Michael Hudson in Killing the Host describes how Bankers turn equity into parasitic finance. They do this by forcing companies to pay excessive dividends. The payment of dividends beyond a return of the value provided by the equity capital is parasitic. It is parasitic because it takes from the host without giving anything in return to the host. For the host to continue operating they are offered parasitic loans.
Another form of antisocial behaviour occurs with private equity buyouts. This form of predatory finance is common when parasitic behaviour has weakened a host. Here predators backed with loans buy a controlling share of equity. They repay the loans by selling off assets in the weakened host and close or absorb the shell of the company. Parasitic finance justifies this common behaviour as survival of the fittest. This is not what the employee and other equity victims call it.
Other victims of parasitic behaviour are enterprises with unsustainable loans. This is common with farmers who have no control over prices of their future output. A farmer who takes out a significant parasitic loan will almost always have to sell their farm. The reason is that the loan must be repaid in money rather than farm output. This applies to any business where there is little control over the future price of output.
It is no accident that Warren Buffet’s Hathaway Investments has been successful. It is no accident that Amazon is now the world’s largest retailer. It is no accident that Google and Apple have expanded. A large part of their success is that they have kept away from parasitic loans. All these organisations have not paid excessive dividends. Equity holders have not used their positions to extract excessive money. All these companies pay little or few dividends. Equity holders get a return by selling their shares.
A way of reducing parasitic behaviour is for companies to only accept envestment loans. Envestment loans from customers of the output is even better. The reason is that the loan holder has a common aim with equity holders. Both benefit if the company succeeds in selling product for a profit.
Companies can control the returns to equity holders by paying in output rather than in money dividends. This does not bleed the company of cash and can be controlled by limiting the returns to equity holders to the cash available for distribution.
Controlling the returns via output applies particularly to monopoly services. Once an external entity gets control of a monopoly service the community it serves will suffer extractive rents. Once a community takes out external debt it will suffer extractive rents. This is the basis for much economic imperialism. This form of imperialism is conducted by companies as well as countries. John Perkins describes it well in Confessions of an Economic Hit Man.
The groups using these practises put their money in places outside the control of their victims. Revelations such as the Panama Papers show the extent of the problem.
Water Rewards and Energy Rewards and other forms of envesting protect communities. The reason is that assets are not transferred as money outside the control of the communities. Returns to equity holders are in output from the assets. This means it becomes difficult for rentiers to extract value from community assets. Money as an asset is easily moved. Infrastructure is hard to move.