To do more research on: Hope it dies with the downturn: Too many titles.

Leveraged Buy Outs, or LBO's, are something I really wish I could investigate further, especially in the form of "Juicing the Returns". Unfortunately, my personal interests, lack of resources, and lack of funding, all point to me continuing to skip across the waters of interest, wishing someone would fund an extensive search of the milky depths.
To my mind, there are few things more worth researching. I first came across Leveraged Buy Outs in the book "Ahead of the Curve" by Philip Delves Broughton, a memoir of two years at Harvard Business School. In his chapter "Extreme Leverage" Broughton describes the process by which an investor will buy out a company using borrowed money, (essentially, the lenders buy the business with then take out loans on the companies' assets in order to pay himself, attempt to load the business with as much debt as possible, until the company strips down to the bare butt naked thread of its operating expenses. At this point, the company is offered up to the public market as new and efficient, and will commonly sell back for a lot more than it originally was purchased for - sometimes three times as much.
The short term profits, and the attraction for investors, are obvious. What raises a harrowing hall of alarm bells in my mind is the simple question of sustainability - can a company that is so laden with debt, and made so "efficient" actually survive beyond that initial year of plenty - even more so, even if the company does survive, will the slightest hiccup (like a recession) send it spiraling into bankruptcy quicker than cockroaches leave a lit room?
What makes these questions all the more interesting is that there does seem to be some form of this sort of lending/buying before every major recession in our nation's history - a "debt" bubble is certainly one of the operative interpretations of the situation in 1929, the 1970's stagflation era, and Black Monday of 1987. Interestingly, leveraged buy outs "began" in the 1950's, became more and more popular through the 1960's, and disappeared in the 70's. They reappeared in the 80's, were implicated in the junk bond crashes, and went underground for a while. Perhaps the best illustration of this recurrence today is this chart, apparently from the Bank of England.

So, what do I want done? Well, first off, I'm not at all sure this is a culprit. More research needs to be done - specifically into the performance of the companies of which we speak. Even if a solid link can be made between bad performance and leveraged buy outs, and even if this link extends to the depressions and fallbacks however, I would not say the proper solution - at least the proper long-term solution, is to make some government rules about how much can be done. Rather, the solution must be to advance the learning and expected learning of investors - who must learn not to invest in such companies, companies that have been loaded with leveraged buy outs in their past. If this can be accomplished, leveraged buyouts will disappear simply because no one will buy them back, and the possible profits will be nil.

Further resources:

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