Pirate Equity; Ransacking the World

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Hello. I’m from your neighborhood private equity company, and I’m here to help you.

“Private equity,” “hedge funds” and “wealth management” are the current euphemisms for what insanely wealthy people do with astronomical sums of money in pursuit of ever more astronomical sums of money. All the terms used for the practice could  be replaced with the more honest, “piracy,” were it not for the fact that piracy is against the laws of every civilized country, whereas the wholesale ruination of private companies and public institutions is universally legal and lavishly rewarded.

The black flag of private equity became a familiar sight in the 1980s, just after predatory firms such as Bain Capital (co-founded by one Mitt Romney) discovered the magic of the  leveraged-buyout formula for wealth and success:

1. Find a company that has a lot of assets but not great income, such as a retail chains with tons of real estate and inventory but anemic sales;
2. Borrow a ton of money and buy the company, immediately transferring the debt to the company, saddling it with interest payments it did not have before;
3. Fire everybody you can, and reduce every expense you can see, to maximize short-term, unsustainable profit, and guarantee eventual degradation of products and services;
4. Sell off the real estate — stores — owned by the company and lease them back, providing the company with an enormous windfall of cash but seriously increased rent expenses, forever;
5. Having bled off all the company’s cash in exorbitant fees paid to the owners and managers at every step of the way, dump the company on an easily deluded investor or bankrupt it, and walk away, laughing.         

Today the black flag flies over every enterprise that the plunderers deem to be profitable, or a reasonable facsimile of profitable, convincing to lenders and investors: fast-food chains (Burger King); renters of single-family homes (Invitation Homes, Inc., owns 80,000 units nationwide); hospitals, doctors’ practices, medical technology companies and air-ambulance services; farmland (the five-second pitch for investing in farmland — “everybody’s gotta eat, right?”); and an enormous grab bag of companies, obscure and well known, including for example Cirque du Soleil, Air BnB,  PetCo, Hertz, Toys R Us, Neiman Marcus, Metro-Goldwyn-Mayer, and Del Monte Foods. In all, some 80,000 companies, twice as many as there are publicly listed companies.

And now, hospice care.

That’s right. Just as there is good money to be made not treating the sick and injured (private equity has a huge stake in Medicare Advantage providers, which now handle one half of all Medicare recipients and are legendary for inflating their fees and denying claims) the buccaneers have discovered there’s even better money in not caring for the dying (“Everybody dies, right?”). Half of all Americans die while in hospice care, most of them on Medicare, which pays the provider a flat rate of $191 a day. Non-profit hospice-care providers — 60% of all providers in 2001 —  spend most of that money on the comfort and well-being of the patients. But today 72 percent of providers are for-profit, and deliver, according to one study, “substantially worse care experiences,” with less medication, fewer personnel, and nobody to give a damn.

This whole rancid movement is about the obscenely rich getting more obscenely rich while mercilessly gouging the other 98% of humanity. As Bloomberg has reported: 

“Since [1980], PE managers have steadily taken up a larger share of the highest income groups, including the richest 400 people, according to several research papers from the University of Chicago’s Steven Kaplan and Stanford’s Joshua Rauh. There are more private equity managers who make at least $100 million annually than investment bankers, top financial executives, and professional athletes combined, they found.”

It’s the time-honored promise of America: “Give me your tired, your poor, your huddled masses yearning to breathe free,” and we will find a way to screw them, and get rich in the process.