mastermind
Rest In Power Kobe
I heard this guy on The Daily Zeitgeist podcast a few weeks ago and was fascinated by this:
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Article: Private Equity is Out of Control and Looting America. This Prosecutor Says We Can Fix It.
One of my favorite NYC restaurants had become understaffed and dirty – a shadow of its former self. I learned an interesting fact: a couple of years ago, a private equity firm had bought the local chain. The same type of firm that had already ruined my beloved neighborhood grocer. The kind that was rapidly taking over vet clinics, dental offices, and gyms on every block – though you wouldn’t know it unless you did some sleuthing.
Price hikes, deteriorating conditions, and poor service — along with a certain slickness of marketing — could be signs that ownership of a business you count on has transferred to one or more firms in a rapidly-expanding Wall Street industry. Names like KKR, Carlyle, and Blackstone tend to fly under the radar, but they’re everywhere, making more money, gaining more influence, and some would argue, wreaking more havoc than anything else on Wall Street.
Federal prosecutor Brendan Ballou provides the scrutiny that an industry with this much economic and political power should invite in his provocative new book, “Plunder: Private Equity’s Plan To Pillage America.” He reveals how private equity will transform our lives over the next decade in ways as profound as Big Tech did in the last, and not for the better unless we change how it does business.
Financier William Simon got the idea for private equity back in the seventies. Simon, a Nixon administration official and right-winger whose heart’s desire was to free finance and corporations from regulation, left Washington to execute the first “leveraged buyout.” He and a partner bought an old greeting card company on mostly borrowed funds, extracted huge fees, and then sold it for enormous profit in a rising market. People like “junk bond king” Michael Milken took notice and started following the model. In the go-go eighties, the Washington Post noted that “greed and debt” had combined to “create the hottest game on Wall Street today.”
Until things went bust. The leveraged buyout industry got a nasty reputation as the “robber barons of the eighties” and retreated.
But there was just too much money to be made. The industry went on to rebrand itself as “private equity” and expanded following the 2008 financial crisis into many of the less regulated corners of finance – some previously occupied by the great investment banks. After yet another run of bad press – you might recall when Mitt Romney’s Bain Capital was denounced as a profiteering predator in the 2012 election — the industry started to rebrand itself once again. Today some of the big firms call themselves “global investment businesses” or “alternative asset management businesses.”
Ballou warns that whatever you call them, many have become incentivized to do great harm to consumers, workers, and taxpayers– and they’re doing it with the help of lavishly-funded political allies.
Advocates say private equity makes companies more efficient when they buy them, but Ballou finds that their real specialty isn’t managing companies – they often screw that up, big-time – but finding legal and regulatory holes that allow them to make profits quickly and shift the risks and costs to somebody else – somebody like you. He criticizes the current business model as far too focused on short-termism and extractive practices.
But, you might ask, isn’t this just capitalism? Nobody said it was pretty.
According to Ballou, this is something different – an industry that has metastasized into a job-killing, business-destroying, community-crushing machine the likes of which we haven’t seen since the money trusts of the nineteenth century. In other words, it’s predatory capitalism on steroids. Most worrisome of all, in Ballou’s view, is the fact that these firms have almost no accountability to the U.S. legal system.
Some liken private equity firms to vultures picking the bones of dying companies, which you could argue is a necessary activity. But Ballou points out that many private equity firms now target healthy companies, leaving them gutted, unproductive, or even bankrupt. Whether it’s Bain, Apollo, or Sun Capital, each firm has its preferred tactics for extracting money from the businesses they buy up, too often hurting the most vulnerable people, like nursing home residents, who can’t fight back. When they buy up rental properties, watch out for evictions. When they target doctors’ offices, expect to pay more for care. They might even be cutting corners at your hospital’s emergency room (the horror stories will make you research your local ER). And they really, really want to get their hands on your 401 (k).
The founders of these companies have become absurdly rich – we’re talking multi-multi-billionaires — so their power in American politics is tremendous. Not only do they influence the political system — increasingly, they are the political system. Just ask men like Timothy Geithner, Newt Gingrich, Paul Ryan, and David Petraeus, all now working in private equity. It’s more than a revolving door between Washington and Wall Street. As Forbes magazine highlights, it’s a “passionate love affair.”
Free from pesky regulations and out of reach of the law, the private equity industry has become so wildly profitable that celebrities like Will Smith and sports stars like Serena Williams are tripping over each other to get in on the action. Last year, Kim Kardashian announced a partnership with a former Carlyle partner to start her own private equity firm!
This trillion-dollar industry owns companies employing millions of Americans, and, Ballou argues, it is hurting us with the active assistance of our government. In the following interview, the prosecutor shares with the Institute for New Economic Thinking his insights and prescriptions for getting this industry under control. (Ballou’s book, and this interview, are made in his personal capacity and do not necessarily reflect the views of the Department of Justice).
Lynn Parramore: Private equity is something of a mystery to most people. What do we need to understand about these firms and what they’re up to?
Brendan Ballou: “Private equity” is a term that people might be embarrassed to say they don’t really have a clear idea about. I confess that I didn’t until after I started writing the book.
The basic business model is actually very simple. A private equity firm uses a little bit of its own money, a little bit of investors’ money, and a whole lot of borrowed money to buy companies. Then it tries to impose operational or financial changes with the ambition of selling them for a profit a few years later.
It’s a simple idea but it has three basic problems. One is that private equity firms tend to invest in the short term to get a return on their investment in just a few years. The second is that they tend to load up the companies that they buy with a lot of debt and extract a lot of fees from them. The third is that private equity firms tend not to be held legally responsible for the actions of their portfolio companies.
All this means you’re on a very short timeline with a very risky leverage model and you’re not necessarily going to be held responsible if things go bad, leading to business strategies that can be very extractive and hurt consumers and employees.
LP: This industry, known as “leveraged buyouts” in the eighties, got a negative image and retreated for a while. After rebranding, the model re-emerged as “private equity,” which took off and expanded into whole new areas after the 2008 financial crisis. Why should be concerned about this expansion?
BB: Private equity firms are increasingly taking on the role that the great investment banks used to have before the crisis. For instance, they have moved into private credit, which is an alternative to the public stock market. A company can get a large loan without necessarily making the sort of disclosures that you would have on the public capital market.
The challenge is that private equity firms are vastly less regulated than investment banks, which are generally considered either banks or bank holding companies. What this means is that private equity firms are doing a lot of the work that these companies did prior to the financial crisis. but they’re doing it with even less oversight.
LP: That doesn’t sound good.
BB: It’s concerning. One of the really interesting things to see is how private equity firms often don’t even describe themselves as private equity firms anymore.
Listen: iHeartRadio Unsupported Country
Article: Private Equity is Out of Control and Looting America. This Prosecutor Says We Can Fix It.
One of my favorite NYC restaurants had become understaffed and dirty – a shadow of its former self. I learned an interesting fact: a couple of years ago, a private equity firm had bought the local chain. The same type of firm that had already ruined my beloved neighborhood grocer. The kind that was rapidly taking over vet clinics, dental offices, and gyms on every block – though you wouldn’t know it unless you did some sleuthing.
Price hikes, deteriorating conditions, and poor service — along with a certain slickness of marketing — could be signs that ownership of a business you count on has transferred to one or more firms in a rapidly-expanding Wall Street industry. Names like KKR, Carlyle, and Blackstone tend to fly under the radar, but they’re everywhere, making more money, gaining more influence, and some would argue, wreaking more havoc than anything else on Wall Street.
Federal prosecutor Brendan Ballou provides the scrutiny that an industry with this much economic and political power should invite in his provocative new book, “Plunder: Private Equity’s Plan To Pillage America.” He reveals how private equity will transform our lives over the next decade in ways as profound as Big Tech did in the last, and not for the better unless we change how it does business.
Financier William Simon got the idea for private equity back in the seventies. Simon, a Nixon administration official and right-winger whose heart’s desire was to free finance and corporations from regulation, left Washington to execute the first “leveraged buyout.” He and a partner bought an old greeting card company on mostly borrowed funds, extracted huge fees, and then sold it for enormous profit in a rising market. People like “junk bond king” Michael Milken took notice and started following the model. In the go-go eighties, the Washington Post noted that “greed and debt” had combined to “create the hottest game on Wall Street today.”
Until things went bust. The leveraged buyout industry got a nasty reputation as the “robber barons of the eighties” and retreated.
But there was just too much money to be made. The industry went on to rebrand itself as “private equity” and expanded following the 2008 financial crisis into many of the less regulated corners of finance – some previously occupied by the great investment banks. After yet another run of bad press – you might recall when Mitt Romney’s Bain Capital was denounced as a profiteering predator in the 2012 election — the industry started to rebrand itself once again. Today some of the big firms call themselves “global investment businesses” or “alternative asset management businesses.”
Ballou warns that whatever you call them, many have become incentivized to do great harm to consumers, workers, and taxpayers– and they’re doing it with the help of lavishly-funded political allies.
Advocates say private equity makes companies more efficient when they buy them, but Ballou finds that their real specialty isn’t managing companies – they often screw that up, big-time – but finding legal and regulatory holes that allow them to make profits quickly and shift the risks and costs to somebody else – somebody like you. He criticizes the current business model as far too focused on short-termism and extractive practices.
But, you might ask, isn’t this just capitalism? Nobody said it was pretty.
According to Ballou, this is something different – an industry that has metastasized into a job-killing, business-destroying, community-crushing machine the likes of which we haven’t seen since the money trusts of the nineteenth century. In other words, it’s predatory capitalism on steroids. Most worrisome of all, in Ballou’s view, is the fact that these firms have almost no accountability to the U.S. legal system.
Some liken private equity firms to vultures picking the bones of dying companies, which you could argue is a necessary activity. But Ballou points out that many private equity firms now target healthy companies, leaving them gutted, unproductive, or even bankrupt. Whether it’s Bain, Apollo, or Sun Capital, each firm has its preferred tactics for extracting money from the businesses they buy up, too often hurting the most vulnerable people, like nursing home residents, who can’t fight back. When they buy up rental properties, watch out for evictions. When they target doctors’ offices, expect to pay more for care. They might even be cutting corners at your hospital’s emergency room (the horror stories will make you research your local ER). And they really, really want to get their hands on your 401 (k).
The founders of these companies have become absurdly rich – we’re talking multi-multi-billionaires — so their power in American politics is tremendous. Not only do they influence the political system — increasingly, they are the political system. Just ask men like Timothy Geithner, Newt Gingrich, Paul Ryan, and David Petraeus, all now working in private equity. It’s more than a revolving door between Washington and Wall Street. As Forbes magazine highlights, it’s a “passionate love affair.”
Free from pesky regulations and out of reach of the law, the private equity industry has become so wildly profitable that celebrities like Will Smith and sports stars like Serena Williams are tripping over each other to get in on the action. Last year, Kim Kardashian announced a partnership with a former Carlyle partner to start her own private equity firm!
This trillion-dollar industry owns companies employing millions of Americans, and, Ballou argues, it is hurting us with the active assistance of our government. In the following interview, the prosecutor shares with the Institute for New Economic Thinking his insights and prescriptions for getting this industry under control. (Ballou’s book, and this interview, are made in his personal capacity and do not necessarily reflect the views of the Department of Justice).
Lynn Parramore: Private equity is something of a mystery to most people. What do we need to understand about these firms and what they’re up to?
Brendan Ballou: “Private equity” is a term that people might be embarrassed to say they don’t really have a clear idea about. I confess that I didn’t until after I started writing the book.
The basic business model is actually very simple. A private equity firm uses a little bit of its own money, a little bit of investors’ money, and a whole lot of borrowed money to buy companies. Then it tries to impose operational or financial changes with the ambition of selling them for a profit a few years later.
It’s a simple idea but it has three basic problems. One is that private equity firms tend to invest in the short term to get a return on their investment in just a few years. The second is that they tend to load up the companies that they buy with a lot of debt and extract a lot of fees from them. The third is that private equity firms tend not to be held legally responsible for the actions of their portfolio companies.
All this means you’re on a very short timeline with a very risky leverage model and you’re not necessarily going to be held responsible if things go bad, leading to business strategies that can be very extractive and hurt consumers and employees.
LP: This industry, known as “leveraged buyouts” in the eighties, got a negative image and retreated for a while. After rebranding, the model re-emerged as “private equity,” which took off and expanded into whole new areas after the 2008 financial crisis. Why should be concerned about this expansion?
BB: Private equity firms are increasingly taking on the role that the great investment banks used to have before the crisis. For instance, they have moved into private credit, which is an alternative to the public stock market. A company can get a large loan without necessarily making the sort of disclosures that you would have on the public capital market.
The challenge is that private equity firms are vastly less regulated than investment banks, which are generally considered either banks or bank holding companies. What this means is that private equity firms are doing a lot of the work that these companies did prior to the financial crisis. but they’re doing it with even less oversight.
LP: That doesn’t sound good.
BB: It’s concerning. One of the really interesting things to see is how private equity firms often don’t even describe themselves as private equity firms anymore.
at this nursing home story
