Now some more frequent readers will be slightly aware of high level of disregard I hold for the labour Business shadow, Chuka Umunna. From is pathetic interviews, populist idiocies and frankly hide-behind-the-sofa dreadfulness whenever he appears on the Gogglebox he comes high up the list of "first against the wall when the revolution comes" ( I loved this phrase, how come lefties gave it up?).
However today in the Telegraph he has said something, unbelievably, that makes sense. That the leverage ratios that are potentially used in an acquisition of a company should trigger further investigation by regulators.
Where have I heard this before - oh yes, here, in one of my very first posts in 2006. Private Equity was in a real blitz then offering 10x leverage plus to acquire businesses. Even at the time this was blindingly obvious as a bad thing per say. Chukka is concerned about protecting his tax base to pay the for public sector worker and a benefits claimants - I am more worried about the destruction of viable companies and with it jobs and pension schemes.
It is still the law that you cannot buy a company with its own assets (i.e the seller can't help the buyer), but with leverage finance, in effect you can. Look at Man Utd and the Glazers takeover, filling the company with debt. Now you can argue that Man Utd has suffered little for this, the business is still growing and thriving. However, the Glazers simply took a huge bit of profit out right at the start and since then have denuded the club of investment - it has become a zombie.
The same is true across the economy, the leverage finance boom left many companies in PE hands, all with huge debts. In fact this has been a key factor in forcing low interest rates despite inflation by the Bank of England, in order to ensure the Zombie companies don't go under.
This has then also led to the Swaps mis-selling scandal, as companies that sought protection against high interest rates as their business model were so financially strained. Instead interests rates collapsed and now the same companies owe millions to the Banks who sold them the swaps.
It is all messy and an important thing in life is to learn from mistakes. Somehow excessive leverage deals have to be prevented - at the moment with lack of credit, its not an issue, but the boom times will be back one day....