Private equity, like so many other Wall Street “innovations,” is a benign-sounding idea that has morphed into a kind of financial cancer. Let’s see if it kills the patient.
First, the concept: Private equity refers to the practice of rich guys pooling their money and hunting for companies to buy. Once they get one, they use their “superior business skills” to “maximize profits.” Unfortunately, those profits flow mostly to the owners, while workers and customers are frequently bled dry.
Why is this a systemic problem? Well, once private equity gets a taste of an individual business, it frequently decides to subsume the whole field. Well-financed predators start rolling up dental, law, and medical practices and changing work rules to extract every last drop of customer money.
This is why your doctor rushes into your examination room, spends ten minutes prescribing you pharmaceuticals, and then rushes back out. The algorithm requires him to see an impossible number of patients — and prescribe them lots of drugs — each day.
It’s also why entire neighborhoods have been converted to high-cost rentals.
The stories are myriad, and the degraded quality is felt in every corner of the economy. For more details, see the Private Equity Stakeholder Project, which chronicles PE’s depredations.
With the US heading into recession, those rolled-up private equity mini-empires will soon be exploding like a string of cheap firecrackers. Eric Salzman, writing for Matt Taibbi’s Racket News, just posted some dire predictions for PE-owned firms and, alas, the people who depend on them. Here’s an excerpt: https://rubino.substack.com/p/poetic-justice-for-private-equity