Private Equity, The Enemy from Within… Part One
Worldwide, only four cents in every tax dollar now comes from taxes on wealth. Half of the world’s billionaires live in countries with no inheritance tax for direct descendants. They will pass on a $5 trillion tax-free treasure chest to their heirs, more than the GDP of Africa, which will drive a future generation of aristocratic elites. Rich people’s income is mostly unearned, derived from returns on their assets, yet it is taxed on average at 18 percent, just over half as much as the average top tax rate on wages and salaries.
By Gregg Wall (11-8-2025)
Within the beating heart of America’s financialized economy lies the heart disease of private equity. This week, we do a quick recap on financialization and private equity and outline some of the recent developments within the industry. Financialization and private equity, arguably, are the epicenter corporate greed in America and play no small role in why the US economy is a disaster for well over 60% to 70% of Americans, who can’t cover their basic needs. At the same time, executive and CEO pay has never been more extreme, relative to the average or median pay of a company’s workforce. As a brief introduction or refresher, private equity (PE) leverages companies up with debt, junk debt, to buyout companies and take them private. Investors, in turn, are promised outsized returns for PE management, restructuring the company, and via financial engineering. Frontloaded profits and dividends are part of the buyout process, and companies are often cannibalized and stripped of assets, such as buildings & land and used to extract rents. PE also charges management fees to acquired companies throughout the life of the investment (arguably, not unlike paying a thief a fee for stealing from you). To pay down the debt & service the debt… and due to the industry’s notorious short-term outlook… product development, R&D, customer service, and products & services quality often suffer, employees and head count are often gutted. Investors who put money into private equity funds generally are committing to a five-year window (sometimes longer), at which time PE flips the company to another investment or private equity company, sells it off, merges it within the industry, takes it public, or strips it for parts to repatriate capital to investors. Yet another option, PE owners may choose to retain the company and buy it out.
The PE industry began in the deregulatory wave of the ‘70s and ‘80s and four or five decades later has encountered difficulty in returning the initial investment to investors. Major universities, notably Harvard and Yale, have had to sell their PE investments in secondary markets to raise cash. The fact that PE has had such a hard time returning capital and investment dollars is driven by a higher interest rate regime, due to inflation & supply-side greed, and because so many of these companies are heavily leveraged and no few in number have become what is referred to as zombie corporations (companies so mired in debt that they can no longer pay down the debt and are kept on life support). In short, financialization and private equity sacrifice the financial health of a company, CAPEX, employees, often times product & service quality, customer service and long-term commitment… and instead, aim for immediate gratification, greed, and the fast buck. Private equity ownership, investors, and shareholders are first… customers, employees, and the public are dead last. Because companies are often bankrupted, stripped, merged with other companies in a given industry, as part of the exit strategy, the role the PE industry plays in corporate consolidation, monopoly and monopsony formation is considerable. This financialization process is one of the key reasons employees find themselves at the mercy of their employers, suffer low wages, reduced benefits, and the cost of healthcare is increasingly shifted onto backs of labor and their families. Pensions? … employees under the private equity regime may find cutbacks and even elimination to pensions and 401Ks.
The cornerstones of the PE model is cheap debt, easy money policies from central banks, a lax and enabling regulatory regime, and highly favorable tax laws & weak enforcement that focus on debt, debt service loads, lower overall tax rates, and taxes that afford an industry specific advantage, like the carried interest loophole, etc. … the ideal for PE firms is for the targeted company to constantly be run on the edge of existence so that income taxes on the company are nonexistent. Financial engineering is not limited to PE owned and operated companies, but rather, many of the industry’s practices have been adopted in publicly and privately held companies nationwide. Due to the proliferation of financial engineering, the rise in zombie enterprise, and favorable tax laws and rates, corporates pay less and less taxes to the US government annually. Therefore, financial engineering and PE contributes to explosive national debt, higher debt service loads, greater taxation on the public (see Trump’s new tariffs regime). And it works out great for the industry, the financialized economy pays, relatively speaking, little or no taxes, helps send debt & deficits higher, increases central bank intervention, encourages accommodative monetary policy, which increases and inflates asset classes of the wealthy… all of which is music to the PE industry’s ears. Moreover, PE and financialization exacerbates wage and wealth inequality, destroys entire sectors of the economy & social mobility, and because of the role money plays in American and Western politics, the PE industry and corporate monopolies are able to hold outsized influence over the U.S. and Western governments.
Add opaque, private accounting to the mix, the proliferation of zombie companies, the short term myopic thinking of shareholder value uber alles, the proliferation of monopolies and cartels, the march of private equity into every nook & cranny of the economy – like healthcare… the evolution of software that maximizes profits at the expense of families, the general public, and labor… as well as, the growth of gambling within the Wall St economy, derivatives, options, & swaps, at the expense of the real economy, and additionally, the catastrophic corruption of local, state, and the federal governments: And we can quickly see why financial engineering and private equity have been an unqualified disaster for the U.S., Canada, the UK, and Western economies at large.
This overview provides an excellent segue into several recent developments that caught my eye concerning the industry: One, it was recently noted the number of US private equity funds is approximately 19,000, versus the number of McDonald’s franchises nationwide at 14,000. This means we have 19,000 PE funds and their employees tearing the heart out of a functioning real US economy, doing their utmost to dodge taxes, playing a significant role in dollar devaluation as ever-expanding debt, deficits, & central bank easy money policies become the norm… and gutting and offshoring the US workforce… so that a handful of individuals and investors can become filthy rich. Second, returns within this industry -- thanks to the catastrophic debt, leverage, and higher interest rates (as a result of price gouging and greedflation) -- are often no longer exceptional and, as previously mentioned, the industry’s ability to return capital to investors has suffered considerably. Third, PE increasingly has the goal of insinuating itself into every aspect of American life. One would think an industry, as well as financial engineering practices… that are so completely damaging to companies, customers, employees at the micro level, and the integrity and fiscal health of democracy, the economy, and government at the macro level… would be under the scrutiny of the federal and state governments. It speaks to how corrupt the two major parties are that this industry, and the industry’s practices, are not in the spotlight and under little or no scrutiny; but quite to the opposite, the PE industry and financialization practices, seemingly, remain bulletproof. To such an extent that POTUS Trump signed an executive order this year clearing the way for 401Ks, employee retirement accounts to start up private equity investments and funds for employees. PE investments, of course, are again, generally opaque investments with private financial statements, largely unregulated, and have a low level of liquidity (in other words, these investments can be locked in for five, seven, and even ten years … perhaps longer, if the PE company cannot come up with a suitable exit strategy). In short, PE is generally reserved for sophisticated corporations, funds, and investors, who have a better understanding of the risks, perils, and sharks they are swimming with.
Of course, we can see where this is going: an industry that some have called a Ponzi scheme, because of private, opaque financials… wraps it tentacles around employee retirement accounts, and if there’s a disaster in the industry (such as, major losses due to economic downturn, greed, a black swan event, rising interest rates, a change in tax laws, etc.), private equity suddenly becomes too big to fail (TBTF). How convenient for an industry that has nothing but contempt for employees and workers, that PE should use employee retirement accounts as a vehicle to ensure the industry is bailed out by the taxpayer should it find itself in crisis (not unlike Wall St. banks in ’08). Perhaps a crisis the industry is already in? Some have even speculated that PE wants to avail itself to 401K funds, so as to dump nonperforming assets and companies into employee investment programs.
And along these TBTF lines, the fourth and final observation is PE’s move into financing the Department of War. Why would Trump’s Department of War (DOW) need financing and funding from private equity? Like all privatization scams, private equity will add nothing but additional costs, fees, interest expense, and overhead to the taxpayer. Here again, PE is being added to the DOW mix because of connections and clout, and so it can make money off the taxpayer… it’s basically a free ride (undoubtedly, more corruption, cronyism, and kickbacks for the GOP?). PE financing the U.S. military and wars is classic rent seeking behavior. But like PE’s goal of becoming a party to 401K plans, the goal in financing the DOW seems to add to the TBTF objective and additionally, conceivably, may make a future or pending bailout of PE a matter of “national security.” Further insurance to make sure profits stay private and PE bailouts & losses are borne by the public and the taxpayer. That is, for one of the most repellent, repugnant, and violent industries in the nation, PE’s foray into financing the Department of War is likely just the beginning, and yet, another tentacle stretched into one of the darkest facets of America’s dystopian reality: colonialism, empire, forever wars, genocide, and wholesale murder. And isn’t it ironic. Don’t you think? A mercenary industry, private equity, merged with for-profit wars and the U.S. deep state.
Copyright JM Hamilton Publishing 2025
