Now Playing Everywhere

This Businessweek story on the Sears bankruptcy is like the perfect business action-adventure story for our times.

First act: Brash young(ish) hedge fund guy takes over iconic American business, forces through closures and layoffs, makes lots of money for his friends.

From the moment he bought into what was then called Sears, Roebuck & Co., he also maneuvered to protect his financial interests. At times, he even made money. He closed stores, fired employees and … carved out some choice assets for himself.

All seems to be going well. But now the second act: He gets too attached, and instead of passing the drained but still functioning business onto some other sucker, imagines he can run it himself. But managing a giant retailer is harder than it looks. Getting on a videoconference a couple times a week and telling the executives that they’re idiots isn’t enough to turn things around.

But the big mistake was even trying to. Poor Eddie Lampert has forgotten “the investors’ commandment: Get out in time.” That’s always the danger for money and its human embodiments — to get drawn into some business, some concrete human activity, instead of returning to its native immaterial form. Once the wasp larva has sucked the caterpillar dry, it needs to get out and turn back into a wasp, not go shambling around in the husk. This one waited too long.

Not even Lampert’s friends could understand why the hedge-fund manager, once hailed as a young Warren Buffett, clung to his spectacularly bad investment in Sears, a dying department store chain. … After 13 years under Lampert’s stewardship, Sears finally seems to be hurtling toward bankruptcy, if not outright liquidation. And, once again, Wall Street is wondering what Eddie Lampert will salvage for himself and his $1.3 billion fund, ESL Investments Inc., whose future may now be in doubt.

Oh no! Will the fund survive? Don’t worry, there’s a third act. Sears may have crashed and burned,  but it turns out Lampert had a parachute – he set himself up as the senior creditor in the bankruptcy, and presciently spun off the best assets for himself.

Under the filing the company is said to be preparing for as soon as this weekend, he and ESL — together they hold almost 50 percent of the shares — would be at the head of the line when the remnants are dispersed. As secured creditors, Lampert and the fund could get 100 cents on the dollar… And Lampert carved out what looked like — and in some cases might yet be — saves for himself, with spinoffs that gave him chunks of equity in new companies. One was Seritage Growth Properties, the real estate investment trust that counts Sears as its biggest tenant and of which Lampert is the largest shareholder; he created it in 2015 to hold stores that were leased back to Sears — cordoning those off from any bankruptcy proceeding. He and ESL got a majority stake in Land’s End Inc., the apparel and accessories maker he split from Sears in 2014.

The fund is saved. The business crashes but the money escapes. The billionaire is still a billionaire, battered but upright, dramatically backlit by the flames from the wreckage behind him. Credits roll.


One thought on “Now Playing Everywhere”

  1. Luckily, “value” is an entity that is measured in dollars (ok, not the dubious inflatable paper dollars, but “real” ones).

    Because if value was measured as a quantity of stuff produced, or as the quantity of work used to produce stuff, we would be in deep problem.


    My opinion is that, in a capitalist society, there is a push for many big actors (mostly the big capitalists, but not limited to them) to accumulate wealth/capital.
    A continuous accumulation of capital in the strict sense (new factories, new stores etc.) is what we call a “boom”, with new investment, more people getting jobs, wages going up etc.
    In this situation, total wealth (capital), total output and total employment grow together.
    But for whatever the reason this cannot go on forever (either because wages grow or because investment options diminish), and the boom becomes a bust.

    The point, IMHO, is that if the only form of wealth capitalists can accumulate is true capital, this poses a limit to the total amount of wealth that the whole system can reach (and thus causes recessions).
    In time capitalist systems managed to create various forms of fictitious wealth, managed by the financial system, so that the accumulation of wealth can go on and is not limited to the maximum quantity of “true” capital.

    Ultimately then we are in a situation where wealth grows faster than income, and the whole economic system becomes very leveraged.
    In this situation, it is natural for economic actors to give more importance to the fictitious financial wealth than to the “true” capital represented by brick and mortar stores, because the fictitious capital is much more, in terms of value, than the real one.

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