What I learned from reading Going for Broke: How Robert Campeau Bankrupted the Retail Industry, Jolted the Junk Bond Market, and Brought the Booming Eighties to a Crashing Halt by John Rothchild.
This is the story of a marvelous financial calamity.
Not so wonderful if you happen to be a creditor, of which there are 50,000 at current count, but marvelous in the way that it happened.
A stranger comes to Wall street, borrows nearly $4 billion to acquire a company that six months earlier he had never even heard of.
This transaction is scarcely settled before he's allowed to borrow 7 billion more to acquire a bigger company, making him a major force in retailing, an industry he knows nothing about.
The companies he acquired were successful retail enterprises, which before Bob, accidentally having taken an interest in them, had a 50 year unbroken record of paying their bills.
They were also old fashioned, that is to say, relatively free of debt.
Acquired is really too bland a word to describe the involuntary surrender to the newfangled corporate coup known as the leveraged buyout.
In theory, the LBO was supposed to boost productivity and increase profits once the new owner had supplanted the complacent, unimaginative, and overpaid former management.
In practice, the LBOs landed both companies in chapter eleven.
Among other notable side effects from Bob's joint ventures, abetted by the best and brightest bankers and buyout specialists on Wall street, are the 8000 workers laid off first Boston, the once mighty investment firm having to be bailed out after several of its bridge loans went kapooey.
The collapse of the junk bond market.
A slump in profits for department stores nationwide.
The dumping of merchandise on discount stores by manufacturers with no place to sell their goods.
The cutback in department store advertising, which spread the misery into the newspaper and magazine businesses.
The recession on Wall street.
This was an era of debtor barons, when billions went out to all sorts of imaginative speculations.
Bob arrived at the perfect moment in the final stage of the buyout frenzy, when playing it safe counted for nothing.
The bankruptcy courts are now clogged with the results of these foolhardy endeavors.
That is an excerpt from the book that I'm going to talk to you about today, which is going for broke.
How Robert Campu bankrupted the retail industry, jolted the junk bond market, and brought the booming eighties to a crashing halt.