This evening’s second Democrat presidential debate will feature the two leading progressive candidates against other more conservative contenders on a range of policy issues.
But the progressives–Bernie Sanders and Elizabeth Warren–have set the direction for the policies being addressed by the others, especially in the areas of health care (Medicare for All), voter suppression, trade agreements, individual investor protection, job creation, and addressing the violations of unregulated capitalism.
In one important area, Sanders and Warren will address their proposed plans to restrict a cynical and damaging form of finance called private equity. Both have specific plans to regulate this gross abuse of financial manipulation.
Private equity financing is modern capitalism on steroids. As described by the economist Matt Stoller in his exceptional and information newsletter (subscribe for free here), private equity in its simplest form is “a large unregulated pool of money run by financiers who use that money to invest in and/or buy companies and restructure them. They seek to recoup gains through dividend pay-outs or later sales of the companies to strategic acquirers or back to the public markets through initial public offerings.” The keyword here is “unregulated” and that helps explain why private equity is devoid of any ethical concerns. It is all about money..
Private equity came into practice as a variation of leveraged buy-outs. This practice put companies into debt by
loaning them money or issuing bonds and then forcing them to direct all of their business activities into paying back creditors. When the companies invariably failed to meet their debt obligations, companies, such as Toys R Us and Staples, went bankrupt, failed to pay severance and pensions to workers, and left huge holes in the marketplace. (A variation of this type of debt burden is also used by international financing authorities on entire countries to force them to privatize public services and then into becoming the equivalent of indentured servants to the lenders.)
The Toys R Us example is a template for what private equity firms do. Bain Capital (once managed by Republican Mitt Romney), KKR, and Vornado Realty Trust, bought Toys R Us in 2005, and then put the company heavily into debt. By 2007, Toys R Us was still very popular, but because of its debt, the company was spending 97% of its operating profit on debt service, Stoller said.
Looting corporations is what private equity firms do. One academic paper by Brian Ayash and Mahdi Rastad, and cited by Stoller, found that “companies bought by private equity are ten times more likely than comparable companies to go bankrupt.” This makes private equity predatory capitalism and it uses every financial, accounting and legal trick available, to extract the most money from a company without any regard for the public or creditors.
Dems Taking Private Equity Contributions
Private equity is bad business for average Americans. It kills companies, promotes monopoly markets, leaves former employees with no severance or pensions, and manipulates the markets for the benefit of a few greedy financiers. Simply, and based on their records, there is no other way to say this.
While that is the record of private equity, some Democrat running for president have taken contributions from private equity firms and will, as expected, talk and act favorably about them. That is expected when you take money from lobbyists. So consider these Democrats who took money from this corrupt industry in the second quarter of 2019, as cited by Stoller:
- Joe Biden, Cory Booker, Pete Buttigieg, and Kamala Harris all received donations from one or both of the leaders of the country’s top two private-equity firms, Blackstone and the Carlyle Group.
- Buttigieg received the maximum donations from 11 high-level Blackstone employees, as well as money from Bain Capital and Neuberger Berman. Biden, Booker, and Gillibrand nabbed donations from employees at least three of the top 15 private-equity firms.
- Bernie Sanders and Elizabeth Warren took nothing.
Better yet, both Warren and Sanders have public policies to regulate and rein in private equity firms, so they cannot continue to wreck the marketplace and create more favorable tax and legal loopholes.
So as you watch the second Democrat presidential debate tonight, decide whether the same old system that allowed private equity firms to abuse the marketplace should still have a role in damaging your future. Then, look at the candidates and see who took their money in exchange for future favors.