At Last, Legislation to Stop Private Equity Abuses

[bluewater]

The bill to break the back of the worst thieves on Wall Street is sponsored by—no surprise—Elizabeth Warren.

Elizabeth Warren was the logical lead sponsor of this bill, not only because of her fearlessness, but because of her deep knowledge of the intricacies of American capitalism.
The private equity industry represents the great, hidden-in-plain view predator of American capitalism. As the Prospect has detailed in numerous articles examining markets like newspapers, grocery stores, and retail, these firms are secret entities whose basic business strategy is to borrow money to buy healthy companies and then loot the assets.
They accomplish this feat first by putting the acquisition debt on the balance sheet of the target company. Next they pay themselves exorbitant dividends and management fees, further stressing the companies they purchase.
This forces target companies to slash costs by cutting wages, benefits, laying off workers, and selling off real estate. And when the company goes broke, they abuse the bankruptcy process. Whether the company fails or manages to survive, the private equity managers have often made back their money many times over. Sometimes, as in the case of the great abuser of iconic Sears Roebuck, Eddie Lampert, the private equity predator keeps control after the bankruptcy process is used to shed debts.

Much of the agony of American retail or newspaper chains comes not from Internet competition or bad management, but of manipulations by private equity owners. Workers have been abused by many facets of today’s American capitalism. But if you see a company with particularly brutal layoffs, pay cuts, and scams to loot pension funds, the owner is often a private equity firm.
Private equity went under the more accurate name of the leveraged buyout industry; when that moniker became too controversial after the junk-bond scandals of the 1980s, the industry didn’t reform but merely re-branded. It likes to mislead the public to believe that it is similar to the venture capital business, in which investors actually contribute new capital. But private equity exists to extract capital.

In short, there is no constructive reason for this industry to exist. Loopholes in the securities laws, as well as lax provisions of tax and bankruptcy law, make possible its perverse business model. It is astonishing that it is even legal. Yet in an era bracketed by the financial collapse of 2008 and the 2010 Dodd-Frank reforms, there has never even been legislation aimed at reining in the industry’s abuses.

Until now.

Today, Senator Elizabeth Warren introduces the perfectly named Stop Wall Street Looting Act of 2019. Warren declared: “Let’s call this what it is: legalized looting -- looting that makes a handful of Wall Street managers very rich while costing thousands of people their jobs, putting valuable companies out of business, and hurting communities across the country.”
The lead cosponsors of the bill are Senators Sherrod Brown and Tammy Baldwin in the Senate, and Progressive Caucus co-chairs Mark Pocan and Pramila Jayapal in the House, with seven other legislators joining.
The Act methodically goes after every predatory aspect of the private equity model. Basically, Warren reverse-engineered the private equity industry, and blocked each of its techniques, one by one. The Act’s several provisions provide a useful guide to the industry’s serious abuses.

https://prospect.org/article/last-legislation-stop-private-equity-abuses

[hedda_foil]

1. Kick

[Eric J in MN]

2. Until they release the text

...we don’t have legislation.