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Private Equity Is Cannibalizing the Post-Pandemic Economy

These vulture firms helped create the conditions for economic collapse. Now they’re cleaning up.


In April, just after the coronavirus had transformed into a full-blown public health emergency in the United States, The New York Times reported that investment firms were eyeing the unfolding disaster as yet another opportunity to make money. As retailers and other businesses began to feel the squeeze of the economic downturn, large investors drew up plans to buy up or lend to the cash-strapped companies. Their blueprint for finding profit in others’ economic misfortune came straight from Wall Street’s pillaging of distressed businesses and foreclosed homes during the Great Recession. “We had some of our best returns coming out of the global financial crisis,” one investor told the Times. Extracting as much as possible out of whatever they come across, of course, is essentially what such firms are designed to do, but the country’s staggering inequality, sharpened first by the Great Recession and now by the pandemic, makes it all but impossible to justify.

Now—a few months later in the thick of a new recession, with a retail sector collapse well underway—big investors have again profited while the country literally burns. According to a Times report on Monday, several hedge funds and private equity firms—including the investment fund run by former Trump adviser Carl Icahn—made hundreds of millions this year on the demise of shopping malls by short-selling commercial real estate securities. It’s difficult to summon much shock that malls didn’t quite survive the online retail boom and the pandemic (or feel terribly gutted over the loss of chain department stores and Cinnabon counters), but there’s nevertheless something perverse about masters of the universe making a fortune on the retail collapse just as low-wage workers in that very sector now face permanent job losses in the middle of general economic collapse. Short-selling—essentially betting money that a company or industry will fail—is notoriously also the same practice that enriched a few Wall Street managers who bet against the housing market on the eve of the Great Recession and cashed in after millions of people had lost their homes.

Various financial vultures have always excelled at getting richer just as the working class is hung out to dry, and private equity appears increasingly well-positioned to devour a significant chunk of the post-pandemic economy. Private equity firms—which pool investment funds and buy up companies in order to restructure and resell them at a profit in a few years’ time—have been encroaching for years into the very sectors that are now buckling under the strain of the pandemic, including retail, health care, and housing. And the government’s failure to both rein them in and to guarantee Americans the basics like food, a roof over their heads, and essential workplace protections during the pandemic has created yet more opportunities for this largely unregulated industry to flourish in the ruin.

According to Eileen Appelbaum and Rosemary Batt, two leading scholars on private equity, most private equity firms end up undermining the companies they acquire and, in particular, harm those companies’ employees. Studies over several decades show that employment and wages both tend to fall at companies acquired by private equity, while the firms themselves do just fine. That’s central to their very business model. “Thanks to hefty management fees and other tricks, private equity firms often make out well even if their tactics drive companies into bankruptcy (tanking the investments of their limited partners, often pension funds, in the process) and cost workers their jobs,” Appelbaum wrote earlier this month. Just a few years ago, for instance, when private equity took over Toys “R” Us and ultimately drove it to bankruptcy, 31,000 employees lost their jobs with no severance. The firms, on the other hand, reaped at least $15 million each in transaction fees.

Private equity has also colonized the health care sector, and its relentless profit-seeking measures there have hit patients as well as workers. As several investigations have revealed, surprise medical billing—one of the cruelest and most financially devastating by-products of a market-based health care system—is one ugly consequence of private equity takeovers of medical staffing companies used by hospitals and other medical practices. Once in control of those staffing companies, private equity firms are free to charge patients exorbitant “out of network” prices for any medical services rendered by doctors and other professionals employed by them. When a group of legislators started pushing to end surprise billing last year, the same firms then poured money into fighting those proposals: As a result of that stalemate, surprise billing has continued throughout the pandemic, with a number of patients receiving unexpected medical bills as high as nearly $2,000 for obtaining the “wrong” kind of coronavirus treatment or testing (according to insurers). Surprise billing has now reached such an absurd scale that even the Trump administration has pledged to end it.

Likewise, a growing number of nursing homes—now the tragic site of more than 40 percent of Covid-19 deaths in the U.S.—also fell prey to private equity over the last few years, and residents and employees alike are now paying the price. As journalist Eleanor Laise wrote toward the beginning of the pandemic, private equity takeovers of nursing homes often reduced staffing and eroded the quality of care at those facilities, making them especially vulnerable to Covid-19 outbreaks. Some private equity–run nursing homes, particularly chains, also appear to have neglected to craft a coherent Covid-19 response. “We never had a meeting. No administrator ever said, ‘Covid’s in here. This is what we need to do,’” one nursing assistant who worked for a large private equity–owned nursing home chain told Laise more recently.

All of this is to say that private equity had a heavy (if largely unseen) hand in weakening a number of crucial industries right before a national disaster. Not only will it likely face no consequences for indirectly facilitating a portion of the suffering, but it also now stands to profit from the wreckage of the economic recession it helped flame. For instance, though private equity was explicitly excluded from the stimulus, last month the Project on Government Oversight found that more than 1,300 businesses owned by private equity firms had managed to secure forgivable bailout loans from the Paycheck Protection Program, for a total amount between $1.5 and $3.4 billion. As it did in the aftermath of the Great Recession, private equity is also now moving to sweep up foreclosed homes and other distressed real estate on which it can eventually charge high rents. “Families see a looming catastrophe. But private equity firms just see dollar signs,” Elizabeth Warren and Carroll Fife, the director of Oakland’s Alliance of Californians for Community Empowerment, wrote earlier this month in a call for new regulations on investors.

That very disconnect illuminates the failure of an economy that encourages disaster profiteering. Though private equity may seem uniquely villainous, in the end, those firms are only doing what they were created to do and always explicitly promised to do: generate profit for their investors above all else. Their predations are made possible by a government that condones them or is content to simply turn away, as it has so many times before. That calls not just for a general condemnation of financial greed—which most politicians are happy to offer—but real measures to end it. As Warren and Fife put it, “Wall Street has already shown us what it will do if left unchecked.”