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I don't understand why we don't just ban private equity. Seems like zero value-add to the actual real economy.
by OGEnthusiast 7mo ago
I don't understand why we don't just ban private equity. Seems like zero value-add to the actual real economy.
- groundzeros2015 7mo agoBanning people from owning business? This is just a boogie man media term. There are good owners/investors and bad.
- joejoe638 7mo agoPrivate Equity doesn’t “own” business in the sense most people understand it. PE is finalisation of business, its ownership is far more similar to a mortgagee than an owner in every sense of the word.
- deleted 7mo ago[deleted]
- pas 7mo agoit seems you are mixing up leveraged buyouts with PE PE is investing. Limited partners give pool some money, the manager is the general partner, they also put some money into the pool, to align incentives, and that's it. Everything else is not PE itself, but whatever strategy the fund has, or whatever deal some traders have came up.
- mr_important 7mo agoPrivate equity is capitalism. That's the capitalism part of the economy.
- budududuroiu 7mo agoIm gonna speculate they were referring to the part of private equity where you buy businesses to load them up with debt to buy more businesses ad nauseum
- munk-a 7mo agoI have no idea why leveraged buyouts are legal. What a bizarre mechanism for acquisition that feels so easy to just shut down with a relatively simple rule. Restricting a previously purchased business from taking out debt feels harder to regulate, but someone smart could probably figure out a few good rules to stop the majority of abuses.
- zvqcMMV6Zcr 7mo agoDo you think non-recourse mortgage (the dominant type in USA) also should be banned? VC finds a bank that borrows them money to buy X, with X as collateral. It is exactly the same. The mass selloff of assets and absurd cost-cutting is caused by new owners not giving a damn about the future of acquired company, its workers nor clients - it has nothing to do with leveraged buyout itself.
- triceratops 7mo agoThat's called a leveraged buyout and isn't restricted to private equity.
- terminalshort 7mo agoYou can't load someone else with debt. That's obviously illegal. When you buy a company it isn't "them" anymore. And the new owners have exactly the same rights to borrow money as the old ones.
- munk-a 7mo agoThat's true when the debt is taken it is taken by the company (at the direction of the acquiring firm)... and maybe the bigger issue is that banks should be a whole lot more judicious in extending that debt. But some firms have found a heck of a loophole in buying a company, running an extremely high debt line, paying the acquiring firm (themselves) handsomely and then innocently whistling when the business collapses and a bunch of real economic value is erased. Doing that to a company isn't an activity that should be rewarded since you're destroying, rather than creating, economic value. It is absolutely an exploit or flaw in our system and no more than one person should have been able to get away with it.
- techgnosis 7mo agoWhy don't you define private equity so we know what you're referring to
- nradov 7mo agoBan companies from owning other companies? How would that work exactly? Private equity is a convenient whipping boy for ignorant, low-information HN users who don't understand the basics of how finance works. You can certainly find examples of destructive or unethical behavior if you dig deep enough. What you don't see in the news are all the cases where PE saved companies that would have otherwise gone bankrupt.
- wizzwizz4 7mo agoYou, presumably, have examples of these cases. Could you show them to us, please? (Given your understanding of the evidence available to us "ignorant, low-information HN users", you know you're making a bold claim, which creates a corresponding burden of proof.)
- groundzeros2015 7mo agoExample: almost every housing development.
- p_j_w 7mo agoDid you read TFA? There are some great examples there for the health care sector, and not just one off sensational examples.
- wizzwizz4 7mo agoTFA provides examples where private equity has been destructive in the healthcare sector: > A 2024 Review of Financial Studies paper <https://www.nber.org/papers/w28474 https://www.nber.org/papers/w28474> found that private equity acquisition of nursing homes was associated with an ~10% increase in deaths, implying approximately 22,500 additional deaths over the twelve-year sample period. I was asking for examples where private equity has made things better.
- p_j_w 7mo agoSorry, I must have misread what you said.
- triceratops 7mo agoBecause the thing you want to ban isn't well-defined.
- shermantanktop 7mo agoBut do you agree that there are a set of bad actors who fall under the (not well-defined) term of "private equity"? Is this a definitional quibble or do you not believe there is a problem?
- triceratops 7mo agoI accept there's a problem. I don't believe there's a simple, one-size-fits-all solution. It'll take years, possibly decades, of regulatory and anti-trust work across every industry. Tons of political will and capital.
- Ekaros 7mo agoIt is important definition. As private equity can mean anything not publicly traded. I do support banning certain financial actions. Like paying dividends with debt. Or structuring deals that achieve same effect. On other hand I would also ban stock buybacks.
- e40 7mo agoI don't think a ban is required. Other countries (in the EU?) have put restrictions on it that prevent the abuses you see in the US. Why don't we do that? Because US Congress has been neutered and that appendage of US politics has withered and died.
- munk-a 7mo agoIt'd be difficult to ban what we commonly describe as private equity (a.k.a. PE firms) without banning the private (a.k.a. random people) from being able to hold equity. Someone smart might be able to ban the kind of investment vehicles that have become the bane of modern productivity but we do still need some mechanism to allow investment.
- bux93 7mo agoWell, let's start with banning debt push down and then move on to the next tool used to privatise profit and socialise risks. You know, it used to be that unfair business practices were researched and banned, simple as that. Just throwing up your hands and saying "Well, what to do?" when there's, you know, a whole science in which people are trained, is disingenuous.
- LorenPechtel 7mo agoPrivate equity is simply a person (or small group of people) owning a company. Basically every small business in the US. The problem is not private equity, but that private equity engages in corporate raiding--buy up a company, borrow, extract capital, sell it to suckers who don't see the problems. Dig into practically all malfeasance and you'll find it's someone who benefits from making the future value of something look better than it really is and then leaving the problem for somebody else. At the executive level I think the answer is mandating income above a certain threshold be paid over time based on the future value. (Stuff that's actively traded would be easy: Let's say the cap was $1m. Pay the CEO 10m? No, he gets $1m, plus shares currently worth $1m to be delivered in a year, shares currently worth $1m to be delivered in two years and so on.) And while there is pending income they are categorically prohibited from any transaction that benefits from a drop in share price. Inadvertent (say, bought a fund that shorted the stock) it's a 100% tax rate, deliberate and all pending shares are forfeit. I have no idea of an answer with the PE problem.
- pas 7mo agothey increase productivity, which is one of the most important part of the real economy, separates a lot of grueling manual labor while starving (so the Malthusian state) from having so much economic surplus that we have the opposite of starving in advanced economies. https://www.nber.org/system/files/working_papers/w26371/w26371.pdf https://www.nber.org/system/files/working_papers/w26371/w263... the finding is that on average, target firms add jobs and see improved labor productivity