Last modified on May 13, 2024, at 18:42

Private equity

Private equity refers to the non-public ownership of equity. It is a web of oligarchs who oppose Trump and support globalism.[1] Like mushrooms growing in the dark, pro-globalism private equity has grown to more than $11 trillion by early 2023, and heavily influences politicians from both parties in control of Congress. Trump sought to end a special tax loophole for private equity, and its puppets Mitt Romney and Pat Toomey retaliated by supporting the second impeachment of Trump even though he had left the White House. Today private equity owns and controls companies that employ 1 in every 14 workers in the U.S.[2]

In fact, private equity increasingly:

  • disrupts local businesses, such as renting by students in Berkeley, getting a medical operation at a local surgery center, etc.;
  • defaults on massive (non-recourse) loans that it can pay, such as on two of the biggest hotels in San Francisco in June 2023, thereby harming the region;[3]
  • interferes with politics, such as trying to stop Trump from being nominated and corrupting the U.S. Senate;
  • loots companies through "value extraction," as in stripping away value so badly that "hospitals bought by private equity firms have been accused of drastic cost cutting, leading to persistent mechanical breakdowns, a lack of medical supplies, and insufficient fuel for ambulances due to unpaid bills. A study found that private equity ownership increases the “short-term mortality” (deaths in care and during the following 90 days) of Medicare patients by 10%";[2]
  • creates a new class of billionaires who profited by causing harm rather than mutual benefit, and by exploiting a special tax loophole for private equity (called the "carried interest loophole");
  • probably causes unexpected collapses in historically secure institutions, while potentially disrupting entire financial markets;
  • buys up homes, fails to do necessary repairs, and then evicts residents to such a severe degree that tenants are unionizing to fight back;[4] and
  • lacks transparency and accountability, while likely expecting to be bailed out by the Federal Reserve Bank on big bets that go bad
  • distorted pro sports to become pro-gambling, and as of 2023 is eyeing taking over college sports.[5]
  • in February 2024, private equity destroyed a small town in Pennsylvania by abruptly abandoning the State's largest coal-fired power plant there, terminating all employees with only 90 days notice and no employment alternatives available.[6]

In Plunder: Private Equity's Plan to Pillage America (2023), Brendan Ballou explains that private equity has caused massive job losses, increased prices, and reduced quality as it purchases "retailers, medical practices, prison services, nursing-home chains, and mobile-home parks, among other businesses, using little of their own money to do it and avoiding debt and liability for their actions. Forced to take on huge debts and pay extractive fees, companies purchased by private equity firms are often left bankrupt, or shells of their former selves, with consequences to communities that long depended on them."[7]

Private Equity Funds are usually open to institution funds (i.e. public and private pension funds) as well as high net-worth individuals who can afford a large buy in cost, and can be quite risky placing large sums of money to buy out companies (such as the Chrysler Group) and then either turn them around. Accurate return data must be provided to investors and prospective investors per existing law (i.e. pre-Dodd Frank), but it can be difficult for the general public to determine the return of a private equity fund because they do not have to provide public reports. The Dodd-Frank Act alleges that reporting that was already happening to investors will become more standardized, but in fact, all Dodd-Frank will do is raise compliance costs for funds. Some investors have made as much as 30% per year.

Two of the largest private equity firms are Blackstone and Apollo Global Management, both of which are prominent in promoting self-serving globalism. Apollo added Anti-Trumper Pat Toomey to its board of directors within two months of his early retirement from the U.S. Senate at age only about 60, and Blackstone's co-founder Stephen Schwarzman announced his opposition to Trump for president in 2024. Funds from Apollo enables the leading bid for the taxpayer-subsidized NFL team Washington Commanders.

Additional Criticism

As explained by a spot-on article in Mother Jones, private equity is "a $7.3 trillion industry that touches basically everything in your life, and it’s growth has had serious consequences for workers, patients, and consumers."[8] Private equity exploits a notorious "carried interest" tax loophole, and senators who have prevented its repeal have subsequently joined private equity firms benefiting from it, as anti-Trump Pat Toomey did in 2023 after being an "all-star" in protecting the tax dodge against efforts by Trump to repeal it.[8]

Preferential capital gains tax treatment should be available only for personal assets that are at risk of loss as well as gain, but managers of private equity exploit this far lower tax rate for nearly all of their compensation without being based on having personal assets at risk.

Private equity often loads small companies with debt, while laying off their employees and putting the companies on a path to financial ruin. In the process private equity firms seek to "flip" the targets to pocket a profit for themselves at the expense of employees and the community.

Critics point out that private equity firms are run by shrewd people who are skilled at exploitation, without adding any real value. Trump and many others aware of private equity firms dislike them for subtracting rather than adding value. “These are guys that shift paper around and they get lucky,” Trump said in criticism of private equity managers and their special tax break on compensation.[9]

Even an owner in a new Italian soccer league opposes selling an interest in his league to a private equity firm, despite how Goldman Sachs, Searchlight Capital, and Apollo Global Management have shown an interest to pay big bucks for a piece of the new league.

Real Estate Havoc

The private-equity owner of those two massive San Francisco hotels (both over a 1000 rooms) intentionally defaulted on the loans that it could pay, and abandonied the properties to the banks in June 2023. This creates a massive loss for the banks, and a terrible ripple effect.

Private equity managers separate investment from ownership and are causing many real estate problems today after also causing havoc in health care and small businesses. Tying home ownership to occupancy is a central tenet of a prosperous society. Private equity (a publicly traded REIT in this case, Park Hotels & Resorts[10]) is the culprit here but their rapacious conduct is typical of private equity firms.

Forbes Top Ten list for 2023

Here is Forbes' top ten list of private equity firms for 2023:[11]

  • Blackstone $991 billion
  • Apollo $598 billion
  • KKR $510 billion
  • The Carlyle Group $381 billion
  • Bain Capital $165 billion
  • TPG Capital $137 billion
  • Thoma Bravo $127 billion
  • Silver Lake $98 billion
  • Vista Equity Partners $96 billion
  • Insight Partners $90 billion

See also