Air Date 11/12/2024

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JAY TOMLINSON - HOST, BEST OF THE LEFT: [00:00:00] Welcome to this episode of the award winning Best of the Left podcast. It's easy enough to look into one industry at a time to see what's going wrong. That's what we usually do. But today we're looking at what is often lurking in the background of higher prices, lower quality goods, and services, and ultimately many failing businesses: private equity. 

For those looking for a quick overview, the sources providing our top takes in about 50 minutes today includes The Plain Bagel, Wendover, The Chris Hedges Report, Senator Elizabeth Warren, and More Perfect Union. 

Then in the additional deeper dives half of the show, there'll be more in three sections: Section A: How it works; Section B: Power; and Section C: Solutions.

Why Does Everyone Hate Private Equity? - The Plain Bagel - Air Date 9-20-24

RICHARD COFFIN - HOST, THE PLAIN BAGEL: Most people have never heard of these companies before. Blackstone, the largest private equity company with over 1 trillion in assets under management, might be a more well known part of the group in part because people just keep mixing it up with the much larger Blackrock, but other [00:01:00] companies like KKR, Carlyle Group, Apollo, and a number of other large players in the space have all managed to maintain pretty low public profiles, despite the fact that many of these companies each individually manage hundreds of billions of dollars, really contributing to this dark, ominous image of a secret puppet master corporation operating everything from the shadows. And with the area having grown over 10 fold since the 2008 financial crisis, they've come to control some pretty prominent brands, including Baskin Robbins, Dunkin Donuts, Michaels, and even Ancestry. com, which raises a number of questions. Who exactly are these companies? Are they really as evil as people say they are? Should I be concerned that they've been collecting spit samples from over 3. 5 million subscribers? And most importantly, should I invest in private equity? Because these days there are services rolling out that bring private equity offerings to retail investors. 

Well, that's all what I'm going to try to sort out in today's video. And in the past, I have tackled the more conspiracy-esque theories around [00:02:00] large asset managers secretly controlling the world or trying to destroy given companies. And indeed private equity does come up often as a sort of filler villain for especially meme stock style theories. But to be clear, that stuff aside, the bad reputation around private equity is still pretty well deserved, with one National Bureau of Economic Research paper even arguing that private equity ownership of nursing homes has contributed to over 22, 000 additional deaths over a 12 year period. So, among other things, I'll also try to explain why it is that private equity can't seem to stop getting in trouble. 

Now, as you might know, when we talk about private equity, we're really referring to private equity firms, or funds, which are groups that specialize in helping clients invest in these types of companies. Private equity itself is just an asset class or type of investment that encompasses all privately owned businesses. So basically any company that's not a publicly traded stock is technically private equity. And private equity or PE firms specialize in [00:03:00] helping their clients buy these types of companies since doing so is a lot more complicated than just buying a stock in Robinhood. With PE firms pooling client money together, employing teams of lawyers, analysts, and operations experts to take over these companies, and then trying to employ best practices or what have you to make the business more profitable, to earn themselves and their investors a return. 

Now within private equity, there are a bunch of different strategies that a group might focus on. For example, there's venture capital where you effectively invest in startups. But the most popular and controversial strategy is the leveraged buyout, which represents roughly 28 percent of all private market AUM, inclusive of debt oriented strategies as of June, 2022. With this typically involving the PE fund, borrowing a bunch of money, typically 80 to 90 percent of the company purchase price, using that to acquire a usually mature business, saddling the debt onto the target company, and then trying to use the higher profits from the turnaround to pay down the leverage. Something that, when successful, can be very lucrative for investors, given how little capital is being put up front [00:04:00] to try and own this business. 

Which touches on why private equity has been such a popular asset class. Because in addition to this sort of high risk, high return strategy, they've often been presented as being a superior asset class in terms of return, given the illiquidity premium, the higher barrier to entry, which leaves more opportunities for realizing returns. And in addition to all of that, they're argued to be less correlated to public markets, meaning they might not fall when everything else does, which offers diversification benefit. And they're often presented as being less volatile, meaning they don't swing around in price as much. I'll be able to get to those points later. 

Now, the asset class does have its drawbacks. Some of the strategies are higher risk. It can be pretty illiquid, meaning that it can be difficult to get your money out of the investment, with some funds being able to gate or otherwise block investor withdrawals. And the superior return they offer does come at a pretty hefty price, with most funds charging two and 20, meaning a 2 percent annual fee based on the value of your investment, plus 20 percent carried interest or a [00:05:00] performance fee that pays out 20 percent of profits above a given threshold. But despite this private equity has continued to be a pretty popular strategy, which is why the investors who ultimately own the 13 trillion dollars being managed here include the likes of pension plans, endowments, and even country sovereign funds, which all sounds pretty good.

But then what's the problem? Well, there are a few, and they typically involve other stakeholders, but even investors in PE funds face a number of issues, with one of the more public problems being the layoffs that typically follow a PE acquisition, with this seemingly being a favorite tool in the arsenal of PE firms to try and squeeze more profits out of the companies they acquire.

In fact, one 2021 paper that looked at 6, 000 buyouts from 1980 to 2013 found that employment at target companies shrunk an average of 4.4 percentage points in the first two years relative to a peer group when omitting post buyout acquisitions and divestitures, with retail sector, in particular, receiving the short end of the stick here. With the area [00:06:00] expected to have lost 600, 000 jobs as a result of PE firms and hedge funds taking over companies over the last 10 years.

Now, layoffs can make sense when company is overstaffed and could use further optimization. But these layoffs and other cost cutting measures are often blamed for hurting the quality of products and services offered by these target companies. Which sucks when your morning honey cruller isn't as fresh as it used to be, but is particularly concerning when it comes to the other, more critical industries that private equity has gotten involved with.

Most notably, healthcare. With private equity having come to own 8 percent of private hospitals and 5 percent of total nursing home facilities, with one ASPE study finding that private equity investment in the latter resulted in a 12 percent relative decline in RN hours worked per resident day. And as you'd expect, it's had some negative impacts, with private equity owned private hospitals, seeing a lower CMS star rating and nursing facilities seeing a 14 percent increase in their deficiency score index, lower overall [00:07:00] inspection and staffing ratings, and even as cited earlier, a higher mortality rate among residents. 

Now, in addition to healthcare, private equity has also caused a ruckus with real estate for managing funds that exclusively go around and buy up single family properties, with the goal of renting them out to tenants, which as you can imagine during a real estate affordability crisis is not cool, man. With advocacy groups arguing that not only are private equity firms taking inventory from other buyers, but that they also have a tendency to hike rates, evict tenants, and overall neglect their properties more than other ownership types in the pursuit of profits. 

So, already you can see why some people aren't all that fond of private equity. But perhaps the most frustrating aspect here is that despite the layoffs and the deterioration of the products and services they offer, the companies that these firms promise to turn around still fail pretty frequently. Whether it be Toys R Us or, again, the more recent bankruptcy of Red Lobster, private equity's high risk approach has a pretty high failure rate [00:08:00] with a space accounting for 16 percent of us bankruptcy filings in 2023 and the first four months of 2024, in one study, even suggesting that companies held by leveraged buyout firms have a 20 percent bankruptcy rate in their first 10 years, 10 times higher than that of a control sample. Which is actually part of what contributes to the high unemployment that seemingly stemmed from private equity activity. And as you can imagine, for again, those critical industries, these sort of bankruptcies and failures can have pretty severe implications for many other stakeholders. 

Which all brings us to the question: Why are private equity companies seemingly so reckless and aggressive? Don't they want to have a better rate of not failing? Well, part of it is that private equity firms tend to have a pretty short time horizon of anywhere from three to seven years, meaning that they often have an exit strategy that focuses on short term profitability, rather than long term sustainability. For example, a pretty common strategy for private equity firms is to take all of a company's real estate holdings and sell it to the market only to then rent [00:09:00] back those positions so that the PE firm has access to a sudden pool of capital, even though long term that just forces the company to now pay rent in addition to trying to pay down their massive debt balance. 

But a more controversial aspect here is that private equity firms don't inherently need their companies to succeed to make money, thanks largely to how their investments are structured. When a private equity fund carries out a leveraged buyout, as mentioned, they often saddle that debt onto the acquired business. Meaning that there's a degree of separation between the fund and the liability for the debt they've taken on. If that company fails and is unable to pay back the debt, the fund is not often liable for the amount owed. So, beyond their initial investment, which again is often only 10 to 20 percent of the company's whole purchase price, there's not much financial liability that the funds face for their companies failing, with this lack of liability even sometimes extending to legal matters, with companies often able to dodge responsibility for the actions of the companies they effectively run thanks to their complex ownership structures. 

In fact, according to federal prosecutor, [00:10:00] Brendan Ballou, we've even seen examples of PE firms abusing bankruptcy laws, using the mechanism to extinguish things like pension liabilities, which, mind you, represents money owed to employees, only to then reacquire the business after bankruptcy under a different arm to ultimately end up in a better financial position. And while the investors of these PE firms might lose when the companies they hold go bankrupt, because the private equity firms are often charging both their investors and the companies they manage fees, they can still benefit and end up positive while everyone else in the situation loses, with PE firms often criticized for benefiting from any of the cost cutting actions they've carried out, regardless of how intense they are, while leaving their portfolio companies to deal with all the consequences 

How Private Equity Consumed America - Wendover Productions - Air Date 5-7-24

SAM DENBY - HOST, WENDOVER PRODUCTIONS: Structurally, private equity firms are not complicated. Their cores are the general partner. General partners typically know the right people. It is not an entry level job. 

To take the example of a rather random, rather unremarkable firm, JW Childs Associates was founded by general partner John W. Childs [00:11:00] after a long and successful stint at Thomas H. Lee Partners, founded by Thomas H. Lee. Thomas H. Lee founded his firm after a long stint at the First National Bank of Boston, where he rose to the rank of Vice President. Other examples of private equity general partners include Mitt Romney of Bain Capital, who was also the 2012 Republican nominee for President, and Stephen Schwartzerman of Blackstone, the 34th wealthiest person in the world.

These connections are crucial thanks to step two in the process: raising money. Typically, general partners start by throwing in a couple million of their own money to set the stakes, then they'll go around pitching investors on why they're the best person to manage the investors' money. Often it has something to do with having particular experience in a particular industry that is particularly attractive for particular reasons.

In the case of J. W. Childs, he likely went around arguing that he had a particular knack for investing in consumer food and beverage companies, since at his prior firm, he had helped arrange the buyout of Snapple for $135 million in 1992, which his firm sold two years later for [00:12:00] $1.7 billion after massive revenue growth. And he likely argued that food and beverage companies are great for investment since people have to eat and drink, and therefore the sector is less subject to the cycles of the market than something like tech. 

This sort of stability is particularly attractive to the massive institutions that make up the core of private equity investors. In John W. Childs's case, insurance companies like Northwestern Mutual or employee pension funds like the Bayer Corporation Master Trust. Individuals can theoretically invest in PE funds, but only if they hold enormous wealth. It varies dramatically, but many funds have minimum investments upwards of $25 million.

Meanwhile, the way private equity firms themselves make money is remarkably consistent. They just take 2% of it. 2% of all money each year is taken as a fee regardless of whether or not the firm actually grows the investments. But then to incentivize returns, the firm also sets a benchmark called a "hurdle" that they're aiming to beat in year over year investment growth, say [00:13:00] 7%. Any money earned on top of that hurdle is then subject to a 20% fee that goes back to the firm.

So, say if a fund was originally worth $100 million but grew to $110 million, $3 million would be subject to that performance fee, and so 20 percent of it, $600,000, would go back to the firm. 

In practice, what's earned from the 2 percent base fee is fairly consistent, since there are generally restrictions as to when investors can take money out of the fund, so the sum does not generally fluctuate rapidly. Therefore, firms typically earmark this base fee for covering basic operating costs like office rent and analyst salaries. 

But how much is made from that 20 percent fee varies enormously. Some years it could be nothing, others it could be yacht money, especially since the gains from that fee are generally distributed primarily to the general partner.

This is how general partners like John W. Childs become billionaires. And even better, the money from these fees is not considered traditional income by the American tax authorities. It's considered capital gains. Despite the fact that [00:14:00] these earnings do not truly come from investments by the general partners themselves, the IRS treats them as if they do, and therefore only about 20 percent goes to taxes, versus the 37 percent they pay on traditional income.

So, considering it's the primary source of their wealth, the general partner is massively incentivized to maximize their firm's gains, and to supercharge this to the next level, they almost all rely on one simple trick. They don't actually invest their own money, at least primarily. Now, if a $100 million fund bought a $100 million company and increased its value by 25%, they'd gain $25 million. But if a $100 million fund bought a $400 million company and increased its value by the same multiple, they'd gain $100 million. They'd 2x the fund's value. 

And, believe it or not, a $100 million fund can buy a $400 million company, as long as they have a friendly banker. This is what's referred to as a leveraged buyout. The fund puts in some of [00:15:00] their money, but primarily relies on borrowed money to pay the seller, just like a homebuyer with a mortgage. This magnifies the potential earnings, but in turn, of course, the potential losses. But it's worth considering what this does for the general partner. In a $100 million fund buying a $400 million company with 75 percent borrowed money, very small margins of growth can make all the difference for this one individual.

With a 7 percent hurdle and 7.5 percent growth, 20 percent of the margin above 7 percent on that $400 million company would earn this individual $400,000. But if instead, the company reached 7.75 percent growth, the general partner would earn $600,000. Because of this amplifying effect, every quarter of a percent growth, a rather small difference, earns the general partner another $200,000 in income.

It's also worth considering that it really doesn't matter exactly how this value is created. For every [00:16:00] miraculous Yahoo turnaround story, there's a Marsh Supermarkets. At no point did Marsh reach the size or level of national ubiquity as Yahoo. If you aren't from Indiana or Western Ohio, you've likely never heard of Marsh Supermarkets. Yet, while confined to just two states, Marsh Supermarkets and its private equity takeover exemplifies a pattern that spans all 50. 

The first Marsh opened here, a small local grocer catering to specific local needs in Muncie, Indiana, in 1931. The simple concept took. Weathering the Great Depression, then outlasting World War II, the budding Indiana institution began to expand. By the 1950s, there were 16 Marsh locations across the state, by 1952 there was a Marsh distribution center in Yorktown, Indiana, and by 1956 the store was expanding into Ohio. 

As demands changed in the 60s, the company adjusted. Marsh FoodLiners became Marsh Supermarkets, growing in size to accommodate one stop shopping.

Diversifying as decades [00:17:00] progressed, the company also established its own convenience store, the Village Pantry, its own bargain bin store, Lowville Foods, and eventually purchased its own upscale grocers in Omalia Foods and Arthur's Fresh Market. Blanketing urban and suburban Indiana and western Ohio, Marsh and Marsh properties were a mainstay through the 90s and 2000s. 

And it was at about this time that Sun Capital became interested in the company.

Today, there are zero Marsh locations. In 2017, unable to keep up with rent payments and struggling to pay vendors, the company filed for Chapter 7 bankruptcy, closing every last location and liquidating all remaining assets. Like an empire spread too thin, Marsh had reached its territorial epoch before collapsing in on itself within just two decades, all on a timeline that rather neatly lines up with the brand's time under Sun Capital's ownership.

Now, Sun Capital Partners didn't instigate the regional grocer's fall from grace. Prior to the sale, Marsh had [00:18:00] expensively failed to expand into Chicago, it had felt their revenue squeezed from encroaching box stores, and it watched Kroger's parade into its grocery market. In response, the company began to fall behind, failing to modernize its stores or products, backing out of sponsorship deals with the Indiana State Fair, and opening itself up to the possibility of selling.

In an atmosphere of supermarket consolidation, though, there wasn't much interest in the struggling chain. Not until someone noticed in a footnote in the company's financial report that the company held a rather robust real estate portfolio, a $325 million purchase point then became more palatable. And in early 2006, Sun Capital jumped, paying $88 million in cash and assuming $237 million of debt.

To Sun Capital, the deal was a can't lose proposition. Either they'd turn around and flip a bloated business, or they'd sell the assets -- assets which, just in real estate, have been estimated to be worth $238 to $360 million. 

[00:19:00] Under new ownership, things changed quickly. They pared management, they sold the company jet, and with the money saved, they renovated storefronts. Sales went up. Then came more maneuvering, but less the kind that would help bump sales. Almost immediately after Sun Capital took over, store locations went up for sale; this one for $750,000, this one for $2.15 million. and this one for $1.2 million. They'd stay operating as Marsh Stores, but they'd now be paying a lease while Sun Capital would collect an unspecified commission on the sales.

They even went as far as selling the company headquarters for a reported $28 million before then straddling the grocer with a 20-year lease increasing on a 7 percent clip every five years. This maneuver is called a sale leaseback, and it's quite common in private equity because, at least on paper, it makes sense for both parties. Marsh supermarket properties were no exception, as they could boost dividends or provide capital for [00:20:00] another leveraged buyout for Sun Capital, while also helping the grocer to pay down debt and provide investment flexibility in the short term. But as for the consequences accompanying that long, escalating lease on company headquarters, along with cost saving moves like carrying name brand products, cutting staff, and contracting out more and more services, well, Sun Capital just hoped it wouldn't have to deal with them. 

As of early 2009, news bubbled to the surface that they were trying to sell the grocery chain. But to the dismay of Sun Capital, the new, leaner, streamlined Marsh just wouldn't sell. Ultimately, the new owner business boost was short lasted, and in 2017, the grocer would go out of business with Sun Capital at the helm until the very day it filed for bankruptcy. 

Tucson Capital, failing to sell was a missed opportunity in a company overhaul that they would deem a loss, as the group ultimately came $500,000 short of recouping their investment into the chain grocery store.

But even in a loss, the private equity firm won. They still collected their management [00:21:00] fee each year of ownership, after all. They also collected their commission on sold assets as the company spun off its property at seemingly every turn. Really the only loss was that they just didn't win more. 

The same couldn't be said about the consumers or employees, though.

Deeply embedded in Indiana and Ohio's urban areas, Marsh locations provided healthier, fresher alternatives in areas at risk of fading into food deserts. Beyond nostalgia, residents who lost their local grocery and pharmacy were mad, confused, and lost with the disappearance of a long-time local institution.

Then there were the people that worked for Marsh. According to Washington Post reporting, at the onset of Sun Capital's ownership, only one of three retirement plans was agreed to be fully funded by the new ownership -- unsurprisingly, the executive's plan. As for store employees, their pension went underfunded by some $32 million, which fell not on Sun Capital to even out, but to the government insurer.

As for warehouse workers, Marsh owed [00:22:00] some $55 million at the time of bankruptcy to their pension, which was already struggling to pay out full checks. 

Ultimately, Marsh Supermarkets as a business and Sun Capital as a private equity firm are relatively small potatoes, but their ill-fated eleven years speak to a larger pattern in American life.

How private equity conquered America - The Chris Hedges Report - Air Date 3-1-24

CHRIS HEDGES - THE CHRIS HEDGES REPORT: You write that they operate in secrecy with hidden ties to companies they control. The wreckage they leave behind is often difficult to track back to its origins. And I want to raise another point that you do in the book and I thought it was important: Many Americans who are being assaulted this way know something’s wrong, but they don’t quite know what is wrong. It’s tied to this, almost invisible, hand. Explain that. And then I want you to talk about their political clout because it’s significant. They get [00:23:00] the tax breaks, they corrupt the system enough to essentially grease the skids for them to continue to operate.

GRETCHEN MORGENSON: Absolutely. Absolutely. So the secrecy is important. One of the reasons that we wanted to write this book is to let people know how pervasive this business model is.

CHRIS HEDGES - THE CHRIS HEDGES REPORT: Well, you write at one point that all of us, although we don’t know it, are engaging with private equity firms. So talk about how extensive it is and then talk about that secrecy too.

GRETCHEN MORGENSON: I write in the book that the coffee and donut that you pick up on the way to work, the child care entity where you drop your son or daughter off, the nursing home where your mother or father lives—it is cradle to grave, literally, you’re impacted by private equity, but you don’t know it because these are just companies that are buying and selling, but you [00:24:00] don’t know who the real owner is behind the scenes. And they like it that way, they want to keep it that way because they operate best in secrecy. They’re private companies. They don’t have to make filings to the Securities and Exchange Commission, so a lot of their business and a lot of their practices are hidden from view, and that is by design.

One of the things that I think could improve our perception or educate people about how pervasive private equity has become is to force these firms to identify themselves as the owners; So it should be the Carlyle nursing home or the Blackstone donut shop or whatever, just so you are aware of who you are dealing with and whose [00:25:00] pocket you’re putting your money into. 

Now, the secrecy is one thing; the political clout is, as you say, immense, because they have so much money. Their tax treatment is an outrage and many presidents have tried to change it, but have not been able to do so.

CHRIS HEDGES - THE CHRIS HEDGES REPORT: Explain the tax part.

GRETCHEN MORGENSON: Their fortunes are enhanced by the fact that they pay a fraction of what you and I pay on our incomes every year because it’s called carried interest. It’s not considered ordinary income. The ordinary income tax rate is, what, up to 35%? What these people pay is around 21% on the income that [00:26:00] they receive from their operations. That’s something that’s been in the books for decades but it really has created a skewed system where they make fortunes, billions of dollars. The government loses because they’re not generating the tax revenues that they should on those billions. It’s just, it's nuts. 

Now, the last time someone tried to change this, Kyrsten Sinema was a holdout, the –

CHRIS HEDGES - THE CHRIS HEDGES REPORT: Because it was good for the people of Arizona.

GRETCHEN MORGENSON: – right, the lawmaker from Arizona. She, I think, received $1.5 million from the private equity world to stand up and say no, and she scotched it. So, getting them to pay their fair share of taxes would [00:27:00] be a good thing. It would help the government, it would generate more income, and it would take away this unfair aspect of their business.

CHRIS HEDGES - THE CHRIS HEDGES REPORT: You write, “Routinely lionized in the financial press for their dealmaking and lauded for their ‘charitable’ giving, these unbridled capitalists have mounted expensive lobbying campaigns to ensure continued enrichment from favorable tax laws. Hefty donations have won them positions of power on museum boards and think tanks. They’ve published books on leadership extolling ‘the importance of humility and humanity’ at the top while eviscerating those at the bottom. Their companies arrange for them to avoid paying taxes on the billions in gains that their stockholdings generate. And, of course, they rarely mention that the companies they own are among the largest beneficiaries of government investments in highways, railroads, and primary education, reaping massive perks from subsidies and tax policies [00:28:00] that allow them to pay substantially lower rates on their earnings. These men are America’s modern-age robber barons. But unlike many of their predecessors in the 19th century, who amassed stupefying riches by extracting a young nation’s natural resources, today’s barons mine their wealth from the poor and middle class through complex financial dealings.” 

These people, not just control politicians, but they serve in government. You have several examples of that. So explain a little bit about how they dominate the political system.

GRETCHEN MORGENSON: Jay Powell, our head of the Federal Reserve Board, he was a Carlyle executive. They’re really everywhere. Again, it’s this pervasiveness. But even if they’re not on the job, say, in the [00:29:00] government, they are behind the scenes absolutely manipulating outcomes so that their businesses will benefit. They’re so powerful and so wealthy and, you know, Chris, better than anybody, how money is so central, unfortunately, to how our government works. 

You just have not had enough attention to this wealth grab by these people. The one thing we did have—the activity, the practices were so outrageous that it got Congress to act, and that was on the surprise medical bills that you mentioned a bit ago. This was a creation, the brainchild of a company called Envision, which is owned [00:30:00] by KKR. And what Envision did was it went into emergency departments and started running many of those emergency departments in a hospital. It wouldn’t own the hospital, but it ran the emergency departments.

Envision decided that what they could do is they could make the emergency department a separate entity outside of the insurance coverage that the hospital’s patients would normally have. So you’re in your town, you go to the emergency department, you’ve broken your arm or whatever, you naturally assume that yourinsurance – which covers your normal hospital stay or treatment – you naturally assume it’s going to cover your emergency department bill.

Well, Envision carved themselves out of that so that you would have to pay more. And this was something that was so [00:31:00] crazy and impossible to think that it could happen, that Congress did something about it and changed and curbed the practice. They didn’t eliminate them, but they curbed it. And guess what? Envision went bankrupt after that because its business model required them, … its business model was based on ripping people off.

Warren Calls for Ownership Transparency for Private Equity in Health Care - Senator Elizabeth Warren - Air Date 7-12-24

SENATOR ELIZABETH WARREN: Mr. Chairman, and thank you and Ranking Member Braun for holding this hearing on price transparency. For almost every other type of service, you can look up the price before deciding whether or not to purchase. But when it comes to health care, it is virtually impossible, even though Americans are paying more for health care then at any other country in the world. 

So when patients need health care, they should be able to easily find out the price of those services. Here's something else they should be able to find out easily: who [00:32:00] owns the hospital or the physician practice that you or a loved one may visit to receive that care? Today, nearly 80 percent of doctors are employed by corporate entities, including private equity firms. And once in control, these firms raise their prices and cut corners to line their own pockets, while the quality of care suffers. 

So let me start with you, Dr. Whaley. You are an expert on private equity in health care. If a patient wanted to find out whether a neighborhood hospital or a primary care practice was owned by private equity, how hard would that be to do? 

DR. CHRIS WHALEY: Senator Warren, I think it's virtually impossible for a patient to know whether or not their doctor's office is owned by a private equity company. 

SENATOR ELIZABETH WARREN: Yeah, so virtually impossible. Because private equity firms don't have to report ownership, it is nearly impossible to find out if the doctor's office you visit is owned by one of these corporate [00:33:00] vultures. 

Well, let's ask about the workers. How hard is it for the workers to find out? Ms. Upsal, you lead the health fund at Labor Union 32BJ. If one of your members wanted to find out if a potential employer of any kind was owned by a private equity company, how simple would that be to do? 

CORA OPSAHL: Similar to what Dr. Whaley said, next to impossible. And I would even say as the employer or as the sponsor of the plan, I don't know who I'm writing my self funded checks to, as well.

SENATOR ELIZABETH WARREN: Okay, so next to impossible, virtually impossible. I'm, sensing a trend here. Patients can't find this information. Workers can't find this information. Even antitrust regulators have a hard time finding this information. These are the agencies that are responsible for cracking down on anti-competitive behavior, and they can't get their hands on these data. And it matters, because [00:34:00] private equity ownership has real consequences for the families and the workers who need help here. 

So Dr. Whaley, once private equity firms take over health care companies, what happens to health care cost and quality? 

DR. CHRIS WHALEY: Several studies have shown that when a private equity company acquires a healthcare practice, whether it be a physician or a hospital or other type of healthcare provider, prices increase quite substantially.

We've also seen evidence, particularly in nursing homes, that quality goes down, again, quite substantially. 

SENATOR ELIZABETH WARREN: I just want to relate this to the earlier line of questions, where he said, people are using higher price as a signal that they're going to get better care. And yet, the data show us that when private equity takes over, price goes up and quality of care actually goes down. Is that right, Dr. Whaley? 

DR. CHRIS WHALEY: That's what the host of studies that have examined this question.

SENATOR ELIZABETH WARREN: Yeah, so not just one [00:35:00] study. You see it across the board in all of the studies that have looked at this. 

I saw this first hand in Massachusetts after private equity drove Steward Health Care into bankruptcy. And that is why I introduced the Corporate Crimes Against Health Care Act, which, among other things, would require private equity-owned health care companies to publicly report mergers, acquisitions, changes in ownership and control, and financial data. So at least the information would be out there.

Let me ask: Dr. Whaley, would these data help state and federal regulators prevent crises like the Steward failure in the future? 

DR. CHRIS WHALEY: I think having accurate and transparent data on ownership is incredibly important, and can help both state and federal regulators monitor healthcare markets and get ahead of what's happened in many cases.

SENATOR ELIZABETH WARREN: Yeah. It is shameful that these firms can hide in the shadows while [00:36:00] patients and workers suffer. My Corporate Crimes Against Healthcare Act would shine a light on private equity's most parasitic practices. It would also claw back compensation from private equity executives that drive portfolio companies into bankruptcy. It would impose criminal penalties on executives when their failures result in patient deaths. And it would empower regulators to prevent crises like Steward from ever happening again. There's a lot of work we need to do here.

BlackRock: The Conspiracies You Don’t Know - More Perfect Union - Air Date 9-15-24

ADREINNE BULLER - HOST, MORE PERFECT UNION: I spoke with Benjamin Braun, a professor of political economy at the London School of Economics. He's written a bunch of studies on asset managers' role in our economy and society. 

BENJAMIN BRAUN: The fees you earn if you're BlackRock increase when the market value of the assets you manage increases. You maximize your assets under management by winning over new clients and by getting the clients that you already have to give you more money.

ADREINNE BULLER - HOST, MORE PERFECT UNION: When you have 10 trillion dollars, you have to put them somewhere, [00:37:00] and eventually that somewhere becomes everywhere. 

BENJAMIN BRAUN: Universal ownership refers to holding shares in the entire universe of firms listed on the stock matket, the big three asset managers: BlackRock, Vanguard, State Street, hold a sizable, but still relatively small, stake in all listed corporations.

ADREINNE BULLER - HOST, MORE PERFECT UNION: BlackRock is a 3-10% shareholder in all of these companies. This may not sound like a lot, but it's enough that selling all of it at once would likely crash that entire stock, locking them into the whole not selling passive thing. 

BENJAMIN BRAUN: 5 percent in any individual company is actually very significant because if and when shareholdership is dispersed, 5 percent makes you, in all likelihood, the single largest shareholder in that company.

That's why, for example, in a lot of academic studies, 5 percent is taken as a threshold for control. There's almost no difference between Vanguard, BlackRock, State Street, and [00:38:00] even a bunch of other asset managers in terms of their business model. So then you can start and wonder, okay, so if the big three together hold 25% of the shares in any individual company, then you're definitely above the threshold.

ADREINNE BULLER - HOST, MORE PERFECT UNION: Let's zoom in on Amazon. The big three owns 16% of all outstanding Amazon shares. Jeff Bezos only owns 9%. 

BENJAMIN BRAUN: In theory, universal owners should have an interest in maximizing profits in the long term across the entire economy. And that is not how they operate in practice. 

ADREINNE BULLER - HOST, MORE PERFECT UNION: The amount of stock you have determines the number of votes you get.

BlackRock is almost always in the top three, maybe five if they're feeling broke. So that is a lot of votes. And let's not forget, It's not BlackRock's money that's invested. It's your dad's pension fund and your insurer's massive pile of savings. It sounds crazy, but when you put your money in a pension fund, you sign away your voting rights to the pension fund manager. And then when the pension fund manager puts all their pension [00:39:00] funds under an asset manager's control, they sign away all those votes to the asset manager. Kind of pyramid scheme vibes. 

And how do they actually use those votes? A 2017 study found that asset managers almost always voted with what the company executives recommended. And why are they always voting with company management? Back in the 80s, company managers used to spend company money on company things, like corporate jets, fancy offices, or occasionally paying their employees. And this made the investors sad, because they wanted those profits. So they started offering company managers, in addition to bonuses and benefits, stock options. Executives' total pay was now forever tied to how much the company made. 

BENJAMIN BRAUN: They can push managers, corporate managers, to act more in the interest of shareholders, meaning in the interest of corporate profits, and do more to maximize corporate profits. 

ADREINNE BULLER - HOST, MORE PERFECT UNION: This funnels money back to investors, who now include management, and away from any hope of making companies work better, or including employees in the [00:40:00] profits that their labor created. Back in the day, like, my grandparents' day, more regular people had stocks, and the idea was that every shareholder could vote on things like board elections, mergers and acquisitions, executive compensation, and once in a while, wages. Sort of like democracy for people with disposable income. 

RONALD REAGAN: Government is the people's business. And every man, woman, and child becomes a shareholder with the first penny of tax paid. 

ADREINNE BULLER - HOST, MORE PERFECT UNION: In 1945, 94 percent of stocks were owned by households. But that's not really how it works anymore. Today, households have more like 40 percent of the stock market, and about half of that belongs to the top 10%.

Today, the top 1 percent own 50 percent of corporate equity and mutual fund shares, while the top 10 percent own 86%. [Referring to chart in video] Did you think this yellow part was everyone else? Nope. The tiny green part on the bottom is the least wealthy [00:41:00] half of Americans. 

BENJAMIN BRAUN: You often hear this argument that what is good for shareholders is good for everyone because, especially in the U. S., where retirement assets are overwhelmingly invested in corporate equities, everyone is a shareholder. But that's simply not true. The bottom 50 percent virtually owns no shares at all. The vast majority of shares are held by the top 10%, and within that even, shareholdings are quite concentrated within the top 1%.

ADREINNE BULLER - HOST, MORE PERFECT UNION: And while the strategies corporations choose (because asset managers vote for them) affect everyone, they only benefit half the population even a little bit, and frequently hurt the other half, those without any shares at all. Take the example of worker pay. BlackRock and other asset managers play a huge part in wage stagnation.

BENJAMIN BRAUN: If you're a corporation, you can increase profits only in so many ways, and you can always, in the short term, increased returns to shareholders [00:42:00] by squeezing workers. 

ADREINNE BULLER - HOST, MORE PERFECT UNION: So this kind of uber monopolization really hurts working people, consumers, and even small businesses. And this is where it gets interesting. There's evidence that this type of universal ownership is in part responsible for why everything is so expensive these days. For example, they have significant stakes in Nike, Adidas, Lululemon, and Under Armour. If one outperforms the other, it's the same from BlackRock's point of view. And sometimes it can even lose investors money altogether if companies were to start lowering prices to compete.

BENJAMIN BRAUN: That's the universal ownership logic in action, but it's also an anti competitive logic in action. The fact that all five airlines, all the major banks, for example, in the U. S. have the same large shareholders, creates a danger and a risk that these corporations will not engage in competition in the same way they would if they each had different shareholders, because in that world, each shareholder would root for [00:43:00] their company and would help to outperform the market by the company they waged a bet on.

ADREINNE BULLER - HOST, MORE PERFECT UNION: It's sort of like a neo monopoly where companies don't even have to merge and buy each other anymore because they all send profits to the same guys no matter what. And their large stakes in basically every company affords them friends in high places. 

From just 2014 to 2015, BlackRock performed over 1, 500 private engagements with the companies held in their portfolio. BlackRock reportedly believes that meetings behind closed doors can go further than votes against management. And they typically give management a year before voting against them. They also have a lot of friends in the government. There's a sort of revolving door between BlackRock, the government, and the international bodies that create monetary policy. Things like the U. S. Treasury, Federal Reserve, the central banks of Canada, some European countries and Sweden, as well as the International Monetary Fund and the World Economic Forum. Since 2004, BlackRock has hired at least 84 former government officials, regulators, and central bankers worldwide. 

LARRY FINK: The [00:44:00] intersection of politics and business has never been more ongoing.

ADREINNE BULLER - HOST, MORE PERFECT UNION: Larry Fink himself is on the board of the WEF and even tried to get himself selected as Hillary Clinton's Treasury Secretary in 2016. And in 2008, they got themselves a pretty sweet deal. 

ARCHIVE NEWS CLIP: Traders say this is the craziest day they have ever seen in these markets. Veteran traders say they've never seen anything like it.

ADREINNE BULLER - HOST, MORE PERFECT UNION: In the aftermath, the government created the Financial Stability Oversight Council to oversee entities like BlackRock that control a lot of money but aren't banks. The FSOC pointed to BlackRock as an organization that's so big that its failure could cause another collapse and tried to put additional oversight on them.

But BlackRock doubled their political lobbying spending, including running a super targeted ad campaign on the D. C. metro, and managed to dodge the oversight that other large financial institutions received. And let's come back to that loophole they like to call passivity. The people who decide if they're passive enough to continue not to be overseen by the government is BlackRock themselves.

Basically, BlackRock and other asset managers have to submit annual [00:45:00] letters to self certify that they've been compliant with the terms of passive investment. That's like being allowed to write whatever you want on your taxes and then audit yourself, except if you also had 10 trillion dollars, which, unless you're watching this and you're literally Larry Fink—hey bestie—I'm gonna safely assume you don't.

The part that really blows my mind is that while this one company already has their eggs in basically every basket and is making money off seemingly everyone, it goes even deeper than that. The biggest investors in BlackRock are Vanguard and State Street. And the biggest investors in Vanguard are BlackRock and State Street. And the biggest investors in State Street are, you guessed it, BlackRock and Vanguard. 

BENJAMIN BRAUN: Asset managers are the shareholders of asset managers. And this is true for all financial firms. And not only, in fact, for stock market listed firms, but private equity firms, buying a private insurance. 

ADREINNE BULLER - HOST, MORE PERFECT UNION: So the financial sector effectively owns itself. The biggest companies that they own, own them back, creating this loop that sucks money in and never seems to [00:46:00] spit it back out. They play all sides of the game because at a certain point, you can't lose when you play against yourself. 

So, going back to our original questions: Does BlackRock own everything? No. But do they control everything? Kinda. They profit off of every bit of your life, while controlling just the minimum amount they need to make sure they can continue profiting off of every bit of your life. And they get paid by teacher's retirement funds to do it. And they get away with this by constantly exchanging money for power and utilizing legal loopholes.

It's worth being pedantic here for a second. They don't own everything. They own shares in everything, which gives them an outsized amount of control. So while they're not necessarily the ones making all the nitty gritty decisions in every company, it is their influence and this giant structure of universal ownership that continues to make their pie bigger and ours smaller. It's the ultimate endgame of the Investor Management Alliance. 

Regulating them much further is going to prove difficult, and this is a solution to one part of a much larger problem. [00:47:00] We no longer have the old system of shareholder democracy. We have something more like a shareholder oligarchy where the people with the most power over where our money and stuff goes are incentivized to make that stuff worse and more expensive and not work for us.

But BlackRock didn't create this system, they just used it to their advantage. And I think we deserve a better one.

Notes from the Editor on getting through this together

JAY TOMLINSON - HOST, BEST OF THE LEFT: We've just heard clips starting with The Plain Bagel explaining the basics of private equity. Wendover highlighted the case study of the Marsh grocery chain. The Chris Hedges Report looked at the revolving door behind the scenes of private equity. Senator Elizabeth Warren looked at the impact of private equity on healthcare. And More Perfect Union broke down our shareholder oligarchy headed up by BlackRock. 

And those were just the top takes. There's a lot more in the deeper dives section. But first a reminder that this show is supported by members who get access to bonus episodes featuring the production crew here, discussing all manner of important and interesting topics, often trying to make each other laugh in the process, even in these trying [00:48:00] times. To support all of our work and have those bonus episodes delivered seamlessly to the new members only podcast feed that you'll receive, sign up to support the show at bestoftheleft.com/support. There's a link in the show notes, through our Patreon page, or from right inside the Apple podcast app. Members also get chapter markers in the show, but depending on the app you use to listen, you may be able to use the time codes in the show notes to jump around the show, similar to chapter markers. So check that out. If regular membership isn't in the cards for you, shoot me an email requesting a financial hardship membership, because we don't let a lack of funds stand in the way of hearing more information. 

Now, before we continue on to the deeper dives half of the show, just a quick comment on the post election recovery period we're in right now. Now, as a straight White guy with full citizenship, I am aware that I am certainly not near the top of Trump's enemies list. But presumably, because I care about how other people will be impacted, as well as caring about how my own [00:49:00] mental health will be affected by the stress that comes along with President Trump-driven news alerts, I'm definitely having a sort of anticipatory anxiety that is impacting my sleep patterns and appetite. All of which is to say that I can hardly imagine what others who will be more directly affected are going through right now. And yet, at least to varying degrees, we are all going through this together. 

Now, nothing is going to make the current situation feel good, but I hope that there is at least some comfort in being reminded that the feelings you're having are not just yours alone. To that point, I mentioned toward the end of our post election round table discussion that I'd been having some thoughts about how to rework and relaunch our activism segments we used to do more often. Before I'd even given more details on it. Alan, from Connecticut called in and sort of preempted my plan.

VOICEMAILER: ALAN FROM CONNECTICUT: Hey Jay, it's Alan from Connecticut calling in. I skipped [00:50:00] ahead to the last episode here—and, uh, bonus gone mainstream, if you will—and in the end you were talking about activism and how you wanted to rethink that because It gives a laundry list of things that we're not doing. I have to tell you, I love hearing that stuff, even if it's not something that I'm able to do or doing knowing that it's out there, knowing that somebody's doing something is really good for my mental health, even if I can't participate, or even by the time I hear about it, it's over, knowing that it's happening is really, really helpful. So, put the different spin on it if you want, but do know that knowing what's going on out there is helpful. And if you put it at the end of the show, people can always speed past it or whatever. But I find it helpful. Anyway, thanks, stay awesome, and for whatever we can do, keep the faith. 

JAY TOMLINSON - HOST, BEST OF THE LEFT: Now in all honesty, one of the major reasons we drift away from doing those segments was that we were very unsure of how effective they were on multiple [00:51:00] levels. We were unsure of how effective the actions were in general. And we were even more unsure of how much action we were actually driving from listeners with those segments. So, we sorta got discouraged in the sense that we didn't know if the effort we were putting in was really amounting to anything. 

Now, the rethink I had just after the election was exactly what Alan just laid out. The biggest benefit from those activism segments probably never had anything to do with driving action. The biggest benefit was likely driving inspiration. So, the hope is to gear back up in a way that incorporates activism into the show, but with a clearer understanding of what it's there for, and to have that be part of the communication in each of those segments. The idea will be to make people feel good to help people's mental health and to potentially spur inspiration, whether to take action on what we're talking about or [00:52:00] something else, it doesn't really matter. But that is the idea at least. Give us some time to sort that all out because of course we're still not eating or sleeping well, so it's not exactly the best time to stretch ourselves even further.

SECTION A - HOW IT WORKS

JAY TOMLINSON - HOST, BEST OF THE LEFT: For now we'll continue to dive deeper on three topics. Next up Section A: How it works; followed by Section B: Power; and Section C: Solutions. 

Why Private Equity SUCKS for (almost) Everyone - The Market Exit - Air Date 9-8-22

ANDRES ACEVEDO - HOST, THE MARKET EXIT: How come the handful of people who are partners at private equity firms gets so immensely wealthy? The answer to that is simple. As the recipe prescribes, the magic PE sauce must include life changing incentives, which means that the fees that private equity firms charge must be out of this world. First, the private equity firm charges an annual management fee, usually 2 percent of the money that the investors put into the fund.

This is a fee that they get irrespective of how the fund performs. Second, the private equity firms Many private equity firms also charge a performance based fee, [00:53:00] which is for some reason called a carried interest. This performance based fee is usually 20 percent of the profits that the funds make. And in addition to the management fees and the carried interest, many private equity firms also charge the target companies that they buy various fees with creative names, such as deal fees, service fees, and advisory fees.

As if all of those fees to the private equity firm wasn't enough, there's a lot more that the investors have to pay for. Leveraged buyouts are really complex transactions, and private equity firms don't know how to do them. So they take in hordes of extremely expensive consultants to do the transactions for them.

Lawyers, management consultants, bankers, accountants, etc. All billing handsomely by the hour. If you average out all of these fees that the investors have to cover, you'll find that investors have to pay between 6 and 7 percent to invest in private equity. [00:54:00] To compare, hedge fund investments cost around 4 percent, active mutual funds around 2 percent, and passive mutual funds less than 1 percent.

If you have capital to deploy, private equity is an extremely expensive way to do it. So why do investors, such as our pension funds, still invest in private equity? Why do they accept that so much of their money goes into the pockets of a few private equity partners and all of their consultants when there are cheaper investment options?

Surely that must be because private equity clearly outperforms everything else that is out there. And for sure, the private equity firms and their lobby organizations, such as the AIC and the SVCA, will tell you that yes, private equity does outperform other investments and that the life changing fees private equity firms are charging are not only worth it, they are a key reason for why private equity firms perform [00:55:00] so well.

Also the consultants who build by the hour to enable the buyouts, the lawyers, the bankers, the accountants, the management consultants will gladly attest to how much value private equity firms can create. But many independent experts are quite certain that That private equity does not clearly outperform other asset classes.

The University of Oxford professor of finance, Ludovic Falippu, and several others, makes the case that private equity funds do not clearly outperform other asset classes. Instead, private equity has given investors performance that more or less matches the public stock market indexes. And if that is true, then anyone who invests in private equity will pay around 7 percent per year when they could have paid way below 1 percent per year for a similar return.

But even if private equity would clearly outperform other asset classes, I still find it difficult to accept that these fee levels are necessary. [00:56:00] Should we really believe that private equity partners wouldn't go to work unless the investors, in other words, our pension funds, are there? Give them billions of dollars in fees.

Clearly, there is something foul about the incentive ingredient in the magic pea sauce. But unfortunately, also the other two ingredients smell a bit funky.

When private equity firm Accel bought the Jon Bauer school group, they loaded it up with a mountain of debt. Immediately after the acquisition, Jon Bauer had to start paying huge sums in interest And as long as John Bauer kept expanding as much as Excel had expected and projected, everything was fine.

But when John Bauer no longer was able to attract as many students and failed to increase revenues, things got tough. John Bauer had to start cutting costs to afford its interest payments, and scandals soon started piling up. And in 2013, John [00:57:00] Bauer had to file for bankruptcy. Remember that backbreaking debt is a key ingredient in the magic pea sauce.

The private equity firm borrows around 80 percent of what it costs to buy a company and makes the company responsible for that debt. And why do they do that? Well, this debt, or leverage, increases the private equity firm's potential return on investment. In other words, how much profits they can make. But the debt also serves other purposes.

First, it lowers the target company's tax liability. Second, it supposedly makes the target company more disciplined. The company must keep its costs low and revenues high in order to afford the debts. Otherwise, it fails. But this debt that the private equity firms load onto its target companies also makes the target companies much more vulnerable, increasing the risk of failure, which is what happened to the John Bauer school group.

The beautiful thing for private equity firms is that when that [00:58:00] happens, when their target companies that they've bought out succumbs to their debt obligations, it's not the private equity firm's responsibility to repay any of that debt. When their investments do well, the private equity firm reaps astronomical gains, but when their target companies fail, the true losses fall mainly on other stakeholders.

The company's employees, its customers, its suppliers, its creditors, and the community at large. A fate that John Bower's teachers and students had to experience firsthand. The third ingredient in the magic pizza sauce is that the brilliant private equity partners take full control of the target company so it can unlock value thanks to the private equity firm's superior management skills.

But it should go without saying that a private equity partner with little or no experience from a particular industry cannot improve the actual products with actual services of a [00:59:00] target company. All this private equity partner, this glorified financial intermediary can do for its target company is to deploy the bluntest instruments that capitalism has to offer.

The private equity firm helps the target company cut costs through layoffs. Offshoring and asset stripping. And the private equity firm helps the target company increase revenues by deploying state of the art methods for price increases. In other words, what private equity firms do is to help target companies focus more on financial engineering and consumer exploitation and less on improving the company's products and services.

Or as the author Matt Stoller has expressed it, private equity firms act as disease vectors for price gouging and legal arbitrage. But to extract value from the target companies, some private equity firms are not satisfied with only firing people and raising prices. [01:00:00] Some private equity firms have bigger plans for their target companies.

Market domination.

This right here is Ryds Bilglas, a Swedish car glass repair chain. This chain was founded in the 50s and was in 2016 acquired by the private equity firm Nordic Capital. In a leveraged buyout. Immediately after the acquisition, Rydsbyrglas initiated its strategy of market domination. When a private equity firm acquires a company on a fragmented market, in other words, a market where there is a lot of competition, Then the private equity firm will inevitably try to destroy as much of that competition as it can, so that it can start raising prices.

After Nordic Capital took over Rydsbyglas, it initiated a wild shopping spree, acquiring, on average, one new company per month. In theory, our competition and antitrust laws should prevent [01:01:00] the private equity companies from going too far in their attempts to destroy competition. But in practice The private equity companies can often get around the competition authorities with the help of stealth consolidation, as the University of Chicago professor Thomas Woolman has called it.

Stealth consolidation is possible when each separate acquisition is small enough to fly under the competition authority's radar. Either the authorities are clueless as to what's going on, or they lack the weapons to defend. And this is particularly common in the retail sector. The private equity firms have also, with some help from their lawyers, built a whole nomenclature to obfuscate the true purpose of their consolidation strategies.

Private equity firms doesn't monopolize. It acquires a platform and then makes add ons and bolt ons and tuck ins. Private equity doesn't destroy competition. It makes the market more efficient and private equity doesn't do price increases, it does margin [01:02:00] expansions. If, and when the competition authorities finally wake up to what private equity has been doing

below its radar, it's often already too late. After a few years of extremely aggressive consolidation, Nordic Capital last year sold off its control stake in Rydsbygglas through an IPO. And in the IPO prospectus, Rydsbygglas even brags about its successful stealth consolidation and how it has created market entry barriers that will make it difficult for small competitors to stay relevant on the market. 

So does private equity own everything? - Good Work - Air Date 9-22-23

DAN TOOMEY - HOST, GOOD WORK: Outside of healthcare, you can find lots of examples of private equity getting all up in things that are commonly thought of as public services.

Like when water bills rose 28 percent in Bayonne, New Jersey following KKR's acquisition of the town's water system. Or when pandemic relief money found its way to PE firms despite being attended for small business support. Or when the state of California had to evacuate dozens of boys from an abusive Michigan rehab facility for troubled youth that was owned by a Bay Area private equity firm.

But if we look at [01:03:00] all of these troubling examples of private equity's massive growth and entanglement into public services, one thing remains clear. These guys f ing rock at making money. 

PAUL KEIRNAN: 2012, private funds as a whole, a lot of which is private equity, managed 9. 8 trillion. Now, 10 years later, it's 27 private funds industry, which again includes hedge funds and VC, is now bigger than the commercial banking sector.

Sector. according to Gensler, 

DAN TOOMEY - HOST, GOOD WORK: indeed, private equity has had an even more meteoric career rise than euphoria. Haie Jacob, all lordie. But what besides Ivy League grads burning desire to own a helipad yacht has contributed to this industry's startling growth, 

GRETCHEN MORGENSON: low interest rates, zero cost of money. Big reason.

Huge. Okay. Easy. can borrow at low rates. 

DAN TOOMEY - HOST, GOOD WORK: a cheap source of debt, w for leveraged buyouts. Co that private markets hav The industry has been [01:04:00] able to expand pretty much unchecked. 

PAUL KEIRNAN: So you've got this really big part of the economy that is more or less operating in the shadows because there's not really systematic.

There hasn't been systematic disclosure on it. 

DAN TOOMEY - HOST, GOOD WORK: So why does the government ignore these asset managers? It's not like there's some annoying aspect to it. public school teacher asking for money to buy a protractor that works. The 

JEFF HOOKE: SEC or the government's first response would be, okay, we supervise the public markets where we have to protect widows and orphans.

They don't know what they're doing, so we got to protect them. 

DAN TOOMEY - HOST, GOOD WORK: There's also lobbying. Private equity spends more time in Washington, D. C., than the worst kid you went to college with. For example, the industry spent 70 million on lobbying in the run up to the 2020 presidential election, while they donated 262 million.

Directly to political campaigns and it turns out that private equity in Washington have a few mutual linkedin connections as well 

JEFF HOOKE: Lawyers that work at the sec. They don't want to work at the sec They want to work on wall street make triple what they're making now How are you going to [01:05:00] get a job on wall street if you're a pain in the ass that you prosecute PE firms? You know, that's not the way you get a job on wall street 

DAN TOOMEY - HOST, GOOD WORK: Looks like the revolving door between washington and private equity is gonna need some maintenance Because it revolves a lot. Jerome Powell, the current Chief of the Federal Reserve, was a partner at the Carlyle Group. And three months after finishing his stint as Donald Trump's SEC Chair, Jay Clayton became Apollo's first ever lead independent director of its board of directors.

And those are just the head honchos. Private equity's money and political influence is so immense that it's been difficult for regulators to square up with. 

JEFF HOOKE: The government is reluctant to bring a case against the big name like Blackstone or Carlyle Private Equity because they think they can't win a case.

They just don't think they got the horsepower to go up against these gigantic blue chip Wall Street law firms. 

DAN TOOMEY - HOST, GOOD WORK: So you're saying that the SEC feels less powerful than some private equity firms? And as you might imagine, this unchecked growth [01:06:00] in private equity has also somehow correlated with the unchecked growth of P.

E. Executives bank accounts. In 2000 and five, there were three multi billionaires among the P. E. Executive class in 2020. It was 22. 22 multi billionaires. Just think of how ass their group chat is. You can chalk all of this up to the way the industry pays itself. Regardless of how investments perform, a private equity firm will charge a management fee of about 2 percent each year.

So a fund with 2 billion in management will baseline make 40 million annually. But the real clams come from this second thing called The performance fee. Unlike the management fee, the performance fee is 20 percent of a firm's annual profits, and it's taxed as capital gains, which means it's taxed as an investment you've held for over a year instead of income for your services.

This performance fee is more famously known as carried interest, and it's one of the biggest tools PE executives use to maximize their earnings. In fact, this carried interest tax rate is so important to the private equity industry that this spike [01:07:00] in lobbying spending in D. C. happened the same year that Congress first started having hearings about it.

JEFF HOOKE: Income tax, if you're really wealthy, might be 35 or 40 percent plus state tax. And the capital gains tax would be half of that. So there's a big, what you call benefit from having a capital gain as opposed to income. 

DAN TOOMEY - HOST, GOOD WORK: But for an industry that generates such an exceptional amount of wealth for its practitioners, surely they must get a great deal for their investors as well.

The answer isn't as obvious a yes as you might think. In July, the Wall Street Journal reported that for the first time since the 2008 financial crisis, benchmark private equity returns turned negative for the reported fiscal year. But since the government can't regulate private equity very effectively, it's pretty difficult to figure out what the industry's finances are.

Act actually look like even if you're an investor in the fund. 

PAUL KEIRNAN: In terms of regulation and I'll contrast this with like mutual funds You go to vanguard's website and you look at one of their mutual funds. You'll see a semi annual Report that's [01:08:00] got maybe 28 pages and it's got their expenses and that's required by regulation What is currently required by regulation is basically no disclosure, by funds, by private equity funds to their investors.

JEFF HOOKE: The investment process would all be hush hush, and for the private equity industry, you know, that's good. They can keep a lot of their fees hidden and their returns, which are mediocre at best, secret. 

DAN TOOMEY - HOST, GOOD WORK: And while there are studies claiming that private equity as a whole offers better returns than the stock market, there is reason to be skeptical about their numbers.

WARREN BUFFET: We have seen a number of proposals from private equity funds where the returns are really not calculated in a manner that, well, they're not calculated in a manner that I would regard as honest. 

CHARLIE MUNGER: Warren, all they're doing is lying a little bit to make the money come in. Yeah, that sums it up. 

DAN TOOMEY - HOST, GOOD WORK: Those garbling muppets raise a good point.

One of the reasons why the returns can be tough to trust is that they're often calculated by people who are [01:09:00] hired by the firms themselves. For the most 

JEFF HOOKE: part, there's no outside party going in and doing a smell test. To some extent, the auditors might do it, like Pricewaterhouse or Coopers and Libra. The problem with them is they're getting paid by the PE fund itself.

DAN TOOMEY - HOST, GOOD WORK: Are you sure? Are you sure? Okay. I'm receiving breaking news against all odds. The Southeastern Football Conference has announced the most significant regulations to private

I am sorry. The Security and Exchange Commission has announced the most significant regulations to the private equity industry in years. That makes much more sense, Dan. 

ARCHIVE NEWS CLIP: The SEC imposing changes on hedge funds and private equity firms on fee disclosures. The move is meant to curb preferential treatment of certain investors.

There's the disclosure on a quarterly basis. of performance in a way that right now is not required per se. There's a element that prevents special deals. 

DAN TOOMEY - HOST, GOOD WORK: So, everything's fixed, right? 

JEFF HOOKE: So it's about 15 or 20 years too [01:10:00] late. You know, the train's left the station. The plutocracies become too powerful.

They'll be able to ride roughshod over these if they don't even try to get them thrown out in a car. 

DAN TOOMEY - HOST, GOOD WORK: Well, the new rules have to mean something, right? Like, how fast could they sue them anyway? 

BRYAN CORBETT: So there are really three reasons why we're suing the SEC. 

DAN TOOMEY - HOST, GOOD WORK: Touché, suited egg man. That's Brian Corbett, CEO of the Managed Funds Association, one of the many groups that lobby for hedge funds and private equity firms and are currently suing the SEC for its recent regulation.

BRYAN CORBETT: We think the SEC in this final rule has exceeded its statutory authority. 

DAN TOOMEY - HOST, GOOD WORK: So as we stand today, private equity is mobilizing their cinematic universe of lawyers while the SEC tries to rein them in. for the first time in many years. So what does this mean for the future? Not just for private equity, but for us, everyday people whose lives have been, in one way or another, tied to this industry.

JEFF HOOKE: If I was a union employee looking forward to retirement, and let's say I can pose a few questions to my union representatives on the board of trustees of these [01:11:00] gigantic funds, I'd ask my representative, Hey, look, have you taken a closer look at this? 

GRETCHEN MORGENSON: I think it's a moment to really see Okay, what kind of capitalism do we want?

Do we want the kind that really benefits the, a broad array of people? Or do you want to have a system that benefits a tiny, tiny fraction of people at the expense? Of a lot, a lot, a lot of people. 

DAN TOOMEY - HOST, GOOD WORK: What type of capitalism do we really want? Do we even know the type of capitalism we already have? If investigating private equity teaches us anything, it's that powerful, profit seeking forces are indeed all around us.

In every part of our lives, in places we wouldn't even think to look. Wait a minute.

This YouTube channel is owned by Morning Brew. Morning Brew was bought by Business Insider in 2020. Business Insider is owned by Axel Springer, who is 43. 54 percent owned by private equity megafund KKR, which means For [01:12:00] good work, I'm 43. 54 percent private equity. 

How Private Equity Is Making Your Health Care Worse - The Majority Report w/ Sam Seder - Air Date 4-15-23

EMMA VIGELAND - HOST, THE MAJORITY REPORT: When did private equity really start to dip its toe into the healthcare industry, which is 20 percent of the United States economy, something like that? 

LAURA KATZ OLSEN: It's definitely 20, it's not only 20 percent of the U. S. economy, but it's a significant, Medicare and Medicaid, for example, are significant percentages of the federal and state budgets.

So, Willie Sutton says, why do you rob banks? Because that's where the money is. And that's why private equity is going into healthcare, because that's where the money is. 

EMMA VIGELAND - HOST, THE MAJORITY REPORT: Lots of money, unfortunately, I mean, on our show, we're Advocates for single payer... 

LAURA KATZ OLSEN: Let me answer your question, which I didn't. They did a little bit in health care [01:13:00] in the 1990s and a little bit in the early 21st century. But since 2015, they've just been accelerating dramatically and as they have more and more, what they call a dry powder. should I explain what that is? Yeah, go ahead. Okay. public pension funds, university endowments and nonprofit endowments.

So they started to get more and more dry powder, which is the money that these, investors are giving them and they have to spend it.

And so this money is growing and growing and the money is sitting there. And they finally decided that, hey, healthcare has a lot of benefits to it, including the fact, that it's very profitable. So, by about 2015, [01:14:00] they started, investing seriously in the healthcare sector. 

EMMA VIGELAND - HOST, THE MAJORITY REPORT: And this is, probably around the same time that some of these pension funds begin to move more into the stock market and into the investment sphere, is that correct?

LAURA KATZ OLSEN: Well, these pension funds started moving away from the stock market to private equity, right? 

EMMA VIGELAND - HOST, THE MAJORITY REPORT: Okay. That's yes. Gotcha 

LAURA KATZ OLSEN: Okay, I do I just read this morning that there's an average of about 14 percent of their and this is just an average Of their pension fund money now is in private equity and they keep investing more and more money.

EMMA VIGELAND - HOST, THE MAJORITY REPORT: Is it because they perceive it as less risky? 

LAURA KATZ OLSEN: It's definitely more risky. 

EMMA VIGELAND - HOST, THE MAJORITY REPORT: Right, but the perception might be that it's less [01:15:00] because, but based on your research, it definitely seems more risky. 

LAURA KATZ OLSEN: No, it's definitely more risky. And another problem, it's illiquid. You know, the private equity fund keeps this money for decades. But the reason they're investing more and more is because they believe, and I emphasize the believe that they're getting high rates of return. there is growing number of studies now showing this may not be the case anymore. It's very, very hard. private equity is very secretive. It's very hard to get any information, including the investors get very little information.

EMMA VIGELAND - HOST, THE MAJORITY REPORT: Right. Well, you were struggling to, to get anyone to give you, More information for your research as well On this side. I know you wrote a bit about how secret secretive they were and you trying to [01:16:00] get in the process of your research 

LAURA KATZ OLSEN: Well, they make all of the businesses that they buy sign nondisclosure and nondisparagement clauses and at the risk of losing the money that they were given.

So, people are very, very reluctant, obvious, obvious reasons to talk about the, um, the problems that they experience that once they've sold their small business. A lot of these small businesses in health care. Uh, whether it's autism or eating disorders or drug and alcohol rehab centers, a lot of the original owners really care about the issue and really care about their patients.

And they don't understand, there's a lot of naivety among physicians, for example. They don't really understand what they're getting into. Because they're, they're told that what the private equity firm is going to do [01:17:00] is take care of the annoying stuff and there's lots of annoying stuff with, uh, rules and regulations and, uh, handling, uh, you know, patient, uh, times that they're coming and all of that.

That's all going to be taken care of the private equity by the private equity firm, so as to allow the, let's say, physician or provider to practice what they want to practice. It's a big thing. They let physicians practice medicine, but the reality is they are totally controlled by the private equity firm.

EMMA VIGELAND - HOST, THE MAJORITY REPORT: Can you talk, uh, expand a bit on the, the point about how private equity is targeting, uh, places like eating disorder centers, uh, re, rehabilitation clinics, autism treatment, uh, facilities, because [01:18:00] they're a little bit, there's a little bit less, uh, government oversight into, uh, Into some of those, those facilities and they've, I think been, and correct me if I'm wrong, um, targeting them for that particular reason.

LAURA KATZ OLSEN: Well, one of the reasons that they're targeting, uh, healthcare obviously is because that's where the money is. Uh, that's where the profits are. Uh, the aging population, Um, the affordable care act, which put more patients on the, but also, uh, healthcare is fragmented. I mean, lots and lots of small agencies, mom and pop shops that they, then they, they, they, what they'll do is they'll buy, um, what they call a platform, like a flourishing [01:19:00] company.

And then they will add on to that company. By taking on these fragmented, these small mom and pop shops or agencies, buying those companies and making it larger and larger, which increases the value exponentially, but also gives them local, regional, uh, state and sometimes national monopolies so that they can control the costs.

Gotcha. Gotcha. And, um, can I just, can I just say one thing, which if I don't get in, it won't, because this is one of the most important things when they buy a company, the private equity firm puts in about 2 percent of the value, only 2%, the pension funds and endowments [01:20:00] put in about 38%. And the rest of that is paid for by debt.

Now, the debt is paid back by the companies they bought. So whether it's the large company, which is the platform, or the add ons that they buy, it's the companies, not the private equity firms, that pay back the debt.

Sociology Ruins Private Equity Part 1 - Sociology Ruins Everything - Air Date 11-1-21

EILEEN APPELBAUM: You have private equity firms, you probably have heard of some of them, Blackstone, Carlisle, Apollo. These big firms sponsor investment funds. What that means is they recruit investors for their fund. The private equity firm looks for institutional investors. To put money into it. And so what do I mean by an institutional investor? This will be a pension fund, a university endowment, a foundation of some sort and sovereign wealth funds.

Those are the main institutional investors and they recruit them [01:21:00] to put up the equity in the private equity fund. So that's where the equity comes from. And it's important to know that the private equity firm itself puts up one to two cents for every dollar. The other, uh, investors in that fund put up the private equity firm calls all the shots.

It has something called a general partner, which is not a person. It's a committee made up of principals in the private equity firm. So that's the decision maker, the general partner. And then you have all these other people that they've recruited to put money in. They're called limited partners. They are the private, we'll just call them private equity investors.

Those are the investors. Okay, so that's the equity and that's where the down payment comes for buying a company. So the private equity fund does make a down payment and then it finances the rest of the acquisition with debt. [01:22:00] And, uh, it's one thing for you to put down 20 percent on your house. It's 20 percent on a multi million or even billion dollar company and raise the rest.

In debt. It's a huge amount of debt. And now the interesting twist, which nobody can believe the first time they hear it is that the private equity firm owns the portfolio companies that are being purchased with this equity down payment in debt. But the debt has to all be paid back by the company they acquired.

So, to just say it over again, you have this investment fund. It does have money in it that came from the limited partners, and that becomes the down, that's the private equity fund, and that becomes the down payment on the business. And all the rest of the financing is in the form of debt. And the interesting and unbelievable fact is that while the private equity [01:23:00] Firm owns this company.

The company has to pay back the debt, and if it can't pay back the debt, the private equity firm and the private equity fund and the general partner in the private equity fund who made the decision about how much debt to put on that company, they get away scot free. They have no responsibility for paying back any part of this debt goes into distress.

The first thing it does is it squeezes its workers. It's trying to find money to keep to keep them business. So that make the payments on the debt. And if it can't do that, then it goes into bankruptcy. Sometimes bankruptcy ends in liquidation, as was the case with Toys R Us. And sometimes bankruptcy, uh, ends with some sort of restructuring of the company.

It depends on the creditors. That's the point at which it depends on the creditors. So you have, okay, all this debt was put on the company. Somebody loaned them that money. [01:24:00] And the lenders of that money took a look at Toys R Us and said, we have a better chance of getting some of our money back. Certainly they're not going to get it all back, but getting some of our money back.

If we have this, we liquidate the company, get rid of all the employees, sell off all the stores for other uses and take that money and pay ourselves back for all this debt. Other cases, they may look at a situation and say, well, if this company just restructures them this way and that way, we'll take a haircut on the debt.

In bankruptcy, the company always gets to reduce some of its debt. Uh, so the creditors are going to lose money on it for sure. But they look at the situation and say, we have a better chance if this company keeps operating. So that's how it turns out that sometimes they liquidate and sometimes they just restructure.

But the interesting point is that the folks who decided to put all that debt on [01:25:00] that company have no responsibility for paying off that debt. 

MATT SEDLAR - HOST, SOCIOLOGY RUINS EVERYTHING: How did you get into this particular line of research? 

EILEEN APPELBAUM: So, I've been studying private equity since, uh, 2010, when I first became really aware of how much what we thought was negotiations between labor and management really was, management was really not able to speak for itself, that there was, uh, someone behind a curtain pulling the strings.

And, uh, we wanted to know more about it. Uh, so this is work I've been doing with Rosemary Bott, a professor at Cornell University. I was at Rutgers when we started. We had the idea that this would just be something small and quick and easy to understand. And so we offered to write a small volume, just a little, a monologue, monograph rather, on private equity for 25, Four years [01:26:00] later, a few hundred pages later, we had our book private equity at work when Wall Street manages Main Street, in which we lay out a lot of the private equity model that came out in 2014.

Of course, there have been many developments since and Rose and I continue to write about private equity and all the new, all the new bad things it's doing. So, so just to be clear, there are. Thousands, probably 8, 000 private equity funds out there, and most of them are smallish funds. And these private equity firms that sponsor these funds by smallish companies.

When you buy a smallish company, one thing you notice is there are not many assets to mortgage. And consequently, they don't use excessive debt, not because they wouldn't like to, But because they can't, and because these are small, usually family owned companies that they take over, uh, there's a lot of room for operational improvement.[01:27:00] 

There's room to put people on their board of directors who understand business strategy and can help them make inroads where they haven't already done that. And these are really the success stories. And so we talk about them in the book, Private Equity at Work. We try to be even handed and to say that there are.

Many cases among those 8, 000 funds, uh, where this is going on, but this is not where the bulk of the money goes. The bulk of the money, overwhelmingly, the money that goes out to private equity firms that sponsor these funds. There are 300 private equity firms worldwide that, that get most of the funds, uh, that have these huge.

investment funds and can't take on small companies because the transactions costs are too high. So they go out and buy big companies. And the, the size of these is just growing tremendously. So Carlisle announced that it was going to [01:28:00] raise a 27 billion fund, 27 billion. It used to be that a 5 billion fund, which is the definition of a mega fund was rare.

Now 5 billion funds are becoming common. And we have Carlyle going out for a 27 billion fund, and not to be outdone, a few weeks later, Blackstone just announced that it's going out for a 30 billion fund. Well, when you have funds that big, all you can do is invest them in really Big companies, uh, and those companies have, uh, very, that they already have modern accounting systems.

It wouldn't be worth a couple of billion dollars if they didn't already have modern accounting systems, modern IT systems, good business strategy, good operating, uh, the strategies or the policies. So there's not much left to do to make money with them beyond some sort of financial engineering.

SECTION B - POWER

JAY TOMLINSON - HOST, BEST OF THE LEFT: Now entering Section B: Power.

The Sporting Class: Why NFL Owners Want Private Equity Cash - Pablo Torre Finds Out - Air Date 8-29-24

PABLO TORRE - HOST, PTFO: The NFL, [01:29:00] this week, took a vote. A vote on a subject that we've covered on this show previously, more generally, but specifically to them, it's about taking private equity investment.

And so, the proposal was 10%, up to 10%, which is not as much as the other leagues, which we're talking about 30%, uh, but David, to you, Private equity money in the NFL, landing in this way, the top line understanding that you have is what? 

DAVID SAMSON: Well, private equity money is very important as a source of capital. And what that means is when you are putting together money to buy something, you, uh, Have to find owners.

You have to find individuals to put in money, to buy a team. Sometimes you run out of individuals. You have to go to the capital markets, which means you go to a bank to borrow money, or you find a syndicate of banks to borrow money. Or if that doesn't work because you're tapped out, then there are these firms that are willing to invest in your company, except they require a heightened [01:30:00] rate of return.

So when you borrow money from a bank, You pay an interest rate. When you get money from a private equity firm, it comes in the form of an equity investment, but it's like a preferred equity investment which means that upon a monetization, upon a sale, they get back their money and a rate of return on their money before anyone else gets a rate of return on their money.

That's how private equity firms make money. And it is an amazing thing to be in a private equity firm because you invest in different companies. And you make a lot of money. And 

JOHN SKIPPER: With an amazing, favorable taxation rate. 

DAVID SAMSON: That is also true. I can't deny that. 

PABLO TORRE - HOST, PTFO: Which is a feature of American capitalism. 

DAVID SAMSON: Which is, which is, well, it's all, it's all in the code.

It's not illegal. Oh, sure. I didn't suggest it was illegal. It may not be moral. 

JOHN SKIPPER: I wouldn't even suggest it's immoral. I would suggest it's unfair. 

DAVID SAMSON: It is unfair, it's unfair in the way it is unfair. 

PABLO TORRE - HOST, PTFO: A bug, arguably, morally, but a feature financially. It is a [01:31:00] tiny bug. 

DAVID SAMSON: But what the NFL is doing by having this vote, they're the last league, and I think we should point that out.

MLB, the reason why MLB allows private equity investment to end the NBA And the NHL. Is they want their Value of the teams to keep going up. So if you're buying the commanders for six billion dollars, Josh Harris had to come up with six billion dollars between the people he knows and the banks he does business with.

It's hard to do that. 

PABLO TORRE - HOST, PTFO: But, but John, just to make this even more plain English here, what these teams and these leagues are realizing is, there aren't enough players. Super, super, super rich people to keep pace with the idea of a single owner of a super, super, super rich asset. 

JOHN SKIPPER: Well, and you've also got the realization by owners that most of the benefits of owning a team don't require you to own more than 50.

1%, right? You get to sit in whatever seats you want. You get to pick the personnel who run your team and do things if you choose to. Uh, [01:32:00] And so why should they put 6 billion in when they could put 3. 1 billion in, get all the benefits of ownership other than the, they're giving away half the upward valuation.

And as David pointed out, the private equity guys will actually get a favorable return. But that's not why most people own teams. They own teams because they're the greatest trophies you can have to display your importance and your wealth. 

DAVID SAMSON: But that's changing now, John. And these PE firms are not doing it because of the trophy.

They're not. Well, I know. And that is where some rub may end up coming in. Big time. So what's, what's changing? Why is this happening? So the PE firms, if they're going to invest, what they do is they've got a, uh, picture you having, uh, A hundred million dollars, just for fun, Pablo. And you're deciding how to diversify Let's take a break while Pablo and I consider that.

PABLO TORRE - HOST, PTFO: Yeah, yeah, I'm gonna recline here for a second. 

DAVID SAMSON: Oh, thank you. That was really great for the audience. For YouTube on the DraftKings 

PABLO TORRE - HOST, PTFO: Network, I was chewing on a pen [01:33:00] like a guy with nine figures. 

DAVID SAMSON: So

Come on, buddy, you can do it. I was gonna use a different amount. I was gonna use like a billion dollars, but I decided to bring it down to a number that I thought that you would be okay with. Oh, 

PABLO TORRE - HOST, PTFO: I'm sorry, David is unimpressed. I'm impressed by the hypothetical. 

DAVID SAMSON: Right, the hypothetical doesn't even make sense.

This is why, this is Rich Guys Only fans. It's not, it's math. But we're good. Back to a hundred million. You've got a hundred million to invest. You want to find different sectors. You want to diversify your investments. What these firms have said is, you know, sports teams keep going up in value. We keep buying corner grocery stores and widget stores.

I think we ought to be investing in sports teams because they do well. We don't need good seats. We don't need to stand on the stage when we win a Super Bowl. But man, it seems like when you buy a team and sell a team, that's one hell of a return on investment. 

PABLO TORRE - HOST, PTFO: So this is quite different from previous minority owners, right?

Big time. So previously, what is it like to be a minority owner 

DAVID SAMSON: of a team? [01:34:00] Previously, because the numbers were lower, it's called a CPI. That is a Cocktail Party Investor. That is someone who puts in a little shtuple of money into the team. 

JOHN SKIPPER: This is an industry term, the CPI. This is, this is. I thought that was Consumer 

Price Index.

DAVID SAMSON: I always say that it's the Cocktail Party Investor because they get to go to cocktail parties and say, Hey, I own. The Marlins. Oh, I've never heard of you. Yeah, no, I'm one of the owners of the Marlins. And they put in 250, 000 bucks, and they get to tell everybody that they're an owner. The numbers have changed significantly.

To be a CPI, it's not an ordinary CP that we would be invited to. It is now for the super, super wealthy individuals. And we're pretty much out of those parties, which is why you start with PE. 

PABLO TORRE - HOST, PTFO: So, John was explaining the upside of being an owner Uh, an owner in any form of these teams as, as essentially, yes, the CPI dynamic, the court side.

I get to be, uh, the owner of this precious piece of art, a [01:35:00] single, a symbol and a signal of exclusivity. Um, the NFL, of course. Is the apex predator of all of these leagues, right? And so here are the numbers over the past 20 years, the NFL's total value has risen from 23. 46 billion to 190 billion, 710%. The S& P 500 by contrast has risen about 660 percent during the same time span.

JOHN SKIPPER: Which does kind of prove the fact that all for almost any ordinary human being, the best way to invest your money is to put it in the S& P 500. 

DAVID SAMSON: If people are out there asking what do I do with my thousand dollars or ten thousand dollars or a hundred thousand dollars Put it in an index fund and then forget about it like revisit in 50 years But it's funny that that is the difference but in any case the NFL as the apex predator what's interesting is is what they're talking about in the NFL, however, is totally different than what the other leagues do.

The other [01:36:00] leagues took votes with owners, and they approved private equity investments in order to keep valuations rising. But for the NFL, it wasn't good enough. 

PABLO TORRE - HOST, PTFO: Right. So the NFL doesn't have the same problems of other leagues because the Cowboys, the Dallas Cowboys, uh, their valuation in 2019, John, was 5.

5 billion. Now, as of August 2024, from Sportico, 10. 32 billion. Uh, you go down the list, the Rams 7. 79, Giants 7. 65, Patriots 7. 31, you can go It's These are all, all, uh, so much richer, so much more expensive, valuable than their equivalents in other sports. And so the NFL, what do they want here? What's, what's the, what's the, what's the reason why they're approving to do this vote?

DAVID SAMSON: They want those numbers to be real for starters, and I'm not yucking on Sportacus Yum or on Forbes, but those valuations were never really looked at within baseball. We never could go to a bank for that. And bring out the Forbes article [01:37:00] and say, Hey, lend us money, our team is worth blank. We never were able to use that.

How did you get the 1. 2 billion, David Sampson, that you got for the Florida Marlins? Having nothing to do with Forbes, clearly, the way we got it is when supply demand. It's when you have two people who want the same trophy, they're going to bid up the price of that trophy. It's really that simple. And I love the fact that I get credit for that transaction, but I feel as though that my Beagle could have done that.

Well, it's, it is not my fault. You can't blame a seller when a buyer overpays for an asset. I don't believe. 

JOHN SKIPPER: Yeah, and you could question even the overpaid, if they are happy to pay 1. 2, and they get to sit in the seats they want, and it makes them happy, they didn't overpay. 

DAVID SAMSON: They're despondent beyond repair, and they're losing money hand over fist, and they'd sell it for 1.

2 in a heartbeat if you want to buy a team. You can buy the Marlins today. All you have to do is give them their money back, plus the losses they've incurred. But getting back to a broader subject, the NFL wasn't satisfied with just being like the [01:38:00] other leagues. And that's what fascinates me.

Project 2025 is All Trick, No Treat (with Peggy Bailey) - Pitchfork Economics with Nick Hanauer - Air Date 10-29-24

GOLDY - HOST, PITCHFORK ECONOMICS: Recently, you took a bullet for the rest of us in that you’re not just looking at the type of policy that you want to do, but you actually went through the Republican proposals, including the Heritage Foundation’s infamous Project 2025. If you could just, I don’t know, broadly describe what the Republican agenda would be if they had complete control.

PEGGY BAILEY: Sure. So right, in addition to making sure we’re four things, we need to make sure to point out the things that people really need to fight against, especially those of us who are interested in helping people with the lowest incomes be able to live lives that are not just stable, but to be able to thrive. And so the overriding thing to understand is exactly where you were headed, that Project 2025 [01:39:00] is part of a suite of Republican proposals that all have the same themes, have the same policies, and are moving in a direction that really benefits the wealthy and wealthy corporations and shifts a lot of the burden to low and middle income families.

Big picture, there are a few ways that we’ve kind of organized the elements of Project 2025. The first thing to know is that these proposals would cut benefits, benefits that people have right now and benefits that they rely on, whether it’s cutting access to health insurance, cutting access to food, housing, blocking people who are immigrants from being able to come to this country and live the American dream. There are ways that the proposals would seriously undermine people’s ability to keep benefits that [01:40:00] they already have.

The second thing that these proposals would do is shift costs from the federal government to state’s governments. We know that when the federal government doesn’t live up to its responsibilities, it’s states and localities that then bear the burden. One example of this is in the homelessness space, where the federal government doesn’t provide universal rental assistance and therefore many people are living on the streets because they can’t afford a place to live. It’s states and localities that are trying to address that problem when the federal government really does need to step up to put its resources behind that problem.

The third thing that it would do is shift the tax burden from wealthy corporations and wealthy people to middle and low income people by continuing and making deeper the tax cuts to [01:41:00] the wealthy that were included in the 2017 tax bill while not providing any positive tax relief to low and middle income families.

The fourth thing that the proposals would uniformly do is simply undermine the federal government in totality, getting rid of agency’s wholesale, hurting our ability to provide safe food, safe water, healthcare, protect fair housing rights, things like that would be undermined with the lack of investment. One thing that’s overarching everything that you can’t shy away from is the racism and discrimination that is inherent in all of these proposals. They may look colorblind, but their impact is most definitely not and would disproportionately impact people of color.

PAUL - HOST, PITFORK ECONOMICS: One of the rebuttals I’ve heard to conversations about Project 2025 is that every presidential candidate makes promises and they [01:42:00] don’t follow through on them. Do we have confidence that these are policies that Trump would pass in a hypothetical second term, or if Trump wins the presidency and there’s a Democratic House, would that offer a check to the proposals?

PEGGY BAILEY: Well, that’s why it’s important to understand that Project 2025 is just one data point in the overall extreme Republican agenda. In our report, we highlight the Republican Study Committee’s budget proposals, we highlight the House Budget Committee’s recent resolution. Those three things put together along with evidence of recent legislative activity, show that this isn’t about the current presidential election so much as part of a steady strategy that extreme Republicans have. If you think about the Dobbs decision and the reversal of Roe, that was a 50-year march to get to the [01:43:00] place we are today. We should think about these proposals that would punish people with low and middle incomes and benefit the wealthy and wealthy corporations as part of that same sort of consistent steady march that we need to work against.

GOLDY - HOST, PITCHFORK ECONOMICS: And to be clear, this isn’t about fiscal responsibility. It’s not like, “Oh, we’ve got to make the tough choices in order to balance the budget and get our books in order.” It creates massive deficits at the same time that it defunds the federal government, disinvests in the American people and just makes cuts, and we’ll go into some of the details, cuts to programs that people just take for granted, but it’s just huge deficits come out of this due to the tax cuts for wealthy and corporation side of this.

PEGGY BAILEY: Exactly. Another piece that [01:44:00] has to be considered is the lack of raising revenue in any of these strategies. The three proposals that I highlighted would repeal parts of the Inflation Reduction Act that call for increased spending in the IRS as an example. So it’s not only cutting taxes for the wealthy and wealthy corporations, but cutting the federal government’s ability to enforce the tax rules that are on the books. And that’s just one way that these agendas don’t think about the need to raise revenue because it’s just unfathomable to think that in the wealthiest country in the world, we can’t take care of people with low incomes.

We know that it isn’t their fault necessarily that they have low incomes. They’re working, they’re not getting paid [01:45:00] wages that allow them to afford to meet their basic needs or they face inabilities to be able to work and federal benefits like Social Security don’t pay high enough for them to afford their basic needs. Therefore, it is the government’s role to fill in that gap until we do create the structures to have living wages in either through work or through public benefits. And so that mindset of the pie is only so big so we can’t afford to do this. Just really when you think about the wealth in this country and the disproportionate way that economic justice shows up, we can make the changes if we want to.

Matt Stoller: Monopoly, Medical Care & More - The Zero Hour with RJ Eskow - Air Date 10-21-21

MATT STOLLER: So, you know, the Reagan quote, you know, the nine most dangerous words in the English language. Um, today, if he were saying that he said the nine most dangerous words in the English language, or I'm from Comcast and [01:46:00] I'm here to help. I got a whole conference of libertarians to laugh at that. So, They know what's going on. Like, they might think, Oh, yeah, yeah. But like, in their bones, you know, if you if you laugh at that joke, it means you know, that the corporate bureaucracies are just massively problematic.

And I don't want to like let it's not that the government bureaucracy isn't a problem, because it is it in fact, they are linked, because what you have with it. You know, the, the, a lot of the bureaucracies in DC is that they are, they have this kind of symbiosis with big, big corporate, uh, big corporate actors.

And when you, you know, it's like, it's pretty easy to regulate small banks, right? Cause small bankers are, they're focused on just their communities. And when a regulator comes the, they hand over what they need, they fix things, whatever. But when you go to regulate a big bank, You don't even get to really deal with the bankers is what I'm told by regulators, like you get, you have to deal with a special group, which [01:47:00] is, you know, we'll give you maybe PowerPoints on what they're thinking of doing and they will fight you and they will go to, you know, up a political level.

And so you never really get to see have any visibility into what the bank is doing. And it's just easier not to fight that. And that's a function of scale. And you see that across the economy. It's safe. I guarantee you that, like, you know, Pfizer gets a better hearing at the FDA than some, like, random company that's, you know, making something that might be competitive, like, it's true kind of across the board.

You have this, like, you know, it's a club, um, at, at every one of these agencies. And the reason that it's got so bad is, you know, is because We have these concentrations of private power. If you broke up these companies, if you had, then you wouldn't like, they wouldn't have to, they wouldn't spend their time thinking about how to capture politics.

They would spend their time trying to beat their competition and providing better products. Like that's what, that's why like, fundamentally, the reason you don't want concentrations of private economic power [01:48:00] is because that becomes That's just power. That's not it's not private economic power. That's just an accumulation of power.

It becomes political power and it fundamentally becomes authoritarian power. And when you're dealing with CBS, right, and you're trying to deal with with them, um, effectively threatening your health, right, and putting stress on you, you're dealing with an authoritarian, government in that sphere, right?

That's what, that's authoritarianism. It's just in this very narrow sphere. So yeah, you have democracy, you can go to the voting booth, you can do all these things, you have free speech, right? We can complain about this, but in that particular area, in terms of the access to medicine that you need, you are dealing with a dictator and that like with very limited rights.

And that's a very, very significant political problem as more parts of our society. Get consolidated under the hands of these mini dictators. We start to look around and we start saying, wait, are we actually a free living in a free society? And we sort of we mostly are right. We're [01:49:00] not. We're not in a dictatorship.

I don't want to overstate it. 

RJ ESKOW - HOST, THE ZERO HOUR: Right. 

Speaker 17: But, you know, corporatism is not a totally free society, and the more corporatist you get, the more you kind of bleed over, um, into what we're seeing. 

RJ ESKOW - HOST, THE ZERO HOUR: And it's certainly not democratic in the sense that, I mean, take my medication, for example. If it had been a policy decision of, uh, you know, the Centers for the CMS or whomever that, uh, uh, that this should not be a covert drug, I could, you know, write my congress representative, I could write, uh, the White House and say, look, you know, this is a autocratic unfair decision and, you know, maybe they won't listen, but if a hundred thousand of us did, maybe they would, et cetera, et cetera.

The government had nothing to do with this issue. 

Speaker 17: There would be public debates about it, too. There would 

RJ ESKOW - HOST, THE ZERO HOUR: be public 

Speaker 17: debates? It's like, like, Congress, like, argues a lot about Obamacare, right? But when CVS [01:50:00] bought, or Aetna, CVS bought Silverscripts, right? That was just a, the decision, the debate happened in two boardrooms.

And the public had no access to it at all. 

RJ ESKOW - HOST, THE ZERO HOUR: And the decision not to cover this drug, which effectively means to deprive people of it, was made in boardrooms. It was not, you know, and there's no recourse, you can't, you know, write your congressman about it because the government has outsourced this very important policy decision to a corporation.

Speaker 17: Right into a monopoly, right? Because you had a lot of insurance companies and a lot of, you know, and, and they, if there were alternatives, it would be different, but they know that, that, um, that there aren't, right? And all of it's based in, you know, and I mean, that's where the network of commercial bribery and kickbacks comes in because that helps, you know, The reason they're, they're using, um, these kinds of, of tactics, um, is to exclude [01:51:00] competitors, right?

That that's the other thing is, is that, you know, that's why like Aetna says pony up if you want to be on our formulary. Right, 

RJ ESKOW - HOST, THE ZERO HOUR: right. And you know, there's a last thing on the health care maybe is, uh, of course, they, they keep the system afloat with the mythology of being a smart health care consumer, right?

This is the mythology as if, as if, you know, one individual up against a monopolistic https: otter. ai Uh, situation is going to have any difference. Well, you know, first of all, you can't know what conditions you're going to develop in the next year. So you don't know your needs, but secondly, you know, in fairness to me, I was a smart shopper on this one.

I looked, I checked, they covered it, but you can't be a smart shopper if they get to change the product halfway through, which is also to me, a characteristic of monopolies, isn't it? 

Speaker 17: Yeah. Um, Yeah, I mean it that it's a it's a version of [01:52:00] dominance and you know, it kind of loose. It's a loose, loose type of fraud.

And You know, look, fraud happens in every business, uh, and every line of business. It doesn't, it's not unique to monopolies, but the difference is that when you, when somebody cheats you and they're a monopoly, you have to go back to them. Right. So it's like, it humiliates you and she eats you, but you don't have a choice, but to go back and fight with them for, 

RJ ESKOW - HOST, THE ZERO HOUR: you know, if 

Speaker 17: I get, if I buy something, you know, and it's not a good product and I can, I can, you know, find a different.

Version of that from a different manufacturer. I will, but that's, that's not a, um, an option here. So, yeah. 

RJ ESKOW - HOST, THE ZERO HOUR: Right, it's like, you know, if I buy a shampoo and it's terrible, I can say, your shampoo sucks, I'm gonna buy a different one, but, you know, maybe not the best example in my case, but, you know, no, it's, you gotta use this shampoo forever.

[01:53:00] So, that, that to me. Is the essence of all of this, and I guess we may never get to the Cantillon effect, Matt Stoller, but I 

Speaker 17: can do a really short version of that. 

RJ ESKOW - HOST, THE ZERO HOUR: Do a short version, and then maybe I'll have a last, ask you for a last thought on conservatism, but okay, go ahead. 

Speaker 17: All 

RJ ESKOW - HOST, THE ZERO HOUR: right, so 

Speaker 17: the Cantillon effect is based on a 17th century or 18th century French economist, sort of one of the first economists.

Um, and he, what he said, his name is Cantillon. And what he said is that when, you know, when you have a gold mine, right, if then the people near the gold mine get money first, and then people far away from the gold mine get access to that money because money was gold. Later on. And that has a distortionary effect on inequality and on inflation.

Um, to bring it forward to today that we don't have, we don't use gold, but the, the fed is Prince money. And so whenever we have a bailout and I wrote the piece on the country on fact, during the [01:54:00] March, 2020 bailouts, although we'd saw bailouts much earlier than that as well, 2008, nine, the closer you are to wall street and the fed, the faster that money reaches you.

So this was a way of explaining. Why, uh, you know, private equity, why the big banks got money very quickly, why rich people got money very quickly, because they are very close to Wall Street. They have accounts with The people that deal directly with the Fed, um, and why small businesses who have to work through a rickety system of small banks that have a very poorly staffed agency, the Small Business Administration, why it took them much longer to get access to that safety net.

And then why individuals also had problems as well, because our main connection to the government is through the IRS. And that is also underfunded and rickety. So it's about, you know, it's about the institutions of money creation. And we have traditionally assumed that money is what's. called neutral, which is that if you put some money into the economy, it hits everyone equally at once.

In fact, that's not true. The money is, [01:55:00] is not a neutral commodity. If you want it to be neutral, it flows along the institutional frameworks of our society. Right now, the institutional links between the fed and the, the, the wealthy and dominant firms are much stronger than the institutional. Additional links to everyone else.

Um, so money is is not neutral. It didn't used to be this way from the thirties to the seventies. We actually had a pretty neutral set of systems. You had a whole bunch of different financial institutions that did connect people to the Fed into our centers of monetary power. So money was more neutral, but we sort of have systematically taken Apart.

So that's the continual effect why Wall Street gets a bailout and why you don't.

How Private Equity Ate Britain - Bloomberg Originals - Air Date 6-7-24

MADIS KABASH - HOST, BLOOMBERG ORIGINALS: To understand what's been going on here, we're going to look at Morrisons.

For much of its existence, it was family owned. And until recently, it was one of the big four supermarket chains. 

Speaker 61: Well look and you'll know, our prices are low, whenever you shop at Morrison's. 

MADIS KABASH - HOST, BLOOMBERG ORIGINALS: Look at this chart. It shows how Morrison's valuation compares to US retailers as a multiple of their earnings.

That's just a way of comparing companies on a [01:56:00] like to like basis, even if the firms aren't the same size. And in the years immediately after Brexit, the valuations were pretty comparable, until the pandemic came along. Then look what happened. The US retailers recovered with the post pandemic spending bump, Morrison's did not.

ABHINAV RAMNARAYAN: Morrison's valuation was cheaper compared to U. S. payers, making it quite attractive for an external buyer. 

ELEANOR DUNCAN: So in 2021, we're just coming out of COVID lockdown, and there is a bidding war for Morrison's between private equity firms. 

MADIS KABASH - HOST, BLOOMBERG ORIGINALS: The American firm Clayton DuBillier Rice emerged victorious, paying about 7bn in October 2021.

Just a few months earlier, Morrisons had been valued at four and a half billion pounds. But even that inflated price seemed worthwhile because low interest rates meant it was easy to borrow a lot of money. And Morrison's wasn't alone. Private equity piled into Britain in a big way in the years after Brexit.

ELEANOR DUNCAN: Post Brexit, there was a lot of uncertainty, um, in the UK economy. Um, I [01:57:00] think that was compounded by the effects of COVID. 

ABHINAV RAMNARAYAN: And suddenly these American private equity companies were looking at British assets that were valued far less than they were just a few months ago. Between 2016 and 2023, private equity companies spent nearly 200 billion buying British companies.

That compares to about 81 billion in Germany and 36 billion in France. Essentially, you walk down any UK high street and the chances are you're going to be looking at private equity owned firms on either side. 

ELEANOR DUNCAN: The Body Shop, Pizza Express, Wagamamas. 

MADIS KABASH - HOST, BLOOMBERG ORIGINALS: In fact, there are scores of high street brands that are now controlled by private equity and similar investors.

And that was because British companies in general became a lot cheaper. You can see that in this chart. Publicly traded American companies simply became a lot more valuable than British ones after Brexit. A British firm that makes a dollar of [01:58:00] profit is, on average, given 11 of value. American firms get 20.

So remember that little shop we talked about earlier and how its purchase was financed with a lot of debt? 

ELEANOR DUNCAN: In the case of Morrison's, it was something like 6. 6 billion. 

MADIS KABASH - HOST, BLOOMBERG ORIGINALS: Here's the important bit. When CDNR bought Morrison's, interest rates were low. But since then, they have increased. 

ELEANOR DUNCAN: Around half of Morrison's debt, that's around 3 billion, is affected by interest rates going up.

So that debt is now much more expensive. 

MADIS KABASH - HOST, BLOOMBERG ORIGINALS: The reason that's a problem is that Morrisons competes with other supermarkets on price. And now it has to pay hundreds of millions of pounds more each year in interest payments. 

ABHINAV RAMNARAYAN: They were just about making enough money to pay their debt, which meant that when Aldi and Lidl came in during a cost of living crisis and cut prices, Morrisons simply couldn't keep up with them.

MADIS KABASH - HOST, BLOOMBERG ORIGINALS: That's helped Aldi overtake Morrisons as the UK's fourth biggest supermarket. To deal with the [01:59:00] suffocating debt load, Morrison's has sold assets, including a 2. 5 billion deal for its petrol stations in January. It's hoping that will let it offer lower prices to shoppers. These problems are besetting a lot of the businesses that private equity has bought.

ABHINAV RAMNARAYAN: All of this really matters because private equity backed companies employ 1. 9 million people in the UK. And their suppliers employ another 1. 3 million people. 

ELEANOR DUNCAN: So when these deals go wrong, it can have real world impacts. So it can mean higher costs of goods for consumers. And we can also see jobs lost.

This is something that a number of politicians are already quite concerned about. 

CHARLOTTE NICHOLS: How could you ensure the increase? Cost of borrowing won't be passed on to consumers. 

MOHSIN ISSA: We are not about sweating assets at all. Our customer experience, CSI, is improving as we speak today. And we are absolutely focused in delivering value for our customers.

ELEANOR DUNCAN: We've seen the owners of Asda, which are the billionaire Issa brothers. And [02:00:00] TDR being hauled in front of a parliamentary committee recently, where they were questioned about, you know, kind of so called price gouging. 

ABHINAV RAMNARAYAN: The Bank of England has been worried about increased private equity ownership of British companies.

They're worried about increased debt levels. And they're worried about the impact it will have on the British economy. 

MADIS KABASH - HOST, BLOOMBERG ORIGINALS: But with a general election on the horizon, the solution may not be as simple as imposing higher taxes on private equity deals. 

ABHINAV RAMNARAYAN: It's difficult for politicians to really crack down on private equity companies because after Brexit, Britain has been searching for external investment and options are thinning on the ground a little bit.

ELEANOR DUNCAN: Proponents of private equity firms say that The money that they bring into the UK economy is super important because there's just not that much foreign investment coming into the country right now. And I think that's the line that the Labour Party, if they do come into power, is going to have to tread very carefully.

SECTION C - SOLUTIONS

JAY TOMLINSON - HOST, BEST OF THE LEFT: And finally Section C: [02:01:00] Solutions.

Sociology Ruins Private Equity Part 2 - Sociology Ruins Everything - Air Date 11-1-21

MATT SEDLAR - HOST, SOCIOLOGY RUINS EVERYTHING: You're working on a project right now, the Private Equity Employment and Earning Inequality Project.

What is your research question? 

DYLAN NELSON: The research question is, How do private equity leveraged buyouts affect workers in different positions within the firm? 

MATT SEDLAR - HOST, SOCIOLOGY RUINS EVERYTHING: Obviously you can't speak about your results yet, but are you testing a particular hypothesis? 

DYLAN NELSON: Yes, I'm looking at four hypotheses right now, and This is comparing education on the one hand and the leverage in the buyout deal on the other and then interacting those two factors.

So education is giving you workers as a proxy in different positions within the firm and the cost of debt. In the general economy is giving you the proxy for the leverage in the deal and what I'm hypothesizing as I bring these together is that private equity buyouts of public firms [02:02:00] mostly are negatively affecting non college educated workers while actually benefiting.

College educated workers, but that this difference disappears somewhat when you look at these very high leverage deals, which mostly happened in the lead up to the great recession and to the 2000 recession. And what you see there is the effect on the higher educated workers actually moves negative and the effect on the lower educated workers moves even more negative.

MATT SEDLAR - HOST, SOCIOLOGY RUINS EVERYTHING: Sorry. So I'm trying to understand. It's this idea that as the debt ratio changes, there's a different effect among workers and education. 

DYLAN NELSON: Yeah, so the theory gets back to this idea of the conception of the firm and the conception of the restructuring process. When we have normal private equity buyouts, when the cost of high yield debt is very high, These are more focused on operational engineering and operational engineering brings skill bias, technological change, outsourcing, other factors that [02:03:00] increase earnings inequality based on education.

One of the things I'm showing in the paper is that when the cost of debt falls low and the leverage increases in the deals, the conception of the restructuring is more focused on financial engineering, and this ends up. Leading to a greater likelihood of bankruptcy and it leads to more job cutting and other Intermediate factors that reduce worker earnings after the buyout.

MATT SEDLAR - HOST, SOCIOLOGY RUINS EVERYTHING: So what is your methodology? I know that private equity data sets can be hard to obtain. So what are you using? 

DYLAN NELSON: This is a big question and it's one of the reasons that we haven't made a ton of progress on private equity. We know it's this important macro organizational phenomenon, and I know you've talked with Eileen about the amazing effects that private equity is happening, yet we often are not able to observe companies prior to and post being bought [02:04:00] out by private equity companies, and especially the workers under those different conditions.

So I'm using quantitative methods. To study these earnings effects of private equity buyouts. I'm using census data, which are collected by states and aggregated in the census department. And this allows you to do a couple of really interesting things. One, you can follow companies through restructuring and you can follow workers over time, because it's all linked through the social security number to you can see companies.

even when they're not public. A lot of the quantitative research in economic sociology uses the Compustat data, which is SEC filings for public firms. And three, you can look at workers actually moving between firms over time. You can use that for identification and also to ask research questions, including on the classic labor mobility questions of the 70s [02:05:00] and 80s, for which we didn't have actually a lot of evidence.

MATT SEDLAR - HOST, SOCIOLOGY RUINS EVERYTHING: For sociologists starting work in this area, what is a good jumping off point in terms of literature? Like, where do you start? 

DYLAN NELSON: I would start first with the Private Equity at Work book by Eileen and Rose. It explains basically the way that private equity works, it gives interesting case studies, and it reviews some of the literature on employment.

In terms of the broader private equity literature, it's mostly in finance. And I would recommend sociologists interested in these topics to look into those papers, because ultimately finance is a very sociological, uh, domain of the economy in terms of the institutions, uh, the relationship with government.

The flows of workers and change in the financial sector over the last 30 years. So some of those would be the Steven Davis project, [02:06:00] which has a number of papers over the years using census data to look at employment effects. And there are some other kind of newer research using administrative data from different companies.

Lily Fang at INSEAD. Olsen and Tagg are economists. They have some work on, uh, Nordic countries. In terms of sociology, Neely and Carmichael have a short article in the American Behavioral Scientist about Shadow banking, which they include private equity under that and the Oxford handbook of sociology of finance, which is useful to get started.

Matt Stoller: Goliath - War Between Monopoly Power and Democracy | 054 - Just Another Mindset Podcast - Air Date 2-7-23

ISMAEL VON DER GATHEN - HOST, JUST ANOTHER MINDSET: Why are monopolies the biggest threat we have in our economic system?

MATT STOLLER: Yeah, so if you want to, you know, people look at, at inequality or, um, as kind of a, um, You know, on the left, people look at inequality and they say, Oh, my gosh, there's so much inequality. Look at so and so has worth 100 billion and there's a lot of people in poverty. Um, and you can see that between, you know, [02:07:00] rich countries in the global South, there's like lots of ways to understand that problem.

You can also look at, you know, corruption and say, Oh, there's all this corporate influence over how our governments work. And, um, and you can look at it the other way as well. The, you know, conservatives would say, Oh, there's this collusion with government. Right. controlling corporations. All of that are, is a description of the consequences of what's happened.

Not, it's like you're describing the symptoms of the disease, not the disease itself. The disease itself is the consolidation of private power in the hands of the few, right? So the reason that someone is worth a hundred billion dollars, say, is because they have a over a vital Trade or service, and then they can charge effectively a private tax.

They own a important, um, uh, toll booth over a vital part of the economy. So you could look at like someone like bill Gates, you know, Microsoft controlled [02:08:00] access to the personal computer through Microsoft windows. Um, Google controls. access to the internet, right? When you're searching, um, and, and so on and so forth, right?

You can look at any industry and, and, uh, and if there's a tremendous inequality, it's because there is one Entity that's controlling the terms and the pricing in labor conditions. And if you want to address that, the obvious way to, to, to deal. So if you, if you want to address it on the backend and say, we need to deal with inequality, you might say, Oh, tax and redistribute or, um, or various other mechanisms to do something along those lines.

But if you want to address the heart of the disease, what you will say is. Let's not just have one, let's have two, or three, or four. Let's break their power. And if you can't do that because it's something like an electric utility when you're not going to lay [02:09:00] Multiple wires, you know, two wires to a house doesn't make any sense.

Then you just either have public ownership or just pricing rules from the government that says you're not going to be able to exploit this monopoly infrastructure, but either way, the symptom, uh, the, the disease is a consolidation of power in the hands of a few. That is essentially unregulated by any democratic system.

So that's, that's where we are. And, um, uh, yeah, I mean, there's a lot that we can talk about, but that's the, the fundamental, um, social, like, and this problem also caused a lot of, um, like a lot of the social concerns that I think we have, uh, the, the, the feeling that people don't have control over their, um, Over their, their community, their political system, the, the, the really really deep inequities between urban areas and rural areas.

The, um, General sense that that [02:10:00] there's a lot of speech that is kind of like incendiary and sort of out of control. All of these things are a function of this consolidation of power. And if you just look at the symptoms, then you'll go for things like censorship, you know, or you'll go for things like subsidies to maybe to rural areas or instead of what's really happening, which is there's this.

Massive appropriation of property by monopolists. And all you really have to do is stop that. And then you'll have a much more healthier, egalitarian, what's not going to be a perfectly equal society, but it'll be a society where everybody has the same political rights and people can control their, you know, have some control over their own communities and politics will be able to function in terms of being able to craft a society as opposed to sort of the weird, out of sense that everyone has today.

ISMAEL VON DER GATHEN - HOST, JUST ANOTHER MINDSET: We talk about addressing the disease, and one [02:11:00] factor I really like about your book is that you talk about monopolies and the consolidation of power over the past 100 or so years. Another question that I want to ask you is who was Wright Pettman? And why should everybody know about him?

MATT STOLLER: Yeah, right. Pat, that's a good question. So, so the book is about, Goliath is about, um, you know, the fights over a hundred years. It's not a sad story. It's a story about, it is certainly a story about why things are so screwed up today. And I, the reason I wrote it is because I was working in Congress during the financial crisis and I wanted to understand why I'm a Democrat, why my party engineered a foreclosure crisis and facilitated massive wealth redistribution upward.

Cause that's not why most, what most Democrats think of themselves. And we didn't do that like when we had similar crises like we did in the 19 late 1920s that foster the Great Depression. We didn't do that in the US, we did the opposite. We broke the monopolist. That's what Franklin [02:12:00] Delano Roosevelt did in the New Deal.

It's a book that's focused on the U. S. It does have some implications globally, because the U. S. is sort of a very powerful country and structured a lot of what happened. But, um, uh, but I was sort of, like, trying to figure out why did the U. S. do that? Why did we do what we did under Obama? And it's not really about Obama at all, but I was just trying to figure that out.

That's why I wrote the book. And what I found is, is this, there's, there is a series of fights. And one of the main characters is this guy that we've, we don't really know about today. His name is Wright Patman, who was a congressman who was elected first in 1929, 1929. And he was in Congress until 1976. In 1975.

And in 1929, he was elected and he immediately started fighting The kind of then monopolists who were very powerful that the secretary of the treasury was a guy named Andrew Mellon, who, um, was basically a billionaire back then when a billion dollars was a lot of money, uh, obviously it's a lot of money today, but it's a massive amount of [02:13:00] money in, in the 1929 and, uh, owned, I think he was on the board of 99 banks.

He was also the treasury secretary of the United States. So this is like a very powerful guy. Um, or at least he had been on the board of 99 banks before he took that job. And he and Patman got into a fight over how to handle the Great Depression. And eventually Patman filed articles of impeachment.

Mellon resigned. And then over the next 45 years or so, Patman went after bankers and monopolists. Those were the two things that he, those were his two kind of main goals. And he was very successful. He also helped build the administrative state. And then, and he was from a rural area in Texas, which is today very Republican, but he was a very partisan Democrat, very kind of left wing guy, but a populist, not a socialist.

And, um, and that tradition of populism, which in Europe, I think is considered a bad word, but is in fact, Not bad at all. It's just like, [02:14:00] if you mean fascism, you should say fascism. The reason people in Europe and in the U. S. say that populism is a bad word is because they don't like democracy and they're afraid of democracy.

And so they've misconstrued populism to mean fascism, but it's not, it's just normal people saying we don't like how bankers are running things. And that's what Patman was. And he eventually became the chair of the banking committee. And then in 1975, Uh, so in the, in that, you know, the, that period of time, like from really from the 30s until the 1970s, there was kind of like this period where the middle class in the U.

S. expanded dramatically, and then after World War II, that was global phenomenon. Um, and that was because of these anti monopoly policies. And then a new generation of leaders, this is kind of the Bill Clinton generation. emerged and they had a different intellectual tradition. And in 1975, they actually overthrew Patman.

So they kicked him out of his banking committee chair. And these were Democrats. This was not a Democratic Republican thing. This was a [02:15:00] fight in the Democratic party. And it was an intellectual fight over how do you build a good society? And the Democrats who emerged in the 1970s and afterwards thought the way you build a good society is You trust technocrats and experts and billionaires, and that's what they did.

And so since really the mid 70s, we've seen the emergence of, um, the growth, uh, massive, uh, massive growth of, of large multinationals and the domination of every one of our industries by monopolists. And I think you've seen similar trend driven by the same ideas, in some cases, the same people all over the world.

Um, And so Pabman, Pabman was kind of written out of history, even though he was very important. He was written out of history because the idea that you'd have A populist who has modern views of the economy was very, a very impressive thinker and, you know, not, not at an authoritarian at all, but just very, you know, democratic and the [02:16:00] method of addressing inequality was to address, regulate wall street, break up wall street, and also break up large firms and constraint constrained chain stores.

That's a very threatening, uh, idea. Uh, Because it gives the public a way to actually do things that doesn't sound crazy, but sounds very normal, because it is, right? And that, and Patman, I think, some of the laws, he wrote a law that constrains chain stores in 1936, it was called the Robinson Patman Act, which says that you're not allowed to sell goods and services, actually just goods, to large stores at better prices than to smaller stores.

You're not allowed to price discriminate if you're, if that would facilitate consolidation or monopolization. And this protected local stores and it protected the local, local economies all over the, the, the US. And that law, they just stopped enforcing it in the 1970s. They say roughly the same time that they overthrew Patman because they thought, Oh, chain stores are [02:17:00] good.

Local stores are bad. And today. The, uh, we're reversing the choices that we've been making since the 1970s. So the sort of Patman idea, Patman's philosophy is coming back. So the current chair of the federal trade commission, her name is Lena Kahn. She's bringing back and trying to enforce what's called the Robinson Patman act, which was written by Wright patman. Um, and this is going to have significant changes in the economy in general, but that idea that we want to constrain large firms who are engaged in, you know, Anti competitive or, um, unfair conduct is a, you know, it's coming back, um, pretty aggressively in the United States and somewhat in Europe as well.

And that's, I think, a reversion to the ideas that Patman had. And those ideas go back to, you know, you could take, take it back to the 1600s if you want to.

Private Equity and Healthcare with Senator Elizabeth Warren plus ANNIE! with Laura Tretter - Oddly Specific with Meridith Lynch - Air Date 5-15-24

MERIDITH LYNCH - HOST, ODDLY SPECIFIC: What motivated you to take a stand against private equity?

SENATOR ELIZABETH WARREN: Well, think of it this way. Look, if somebody [02:18:00] wants to come in and invest in a business and grow that business, triple yoo hoo for them. I'm happy about that. That is not a problem. What I'm concerned about is the business model that much of private equity is used. where they pay what sounds like some fabulous amount of money, let's just say 100 million to buy this business or this chain of stores or whatever.

And then instead of that money going into the business to make the business stronger, to expand it, to clean it up, to freshen it, to do all those things. Instead, That money goes only to the investors who had owned the business and the new investors who are going to run it and suck value out of the business.

I, I think of it kind of like an old car. You've got a car, it's running, it's going on down the highway and what private equity does is it looks at it and says, Hmm, I think we could make money [02:19:00] off the tires and the engine. So they buy it, They pull out the engine and sell it to one group. They take off the tires, sell it to someone else.

And then they just leave what's left to rust by the side of the road. But they don't care, because they got their money back out of it. And the executives who originally owned that car got their money out of it. And you know who's left behind? Who's left behind are the employees, the retirees, the customers, the communities that counted on that business.

They're all gone. And this is just one more example of the The guys who understand financialization come in and they figured out how to make the rich richer and leave everybody else sucking air. And that's what I'm fighting here. 

MERIDITH LYNCH - HOST, ODDLY SPECIFIC: Senator Warren, what specific concerns do you have about private [02:20:00] equities involvement in healthcare, especially as exemplified by the situation with steward healthcare?

SENATOR ELIZABETH WARREN: Yeah, boy, that's the right question. Hospitals are super duper important. Important to patients, important to employees, important to communities. Think of it this way. When private equity comes in and hollows out and destroys Toys R Us, I admit, I'm still pretty bummed about that. When they do that to Sears, oh, no, really?

When they do it to Kmart, darn. But when they do it to a chain of nine hospitals in Massachusetts, where that's the closest hospital for people who have a heart attack, for, you know, a mama who's trying to get a kid who's gashed her head on the playground and needs to get in and get stitches. Shorter. All those things where people need access to their hospital [02:21:00] immediately, private equity, when they destroy these hospitals, that has the potential to go away.

And there's the special twist, because when private equity comes in and hollows out a hospital, They know that there's a good chance that the local folks will not let the hospital close, so it will end up costing taxpayers money because they will have to infuse the cash back into the hospital to keep the hospital up and running, and that's what makes it particularly dangerous when private equity starts diving into the healthcare space.

MERIDITH LYNCH - HOST, ODDLY SPECIFIC: Yes, and you know, I have read that the mortality outcomes of private equity backed hospitals are actually lower than publicly owned hospitals. 

SENATOR ELIZABETH WARREN: One of the things we know is, for example, uh, back during COVID, There were [02:22:00] nursing homes, some were private equity owned nursing homes, and some were privately owned, some were for profit, some were not for profit, but when you make that comparison, private equity, non private equity, the private equity owned nursing homes had a 40 percent higher mortality rate.

Just just absorb that for a minute. People literally die because of private equity. And why does that happen? Because private equity cuts staffing, because private equity cuts access to expensive medications, because private equity, as much as this one is going to shock you. I talked to some of the nurses.

Hospitals that have been taken over from private equity, and they talked about things like linens, whether or not there were enough clean linens to go around in the hospital, whether or not the hospital had continued paying [02:23:00] so that it had access to the To the database that tells you if a patient is taking drug A and drug B and you prescribe drug C, what is the likely interaction?

I mean, these are things. that directly affect the health and the health care of the people who come to these hospitals. And nobody hangs a giant sign out front that says, Private equity has taken over this hospital. So you better understand they may not have the equipment they need. They don't have the staffing they need.

And that's just fundamentally wrong. You know, this is a time you when we have to change the underlying laws and say that private equity cannot come in and just hollow out these businesses, suck up all the value for themselves, and leave behind a disaster for the employees, for the patients, for the customers, and for the [02:24:00] communities.

MERIDITH LYNCH - HOST, ODDLY SPECIFIC: Thank you for saying that. I tell people all the time when they say, Why are you, why do you care so much, Meredith? And I say, at the end of the day, It's truly a safety thing. If it isn't affecting you, it's going to affect your grandmother. It's going to affect your mother. So thank you for even bringing these conversations to light.

Cause they've been living in the dark. And so my next question for you is you have advocated for legislation that would claw back the compensation from the healthcare executives and wall street investors. How exactly would this work and what outcomes do you hope to achieve with that? 

SENATOR ELIZABETH WARREN: So you'll figure out much of the answer from the name of the bill in Wall Street looting.

It's what we've named this thing. And the idea is just to put in place some curbs on private equity. Doesn't say that nobody can ever make any investments in these businesses or in these hospitals, but it says specifically, for example. If you are one of the investors who comes into one of these [02:25:00] hospitals and sucks all this value out and then the hospital implodes, you have to give back the money.

And that money can be used to rebuild the hospital. And, and I want to be clear, and same thing for Toys R Us, if you come in and suck the money out and then the business implodes, then you didn't buy this business. To help it. You didn't buy this business to expand it. You didn't buy this business to keep it going.

You bought this business to take the value out, sell it for parts, and leave the rusted shell behind. And that is not a business practice. That we want to advance. So partly it's about the executives and their own incentives. And by the way, I hope everybody understands right now, now that you and I are talking about private equity, that private equity actually gets special tax breaks.

that are not available to anybody else. So you [02:26:00] start your own small business, good for you, but you pay your taxes straight up. You go in under private equity and suck out that value. Right now you get special tax breaks, you get taxed at a much lower tax rate, and that means in fact all the rest of us are subsidizing private equity, the very entity that is hollowing out our hospitals, for example, and leaving the rest of us to pay to try to keep those hospitals back up and going.

So from my point of view, the Stop Wall Street Looting Act is just some common sense restrictions that say you want to invest in a business, good for you. But we're not going to help you hollow them out. 

Credits

JAY TOMLINSON - HOST, BEST OF THE LEFT: That's going to be it for today. As always keep the comments coming in. I would love to hear your thoughts or questions about today's topic or anything else. You can leave a voicemail or send us a text at 202-999-3991, or simply email me to [02:27:00] [email protected]. 

The additional sections of the show included clips from The Market Exit, Good Work, The Majority Report, Sociology Ruins Everything, Pablo Torre Finds Out, Pitchfork Economics, The Zero Hour, Bloomberg Originals, Just Another Mindset Podcast, and Oddly Specific. Further details are in the show notes. 

Thanks everyone for listening. Thanks to Deon Clark and Erin Clayton for their research work for the show and participation in our bonus episodes. Thanks to our Transcriptionist Quartet—Ken, Brian, Ben, and Andrew—for their volunteer work helping put our transcripts together. Thanks to Amanda Hoffman for all of her work behind the scenes and her bonus show co-hosting. And thanks to all those who support the show by becoming a member or purchasing gift memberships. You can join them by signing up today at bestoftheleft.com/support, through our Patreon page, or from right inside the Apple podcast app. Membership is how you get instant access to our incredibly good and often funny weekly bonus episodes, in addition to there being no [02:28:00] ads and chapter markers in all of our regular episodes, all through your regular podcast player. You'll find that link in the show notes, along with a link to join our Discord community, where you can also continue the discussion. 

So, coming to you from far outside the conventional wisdom of Washington DC, my name is Jay, and this has been the Best of the Left podcast coming to you twice weekly, thanks entirely to the members and donors to the show, from bestoftheleft.com.