Today, private equity and hedge fund managers take advantage of gaps in regulations to make billions of dollars by looting real-world businesses and engaging in abusive practices without any accountability. They also pay taxes at a lower rate than teachers and firefighters. The undersigned organizations support the Stop Wall Street Looting Act (S.2155 / HR 3848 ). This legislation would eliminate tax, securities and bankruptcy law carve-outs that allow these Wall Street titans to make billions at the expense of workers, communities and pensions.
The undersigned organizations write to urge you to support the Stop Wall Street Looting Act (S.2155 / HR 3848 ). Today, private equity and hedge fund managers take advantage of gaps in regulations to make billions of dollars by looting real-world businesses and engaging in abusive practices without any accountability. They also pay taxes at a lower rate than teachers and firefighters. This legislation would eliminate tax, securities and bankruptcy law carve-outs that allow these Wall Street titans to make billions at the expense of workers, communities and pensions. It would protect jobs and advance economic justice.
A handful of billionaires is quietly transforming the U.S. American economy through a series of predatory financial maneuvers. These include owners of private equity (PE) funds, which manage more than $4 trillion in U.S. assets and which now own companies that collectively employ nearly 6 million American workers, along with some hedge funds which engage in similar conduct. These funds now have a significant stake in sectors of our economy including health care, housing, incarceration, and more. Unfortunately, because of inadequate regulation and perverse incentives, what’s been good for the private equity industry has too often been disastrous for American workers and communities of every race and in every region of the country.
Private equity owners can take control of companies without risking their own money, by loading target companies with debt in what is called a “leveraged buyout.” The acquired company, not the private equity firm, is responsible for repaying the debt. This puts the private equity firm in a “heads I win, tails you lose” situation where the PE owners can benefit if the company does well, but they can also benefit by draining its resources to pay themselves, hurting and even destroying businesses that would otherwise survive, and doing tremendous harm to workers, communities, and people who used to be served by the business.
These predatory financial practices have become alarmingly common. For instance, of the 14 largest bankruptcies in the retail sector since 2012, 10 were at private equity-acquired chains. According to one independent analyst, more than 60% of all retail jobs lost in 2016 and 2017 were at private equity-owned firms; that is about 130,000 people, disproportionately people of color, who lost their jobs. In addition to job loss, PE-owned companies have lowered wages, shed assets and disinvested in employee training and developing and improving products and services because the ownership has no stake in the firm’s long-term health.
Private equity’s destructive conduct goes well beyond the retail sector. Its foray into health care has shut down hospitals, imperiled nursing home patients, raised drug prices and is transforming specific services like dialysis, drug treatment and fertility care. These funds are increasingly buying —- and raising rents at —- manufactured housing communities and apartment buildings, threatening affordable housing. They invest in fracking and other practices that imperil our planet. They also profit off of human suffering at private prisons and detention centers. All of this while escaping accountability for the liabilities of the firms they own.
Pension plans, as investors, also are often also victims of private equity’s predatory approach.Pension plans are under pressure to compensate for insufficient employer contributions by chasing greater returns, which private equity funds claim to provide. But the industry’s opacity, illiquidity and high fees add to investment risks, and PE investments frequently fail to deliver the returns they promise. In 2014, a Securities and Exchange Commission study of PE fund managers’ fees and expenses identified “what [the SEC] believe are violations of law or material weaknesses in controls over 50% of the time.”
In addition, risks created by leveraged buyouts extend beyond the target companies and investors and into the broader economy. In the past five years, the value of outstanding leveraged loans has nearly doubled to $1.19 trillion, and loans are growing riskier. Increasingly, regulators are raising concerns about macroeconomic consequences of these high corporate debt levels. These loans pose a danger of helping tip the economy into recession, and of seriously worsening the pain – including job loss – when a recession does come.
As written now, Federal law establishes incentives for private equity firms and private equity executives to engage in the very practices that are causing so much harm. Simply put, this large and fast-growing slice of the economy is being run on behalf of a few well-connected billionaires and millionaires to help some of the richest people in the world become even richer at the rest of our expense. It is time to change this, and put in place new rules so that we can build an economy that works fairly for everyone.
That is why we believe it is so important that Congress pass the Stop Wall Street Looting Act. This legislation would prohibit or eliminate tax preferences that facilitate key predatory practices central to the harm caused by today’s private equity business model. It would eliminate the loopholes that allow PE firms to use leveraged buyouts to profit from destroying American jobs, ban practices that drain value from companies owned by predatory funds, protect investors including pension funds from reckless and deceptive financial managers, and provide more compensation for workers if their employer enters bankruptcy. It would also close the “carried interest” tax loophole, and hold billionaire profiteers personally accountable for the damage they do, whether that be to workers or to the environment.
In order to build an economy that works for all of us, we must rewrite the rules to empower workers, retirees, community residents, and consumers. The Stop Wall Street Looting Act will end widespread and systematic abuses, and do exactly that.
Action Center on Race and the Economy (ACRE)
Alaska Public Interest Research Group (AkPIRG)
American Federation of Teachers
Americans for Financial Reform
American Postal Workers Union
Arkansas Community Organizations
California Reinvestment Coalition
Center for Economic Policy Research
Center For Popular Democracy
Coalition on Human Needs
Communications Workers of America (CWA)
Consumers for Auto Reliability and Safety
Economic Policy Institute
Food and Water Watch
Friends of the Earth
International Brotherhood of Teamsters
Michigan League for Public Policy
NETWORK Lobby for Catholic Social Justice
New Jersey Tenants Organization
Open Markets Institute
SC Appleseed Legal Justice Center
The Hedge Clippers
THE ONE LESS FOUNDATION
The Strong Economy For All Coalition
United Food and Commercial Workers, Local 400
United for Respect