Key Takeaways
- Private equity's financialization model prioritizes returns over business success across diverse sectors.
- The industry evolved from 'bootstrap deals' to complex financial engineering, amplified by cheap money.
- Private equity operates with low public transparency, diverting public anger to more visible entities like health insurers.
- Resistance to private equity includes employee activism, nonprofit initiatives, legal battles, and regulatory proposals.
Deep Dive
- Nilay Patel introduces Megan Greenwell's book, 'Bad Company: Private Equity and the Death of the American Dream,' highlighting its widespread impact.
- Private equity's hidden yet pervasive influence affects industries such as healthcare, media, and real estate.
- Greenwell's book explores the specific effects on media, retail, housing, and healthcare sectors, affecting everyday Americans.
- Guest Megan Greenwell's interest in private equity began when Deadspin, where she was editor-in-chief, was acquired by Great Hill Partners.
- The private equity firm attempted to transform Deadspin into an ESPN competitor, dictating content not based on business metrics.
- Directives included eliminating non-sports content despite its strong performance and profitability.
- Greenwell explains that private equity firms prioritize increasing returns through financialization tactics, separate from underlying business success.
- This contrasts with company founders' goals of building good products and services.
- The primary goal of private equity is making money from money, rather than from producing goods or services.
- Early private equity pioneers, including Kohlberg, Kravis, and Roberts, employed ruthless corporate takeover tactics in the 1970s and 80s, exemplified by the RJR Nabisco leveraged buyout.
- This financial ethos, marked by a transactional and zero-sum worldview, connects the 1980s financial culture to the present.
- The aggressive approach has been amplified by the availability of cheap money and a zero-interest-rate environment.
- Private equity firms own approximately 10% of U.S. apartments, exceeding 25-30% in some metropolitan areas, fueled by low-interest Fannie Mae and Freddie Mac loans.
- Greenwell's book uses four case studies—retail, healthcare, media, and housing—to demonstrate private equity's impact on consumers.
- While some private equity deals succeed, larger leveraged buyouts have a 10 times higher bankruptcy rate.
- In healthcare, private equity profits by stripping assets and cutting services, particularly impacting rural hospitals, due to guaranteed money from the Affordable Care Act.
- The host notes a shift in small-town hospitals from community fixtures to consolidated corporate entities.
- Many doctors, despite differing political views, are unified in their opposition to private equity's impact, leading to unionization efforts in academic settings like Harvard and Yale.
- The healthcare system's
- Private equity firms deliberately operate in the shadows, using multiple layers of shell companies and funds to obscure ownership and decision-making.
- This lack of transparency contrasts with the visceral anger directed at health insurance CEOs and individual doctors, making private equity executives less relatable targets.
- Public awareness is growing regarding private equity's impact on companies such as Toys R Us and Red Lobster, and industries including healthcare.
- Greenwell highlights various forms of resistance, including a former Toys R Us employee lobbying pension funds and the emergence of nonprofit local news startups.
- Legal battles and state-level regulatory efforts, particularly in healthcare, offer potential mitigation strategies.
- Solutions may include Elizabeth Warren's 'Stop Wall Street Looting Act,' which would hold private equity firms legally responsible for loans taken by their portfolio companies.