Pirate Equity Firms Destroy Good Paying Jobs While Making Wall Street Investors Rich
by John Lawrence, August 8, 2019
How it works: Fund managers with Wall Street connections can borrow unlimited sums of money to buy out all the shares of some company, usually a retail company like Toys R Us. They then strip the company of its assets and load it up with debt. They then take the company into bankruptcy firing all the employees. Result: millions of good paying middle class jobs are eliminated. Fund managers and their investors become rich.
From United for Respect:
Debbie Mizen lives in Youngstown, Ohio, and began working at Toys “R” Us in 1987. She was a single mother when she started working and was able to care for her three children on her modest salary. Debbie was an assistant manager for the last 12 years of her career, although she knew she was earning less than male supervisors in the same position. In June 2018, she lost a job she loved when Toys “R” Us liquidated and closed over 800 stores across the country. Debbie found out that her store was closing on same day as her mother’s funeral and was devastated. Since her store closed, she has faced unemployment. When her unemployment checks ran out, she had to take a job in a grocery store collecting grocery deliveries for customers while earning half of what she did at Toys “R” Us. She is turning 67 this year.
Pirate Equity is ruining millions of lives, making fund managers rich and driving (among other factors) the economic divide between the 1% and the 99%. In the last decade pirate equity has led to 1.3 million job losses - mainly in retail jobs. 10 out of the 14 largest retail chain bankruptcies since 2012 were at private equity-acquired chains. Then the Wall Street executives use the carried interest loophole and offshore bank accounts to escape from paying taxes. A wave of high-profile retail bankruptcies in the last few years — including household names like RadioShack, Toys “R” Us, Sports Authority, Payless ShoeSource, Sears, and Kmart — have impacted retailers owned by Wall Street.
Hostess Twinkies is another example of a company that was taken over by pirate equity which then fired thousands of workers. I delved into this in a 2012 article in the San Diego Free Press (Twinkies’ Twisted Tale: Junk Food Devoured By Junk Bonds):
All the late night talk shows laughed it up over the supposed demise of Twinkies, Ho Hos, Ding Dongs, Wonder Bread etc as the news came out that Hostess Brands was going bankrupt. But delve beneath the surface and you will find something more akin to a Shakespearean tragedy than talk show banter.
It’s a tale involving two unions, one private equity fund, two hedge funds and a whole cast of former CEOs. There is sacrifice, greed and betrayal. 18,000 workers will be losing their jobs while some vulture capitalists will be walking away with millions. Another vulture capitalist will itself have been devoured in the process.
The simple fact is that the financialization of the US has led to a total disrespect for workers and workers' rights. Workers have been turned into serfs, their jobs turned into playthings for the rich with unlimited capital at their disposal. And we're all supposed to accept this because this is the inevitable outcome of capitalism. Well, not so fast there. Other countries practice a variant of capitalism (jee whiz, you mean there's more than one?) that does not exploit workers, but instead creates meaningful jobs for workers. Well, let's see what could those countries be? Well certainly, some of the European countries look out for their workers, Germany, for example. Unions are strong and workers sit on corporate boards, have a say in the running of the company.
No, it is the American variant of capitalism, not capitalism itself, that has run amok. American capitalism is destroying jobs; it has already destroyed most of the unions which were the countervailing force to the narcissistic and solipsistic demands of the capital markets.
The New York Times wrote:
Deals like Hostess have helped make the men running the six largest publicly traded private equity firms collectively the highest-earning executives of any major American industry, according to a joint study that The Times conducted with Equilar, a board and executive data provider. The study covered thousands of publicly traded companies; privately held corporations do not report such data.
On average, the heads of private equity firms earn about 10 times as much as the heads of banks. Take Stephen Schwarzman of the Blackstone Group for example. Last year he earned $799,838,742. Then in second place was Leon Black of Apollo Global Management. He earned $799,838,742. Part of his earnings, no doubt, came from his sale of Hostess Twinkies.
And then there is Mitt Romney, a Presidential candidate no less, who exploited workers with his company Bain Capital. Rolling Stone reported (Greed and Debt: The True Story of Mitt Romney and Bain Capital): "How the GOP presidential candidate and his private equity firm staged an epic wealth grab, destroyed jobs – and stuck others with the bill"
And this is where we get to the hypocrisy at the heart of Mitt Romney. Everyone knows that he is fantastically rich, having scored great success, the legend goes, as a “turnaround specialist,” a shrewd financial operator who revived moribund companies as a high-priced consultant for a storied Wall Street private equity firm. But what most voters don’t know is the way Mitt Romney actually made his fortune: by borrowing vast sums of money that other people were forced to pay back. This is the plain, stark reality that has somehow eluded America’s top political journalists for two consecutive presidential campaigns: Mitt Romney is one of the greatest and most irresponsible debt creators of all time. In the past few decades, in fact, Romney has piled more debt onto more unsuspecting companies, written more gigantic checks that other people have to cover, than perhaps all but a handful of people on planet Earth.
By making debt the centerpiece of his campaign, Romney was making a calculated bluff of historic dimensions – placing a massive all-in bet on the rank incompetence of the American press corps. The result has been a brilliant comedy: A man makes a $250 million fortune loading up companies with debt and then extracting million-dollar fees from those same companies, in exchange for the generous service of telling them who needs to be fired in order to finance the debt payments he saddled them with in the first place. That same man then runs for president riding an image of children roasting on flames of debt, choosing as his running mate perhaps the only politician in America more pompous and self-righteous on the subject of the evils of borrowed money than the candidate himself. If Romney pulls off this whopper, you’ll have to tip your hat to him: No one in history has ever successfully run for president riding this big of a lie. It’s almost enough to make you think he really is qualified for the White House.
But the sheer incompetence of the press corps is nothing compared with the total ignorance of the American people when it comes to electing a President. Example #1: Donald Trump, a bloviating, pompous, bait-and-switch, snake oil salesman that the American people elected instead of a competent, experienced, somewhat boring diplomat. So maybe the American people deserve what they get. The Republicans certainly think so. If they can lie their way into positions of power and delude the American people as to their true motives, well, in their mind, that proves that they really do deserve all the riches they can accumulate by any means necessary. Elizabeth Warren to the rescue?
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