“Plunder– Private Equity’s Plan to Pillage America” by Brendan Ballou, 2023
This is a reformist financial expose of the worst financial
players operating under capitalism – the U.S. ‘private equity’ industry (PE). It
is written by a former DOJ lawyer. The book is a collection of public horror
stories organized around various economic sectors. Ballou’s proposals to ‘fix’
the industry – regulation, law, Congress, consumer and non-profit action – seem
to be ‘weak tea’ to deal with the most powerful, monied interests in the U.S. Since
2008’s Great Recession, private equity has replaced the investment banks as the
biggest ‘vampire squids’ of financial
capitalism. Their names are Blackrock,
Bain Capital, Carlyle, KKR, Apollo, Fortress and more. They are the hidden
force behind various businesses. I will
skip the specific horror shows as there are too many. You’ll have to read the book for that.
Methods
To profit after they buy a company, using an LBO, or
‘leveraged buy-out,’ PE firms: 1) sell a company’s real estate for a
large profit, then force them to rent – called a ‘leaseback;’ 2) charge that company management, loan
and transaction fees. 3) layoff workers and institute forced
overtime; 4) reduce quality; 5) force partnerships on a company to work
with their own suppliers; 6) raise
prices, fees or rents; 7) legally
insulate themselves by pretending to be an ‘advisor,’ not an owner of a company;
8) use tax avoidance tax havens, but
especially the carried interest loophole; 9)
stiff workers on severance; 10)
take a company’s profits and force the business to get loans instead – called a
‘dividend recap.’ This loads a subservient company with huge debts; 11) use bankruptcy as a strategic
option for a looted company, especially to dump pension obligations on the
federal government; 12) roll up
small companies and merge them to eliminate local competition and then raise
prices.
Ballou names one instance of a PE firm helping Arkansas
lumber company reopen and back on its feet.
One.
Homes
PE used the 2007 housing crash to buy up single-family
homes and trailer parks in a big way. In 2 years they bought 350,000
homes. Nearly a third of all U.S.
rentals are now single-family homes, consisting of 5.4 million homes in 2017. This was abetted by Edward DeMarco at the government’s
Federal Home Finance Administration who aided PE by not allowing principal
reductions on mortgages. Ben Bernanke,
then of the Federal Reserve, agreed that renting was more profitable for new
owners. In these properties PE firms raised
rents and instituted fees for landscaping, pets and ‘smart locks,’ while having
renters pay utilities and make major repairs like dealing with black mold. This latter is very unlike most apartment
building landlords.
PE also bought mortgage servicers and the result was lost
files, inaccurate information, incorrect evictions and foreclosures, erroneous
delinquencies and overall bad administration, including of federal relief
programs. By 2020 PE also spent $4.2B on
mobile home parks and became their slumlords.
Fannie Mae, through pandemic ‘relief,’ gave them money for these
purchases, making the formerly affordable mobile park unaffordable. Residents had to cover utilities, property
taxes and the costs of upkeep for the parks, along with rising land rents. As Ballou points out, the lower levels of the
working class are a special money trough of PE, as are federal funds.
Bankruptcy
Here is a partial list of retail companies piratical
private equity has looted and then bankrupted using their methods: 24 Hour
Fitness, Aeropostale, American Apparel, Brookstone, Charlotte Russe, Claire’s, Friendly’s,
Gymboree, Hertz, J.Crew, Linens ‘n Things, Marsh Supermarkets, Mervyns’s,
Musicland, Neiman Marcus, Nine West, Payless, Petco, PetSmart, RadioShack, Sears,
Shopko, Sports Authority, Talbots, Toys “R” Us, Rockport, Wickes Furniture.
In just one instance, at Petco dead
animals piled up because PE would not pay to properly bury them.
5 bankruptcy venues in the U.S. are special friends of the
PE industry. PE pushes for ‘363’ sales in those court proceedings, which are a
quick auction of a company’s assets. In
one case, the PE firm rebought the company they bankrupted for a pittance, but
without its’ debits. This is also the
court arena where private pension benefits are dropped on the public, by being
handed to the Pension Benefit Guaranty Corporation (PBGC). Over 10 years the PBGC was forced to cut $70M
in benefits to employees after the pension plans were dumped on them.
Nursing
Homes & Health Care
If PE buys a small medical clinic of any kind; a nursing
home or group of homes; or a chain of hospitals, health outcomes plummet, staff
are reduced and people die. For instance 20,000 deaths are blamed on their
nursing home management over 12 years. Statistics show their companies are at
the bottom of the quality pile, even forcing one large hospital chain to
close. The medical industry has a
constant stream of guaranteed federal money through Medicare and Medicaid, which
is attractive to PE. Ballou asserts that
one of the causes of rising health costs is PE itself. Just in 2021 they spent $150B to acquire
health care companies in every area.
Anesthesiology, cardiology, cosmetic surgery, oncology,
radiology, pediatrics, urgent care, mental health, dentistry, obstetrics and
gynecology and even veterinary clinics are now on their books. In the last 10 years they have spent $500B in
this sector. They also own staffing companies that supply outsource
workers. They practice ‘upcoding’ to charge
more; charge for equipment that is never used; pretended to have physicians as
fronts in control of medical enterprises and bought competitors (rollups) so as
to eliminate competition in a certain city and sector.
Ballou discusses how the U.S. government and law has
dropped or weakened opposition to oligopoly / monopoly activities and
mergers. Mergers are now seen by the
courts and government as the source of efficiency, lower prices, enhanced
quality and new products, not the reverse.
After all, monopoly and oligopoly is the natural tendency of capital, so
it figures.
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Finance
PE private credit offerings were larger than stock market
IPOs in 2019, with Blackstone and Apollo almost the largest in the world, right
after a Japanese firm. This industry is weakly regulated or unregulated and
opaque. PE private credit was enabled by
the Reagan, Bush, Clinton and Obama administrations, who opened the door. At this point, they are also ‘too big to
fail.’ Several firms anticipate $1T in
assets soon. In 2020 a letter from the
DOL allowed private equity to gain access to 401ks. This bonanza of 401K / 403B accounts allows
them to offer buy-ins from large pension funds, retirement firms and
advisors.
PE is investing in insurance companies, which have far
lower capital requirements than what is safe due to being registered off-shore,
increasing the risk of collapse. In 2014 40% of their LBOs used excessive debt according
to the Federal Reserve. Another heavy investment
is payday loan companies – you know, those outfits that will instantly send desperate working-class people money to buy groceries - but not broccoli.
Prisons
PE likes a ‘captive’ source of money and working-class prisoners
are ideal. PE firms now are contractors
for prison health services, food, fee-heavy debit cards, prison library e-books
and telephone calls across the U.S. All their ‘services’ are expensive and of
low to abysmal quality – for instance maggots in the food, minimal health care or
a phone call costing up to $25 for 15 minutes for indigent prisoners. Local police and sheriff’s departments get a
cut of the profits according to Ballou.
The
Courts, Congress & Local Govt
The legal system is in the pocket of private equity, all
the way up to the Supreme Court. This
coziness is reflected in laws passed by successive Republican and some Democratic
Party administrations - the prevalence of arbitration agreements, the difficulties
of bringing class actions; the costs and lengths of litigation; the lock
private equity has on Congress, federal and state regulators and the
‘ignorance’ of many courts. In arbitration hardly any customers win, but they
are forced into it. PE is highly unregulated,
as it usually operates as ‘private’ capital, not on public markets. It hides behind layers of ownership, the
‘corporate veil’ when it buys companies.
Suing their customers for failure to pay is standard procedure. Lawsuits and evictions skyrocket when PE
takes over.
They can slough off pension obligations through bankruptcy
or get some liability shields for their businesses in 38 states. The amount of lobby money and ‘donations’ from
PE is enormous. There is a revolving door between government and PE, including
top people like Timothy Geithner, who is with Warburg Pincus and Newt Gingrich,
with JAM Capital. Private equity is now buying municipal water systems,
ambulance services, 911 providers, fire companies and for-profit colleges in
the public arena and has made a hash of them all. It follows a libertarian pattern of
privatization and marketization of everything, which is the goal of both
neo-liberalism and libertarian Trumpism.
It is not just national.
Sovereign wealth funds in Saudi Arabia invested in U.S. PE firms. Blackrock
is partly owned by a Chinese sovereign fund too.
Ballou’s
Solutions
Ballou is a former DOJ attorney, so he has 36 specific,
mostly legal suggestions on how to rein in private equity. He dreams of a new anti-trust movement like
the Progressive period around the turn of the century that opposed the ‘robber
barons.’ Given it takes forever to try to get even one reform through Congress
presently, like the years-long failed attempts to end the ‘carried interest loophole’ which enriches PE bosses, this list more
than anything else admits that the problem is systemic and unsolvable. There is no going back to Teddy Roosevelt in
dealing with this new gilded age, which now has a new Gatsby - bougie Stephen
Schwarzman, head of Blackrock.
The personal take on this book is that anything connected
with PE should be treated with extreme caution as a worker or a customer.
Ballou thinks other capitalists should be concerned too,
and opposed to the robberies carried out by PE, so he sides with one faction of
the capitalist class. On the other hand Ballou
once mentions that perhaps it is the capitalist system that is the real
culprit. This seems to be the actual conclusion anyone reading about this extensive
mess would come to and hints that even he doubts his own solutions.
Prior blogspot reviews on this topic, use blog search box,
upper left, to investigate our 19 year archive, using these terms: “private
equity,” “Blackrock,” “prison,”
“rents,” “Gatsby,” “tax haven,” “LBO.”
And I bought it at May Day Books!
Red Frog / July 14, 2025 – Happy Bastille Day!
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