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Speaker 1: Good morning, peeps, and welcome to woo k F Daily

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Speaker 1: with Meet your Girl Danielle Moody, recording from the Home Bunker. Folks.

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Speaker 1: You know, ever so often I get pretty excited to

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Speaker 1: have conversations about things that, guess what, I don't really

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Speaker 1: know about And why do I think that that's important? One,

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Speaker 1: I think it's important to continue to be students and

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Speaker 1: learn about issues that affect our daily lives. And also

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Speaker 1: one to just you know, I want to share with

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Speaker 1: you all of the ways in which I am learning

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Speaker 1: over time how much like we are being screwed in

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Speaker 1: so many different ways, and it's actually really wild. So

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Speaker 1: on today's show, I sit down with Brendan Blue, who

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Speaker 1: is the author of the book Plunder Private Equities Plan

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Speaker 1: to Pillage America. And Brendan and I, you know, I

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Speaker 1: tell him at the start of the interview, I said, look,

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Speaker 1: you know, give me a one oh one class in

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Speaker 1: private equity. And you know, he gives a wonderful description

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Speaker 1: and low down of fifty thousand foot view of what

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Speaker 1: private equity is. But then we talk about the ways

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Speaker 1: that private equity has been essentially targeting low income and

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Speaker 1: black and brown communities and basically, I don't even know

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Speaker 1: what to say, Like pillage is absolutely the right word

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Speaker 1: that Brendan uses to describe his book, and that is

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Speaker 1: exactly what they are. They are private equity are vultures

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Speaker 1: that go into low income communities. They take over services

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Speaker 1: and industries that are desperately needed by people with little income.

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Speaker 1: They then basically turn those businesses and services into trash,

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Speaker 1: cause a lot of harm. And then because they are

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Speaker 1: private equity firms, guess who doesn't have the ability to

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Speaker 1: sue the people. And so it's just another way in

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Speaker 1: which we think. For instance, when you're putting, let's say

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Speaker 1: a loved one in a nursing home, and you think

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Speaker 1: that if something goes wrong, if they were to slip,

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Speaker 1: if they were to God forbid die, that then you

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Speaker 1: can go ahead and sue that nursing home. Well, that

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Speaker 1: nursing home has now been bought over by a private

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Speaker 1: e equity firm that has no liability whatsoever, and also

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Speaker 1: don't need to tell you that it's been bought by

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Speaker 1: private equity firm. They did this after the foreclosure crisis, right,

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Speaker 1: go in and gobble up a bunch of low income housing,

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Speaker 1: drive up the costs like, it's just this interview was

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Speaker 1: so eye opening and just so disturbing. So I hope

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Speaker 1: that you gain as much insight and information as I did.

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Speaker 1: Coming up next, my conversation with Brendan Blue, the author

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Speaker 1: of Plunder Private Equities Plan to Pillage America. Folks, I

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Speaker 1: am very excited to welcome to ook at Daily Brendan Blue,

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Speaker 1: who is the author of Plunder Private Equities Plan to

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Speaker 1: Pillage America. You basically are the authority on private equity,

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Speaker 1: and I want to understand because I will tell my

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Speaker 1: listeners it was like I was the kid that I

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Speaker 1: think that was took statistics because I had to took

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Speaker 1: economics because I had to because of my because of

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Speaker 1: my degree in politics, not because I understood anything about

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Speaker 1: business or math. So please Brandon, give us a fifty

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Speaker 1: thousand foot view, a one oh one explainer on what

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Speaker 1: private equity is.

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Speaker 2: Well, thank you so much for having me, and I

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Speaker 2: really appreciate the chance to answer this question because I

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Speaker 2: didn't know the answer to it before I started this project.

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Speaker 2: So I was in the exact same boat as you were.

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Speaker 2: And I should give a standard disclaimer. I work for

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Speaker 2: the government, but I'm speaking in a purely personal capacity.

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Speaker 2: So what is private equity? Private equity is a term

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Speaker 2: that I'm sure you've heard of. I'm sure most of

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Speaker 2: your listeners have heard of, but if we're honest, probably

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Speaker 2: a lot of us don't actually know what it is.

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Speaker 2: The basic idea behind private equity is very simple. So

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Speaker 2: private equity firms use a little bit of their own money,

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Speaker 2: some investor money, and a whole lot of borrowed money

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Speaker 2: to buy up companies. They then try to make financial

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Speaker 2: or operational changes to those companies with the aim of

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Speaker 2: selling it for a profit a few years later. So

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Speaker 2: that is a very simple idea, and yet it has

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Speaker 2: had extraordinary consequences for the entire economy. Last year or

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Speaker 2: in twenty twenty two, I don't think we've gotten the

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Speaker 2: statistics for twenty twenty three. Yet private equity firms spent

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Speaker 2: over a trillion dollars buying up companies in the United States,

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Speaker 2: and for comparison, the entire US GDP is about twenty

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Speaker 2: five trillion dollars. So we're talking about a not insubstantial

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Speaker 2: part of the economy. You know, if you you know,

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Speaker 2: went to the veterinarian, went to the obg yn decided

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Speaker 2: you know, needed to get an ambi or needed to

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Speaker 2: rent an apartment, there is a good chance that you

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Speaker 2: ultimately paid a private equity firm. And just as you

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Speaker 2: are seeing bad consequences in veterinary care, in medical care,

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Speaker 2: in the housing market, at least part of those problems,

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Speaker 2: I would argue are the consequence of private equity and

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Speaker 2: the unique problems that that business model has, which I'm

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Speaker 2: happy to get into.

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Speaker 1: So let's talk about this for a moment, because there

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Speaker 1: are a couple of things that are coming to mind,

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Speaker 1: and I think that one of them is a lawsuit

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Speaker 1: that I'm remembering that came up following the height of

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Speaker 1: the pandemic, where nursing homes in New York where I

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Speaker 1: am were found to have, oh, I don't know, covered

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Speaker 1: up the number the number of deaths of COVID related

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Speaker 1: deaths in New York in the nursing homes. Then come

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Speaker 1: to find out, like a little bit down in the article,

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Speaker 1: is that these nursing homes were being run by private

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Speaker 1: equity firms and not by who we thought that they

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Speaker 1: were going to be. And so when I think about

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Speaker 1: private equity, I think about the fine print that we

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Speaker 1: all just kind of scroll down, whether it's I'm purchasing

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Speaker 1: something or I'm looking at my credit card statement that

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Speaker 1: says do you agree, and I'm like yes, because I

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Speaker 1: don't have the seven days it's going to take me

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Speaker 1: nor the degrees in order to understand what I'm agreeing

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Speaker 1: to in the fine print. And so talk to us

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Speaker 1: how it is that these private equity firms can buy

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Speaker 1: up places that we use on a regular basis, services

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Speaker 1: companies that are providing services that we use on a

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Speaker 1: daily basis, But we don't actually know that the people

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Speaker 1: who are in charge know what the hell that they're

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Speaker 1: doing other than making money.

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Speaker 2: It's a great question, and it's a complicated question. The

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Speaker 2: answer is complicated. So let's talk about the example that

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Speaker 2: you started with, which is nursing homes. So there's no

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Speaker 2: good or no definitive sort of statistics on this, but

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Speaker 2: I've seen estimates that private equity firms own between ten

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Speaker 2: and fifteen percent of the entire nursing home industry, and

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Speaker 2: the consequences have been often disastrous. According to one study,

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Speaker 2: there have been tens of thousands of premature deaths at

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Speaker 2: nursing homes because of private equity ownership. We've seen lots

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Speaker 2: of anecdotal cases of private equity firms buying up a business,

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Speaker 2: buying up a nursing home, and then patient care suffering

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Speaker 2: health complaints, rising complaints about rodents and vermin and nursing

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Speaker 2: homes and people dying. The basic problem that we've got

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Speaker 2: is it is very hard to hold private equity firms

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Speaker 2: responsible for the consequences of their actions. And I think

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Speaker 2: this is an important point because it helps to explain

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Speaker 2: why private equity firms are different than many other kinds

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Speaker 2: of companies. So if a nursing home was owned by

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Speaker 2: a public company and somebody dies there, the family of

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Speaker 2: that resident or the state of that resident could generally

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Speaker 2: sue the parent company would be very easy to figure

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Speaker 2: out who owns it, and be very easy comparatively to

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Speaker 2: hold them responsible. That's not necessarily true for private equity

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Speaker 2: firms because of their ownership structures, where they advise what

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Speaker 2: are called funds that are owned by quote unquote limited

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Speaker 2: partners that then own assets through several shell companies. It

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Speaker 2: can be hard to figure out, even to your point,

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Speaker 2: whether a private equity firm owns a business, and then

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Speaker 2: even if you can figure that out, to hold them

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Speaker 2: legally responsible for the actions of that business. And so

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Speaker 2: you have a business model where private equity firms can

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Speaker 2: often benefit if things go well at a nursing home,

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Speaker 2: at any other kind of business, walk away legally or

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Speaker 2: financially if things go poorly and at the risk of

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Speaker 2: going on for a long time for your fairly you know,

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Speaker 2: straightforward question. You mentioned the fine print. One of the

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Speaker 2: things that I think private equity firms have been extraordinarily

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Speaker 2: good at is identifying the fine print that's going to

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Speaker 2: benefit them the most. So to stick on the example

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Speaker 2: of nursing homes, yeah, private equity firms were have often

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Speaker 2: put in forced arbitration clauses into contracts to be admitted

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Speaker 2: into a nursing home. So if you go to a

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Speaker 2: nursing home, they would, you know, require you to sign

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Speaker 2: agreement saying you couldn't you know, bring a suit if somebody,

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Speaker 2: you know, if something happens to you at this nursing home.

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Speaker 2: There was rulemaking under the Obama administration to try to

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Speaker 2: throw that get that away that was enjoying. The Trump

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Speaker 2: administration did a significantly less ambitious rule all, which is

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Speaker 2: to say that I think oftentimes private equity executives aren't

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Speaker 2: necessarily that good at running a business, but they are

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Speaker 2: really good at identifying and developing the fine print that

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Speaker 2: you mentioned.

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Speaker 1: So now I want to go into your book where

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Speaker 1: you talk about, you know, the pillaging that is happening

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Speaker 1: in you know, in America by private equity firms. What

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Speaker 1: do you mean by that?

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Speaker 2: Is?

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Speaker 1: Is it that one we don't really understand what it

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Speaker 1: is that we're consuming and who we're consuming it from. Right,

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Speaker 1: we as consumers don't have the ability then if something

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Speaker 1: were to go wrong. Let's stick with the nursing home.

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Speaker 1: If a loved one were to prematurely pass away, that

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Speaker 1: there is no real recourse that we can take. But

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Speaker 1: we didn't know that when we placed our loved one

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Speaker 1: into this facility, right, we just assumed that they knew

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Speaker 1: how to provide care, that it was going to be

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Speaker 1: the best care that we could afford, and that if

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Speaker 1: something terrible were to happen then they would be held liable.

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Speaker 2: Well, it's kind of all of the above. So I

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Speaker 2: think let me give the general answer and then I'll

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Speaker 2: get into the specifics. So when I talk about the

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Speaker 2: flaws of the private equity business model, I really am

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Speaker 2: talking about three things. One is that private equity firms

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Speaker 2: tend to buy up businesses and hold them for just

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Speaker 2: a few years. And you know, if you own a

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Speaker 2: business for just a few years, that changes your perspective

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Speaker 2: on it. It changes whether you're going to invest in

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Speaker 2: your employees and your infrastructure, if you're going to treat

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Speaker 2: your customers and your patients. Well, that's problem one. Problem

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Speaker 2: two is that private equity firms tend to load up

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Speaker 2: companies with a lot of debt and extract ourn fees.

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Speaker 2: And so you might have a business that was functional,

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Speaker 2: a functional nursing home, functional, you know, doctors clinic, but

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Speaker 2: suddenly there's so much debt that the business has to

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Speaker 2: pay off, has to service, that it can't invest in

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Speaker 2: its future, in its operations, in its employees. And then

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Speaker 2: the third thing is what we were just talking about,

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Speaker 2: and which you alluded to in your question, which is

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Speaker 2: insulation from liability, where private equity firms can typically capture

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Speaker 2: the financial upside if things go well and then walk

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Speaker 2: away if they don't. And let me give you sort

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Speaker 2: of one concrete example here, which is one that it

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Speaker 2: really sticks with me I've used many times, is the

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Speaker 2: private equity acquisition of Friendlies, which was this diner chain

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Speaker 2: in the northeast.

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Speaker 1: Oh, I have one. I had one growing up in

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Speaker 1: my community. It's actually still there. Please, oh kindy good?

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Speaker 2: Yeah, well so, unfortunately it is one of the rare

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Speaker 2: ones that is still there because I believe in two

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Speaker 2: thousand and seven, Sun Capital bought up the diner chain,

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Speaker 2: executed a bunch of fairly standard tactics in the private

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Speaker 2: equity playbook, executed layoffs and so forth, ultimately pushed the

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Speaker 2: company into bankrupt But in bankruptcy, it was able to

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Speaker 2: execute this really weird tactic where it sold the company

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Speaker 2: from itself to itself, which sounds like something that only

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Speaker 2: lawyers can make up, but it was this complicated transaction

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Speaker 2: sells itself from itself to itself emerges from bankruptcy. And

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Speaker 2: the reason that it does that is by executing this transaction,

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Speaker 2: it's able to push the pension obligations that it had

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Speaker 2: to employees and retirees onto what's called the pension Benefit

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Speaker 2: Guarantee Corporation, which is this separate, quasi governmental organization, and

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Speaker 2: suddenly the private equity firm was able to continue to

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Speaker 2: control this business without any of those obligations that it

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Speaker 2: had to employees into retirees. And I think that's an

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Speaker 2: example of where private equity firms again may or may

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Speaker 2: not be that great at running a business. Like I said, many,

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Speaker 2: if not most friendlies diners unfortunately have cleared do now,

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Speaker 2: but are really good at understanding sort of the gaps

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Speaker 2: or sort of holes in the law that allow them

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Speaker 2: to essentially capture benefit when things go well, walk away

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Speaker 2: when things go poorly. So tell me.

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Speaker 1: What position does so a company ideally then that is

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Speaker 1: being acquired by a private equity firm, needs to be

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Speaker 1: in dire straits, right.

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Speaker 2: It's a good question. Oftentimes that's the case. But the

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Speaker 2: interesting thing is, oftentimes healthy companies get sold to private

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Speaker 2: equity firms and sometimes that works well. You know, success

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Speaker 2: builds on success. The private equity firm sells the business.

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Speaker 2: Often it succeeds wonderfully, but oftentimes it doesn't. There's a

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Speaker 2: really interesting study out there that says that companies that

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Speaker 2: are bought by private equity firms are ten times as

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Speaker 2: likely to go bankrupt as companies that aren't. And the

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Speaker 2: interesting thing is that the economists that did that study

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Speaker 2: controlled for exactly the question that you were asking, which

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Speaker 2: is our private equity firms just buying up distressed businesses?

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Speaker 2: And they looked at a comparative set of businesses, you know,

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Speaker 2: of various levels of size and health and so forth,

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Speaker 2: and said, no, this, this is robust sort of across

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Speaker 2: the kinds of businesses that private equity firms buy. So

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Speaker 2: it's not just that private equity firms, you know, sort

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Speaker 2: of are attracted to sort of the most failing companies.

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Speaker 2: It's that private equity ownership at least sometimes can cause

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Speaker 2: those businesses to fail.

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Speaker 1: So you're not here as you're in your government capacity.

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Speaker 1: But let me ask you this question. Then where does

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Speaker 1: government come in Because if it is seemingly right, like

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Speaker 1: we're told, oh, the private well let's say this. Republicans

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Speaker 1: tell us that the privatization of everything is going to

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Speaker 1: be what saves us all, and we all know that

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Speaker 1: not to be true. All Their whole idea is to

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Speaker 1: shrink government. Government is big. Government is bad, It controls

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Speaker 1: your life. YadA YadA, YadA. You shrink it, you get

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Speaker 1: rid of that, You privatize everything, and everyone wins, except

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Speaker 1: everyone doesn't win. It's the people that are the shareholders.

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Speaker 1: It is the CEOs that win everyone else who are

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Speaker 1: workers of the working class, which I believe is everyone

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Speaker 1: else doesn't. And so I ask, then where does government

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Speaker 1: come in to regulate these entities that are actually not

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Speaker 1: providing anything other than benefits to themselves to make more

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Speaker 1: money and to do so without having any risk whatsoever.

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Speaker 2: And the interesting thing is private equity firms are in

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Speaker 2: some places actually taking over the role of government, at

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Speaker 2: least in some services. So KKR did a bunch of

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Speaker 2: joint partnerships or several joint partnerships to take over municipal

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Speaker 2: water services. Private equity firms have gotten extremely interested in

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Speaker 2: the higher education business, investing in for profit colleges, and

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Speaker 2: have also taken over increasing parts of our prison system,

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Speaker 2: buying up businesses like prison healthcare companies, prison commissaries and cafeterias,

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Speaker 2: and prison phone companies. So it's an interesting intersection where

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Speaker 2: private equity firms are actually somewhat taking over some aspects

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Speaker 2: that we traditionally deserve for government in terms of what

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Speaker 2: the government role should be. I think it ultimately goes

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Speaker 2: back to the basic problems that I was talking about,

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Speaker 2: where private equity firms invest for the short term load

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Speaker 2: companies up with a lot of debt and fees insulate

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Speaker 2: themselves from liability. If you can solve those problems, private

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Speaker 2: equity can become a much less destructive. It can become

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Speaker 2: a productive part of our financial system. The question is

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Speaker 2: how do you get there? And I've laid out there

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Speaker 2: are a lot of things that can be done at

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Speaker 2: the federal level in terms of regulation at the SEC

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Speaker 2: and Treasury Department, Federal Reserve, and so forth, you know,

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Speaker 2: sort of in the weeds, banking regulation and so forth.

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Speaker 2: But there's also a lot that states and localities can

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Speaker 2: do here to reign in or ban sort of the

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Speaker 2: most abusive tactics that private equity firms engage in. So

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Speaker 2: I think that understandably, activists often look to the federal

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Speaker 2: government to provide the answer here, but there's actually a

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Speaker 2: lot that can be done right in our own communities

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Speaker 2: to try to protect local businesses and prevent them from

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Speaker 2: being pillaged.

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Speaker 1: I mean, because honestly, when I think about it, I

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Speaker 1: and I you know, your book is really helpful in

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Speaker 1: terms of helping regular people understand what is happening. But

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Speaker 1: even in just the businesses that you laid out that

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Speaker 1: private equity has taken control of. Are what's the word

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Speaker 1: that I want to use that I'm struggling to use,

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Speaker 1: you know, are the shit ones? Are the ones that

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Speaker 1: absolutely take advantage of people. When you're talking about prison, healthcare,

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Speaker 1: when you're talking about municipalities and their water system. The

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Speaker 1: only thing that came to my mind was Jackson, Mississippi,

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Speaker 1: and Flint, Michigan and other places where you go in again,

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Speaker 1: and this is why I asked about is it the

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Speaker 1: fact that they look for places businesses and cities and

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Speaker 1: areas that are already problem areas right, which largely are

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Speaker 1: those areas in businesses and in communities that have a

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Speaker 1: high population of black and brown people. Do you know

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Speaker 1: what I'm saying? And so there seems to be this

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Speaker 1: affinity for these entities to go after populations and places

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Speaker 1: that they can abuse and that people won't notice.

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Speaker 2: You know. One of the things that sort of surprised

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Speaker 2: me in researching this, and I think it gets to

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Speaker 2: your question, is I always sort of assume that if

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Speaker 2: you're in the business of making money, you go to

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Speaker 2: businesses that service wealthy people because that's where your money is. No, exactly,

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Speaker 2: and oftentimes private equity firms I think are attracted to

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Speaker 2: the exact opposite. You know, we mentioned prison services and

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Speaker 2: for profit colleges and so forth. I'd add mobile home

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Speaker 2: parks to that. Where private equity firms have found real

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Speaker 2: success in large part because you have captive audiences in

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Speaker 2: some places literally captive audiences that don't have an alternative.

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Speaker 2: And so in those situations, some firms have found real

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Speaker 2: success by raising prices cutting the quality of care because

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Speaker 2: they know that there really is an alternative for the clientele.

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Speaker 2: So I think, I think it's a really interesting or

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Speaker 2: you know, concerning issue in that the people who are

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Speaker 2: often affected the most by this business model or the

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Speaker 2: flaws of the business model are the ones that are

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Speaker 2: least able to do something about it.

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Speaker 1: Private equity needs to be regulated, and so I'm confused,

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Speaker 1: I guess in where where the benefit is. So you

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Speaker 1: use the you know, the Obama administration versus the Trump administration,

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Speaker 1: and let's look at those two because the fact is

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Speaker 1: right that you know, Obama, whom I love, did not

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Speaker 1: do well in terms of dealing with the banking crisis,

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Speaker 1: in terms of providing those people that caused a series

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Speaker 1: of foreclosures around this country for people to lose their

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Speaker 1: jobs and all of these things, and given out to

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Speaker 1: banks that were too big to fail, right, given out

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Speaker 1: to industry too big to fail, right, put the burden

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Speaker 1: on the people. Then you have Donald Trump, right, who

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Speaker 1: could care less about the people and is all about

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Speaker 1: cutting deals and favors for his friends and you know,

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Speaker 1: and tax cuts and the like. What I'm saying is

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Speaker 1: that there's not a real, seeming big difference between who

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Speaker 1: is doing right by the people as it pertains to

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Speaker 1: private equity, to corporations and the regulations that are necessary

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Speaker 1: so that people consumers know what they're getting into and

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Speaker 1: also have the ability to understand how they're being tanken

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Speaker 1: advantage of It's like there, it doesn't seem to be

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Speaker 1: one way or the other. And you tell me that

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Speaker 1: I'm wrong. An administration or party that doesn't get some

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Speaker 1: type of advantage right, because the advantage obviously for them

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Speaker 1: is either money or what have you. I just I'm

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Speaker 1: confused about who is actually fighting for the people.

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Speaker 2: Well, the interesting thing is, or maybe it's the unsurprising thing,

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Speaker 2: is the people that are fighting for the people are

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Speaker 2: the people by the people. Where I've seen sort of

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Speaker 2: the biggest success in terms of reining in or sort

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Speaker 2: of addressing the problem of the private equity business model

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Speaker 2: has come from activists who have focused on very specific issues.

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Speaker 2: You know, when you talk about private equity and the abstract,

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Speaker 2: not only is it often kind of boring, it's kind

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Speaker 2: of overwhelming, you know, it seems like a problem too

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Speaker 2: big to sort of tackle. Had on, where I think

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Speaker 2: there's been real success has been looking at specific issues.

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Speaker 2: So we were talking about prisons earlier. The advocacy work

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Speaker 2: done terrain in the cost of prison phone calls done

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Speaker 2: by a handful of activities, right, Yeah, enormously successful, you know,

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Speaker 2: as you know, you know, started with sort of local

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Speaker 2: legislation in cities, then there was state level legislation. Finally

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Speaker 2: legislation was passed in Congress to address this, which is

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Speaker 2: just extraordinary growth and success. So that's one area. I think.

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Speaker 2: Nursing homes have been another area of success in that

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Speaker 2: for the first time there's federal rulemaking to establish minimum

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Speaker 2: nursing home staffing criteria. You know, that's the work of

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Speaker 2: activists to make this happen. So I think, you know,

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Speaker 2: I don't want to be overly optimistic or pollyanni ish

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Speaker 2: about this, but I do think that when people pick

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Speaker 2: specific issues where private equity is active and stick with it,

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Speaker 2: I think they can succeed, because we've seen examples of

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Speaker 2: success in the recent past.

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Speaker 1: Well, tell me this is last question for you, brandan,

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Speaker 1: what would sweeping change look like as opposed to siloed

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Speaker 1: change industry by industry.

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Speaker 2: So I think it ultimately boils down to I've mentioned

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Speaker 2: those basic problems with the business model. I think if

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Speaker 2: you had to pick one, it would probably be this

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Speaker 2: insulation from liability that private equity firms can often direct

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Speaker 2: the operations of businesses but walk away if things go badly.

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Speaker 2: If you can change that and hold private equity firms

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Speaker 2: responsible for the consequences of their actions, then you're going

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Speaker 2: to have a situation where private equity firms have to

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Speaker 2: act responsibly because if they don't, they're going to lose

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Speaker 2: a bunch of money. Congress could take action on that.

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Speaker 2: Regulators can to a certain extent, but I think a

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Speaker 2: lot of that action is going to happen in city

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Speaker 2: councils and in state legislatures over the next few years,

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Speaker 2: and if there's the energy to do that, I think

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Speaker 2: sort of the worst excesses of the private equity business model.

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Speaker 1: Can get curbed well, Brendan, I thank you so much

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Speaker 1: one for the one oh one class in private Equity

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Speaker 1: and for this book. Folks. The book is entitled Plunder

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Speaker 1: Private Equities Plan to Pillage America. I think it is

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Speaker 1: absolutely worth the read and understanding all of the ways

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Speaker 1: that you know, unbeknownst to many of us, were being

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Speaker 1: taken advantage of and what we can do to stop it. Brennan,

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Speaker 1: thank you so much, really appreciate you.

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Speaker 2: Thank you.

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Speaker 1: That is it for me today. Dear friends on woke

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Speaker 1: app as always Power to the people and to all

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Speaker 1: the people. Power yet woke and stay woke as fuck.

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Speaker 1: M