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private equity
Democrats Renew Effort to End Private Equity Looting
"Union-busting, pollution, and bankruptcy aren't side effects of the private equity model: They are the model," said one campaigner backing the bill. "It's a smash-and-grab, plain and simple."
Oct 10, 2024
Less than a month away from the U.S. general election, over a dozen congressional Democrats on Thursday renewed their fight to "fundamentally reform the private equity industry" with a bill that Rep. Mark Pocan said "will finally hold these predatory firms accountable and protect workers from being plundered by corporate greed."
"It's long past time for billionaires and big corporations to stop gambling with hardworking Americans' and their communities' assets in service of corporate greed," declared Pocan (D-Wis.), who is leading the Stop Wall Street Looting Act with Congressional Progressive Caucus Chair Pramila Jayapal (D-Wash.) and Sen. Elizabeth Warren (D-Mass.).
"In Wisconsin, we've seen what happens when private equity firms like Sun Capital raid companies for their wealth and leave workers and communities to pick up the pieces," he noted. "When Sun Capital took over Shopko—a Wisconsin-based retail chain that had stood strong for more than 50 years—they drained it dry, buried it in debt, pushed it into bankruptcy, and abandoned roughly 14,000 workers."
"Private equity takeovers are legal looting that make a handful of Wall Street executives very rich while costing thousands of people their jobs, putting valuable companies out of business, and in the case of healthcare, is literally a matter of life and death."
Warren's state is also dealing with fallout from the industry. As The Boston Globereported Thursday, the legislation is "designed to rein in the growing power of private equity firms and limit the sort of leveraged buyout deals that led to the crisis at Steward Health Care, whose bankruptcy continues to roil communities in Massachusetts and seven other states."
The bill "was reintroduced in part as a response to the unfolding crisis at Steward, which before its bankruptcy was the nation's largest private for-profit hospital system," the newspaper noted. It follows the Senate's unanimous approval of a resolution to hold CEO Dr. Ralph de la Torre in criminal contempt of Congress for his refusal to comply with a subpoena to testify before a committee. Shortly after the vote—the first of its kind since 1971—he resigned.
"Private equity takeovers are legal looting that make a handful of Wall Street executives very rich while costing thousands of people their jobs, putting valuable companies out of business, and in the case of healthcare, is literally a matter of life and death," Warren, a former bankruptcy law professor, said Thursday. "Our bill is designed to close loopholes and end incentives for private equity pillaging—and it will make sure what happened at Steward never happens again."
As a fact sheet from the sponsors details, the bill would make private equity firms responsible for liabilities including debt, legal judgments, and pension-related obligations; limit how much money they can extract from companies; close a loophole they have used to conceal assets from bankruptcy courts; implement various protections for workers and customers; increase transparency; impose guardrails for receiving public funds; and drive real estate investment trusts out of healthcare.
"From healthcare to housing, millions of Americans are seeing private equity take over companies with the promise of improving services, only to strip them for parts and hurt both workers and working families," said Jayapal. "It's time for Congress to take action to protect Americans from the dangers of private equity and corporate greed, and that's exactly what our Stop Wall Street Looting Act will do."
The legislation is backed by Reps. Raúl Grijalva (D-Ariz.), Rick Larsen (D-Wash.), Barbara Lee (D-Calif.), Delia Ramirez (D-Ill.), Jan Schakowsky (D-Ill.), Alexandria Ocasio-Cortez (D-N.Y.), and Eleanor Holmes Norton (D-D.C.), along with Sens. Tammy Baldwin (D-Wis.), Jeff Merkley (D-Ore.), Bernie Sanders (I-Vt.), Tina Smith (D-Minn.), and Ed Markey (D-Mass.).
The bill is also endorsed by dozens of groups including the American Federation of Teachers, Americans for Financial Reform, Economic Policy Institute, Indivisible, National Employment Law Project, National Nurses United, Public Citizen, Service Employees International Union, Student Borrower Protection Center, Take on Wall Street, United for Respect, and Working Families Party.
"Union-busting, pollution, and bankruptcy aren't side effects of the private equity model: They are the model," said Porter McConnell of Take on Wall Street. "It's a smash-and-grab, plain and simple. That's why we are so pleased to see comprehensive legislation like the Stop Wall Street Looting Act introduced in Congress today. We created the loopholes in the law that allowed the private equity industry to thrive, and we can end them."
United for Respect co-executive directors Bianca Agustin and Terrysa Guerra stressed that "Wall Street private equity firms have proven themselves to be a parasite on workers, our economy, and American retailers by gutting companies for profit and driving mass layoffs. Holding billionaire profiteers accountable for the damage they do to our working families and communities is imperative to addressing growing economic inequality."
"The Stop Wall Street Looting Act will help close loopholes in our laws that for too long have allowed private equity to pillage companies and amass huge profits while workers lose their jobs and are left with nothing," they added. "United for Respect is proud to support this bill—and we need all legislators to join us in protecting workers and putting Wall Street on the hook for the havoc they reap."
While the bill is unlikely to go anywhere in the currently divided Congress, it's a clear statement from the sponsors where they stand, as early voting gets underway to determine the future of the Senate and House of Representatives as well as the next occupant of the White House—Democratic Vice President Kamala Harris or former Republican President Donald Trump.
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135.9 Million Reasons Why the Working Class Is So Angry
Workers know that when a private equity firm buys up the company at which they work or a stock buyback is announced, they are likely about to get kicked in the face.
Oct 06, 2024
Since 1993, 60.2 million workers who had been on the job for at least three years have been laid off, according to the Bureau of Labor Statistics. Another 75.7 million with less than three years tenure have also been let go.
In total, that's 135.9 million workers who know all too well the pain and suffering of a major disruption to their employment.
Working people understand that the periodic ups and downs of the economy can legitimately lead to job loss. But they also know that in many cases the reason they lost their job was not mismatches in supply and demand. Rather, their jobs were sacrificed to satisfy out and out corporate greed.
Private Equity and Greed
Workers know that when a private equity firm buys up the company at which they work, trouble lies ahead. Just ask the 33,000 workers at Toys 'R' Us, who lost their jobs when that fabled company was driven into the ground by KKR, a huge private equity company. KKR bought the toy giant for $6 billion in 2005. Five billion dollars of the purchase price was financed with debt, which KKR put on the Toys 'R' Us books.
It doesn’t take a rocket scientist (especially not the labor-averse space mogul Elon Musk) to design simple solutions that would provide some protection against needless mass layoffs.
Then the rape and pillage commenced, as Toys 'R' Us slashed costs to service the debt, pay KKR hefty management fees, and quickly fall behind its competition, Walmart and Amazon. Aliya Sabharwal, writing in the LA Times last year, tells us:
KKR and its partners sold off Toys ‘R’ Us real estate, pocketed the money and forced the retailer to lease back its buildings. Along the way, KKR and the other firms paid themselves $250 million in “management fees” and big bonuses to hand-picked executives — right before Toys ‘R’ Us entered bankruptcy.
This kind of corporate looting by private equity has, since the 1980s, happened thousands of times in all sectors of the economy, leading to the needless loss of millions of jobs. Researchers writing for the Becker Friedman Institute at the University of Chicago have found that, on average, employment shrinks by 13 percent when a private equity firm buys a public company. As Forbes notes,
All too often when private equity professionals tout their cost cutting strategies, they do not mention that cost cutting means firing people and taking away their livelihoods.
Stock Buybacks and Greed
Workers are also learning that when hedge funds buy up company stock and demand stock buybacks, there’s job trouble ahead. Just ask the 32,000 workers at Bed, Bath and Beyond, who saw their jobs evaporate to finance stock buybacks, over and over until the company was forced into bankruptcy and liquidation.
A stock buyback, which was essentially illegal until 1982, is a form of stock manipulation. A company uses its funds, or borrows money, to go into the market place and buy up its own shares of stock. By doing so, the number of shares in circulation goes down, while the earnings per share goes up. The stock price rises even though no new value was added to the company. The rise in the share price rewards company executives, who are mostly paid with stock incentives, and moves corporate wealth into the pockets of Wall Street investors.
Starting in 2004, Bed, Bath and Beyond spent $11.8 billion on stock buybacks that, in the short term, boosted the company’s share price and enriched the Wall Street stock-sellers who had pressured the company to buy back those shares. Even as the company struggled in 2022, it spent $230 million on stock buybacks, loading the company up with even more debt to finance them. In April 2023 the company declared bankruptcy. That July, the last store of what had been, in 2011, a chain of 1,142 stores closed
The same thing is happening right now with John Deere, the huge farm equipment manufacturer. Deere wants to move 1,000 jobs to Mexico, ostensibly to remain competitive in the international farm equipment market. But Deere is competitive now. The company posted $10 billion in profits in the 2023 fiscal year and paid its CEO $26.7 million.
The real reason Deere wants to discard workers and flee to Mexico is to finance the $11.6 billion in stock buybacks it committed to over the past year.
Reducing the use of mass layoffs to provide financing for corporate and executive looting would be a big win for working people.
In 2025, Goldman Sachs estimates that corporations will conduct more than $1 trillion in stock buybacks. Tens of millions of jobs will be sacrificed to shift all that money to the richest of the rich.
Solutions Are Easy to Find, But Political Will is not
It doesn’t take a rocket scientist (especially not the labor-averse space mogul Elon Musk) to design simple solutions that would provide some protection against needless mass layoffs. Here’s a list:
- The Security and Exchange Commission, which deregulated stock buybacks in 1982, should basically outlaw them again by limiting stock buybacks to no more than 2 percent of corporate profits. Today, nearly 70 percent of corporate profits go to stock buybacks.
- Debt used in leveraged buyouts should be limited to no more than 10 percent of the purchase price. That would protect workers from being sacrificed to service enormous debt loads.
- Add two simple clauses to the $700 billion of taxpayer money that goes for federal purchases of goods and services. It should read:
- No taxpayer money shall go to corporations that lay off taxpayers or conduct stock buybacks.
- For those companies receiving taxpayer money, layoffs must be voluntary, not compulsory, as is already the case for many white-collar employees.
Reducing the use of mass layoffs to provide financing for corporate and executive looting would be a big win for working people. Alas, we all know deep down that politicians are not about to bite the Wall Street hands that feed them. In the meantime, millions of workers will continue to be sacrificed on the alter of corporate greed.
When no political party dares to challenge Wall Street’s war on workers, there’s only one remaining alternative: working people need to build their own political movement just as the Populists did in the 1880s. There are 135 million reasons for doing so, and soon.
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21 Private Equity Firms Fund Over a Gigaton of Annual Climate Pollution
"Private equity firms and their executives are making billions by investing public employees' retirement money into planet-destroying fossil fuel assets," said one researcher.
Oct 01, 2024
The energy portfolios of over 20 top U.S. private equity firms are responsible for an estimated combined 1.17 gigatons of annual greenhouse gas emissions—more than three times as much as from the energy used to power every home in the United States, according to a report published Tuesday.
The report, titled Private Equity Risks Scorecard 2024, was published by Researchers for the Americans for Financial Reform Education Fund, Global Energy Monitor, and the Private Equity Stakeholder Project. The scorecard examines the energy portfolios of 21 leading U.S. private equity firms, which manage a combined total of over $6 trillion worth of companies.
"At the end of the day, the price we pay for private equity's greed is our health and livelihoods, for ourselves and generations to come."
"Private equity firms and their executives are making billions by investing public employees' retirement money into planet-destroying fossil fuel assets," Amanda Mendoza, senior climate research and campaign coordinator of the Private Equity Stakeholder Project, said in a statement.
"These billion-dollar companies make their profits while largely avoiding liability for the damages their fossil fuel investing causes frontline communities," Mendoza added. "At the end of the day, the price we pay for private equity's greed is our health and livelihoods, for ourselves and generations to come."
According to the report, the five biggest investors in annual climate polluters are EIG Global Energy Partners, the Carlyle Group/NGP Energy Capital, Brookfield/Oakfield Capital Management, Quantum Capital Group, and BlackRock Private Equity Partners. These five firms each funded at least 100 million metric tons of CO2 equivalent (CO2e) annually.
Some of these companies, most notably BlackRock, rank among the
world's biggest investors in fossil fuels.
"Private equity continues to transform the financial markets and the daily lives of communities around the globe," the report states. "With over a trillion dollars in energy investments generating high greenhouse gas emissions and minimal public visibility, private equity firms play an outsized role in accelerating the climate crisis."
"The private equity energy portfolios covered in this report are responsible for an estimated combined total of 1.17 gigatons of annual emissions," the publication continues. "This figure equals 1.17 billion metric tons CO2 equivalent (CO2e) and is limited to the three categories covered in the scope of this research: upstream, liquefied natural gas terminals, and coal plants, and do not represent the firms' entire emissions footprint from energy investments."
"In the U.S. alone, there were 28 weather and climate disasters in 2023, resulting in at least $92.9 billion in disaster damages, according to the National Centers for Environmental Information," the report notes. "The need for transparency, accountability, and a just transition to a clean energy economy has never been more urgent."
The scorecard's authors and 22 supporting organizations—including Food & Water Watch, Friends of the Earth U.S., Greenpeace USA, LittleSis, Public Citizen, Rainforest Action Network, and Sierra Club—urge sources of capital, such as public pension funds and institutional investors, to commit to a series of climate-friendly policies and practices.
These include:
- Aligning with science-based climate targets to limit global warming to 1.5°C;
- Disclosing fossil fuel exposure, emissions, and impacts;
- Reporting a portfolio-wide energy transition plan;
- Integrating climate and environmental justice; and
- Providing transparency on political spending and climate lobbying.
"While companies like banks and oil majors face pressure over their climate risks and fossil fuel emissions, private equity firms continue to dodge the spotlight, pouring billions into fossil fuels and pushing us further from a sustainable future," said Global Emergy Monitor's Alex Hurley.
"These firms may operate in the shadows, but the public has a right to know how private equity's debt-fueled extraction of both resources and wealth threatens our climate, communities, and financial stability," Hurley added. "We call on private equity firms to adopt climate standards... and retire any fossil fuel assets in their portfolios in short order."
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