores in June 2018. 33,000 employees were laid off with no severance pay. And this is something where there have been a lot of discussions in the media. It's like, how much of that is just competition from Amazon? And how much of that is the private equity's fault? Because they were, of course, bought by private equity owners. And I just kind of want to start the Toys R Us story with a tweet I saw from an employee of, a former employee of Toys R Us named Teresa Walker.

In July 19th, she writes, at Bain Capital, at KKR, at Vernado, Vornada, Nado? Vornado. Vornado Realty. No worries. The sequel to Sharknado, Vornado Realty, is apparently a private equity firm. But those are the three private equity firms that bought up Toys R Us back in 2005. Less charismatic than the sharks. She tweets at them, and she says, quote, my job was taken and my insurance he will

lose his heart transplant meds and this is a has a picture of her son in a hospital bed my job was taken and my insurance he will lose his heart transplant meds and he waits for a kidney transplant he has been taken off the list with no money for insurance

I deserve severance so I can care for him hashtag rise up retail hashtag toys r us hashtag uh share your space and uh and i read that and i was like on i was on my lunch in a shake shack and i just almost broke down crying you know because it's just something where it's like you get exposed to so much horrible stuff all day on the internet and then you just never know when something's just going to break through your defensive shields and really just like hit you in an emotional way. And it's just like this worker who this is her only tweet.

And all she can do is like make a Twitter account begging these people worth like six billion dollars each to just give her some money so she can take care of her son. And it's just it's so horrible to me. It's happened on such a huge scale. I just figured that the only thing we can do is make an episode about private equity for our 100 Preach to the Choir listeners. That's really what brought me

to the subject of Toys R Us. Are you sure it was the tweet and not what you were eating? You're sure it wasn't the meal you were having? A lot of uncooked onions. So I guess just before we kind of get into the story of Toys R Us, Josh, if you could explain to our listeners generally what private equity is, I think that would be helpful for them. Sure.

So private equity is really leveraged buyouts. Leveraged buyout firms took the term after Michael Milken in the 1980s, and leveraged buyouts were very in the news and got a very bad, probably deservedly bad rap. Once leveraged buyouts in the late 80s recession ended for a short time and public pension stopped investing in them, they came recession, ended for a short time and public pensions stopped investing in them. They came back, these same firms, Henry Kravis, a lot of the guys who are still big today, and some who are not, but the Carl Icahns of the world, they came back, and at least the Henry Kravices who raised money from state pensions rebranded themselves as private equity. But when you think of private equity, it's really leveraged buyouts. Venture capital is a different

thing, which it looks like we're not talking about today. Not necessarily. So what private equity does, what a leveraged buyout is, is you buy a company using that company's assets as collateral. So you're putting maybe 25% down, having the company borrow, not you, the 75%. You put it together, give it to the seller, so the seller gets all their money. But now the company owes a ton of money. And the problem with that often, and this isn't anecdotal, it's just, it's evidence at this point, is that for everything to work out, that the world has to be pretty stable. And life doesn't work that way and business doesn't work that way. So when you're leveraging something to the hilt, assuming you can cut back a little on employees, you can cut back on research and development, cut back on capital spending,

and because you bought a leader in an industry like Toys R Us was at the time, that it can just handle it. Well, it can sometimes, but often the answer is no. Private equity firms own companies employing about one out of every 10 Americans in the private sector. So they're hugely important. And yet people understandably don't necessarily understand. I think people kind of get that there may be something wrong, but they don't understand the breadth of it. And as we're talking about tariffs against China, which I think you could intelligently argue either way, a lot more damage is done to this country and a lot more jobs are lost because of leveraged buyouts than anything we're doing with China or NAFTA. Right.

And you mentioned like they changed their name from levereverage Buyout Firms to Private Equity. And I feel like one of the main innovations of American business has been to change their names when people get mad at them. You know, black, what is it? Let me look that up on my Spectrum internet. But sorry, did you want to say something, Andy? I was going to ask, so these companies will, more often than not, the companies that are bought out will go under. And it seems like that's almost the business model for the leveraged buyout firms. I think that's probably a little rough, and that's okay. I mean, I think mostly what happens is they become zombie companies, so they don't compete well.

So let's say in real time now, Univision was bought out in an LBO in 2008. At the time, it was dominant over Telemundo. They didn't have, because of the leverage buyout, there was no money or little money to invest in programming. Telemundo got bought by Comcast, which is NBC. They started putting a lot of money in it. The World Cup that just ended for the first time was on Telemundo, not Univision. And DISH, basically because Univision was raising its rates, said get lost.

We don't need Univision. And Univision's in a heap load of trouble. But it's not going to go bankrupt in the next year or two, maybe five years from now, but not in the short term. So a lot of these companies, and I should say, I should have said, private equity firms typically try to buy and sell companies within five years. So they try to make some cuts, usually, in different areas, hope the company just keeps treading water. If it does, if it improves, that's great. And then resell it in three or four years before everything catches up.

In the case of Toys R Us, they owned it since 2005, tried to take it public three or four times and failed, and the cuts ended up, in the end, really hurting Toys R Us, as did Amazon. But it's not just, you know, as I imagine you guys are having me on because you agree. But I mean, it's a matter of fact. It's not just Amazon.

Amazon is part of the problem for Toys R Us, but it's part of the problem. It's the landscape change. Amazon started eating away maybe 5% of their earnings. But when you have debt up to your neck, 5% could end up being the difference between being solvent and insolvent. Right. Are there any examples of companies that have greatly benefited from this practice? It's a good question. So, you know, there's so many leveraged buyouts that have been done. Not every one is destructive. Sure, sure.

So in my book, The Buyout of America, I looked at the 10 biggest buyouts of the 90s. So that's not the worst decade of LBOs because we were in a kind of boom times. So I took the top 10. I looked at each company. It's in the back of the book. Most people understandably never look at it. But I thought intellectually it was a good exercise. So I looked at, for example, Sachs was bought in an LBO. Its biggest competitor is Neiman Marcus. How'd they both do in those five to six years where Sachs had debt and Neiman Marcus didn't? And Neiman Marcus did very well. Right. had debt, and Neiman Marcus didn't. And Neiman Marcus did very well. SACS fell. So in six of the 10 cases, it was pretty clear the company bought in the leveraged buyout did worse than their peers,

and they fell as far as competitiveness. In three cases, I think it's a little hard to tell. It's mixed. And in one case, I think the PE firm did improve the business. So I do think it happens, but I think it doesn't happen often. Right. Well, and if I could just quote from your book, because I am the person here who read it. So that makes me the second most knowledgeable person on private equity in this room. But so you say in your book, quote, because the strategy of private equity firms is to sell their business within several years, they focus on quick, short-term gains and give little consideration to long-term performance. And in particular, you make several arguments or you present several cases where they cut research and development. They lay off workers, obviously. They cut pensions

and benefits. These kinds of things are obviously going to make workers more likely to quit or be miserable on the job and underperforming. And so it's just like it seems like in a lot of cases, the strategy is to juice the numbers, sell it off, and then not really care about long-term performance. And as you mentioned in your book, you did look at, I believe, you said the 10 biggest leveraged buyouts of the 90s and found that in six cases out of the 10, it was worse off ultimately. And I did actually just want to talk a bit about Bain Capital because you talk about Bain Capital in the book, and Bain Capital was one of the three firms.

Could I jump in? So I'm stuck on one last thing, which is what is the general advantage for the company that does the leverage buyout? How do they tend to make money? What's the general advantage for the company that does the leverage buyout? Like, how do they make the most, or how do they tend to make money? What's the general business model? The general business model, well, there's a few. It's a good question. There's a few different business models.

One is you buy and build. So you take your company, you buy smaller businesses and related industries, make cuts, increase your EBITDA, earnings before interest taxes, depreciation, amortization, or just to simplify earnings. And then you make a bigger mousetrap and resell it or perhaps take it public in three or four years. That's one model. Another is you take a company, typically they let private equity firms like companies that are leaders in their industries so where you can make cuts and the companies at least on the face of it can handle the debt because they have a loyal following or maybe it's a software company where people

renew their licenses every year where the effects won't't, you won't see the effects for four, five, six years, if at all. There's also, you know, thinking of an example in the book, I talk about the mattress industry, and Bain Capital was in the middle of that. So Bain owned Sealy. So first they make the mattresses thicker think in any time the time sealy simmons and serda all the three big mattress companies tempur-pedic didn't exist in the 90s all owned by private equity firms so they all decided let's make the mattresses thicker so you can't turn them over well now mattresses don't last 15 years. They last five or six years because you're not turning them over. That's a good way to increase earnings short term.

So they kept doing these tricks. And then Tempur-Pedic came out of nowhere with their foam beds and basically ate the market share of Seeley, Simmons, and Serta. But for at least a decade, it worked very well for the private equity firms. They bought and sold these three companies between each other and except for the last guy standing they all made money wow and i think you actually i might not get the stat right in this book but you were saying over that time period mattress prices in america actually increased at double the rate of inflation or something and that's for a worse mattress too right because

they were taking all those things out so it's i mean uh it's just pretty fascinating and it's kind of getting to realize the like making them one-sided was a like i have you know a one-sided like ikea mattress um but like i i didn't realize that being able to flip a mattress was a perk that was just completely taken out by Pratt. It was. It's supposed to be like rotating a tire. 30 years ago with a mattress, you just flip it over. It'd be like Oreo being like, we're only going to sell one cookie with the cream on it instead of both. I like how he's explaining to a bunch of man-children in Brooklyn that you're supposed to flip your mattress over.

Josh is here to be the father we never had. But yeah, no, and so we did kind of mention Bain Capital briefly there. But so another thing you, and as we mentioned, Bain Capital is one of the firms involved in the Toys R Us buyout. But if I understood your book correctly, you were making the argument that essentially, and please correct me if I'm wrong, that KKR kind of started what we understand to

be private equity, but Bain Capital kind of changed the strategy, or you were mentioning their ways to make money where you either resell the company, or if it's private, you launch an IPO, or what Bain capital started doing was loading up the company with debt and then using that to pay themselves dividends and distributions and so you said bain capital was kind of the innovator in that and that throughout the uh late 80s early 90s they did a bunch of that and you go through like a bunch of you have like a seven companies here that uh bain capital uh bankrupted and made a lot of money on right they uh stage stores they bankrupted uh ampad um oh and uh also

damon corp was one that uh they uh the company had to plead guilty to overbilling medicare which was a fun uh follow-up from our previous episode. We talked about the Carlyle Group, and HCR Manor Care is a company you wrote about that the Carlyle Group bought in here. But your book came out before in 2015. They were charged also with overbilling Medicare fraudulently. But, yeah, so it's just interesting this, you know, like seven companies, six of which had to file for bankruptcy because of this Bain Capital strategy. So I guess if you could just kind of talk about Bain Capital

and what they did to change the game. Sure. Bain was started by Mitt Romney, the same Mitt Romney who unsuccessfully ran for president. Would you say that it was this Mitt Romney? Who let the dogs out? Who? Who? He can get funny sometimes did you see him at a Utah Jazz playoff game this year it was like a clip that went viral that the Jazz

I think were beating Oklahoma City so he like points at Carmelo and he's like you you you and he gets like a fifth foul or something it's a kick um but um but mitt romney um owned a hundred percent of bain capital so basically it was called bain and company was a consulting firm not a private equity firm they had a small private equity arm mitt was considered brilliant. Bill Bain, who ran Bain & Company, got into financial trouble. He wanted to bring in Mitt to help save Bain & Company.

And Mitt, who's very clever, and I shouldn't say that in a good or bad way, but Mitt says, okay, I'll do that, but I get Bain Capital. I'll get the private equity arm. So he saves Bain & Company, and he gets the private equity arm. So most private equity firms that we think of todayain and company and he gets the private equity arm. So most private equity firms that we think of today, KKR, Blackstone, Apollo. Houston, we have a problem. They are controlled by a small group of people, but one person does not own 100% of the firm. Mitt Romney owned 100% of Bain. Wow. Corporations are people, my friend. And he

was very aggressive about his use of leverage, even compared to his peers. Really? So he would take a company, as Sean just spoke about, any of those, including KB Toys. Right. Take the company, increase profits in a year or two. So forget about reselling. In a year or two, go back to the loan markets and borrow more money against the increased earnings so it's like you're taking the second mortgage right right back to the hilt again

and we found seven examples where the companies then collapsed on the campaign trail in 2011 2012 2011, 2012, as this came up, he said, making money from a company that ends up going bankrupt would break my heart. But he did it over and over and over again. Just crying while you're getting a Porsche. It's rough to be a man with that many broken hearts. Weeping alone at his Peter Luger's table. So, yeah, Bain was very, and, you know, throwing some modesty aside,

I've never spoke to David Axelrod or anyone on Obama's team. I was actually going to ask you if they, like, their oppo research, if they reached out to you. They did not, but I've been told, ask you if they like their oppo research, if they reached out to you, but they did not, but I've been told, and it's been written that they use that chapter in the book as their oppo research or as the basis of their oppo research. Nice. Which is great as a journalist.

Yeah. And, and he, the way Mitt would fight back against the charges that he never, I reached out to him. I spoke to his people, I never spoke to Mitt. But the way when it would come up on the campaign trail, which was often, is he would say, you know, we help companies like Staples, Domino's. And there is some truth to that, but Bain had a very small venture capital arm. They made 95% of their money through leveraged buyouts and doing exactly what we're talking about here.

So his firm and he acted in a very aggressive way. And it's interesting that his firm buys KB Toys, blames Walmart, which there's, again, some truth to. Walmart started selling toys at cost. But because KB was in such debt, they couldn't compete. They couldn't lower their prices and compete for a year or two, maybe taking a loss and then survive it. There was no wiggle room. And then they turn around and buy toys or rest and try the exact same thing again. And then they point at Amazon and say, oh gosh, here's Amazon. amazon well amazon does sell toys for

less but again it it's it's it's a very similar the fact it's happened to them twice in the same exact industry right um though mitt to be fair he was gone by the time toys r us happens but still many of the same people the fact they would do it twice tells me this is no coincidence. This is a pattern. And in the early days of Toys R Us, by the way, Bain, KKR, Vornado that owned it, decided because the company was deep in debt, well, we need an e-commerce strategy. Why don't we hire Amazon to do our e-commerce? And they actually did that for three or four years before realizing, oh gosh, they're our chief competitor. That's really not a very good idea. So a lot of what happened at Toys R Us,

in my view, is self-inflicted. And you said they also bankrupted two toy stores, Toys R Us and KB Toys. So you start to think maybe it's not so much about the money. Maybe he just wants to destroy joy for children. But so I guess and then... Children will only use spreadsheets. One other like fun anecdote from your book about Bain Capital

is you write about it's... I believe it was a supplier for Sealy Mattress. I don't remember the exact company name, but somewhere along the supply chain, there was a company that Bain ownedress. I don't remember the exact company name, but somewhere along the supply chain, there was a company that Bain owned. And you write that in 1999, they attempted to bust the union there by essentially hiring Spanish-speaking workers who did not speak English, and then hiring managers who spoke Spanish and trying to get the managers to convince the workers to not join the union, at which point they would be able to decertify the union if more than 50% was

non-union. But of course the Spanish speaking workers still joined the union. But that's just like the kind of a little, the story you run into a lot where we've talked about how, you know, they cut costs, they raise prices, they cut R and D typically.

But unions have been kind of the main bulwark stopping them from doing that. And so they, I believe Mitt Romney was also accused of illegally, I don't remember exactly what he did, but he did something with a pilot's union. He tried to like do an end run around a pilot's union. I'm sorry, I should have looked that up. No, no, that's okay. You know, in the book, and it's not me, there's a World Economic Forum study, so that's Davos, and it was conducted by a private equity pioneer to try to show private equity-owned companies how they, if they add jobs or decrease jobs, and he thought for sure it would show they would add jobs, and I think he did that because private equity firms sometimes buy additional companies. So if you add it all together, they would add jobs. And it shows the exact opposite. So and this is a study done by the industry. So it's not, you know,

I guess I want to make the point, it's not anecdotal that Toys R Us is destructive. It is. But there's data, there's some data out there. There's not enough work that's been done, but there's enough data out there that it's not anecdotal. Private equity firms really hurt employment. Beyond the fact that if you think that, and I do, that small business is the backbone of the country, and then you have these 300 private equity firms that own

companies employing one out of every 10 of us, that's a problem. That's concentrated power, and it means the people who run those private equity firms or manage those companies, they're not living in those towns. So basically, the story, it's a Financial Times story story and it alleges that in um 1986 i believe or no 85 uh they bought bain bought an airline uh called uh key airlines and uh then uh allegedly uh attempted to illegally stop the pilots there from forming a union um including um intimidating them uh about you know everybody will be laid off if you unionize, that kind of stuff. But this is all allegations.

It hasn't been proven in a court. But interesting little story. Yeah. Now, private equity firms are, you know, to be clear, they're not the only corporate citizens who are very anti-union. Right. But certainly unions and private equity typically don't mix well at all. And like one other fascinating thing from your book, and then we can get a little bit more into Toys R Us, but we've kind of talked a bit about this on our private equity episodes where a lot of what private equity is exists because of lobbying and tax loopholes and these kinds of things. And one of the more crazy things at the end of your book, I think as of 2010, four of the eight previous treasury secretaries of the United States had gone on to work in private equity. And then I looked at that and that doesn't include Robert Rubin, who went on to work at Citigroup, what would become Citigroup after helping kill Glass Stegall. But it's just kind of fascinating to me where it's like the amount of incentives that they have as far as government lobbying goes, it just seems like a lot of the business only exists because of tax loopholes and government lobbying. No question. or leveraged buyouts exist is because when you buy a company, now, it's not just when you buy a company.

When a company takes on debt, you can take the interest on that debt off of your taxes. So private equity-owned companies, which are deeply in debt, pay half the tax rate of their peers. If they were forced to just pay what their peers pay, that would eliminate a lot of the advantage that private equity firms have. And it's that loophole that really started the industry.

Right. That's nuts. And you also write, like, just to go back in time a bit, you write in the late 1980s when, like, you know, the movie Wall Street came out and stuff, there was, like, a lot of heat against leveraged buyouts. And, of course, their solution, as we've mentioned, was just change the name to private equity.

But at this time, there was an 87 a congressional proposal to change exactly that law that you're talking about and of course it just went nowhere and then everybody forgot about it because private equity is it's different right right and and of course today's you know steve mnuchin today's treasury secretary he comes from private equity right he made a ton of money from indyMac, a lender that was bailed out. And essentially he ran a private equity, a group of private equity firms. He managed the investment for them and made a ton of money. Wilbur Ross, too, was a private equity guy.

Right, actually. And like you talk a bit about that at the end of your book. The private equity bought IndyMac during the financial crisis and then turned it into OneWest. And OneWest was a horrific abuser in terms of robo-sign foreclosure, which, as we've mentioned, is fraudulent foreclosure. I mean, it's throwing people out when you have no ability to prove that you actually own the property in question. So it is just like, obviously, private equity, we're not the only people to do these kinds of fraudulent foreclosures. But when their incentives are aligned the way we've said they are, it seems kind of predictable. And it's pretty embarrassing that the government really encouraged private equity to come in and buy IndyMac, because they just

want it to not have to do a government bailout. You know, so they, they brought these people in whose incentives were completely out of whack with keeping people in their homes. And the government got wise after two of these investments, but IndyMac was one, that they would backstop losses. So they would say, you know, try to keep people in their homes, but if their homes go bankrupt, we'll back it up to a certain very large amount. So the incentive, and what Mnuchin got accused of during his confirmation hearings is you would just try to throw everybody out. Right, right.

Because you'd be buying loans essentially at whatever it was, 50 cents on the dollar. Why wouldn't you try to get a buck if you don't care? Right, right. And Steven Mnuchin didn't care. So, I mean, the record shows he did very well financially, but, you know, arguably they foreclosed on a lot of people. And even worse, they made Suicide Squad. That's his film company. Relativity, yeah. They made Suicide Squad. That's true. Sorry, you were saying something? No, it's crazy how good snakes are at lying,

because all the people we're talking about have such a, I mean, from Mitt Romney to Steve Mnuchin, they've got such a public, oh, no, I'm just a humble guy doing nice things. And it's like, oh, no, you are literally a wolf in sheep's clothing. Like, it is very disgusting. The Washington Post, by the way, just speaking to Treasury Secretaries, did a great job, this is within the last few months. I had nothing to do with it.

Just awesome reporting job. It was David Axelrod. The Tim Geithner. So this shows it's left and right. It's not just right. Right. Tim Geithner, who talked about predatory lending when he was treasury secretary ends up joining warbur pinkis a large private equity firm warbur pinkis is making a ton of money off a company um that preys on subprime uh lenders and what it literally does is it will find people who fit their their their uh what they're looking for um fit their profile, it will send them checks. You cash the check, it's 30% interest. You don't cash the check, nothing happens.

But obviously enough people will cash those checks. And it seems very much like the definition of predatory lending. And it's Geithner's firm or Geithner's near the top of the firm. So, again, it's not a left or right issue it's it's ironic now with toys or us that um the workers who are pretty well organized it's amazing how far they've gone um that they're talking to people like senator schumer in new york again a champion of at least you know. I'm not sure of the left. Right. But, you know, he is the senator of Wall Street. He has stopped not to jump into too many topics, but he's personally had a

big role in stopping carried interest reform, which would hurt private equity because most of the private equity firms are in New York. He represents his constituents. Not saying that's good or bad, but certainly he's very, you know, this Democrat, this leader in the Senate is very much been in favor of private equity. So is Cory Booker of New Jersey, who, again, these workers are going to for to talk to to try to change the laws. So it's not just a, again, to be clear, it's not just a Republican issue. It's a money issue. Right.

And private equity is a way to make billions. This is unrelated, but I was kind of screwed because I cashed my Tim Geithner check and used it to buy Jeffrey dollars for Toys R Us. Oh, no. Oh, John. I don't know what I'm going to do. Oh, God. All right, so before we move on to Toys R Us,

and I know I said this, but one other thing I found really fascinating in your book is that essentially you make the argument that what was called the savings and loans crisis in the 1980s can be blamed on private equity, and you, in fact, also make the argument that we could expect a future financial crisis to happen the same way.

And so I guess if you could just talk a bit about junk bonds and how they cause the savings and loans crisis, and then we can talk a little bit about collateralized loan obligations. Sure. I'm not sure I'd go as far as to say that private equity caused the savings and loan crisis, but it did cause certain savings and loans,-yield funds were investing a lot in what are called CLOs. CLOs, which are back to a degree, collateralized loan obligation funds, take bundles of leveraged loans, cut them into slices, and sell the most risky parts. And the idea is if you have 50 loans, well, only two or three are going to go bankrupt, so they're safe. But in reality, they're all single B credits. They're all junk bonds. So even though they have a yield that's a little higher than treasuries, it's not a 7% or 8% yield.

It doesn't represent the risk. Right, right. And certainly the CDOs, collateralized debt obligation funds, collapsed in the housing crisis. Those were backed by mortgages. Those were backed by mortgages, exactly. And what happened in 2009, 2010, that President Obama decided to lower interest rates artificially,

and we had QE, we had quantitative easing, so that many companies owned by private equity firms that wouldn't have been able to otherwise did refinance. So Paulson, former Treasury Secretary Paulson, I know, had a real fear that this was going to cause the next great credit crisis, was all these private equity-owned companies going bankrupt. It didn't happen because of quantitative easing. What has happened is a slow drip, drip, drip, drip, drip. So in retail in the last few years, half of the bankruptcies are private equity-owned retailers. So it's not as though it hasn't happened. Of the biggest LBOs of the 2006, 2007, 2008 boom era,

three of the biggest seven have already gone bankrupt, which are Caesars, iHeart, the radio station owner, and Energy Future Holdings, or TXU, Dallas' biggest utility. So it is happening, but it's more a drip, drip, drip thing, and you kind of have to pull back and look at it. Fortunately, I mean, certainly I'm not hoping that a ton of companies go bankrupt. You came on the wrong leftist podcast. But it is happening, just more in slow motion right and what you're ending up with are a lot

of zombie companies that just have too much debt but they're not going to go bankrupt but they're not really productive to our economy and these are not thriving businesses right and just what i found fascinating is like you talked about the collateralized debt obligations were the packages of mortgages. And the incentive for the banks was they didn't care about lending standards because they knew they were going to sell them immediately. So kind of a similar thing happens with CLOs is because you make the argument that much of private equities funding comes from banks who actually don't really care about lending standards because they know they're going to package these loans into CLOs and then sell them off right away. So it's just like the parallels are very eerie to me where lending standards kind of collapse when you don't really care about the instrument performing because you're going to pawn it off on some other sucker.

So it just seems like if enough companies start going bankrupt, then suddenly all these CLOs collapse and then we do the exact same thing we did in 2008. I mean, that's the scenario. It could happen. I mean, again, it has happened in retail. That's happening right now, whether it's Route 21, whether it's Clear Stores, whether it's Toys R Us, whether it's J.Crew that's on the verge of going bankrupt. It's happening over and over in retail.

And unfortunately, it'll happen in other industries as well yeah i was previous to to doing stand-up i was in broadcast communications and seeing what has happened with iheart radio is crazy because it's you know it was a major competitor of the you know uh premium radio business and they've just fallen off in so many ways it was practically a monopoly yeah which i guess is why they bought it because yeah exactly 100 that that's exactly right and with iheart it's a perfect example of where because it was in so much debt and there was short-term minded ownership instead of investing in their own spotify or something like that one could easily see the writing on the wall. They don't do it.

They don't have the money to do it. They can't afford to take a short-term hit perhaps to iHeart's ad revenue and do something creative to try to keep up. And they just stood there, and they went bankrupt last year. Yeah, I mean, it's like a hands-in-your-pocket type of situation. I don't know what to do you know it's like it's crazy and and and i heart was so terrible because i heart to save money they would have somebody broadcasting in a central studio to and he would be doing six radio

shows in six different cities so that wouldn't happen in new york city because our stations are just too valuable you wouldn't do it here. But if you were in Billings, Montana, you're hearing the same DJ as some guy in Casper, Wyoming. And the beauty of radio is the uniqueness you get, the sense of community. And because it started becoming so generic, it also lost its value. And ultimately, it cost iHeart. With radio, the beauty was I have a connection to a person that's personalizing what I'm listening to to his taste of right now. And when you turn on most radio today, it's so homogenized, like you mentioned.

And it's so just the same eight songs. And it's like, what? This is not what this is for. I'm just imagining Mitt Romney turning it on and being perfect and you start to think well you know you you talk about politics or musical taste you're going to insult somebody but you know like 104.3 in new york the the rock, the classic rock station, you know, I turn it on occasionally, and, you know, it's the same Steve Miller band song again, and it's like the same three popular Steve Miller band songs, again

and again and again, because they assume you're not going to turn the station. Yep. So there's no chances, there's no risks, I mean, the pantheon of rock, there are thousands of songs you can choose from, but they're going to choose the same 20. Right, right.

Here comes Russia's Tom Sawyer again. Right, right. You know, here's the same song. So they figured, well, no one will love it, but no one will hate it. So no one will turn this. Not enough people will turn the station. Right. There was a while there where I would listen to golden oldies only,

and it was only because they had a Rolodex of songs that they actually played through. So when you'd put it on, first of all, there was less commercials because it wasn't as popular as other stations, but then also it's songs I've never heard that at one point were hits. It was the best.

I really like Don't Stop Believin', so this is not a good one. All right, so moving on to the Toys R story because it thank you thank you for saving us it combines all the things we were talking about but um it is just interesting like reading the book you know i i recognize all that that stuff you're because so basically in when i was a kid growing up in seattle you're very excited to go to toys r us we had one at uh northgate mall you know i'd love going there and you know like you're you're a small kid it to Toys R Us we had one at Northgate Mall you know I'd love going there and you know like you're you're a small kid it's like this huge store it seems like the biggest

thing in the world it's like so exciting and I like two years ago I went to a Toys R Us I was in Rego Park for some reason I went to the Toys R Us there just purely out of like childhood nostalgia and so I was walking through and it like I mean it felt like a kiosk in a mall i mean it's like all the the luster was gone there was like two employees in the whole store and then like i wanted to buy some magic the gathering cards just out of like you know childhood nostalgia i wanted to buy something and they were like seven dollars for a crummy little booster pack and it's like reading your book i realized oh that's that's because mitt romney was trying to gouge me for my magic cards right because he took over toys r us but it is just like an interesting story where a a store that can be so excited to so many people because the the time horizons are so short they're you know cutting staff so there's nobody there in the store to

help you they're jacking up all the prices so it's not even competitive i mean i don't know exactly the numbers they did on toys r us but that's a common strategy and then uh they're also just kind of not able to keep up with the demands of new inventory or innovations in the business so and you would think that they would actually have a little bit of an edge over amazon because especially for younger kids like you want to be in a store yeah you the kids aren't going to be like you know clicking around and saying well this looks interest this truck looks especially interesting they want to play with right right well they buy it the thing is they they mentioned one uh one out of every five toys sold in the country even up until the bankruptcy was through toys r us so they were

you know they were doing well like we'll get into the history uh hopefully during this hour but but i mean like you know they were still a major competitor this notion that they failed because they weren't good enough it's just wrong i mean like yes they certainly did not do as good business-wise as they had previously but people were still shopping at toys r us yeah well they were according to the nation they were paying about 450 to 500 million a year servicing their debt. That, as we mentioned, you know, the three private equity firms came in, took it over, and then only put 20% of their money down. The rest of it they just put into debt on their own books.

So it's like, you know, it can only be so competitive when they're having to spend all that money just paying the interest on their debt. But I guess we should probably start with the short history of Toys R Us, then we can talk about what happened to them. I guess if you... Yeah, I got this. So the founder of Toys R Us, Charles Lazarus, he initially started a baby furniture store. After World War II, he was having a family, and like a lot of veterans at that time, he was trying to figure out what to do.

And his uncle had a baby furniture store as well, so he figured he might as well do that. But later on, he realized that parents won't buy cribs and baby seats over and over again, but they'll buy new toys left and right. So in 1957, he founded Toys R Us, and that's when he started selling toys, and that's when the toy business began. In 1965, they introduced the mascot, Dr. G-R g raff which that's great oh i'm sorry yeah we were talking about this before you came in about how like that is so much better than like later they changed it to jeffrey and it's like you know jeffrey can be spelled with a j sometimes too like

it's not a great g name if toys r us made it like a few more years they probably would have gone back to dr g raff just with the like just once people find it on the internet they'll be like that's better and still a little you know crowd please all right but uh so essentially they get into the toy business for resale and they have like a bankruptcy in 74 you're saying yeah in 74 uh the uh give me a second it's like a very very um it's very business-y sounding name that they chose. It's like Interstate Office or something like that. The toy store? Yeah, yeah.

It's like... Mom, Dad, will you take us to Interstate Office? All this information that I'm mentioning about Toys R Us history is on their website for now. But who knows when it'll be gone. Oh, like they paid for the whole year of web hosting. Yeah, right. I'll bet you the problem is the site is slower now

because of the private equity cost. It's called Interstate Stores. Lazarus runs that. And that hits bankruptcy in 1974. But in 1983, they opened Kids R Us, a retailer for children's clothes. Once again, same model. You're going to grow out of clothes. We might as well sell clothes.

And then finally in the late 80s, they opened locations in Canada and they have an operating license in Singapore. So they become an international toy brand in the late 80s. In 1992, they opened their first location in Japan. And the man from the United States that went to open it was George H.W. Bush. Interesting fun fact. How many people did he throw up on? Well, they had a buffet, so it really got pretty bad. In 96, they opened Babies R Us, which is the same concept. The R Us brand really becomes kind of crazy. They didn't do Adults R Us. And I mean, really opened Baby's R Us, which is the same concept. The R Us brand really becomes kind of crazy.

They didn't do Adult's R Us. And I mean, really, that's the last market they didn't quarter. In 98, they... I don't just feel weird going there. Actually, if you walk into a Toys R Us, you have to pull back the lace curtain, and then you can walk into Adult's R Us. In 98, they start ToysRUs.com, and it kind of works like Gangbusters. They really do good business online because they're one of the first online retailers for toys.

But then they started a partnership with Amazon in 2000, and that partnership is supposed to go for 10 years, but Amazon breaks the contract, and they sued, and Toys R Us won, I believe, $51 million. So what Jeff Bezos found under his couch cushions., I believe, $51 million. But around this time... So what Jeff Bezos found under his couch cushions. Right, right, right. Yeah. Nothing for Amazon, basically. And then around this time is when

Bain Capital purchases Toys R Us. Right, because they're in financial straits in 2004, I believe. Yes. Partially because of Amazon competition. But Bain Capital, as well as KKR and Vornado come in. Just think Sharknado. Yes.

I like the idea of it being named after the fantasy of being eaten by somebody. I don't know. It's something I read on the internet that I wish I could forget is Vore, but that's a digression. So those three firms come in in 2005, and they put up about 20%, I believe $1.3 billion is according to the nation. They put up about $1.3 billion. They take a loan on the remaining amount of $5.3 billion. So it's about $6.6 billion to buy this company.

And then immediately, this debt is put onto Toys R Us books. And then according to CNN, when Toys R Us filed for bankruptcy in September 2017, it disclosed that it had about $5 billion in debt. So it's just kind of funny where it's like they put this debt on in 2005 and it's just there the entire time just sucking away at their ability to make any money for that entire time period. And it's not a bad example of the way the lending markets work. So we have been, with the exception of 2008, 2009, we've been in a low interest rate environment

where generally lenders do not want to foreclose on anybody. And that's the main reason why we haven't had, unfortunately, you know, fortunately or unfortunately, a private equity Sharknado. But it has happened in retail because so many retailers are going bankrupt, the lenders do not want any piece of retail. So now as soon as they see, okay, a retailer just cannot pay their debt, instead of doing an amend and extend, and okay, even though we know you can't pay the debt, we'll extend it three years, they're not extending anymore. And that's what happened to Toys R Us. Right, right. And you were saying in your book, the earnings before interest, taxes, depreciation, You can tell this is not a business podcast.

That's pretty good. But you were saying that for Toys R Us, the loan they got was equal to nine times that amount, which, I mean, seems crazy if you're expecting the actual business to be able to pay it back. But, of course, they're, I guess, in this case, they assume they could sell it off as CLOs or they just assume the private equity firms could pay them back. Well, it's so crazy because that nine times, they are expected to pay those loans back in seven years. Right.

So unless they increase earnings, you don't make it. But what they were counting on and did work for a while is you can amend and extend when you're three or four years out, another nine years, another seven years. You don't think you'll ever be foreclosed on. Also, they thought they'd be able to bring baby's arrest public and split the two.

That was a way they could reduce the debt, which never happened. They shut doors down on kids' arrest before they did baby's arrest. Another door is going to be shut down soon in that case, yeah. No, Adult R Us is still open. That's actually one of our ventures.

It's a good idea. Yeah. It's a lot of storefronts. Oh, yeah. You wouldn't suspect it. You wouldn't, but they're there. Hiding in the shadows. That's why Steve is not here today,

because we spun him off from the podcast. So, wait, one thing I didn't completely understand that you just said. So, low interest rates, you said, that is leading to, that's making lenders less motivated to foreclose. Would you be able to elaborate on that? Well, they just don't want to foreclose because then you have to take losses. So lenders, if we say historically the last 15 years, or let's even be more current, since the financial crisis, 08, 09,

they would rather not write right down the losses so there's a lot and there's a big demand because and this does hit into this does hit on what you said andy that they um because interest rates are so low um there's a chase for yield so there's demand for high yield paperield paper. Okay. And there still is. That hasn't changed. Right. What did change in the last three or four years is even high-yield lenders,

and high-yield lenders, by the way, the same people, same funds that you and I invest in, the Fidelities of the world, they are scared of retail because of Amazon. We don't want to invest in retail. So now they're not amending and extending in retail. That's one. And that's a major area of the economy. So that is why you have so many retailers going bankrupt that have leveraged loans.

But in other industries, even if the companies are struggling, often they're able, still at this point, to amend and extend their loans and not go bankrupt. Okay. And then, so, as far as the case of Toys R Us, so they come in in 2005. They put this unsustainable debt burden on it. The firm, the company kind of trundles on unsuccessfully, not really able to keep up with inventory and compete online and these kinds of things. And then, finally, it goes into bankruptcy September 2017. But just like according to Marketplace, KKR, Bain, and Vornado all are going to make money on this deal, which is, I mean, I guess you've kind of mentioned that is the way private equity works.

But Marketplace says each of them are going to make at least 15 million in profit. But it just seems kind of ridiculous. Like, obviously, I don't think anybody would say that's how bankruptcy is supposed to function, where the owners are supposed to get wiped out so the creditors can get something. But in this case, the owners are all making a profit, driving this business into the ground. Yes. And in this case, so what we were talking about before Sean with Bain is they would take companies after a year or two, increase profits and then take a second mortgage. That did not happen here. But what did happen, which happens in every private equity deal pretty much, is that the private equity firm themselves of that 20 percent, the actual founders of the firm, the partners the mid romneys maybe they put

down one percent of the 20 and borrow the rest from state and not borrow raise the rest from state pensions and other investors and then they charge their investors at least a two percent management fee wow so that in the case of toys Us, where they've owned it since, I think, 2005, that's a lot of money. So that's what a few publications calculated. And it's a good point. We use another example in the book to show that, that even when they lose, they charge so much in fees and they charge transaction fees and other fees to their companies that they are guaranteed to make money even if the companies go under so the investors in say the bing fund that invested in toys r us they are not making money right but but the partners the partners are making money and what

the workers who are again have done a great job. It's interesting. Tipping points happen when you don't expect them. So this is not the most egregious private equity leverage buyout case. They didn't take a dividend. But Toys R Us seems to be hitting a real emotional chord, and these workers are really getting well organized. And it is emotional that this is a bankruptcy where it's a liquidation. So these are 30,000 people who are losing their jobs. So what they are saying in Washington just in the last week or two is they're saying there should be a fund to help people like us when leveraged companies go bankrupt.

And I think that's not a bad idea. And it's an interesting idea. It's one, honestly, I haven't heard before. But they're basically saying if the firms themselves are making money, well, can't they put when they put a certain amount of money in escrow in case this happens? Yeah. And the amount of money would be minuscule to them. but it would sure help that woman that Sean was talking about. Well, it is interesting. You mentioned the Toys R Us workers have been meeting with politicians, and one of them was, of course, Cory Booker, because I believe Toys R Us was founded in New Jersey. Yeah, it's still in New Jersey, still in Wayne. So one of them was, of course, Cory Booker, and him and Senator Bob Menendez, who's running for reelection. They had a press conference in front of a going out of business Toys R Us store. And I'm sure it has nothing to do with his presidential ambition.

But Cory Booker seems to have maybe changed his views on private equity a bit. He says this, quote, I deeply believe that some of these practices, private equity, are immoral and we need to get a more conscious capitalism, a more moral economy back in the U.S. We are discussing trying to put an end to the kind of behavior that doesn't stand up to public scrutiny. But it is just interesting where we've talked a little bit about how Obama made an issue out of Mitt Romney's Bain Capital career. But Cory Booker was a little offended at the time. I thought he always held those views. Cory Booker went on Meet the Press in 2012 as Obama was running attack ads against Mitt Romney for essentially doing what we've been talking about this whole episode. And he said this. This kind of stuff is nauseating to me on both sides. It's nauseating to the American public. Enough is enough. Stop attacking private equities. I also like how as mayor of Newark, he has an exaggerated Jersey accent that he just seems to have completely lost in the senate i just love

that that's what he finds nauseating i mean we're talking about hundreds of thousands of layoffs you want to stack it all up and no it's like no it's like an ad where a steel worker says mitt romney's not a not a nice man that's what makes you want to vomit do you have the other one yeah there's one more i'm not about to sit here and indict private equity. To me, we're getting to a ridiculous point in America, and this, to me, I'm very uncomfortable. Very uncomfortable. Very uncomfortable.

He's acting like Bill Maher just said the N-word in front of him. What did you guys see this week? Deval Patrick, the former Massachusetts governor? Right? He's not governor anymore, is he? I don't think so. I don't know. I don't think he is.

But he's got larger political ambitions. And he was interviewed on CNN about something. And then they went in there on private equity. And he took a similar kind of, well, yes, I work for Bain's impact fund, but we're doing positive things in the impact fund. So when moments like this come, and we are at one right now, it's interesting. It starts to become a little bit uncomfortable

when the spotlight shines on the politicians left and right who are making money off private equity. I do like that they named their fund after what happens when a torpedo hits. But, yeah, I mean, it is just something where, you know, Cory Booker is uncomfortable in 2012 and then eight years later, that's his position. Right. later that's his position right um and uh so one other thing on toys r us uh they are going to be having an auction for 123 toys r us and babies r us stores this is from the times online uh this will start in new york actually on august 13 in the morning at 10 a.m and continuing to the next day they will be auctioning all 123 of those stores so if anybody wants to make a really good paintball course but uh yeah no we will be buying a new studio for the podcast

if we can just get the patreon set up by then gonna need a lot of foam for that echo um but so i guess uh to to kind of wrap up unless you guys have other questions on private equity but i did just want to talk a bit about the solutions, essentially. You lay out some of them in your book. We've mentioned, you know, making it so interest on debt that is used to buy a majority of a company is no longer tax deductible. We've talked about ending the carried interest loophole. And I guess if you can just talk about what your thoughts are on the best way that we could address private equity, understanding that our listeners might just be like, well, we could just behead them all. Well, I think public consciousness matters a lot.

It did in the late 80s when private equity essentially stopped or or leverage buyout stopped for a couple of years. So now because of Toys R Us, the state of Washington, a huge investor in private equity is saying, we want to re-examine this all because of Toys R Us. So, so probably public conscience and con consciousness, uh, may be the most important thing. I still certainly think that ending interest tax deductibility on leverage buyouts, you can keep it for building out a telecom company,

but ending it for this purpose would at least end the most aggressive leverage buyouts. Interestingly, Trump kind of went both ways on this. So during tax reform, the Republicans needed offsets. They limited the interest tax deductibility. It's still most of it was left intact, but they did limit it some, which, by the way, again, it's both parties. Right. Obama talked, did talk a lot about private equity. He didn't do a heck of a lot, at least in this area. Now, what he did do is that the the banks under his watch limited the amount of interest you could put on any company uh to about six times debt to ebitda debt to

earnings um that has just changed trump has basically said uh it's up to the banks to police themselves and we know how well that goes wow so. So just in the last six months, we've had the start of some mega buyouts again, not like we saw in 06 or 07 or 08, but it's starting again. We're returning to $8 to $9 billion buyouts. Soon, I imagine, we will start seeing $15 to $20 billion buyouts like we did in 06, 07, and 08. So while they'll be able to take less money off of their taxes, now those limits on leverage, which I think were good that they were there, and that's why buyouts haven't gone crazy like they did in 06, 07, 08. Now the reins are off. And private equity firms have a record amount of

money to invest because, again, of this yield problem, that if you're not investing in the stock market, which has done well, or if you just need to diversify and you're a public pension or you're a foreign country, historically, at least on the face of it, private equity has done well financially for investors. I think the reality, by the way, not to spend too much time on this, but reality is investors haven't done all that well. I think that's a bit of a mirage, but they think they're going to do well. And because of that, right now, private equity firms have record amounts of money to invest more than they even did back in 06 or 708 or certainly more than they did in 87, 88 or 89. So the industry is not going away. So it's got to be public pressure. And I think you need to change the tax laws. And I love the idea that the Toys R Us workers have, which isn't going to end the industry, and it's not going to end LBOs,

but at least put some percentage of the buyout in some kind of escrow for some amount of time so if the company goes bankrupt, at least the workers have something. Yeah, yeah. I think that's something that's very, I hope that is positive that comes out of this. What else do you think could happen with this Toys R Us saga?

How else do you think it would play out? Well, unfortunately, the workers are not, you know. Well, one way it could play out, they're trying to push in bankruptcy court. They're pushing hard saying, and it seems like the judge is somewhat sympathetic, that we ought to be treated like any other creditor. And that's not going to hurt the private equity guys. They're out already. Equity is wiped out.

But that would change the bankruptcy laws some, and at least that would help workers in future bankruptcies. So that would be a positive. Just as long as it doesn't make it to the Supreme Court where it would be struck down in like five seconds. That's probably true. And yeah, Bain Capital and KKR have made some like noise about, oh, we're going to help the workers. Of course, they haven't specified or anything, but it is something where it's like this kind of public pressure.

I mean, as long as they're being talked about in Congress, they will maybe do something. So it's not really a solution, but Vornado has, as of right now, not committed to anything. But I did just want, this is a podcast about billionaires, and I did just want to kind of go through

just the names of the billionaires, and we'll do a future episode. But Stephen Roth is at Vornado. He's worth about $1.1 billion. Boo! Henry Kravis is KKR, about $5.8 billion. He's from Forbes. George R. Roberts, KKR, about $5.8 billion. From Forbes, George R. Roberts, KKR, about $5.9 billion. Jerome Kohlberg Jr., KKR, $1.5 billion.

And then Bain Capital, I guess Forbes does not have net worth information, I guess because it's privately held or whatever the case is. But Mitt Romney could have been a billionaire. Instead, he's only worth about 250 million as of 2012 i'm not sure how much it has increased um i'm not concerned about the very poor we have a safety net there but yes i would assume uh steve uh paglu paglu luca paglu this is the the worst part of the podcast when i have to, Gabby. When I have to pronounce names. And then Jonathan Levine.

Their net worth is unknown, but it is at least half a billion. Paliuk owns the Celtics. Right, exactly. But, yeah, again, we're talking about billionaires who should be able to give at least minimal severance pay to workers that they destroy. But, hey, we'll see what happens. should be able to give at least minimal severance pay to workers that they destroy. But, hey, we'll see what happens. It's pretty amazing they haven't done so yet, to me. I mean, maybe not surprising, but it certainly, I think it speaks volumes about how much they care about workers.

I mean, even in the short time that we've been doing this podcast, everything from Elon Musk's union busting to a lot more controversy about billionaires has been released within this year alone. And maybe I'm just more conscious of it, but it certainly seems like public perception of people who own a billion dollars is shifting. We're no longer in a Warren Buffett haze of, oh, they're just people who did, did all right with life. You know, it's, uh, it's, uh, getting more serious. Yeah. There's stronger class consciousness. I just liked the idea of like, uh, Mitt Romney, you know, in private equity, he makes money even though he like, doesn't really do anything.

And so I'm imagining him like waking up and looking in the mirror and going, am I the 48%? Um, all right. Well, so you guys, any other questions for our guest? No, I think I'm all right. All right. Am I the 48%? All right. Well, so you guys, any other questions for our guest? No, I think I'm all right now. All right. Thank you so much for being here, Josh Kostman.

The book is The Buyout of America. Buy the book. Yes, buy the book new. The Buyout of America, How Private Equity is Destroying Jobs and Killing the American Economy. I read it. It's short, concise, and very informative on private equity. So if you're interested, please buy the book. And was there anything else you wanted to plug while you were here?

You did a very nice job. All right. Well, thank you, Josh Kosman. Thank you so much for your time. Thank you for listening. And we'll be back with another episode about a billionaire next week. Thanks. Oh, you think darkness is your ally?

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