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Saturday, December 3, 2016

The Loopholes That Fuel Private Equity Buyouts

As a result of a series of attacks and counter-attacks on Republican presidential candidate Mitt Romney’s work with Bain, there’s been a lot of discussion about private equity, buyouts of firms, and their ultimate relation to the economy. So far the discussion has been a back-and-forth on layoffs and “creative destruction,” with very little on how laws and regulations structure the way private equity and buyouts happen in this country.

I interviewed Josh Kosman, author of The Buyout of America: How Private Equity Is Destroying Jobs and Killing the American Economy, on this topic. Bob Kuttner reviewed his book in May 2010, and Kosman was on Up with Chris Hayes last weekend. The interview has been edited for length.

Mike Konczal: What are private equity funds, and what do they do?

Josh Kosman: Private equity firms are mostly former Wall Street bankers who raise money to buy companies on credit. They used to be called leveraged buyout (LBO) firms, and when the first leveraged buyout boom went bust in the 1980s they regrouped and called themselves private equity.

The big difference between them and venture capitalist or hedge funds is that the companies that they buy borrow money to finance the acquisitions.

Private equity firms own more than 3,000 U.S. companies and employ roughly one out of every 10 Americans in the private workforce. This is just America, so it doesn’t include companies or employees overseas. Some companies include HCA, the largest hospital chain, to Clear Channel, the largest radio station operator, to Dunkin’ Donuts. They are in every industry.

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