The Revolving Door Spins for Private Equity
“Happy New Year”
By J.M. Hamilton (1-4-14)
What could motivate General Alexander, the present head of the NSA, to defend spying on U.S. citizens for no good reason? The results of this spying are said to be highly questionable at best, and have now been all but declared unconstitutional by one or more Federal Judges. A key motivating factor may be that the General is preparing to retire this Spring, and almost certainly a very financially rewarding private sector career awaits him.
Seventy percent of NSA activity is farmed out to the private sector, much of it to Booz Allen - Mr. Snowden's former employer - which is owned by private equity's Carlyle Group. Clearly, Carlyle has a vested interest in maintaining the NSA spy apparatus that has done so much damage to U.S. world standing, and many multi-nationals global income statements.
If I was a betting man, I'd wager that Mr. Alexander is on his way to highly lucrative career at the Carlyle Group, or one of it's subsidiaries, as a rich reward for defending the spy agency - and the billions in private sector contracts the NSA throws off.
Of course, in the last Presidential election much was made of Candidate Romney's ties to private equity, and attacks from candidates from both political parties were almost sanguinary -and quite outspoken- about the industry. It's been written that up to fifty percent of the bankruptcies that occurred on the heals of the 2008 financial crisis were directly attributable to the highly leveraged balance sheets, caused by current or prior private equity ownership. Private equity is notorious for leveraging up companies -to pay PE executives rich rewards- and laying off workers as a means to pay down said debt; PE undoubtedly is a proponent of tax, labor, and regulatory arbitrage wearing the mask of "free trade agreements," and is a huge driver in globalization/outsourcing, both of which have a debilitating impact upon U.S. job creation and further inflame decades long U. S. wage stagnation. Private Equity enjoys numerous tax advantages not the least of which is carried interest - which is subsidized by the remnants of the U.S. middle-class, who pay at a much higher tax rate.
General Alexander would not be the first high profile government employee, who ran directly into the arms of private equity, post-government career. Several former U.S. Treasury Secretaries either worked for, directly or indirectly, Private Equity firms, prior to or after leaving their treasury post. Former Treasury Secretary Geithner is just the most recent example. It's interesting to note that rather joining the banking industry many of the nation's recent former Treasury Secretaries instead found their way to private equity (PE). Is it a surprise? Certainly many of Mr. Geithner's policies at Treasury, from TARP - et al. to advocacy of the Fed's quantitative easing and interest rate suppression, directly benefited PE, immensely.
The debilitating impact the PE industry has on businesses and their viability, the labor force, the economy, and even the government.... Seems completely lost on many government officials. Many of whom hit the turnstile running for the quick riches that await on the other side, most often riches produced at the expense of the nation and her people. Democrat or Republican, none are immune to PE's siren song; and since the election both parties have gone completely silent on the topic and the many issues surrounding PE.
Can PE and its highly deleterious impact upon the economy be reined in?
What could motivate General Alexander, the present head of the NSA, to defend spying on U.S. citizens for no good reason? The results of this spying are said to be highly questionable at best, and have now been all but declared unconstitutional by one or more Federal Judges. A key motivating factor may be that the General is preparing to retire this Spring, and almost certainly a very financially rewarding private sector career awaits him.
Seventy percent of NSA activity is farmed out to the private sector, much of it to Booz Allen - Mr. Snowden's former employer - which is owned by private equity's Carlyle Group. Clearly, Carlyle has a vested interest in maintaining the NSA spy apparatus that has done so much damage to U.S. world standing, and many multi-nationals global income statements.
If I was a betting man, I'd wager that Mr. Alexander is on his way to highly lucrative career at the Carlyle Group, or one of it's subsidiaries, as a rich reward for defending the spy agency - and the billions in private sector contracts the NSA throws off.
Of course, in the last Presidential election much was made of Candidate Romney's ties to private equity, and attacks from candidates from both political parties were almost sanguinary -and quite outspoken- about the industry. It's been written that up to fifty percent of the bankruptcies that occurred on the heals of the 2008 financial crisis were directly attributable to the highly leveraged balance sheets, caused by current or prior private equity ownership. Private equity is notorious for leveraging up companies -to pay PE executives rich rewards- and laying off workers as a means to pay down said debt; PE undoubtedly is a proponent of tax, labor, and regulatory arbitrage wearing the mask of "free trade agreements," and is a huge driver in globalization/outsourcing, both of which have a debilitating impact upon U.S. job creation and further inflame decades long U. S. wage stagnation. Private Equity enjoys numerous tax advantages not the least of which is carried interest - which is subsidized by the remnants of the U.S. middle-class, who pay at a much higher tax rate.
General Alexander would not be the first high profile government employee, who ran directly into the arms of private equity, post-government career. Several former U.S. Treasury Secretaries either worked for, directly or indirectly, Private Equity firms, prior to or after leaving their treasury post. Former Treasury Secretary Geithner is just the most recent example. It's interesting to note that rather joining the banking industry many of the nation's recent former Treasury Secretaries instead found their way to private equity (PE). Is it a surprise? Certainly many of Mr. Geithner's policies at Treasury, from TARP - et al. to advocacy of the Fed's quantitative easing and interest rate suppression, directly benefited PE, immensely.
The debilitating impact the PE industry has on businesses and their viability, the labor force, the economy, and even the government.... Seems completely lost on many government officials. Many of whom hit the turnstile running for the quick riches that await on the other side, most often riches produced at the expense of the nation and her people. Democrat or Republican, none are immune to PE's siren song; and since the election both parties have gone completely silent on the topic and the many issues surrounding PE.
Can PE and its highly deleterious impact upon the economy be reined in?
Absolutely.
For starters carried interest, and associated PE tax
dodges should be eliminated, so the American taxpayer does not continue to subsidize an industry that operates at cross purposes with society's interests.
The amount of debt that take over targets could be saddled with, so that
companies are better able to withstand the next inevitable recession w/out
going bankrupt, could be capped as a ratio of total assets, or by some measure
of ability to service debt load. The capping of debt might set limits on PE executive payouts but the trade off is a financially healthier company able to withstand economic shocks, and preserve jobs and the tax base. The government could also set caps on
shipping jobs offshore, globalization, and outsourcing, as a means to pay down
the highly leveraged debt. And finally, the Sherman Antitrust Act could and should
be enforced to curtail the formation of, and encourage the break up of existing,
monopolies and cartels that are often a result of private equity, and banking cartel, driven M&A
activity, combinations, and bankruptcies. Monopolies and cartels -created by private equity - kill jobs, harm the tax base, crush innovation, are anti-consumer, make monopolistic profits that are a hidden tax on society, and curtail greatly stock and alternative investment opportunities as a result of
eliminating competition.
Meanwhile, while the nation suffers in year five of the Great Recession, one private equity executive referred to the earnings and refinancing afforded to the PE industry as "biblical."
Liberals often receive a bum rap for being anti-business or allegedly, being against free markets; but assuredly, there is nothing pro-business or pro-free market about private equity created bankruptcies, or monopolies and cartels.
Meanwhile, while the nation suffers in year five of the Great Recession, one private equity executive referred to the earnings and refinancing afforded to the PE industry as "biblical."
Liberals often receive a bum rap for being anti-business or allegedly, being against free markets; but assuredly, there is nothing pro-business or pro-free market about private equity created bankruptcies, or monopolies and cartels.
The recent
trend towards democratic populism in our society is not driven by a demand for
egalitarian outcomes but rather, it is driven by society's need for egalitarian
opportunities. Private Equity, in its present incarnation, crushes
opportunity. In short, private equity and crony capitalism must be reined
in so as to not reward an elite few, but instead create opportunity and rising
wages for all, including the elite few.
Even under reined in circumstances, the rich would continue to grow richer, but PE's impact upon society, government, the economy and opportunity would be muted. And that's a good thing.
Even under reined in circumstances, the rich would continue to grow richer, but PE's impact upon society, government, the economy and opportunity would be muted. And that's a good thing.
Republicans were correct to attack private equity in the last election; however, the problems created by PE did
not simply vanish because the election cycle ended. Instead, they are alive and well and staring
down the nation.
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