And how ‘carried interest’ hurts you—and enriches billionaires.
It’s time to talk about women’s economics with attitude. It’s time to laugh at what is often absurd and call out what is dangerous. By focusing on voices not typically part of mainstream man-to-man economic discourse, Women Unscrewing Screwnomics will bring you news of hopeful and practical changes and celebrate an economy waged as life—not as war.
So what is carried interest? For a long time now, I’ve tried to unpack why so many Americans, including me, are having a harder time paying for necessities like water, food, shelter and healthcare. The poor—who are mostly women with children—work hard and remain stigmatized. Government welfare money had never put moms above the poverty line, but in 1996, a Congress of both parties reformed the moms’ supposedly lazy-ass ways, and Clinton’s welfare became a subsidy and job recruitment program for low-wage companies like Dollar General.
Over the past 40 years, regardless of your race or gender, wages were widely reported to lag far behind the returns on improved U.S. productivity. I was one of those workers who hustled to learn about and even pay to function in a new virtual world wide web, pitched as glorious opportunity. And it was—at least for Silicon Valley’s real-world billionaires and Wall Street’s financiers.
We were promised future wealth, but soon learned a key word. Contrary to expectations, the key word in what became a familiar economic phrase was not “trickle'”—suggesting wealth would flow from the top down to the bottom—but rather, “down.”
In 2005, Congress reformed bankruptcy law to limit the so-called homestead exemption, which had allowed borrowers to protect their homes from creditors. Credit card debt soared after that, averaging $8,640 per household in 2008, up to $20,221 in 2023.
The wealth gap widened, too. In rounded numbers:
- In 1991, the top 10 percent owned 67 percent of our national wealth and 90 percent of us held 34 percent.
- By 2007, the top 10 percent owned a bigger 72 percent and the stake of the 90 percent had shrunk.
- Sixteen years post-2008 bank-bailout, the canyon between billionaires and the rest of us grows steeper and darker, chilled by threatening winds of AI and algorithms.
- By the end of 2023, the lowest 50 percent of us owned only 2.6 percent of national wealth.
Do you sense a troubling trend?
In a book called Screwnomics, I wrote to women about Wall Street’s deliberately obscure language leading to the crash of 2008: their collateralized debt obligations, futures speculation, their derivatives and swaps. In this book, I drew upon Les Leopold’s 2015 book, Runaway Inequality, to describe a new business model that the media had initially called “corporate raiding,” but grew to admire because of its huge profits.
Newly established private equity (PE) firms, named for the egos of their alpha male founders, pledged large profits to institutional investors, like state pensions of California, Washington and Oregon. PE called these public investors “junior partners” in hundreds of new projects—although it was mostly retirees’ savings at risk, not the PE firms’ tinier investments.
PE firms devised LBOs (leveraged buyouts)—a fancy name for borrowing money to buy a company. Unlike mortgages from Main Street banks to buy houses or businesses, PE works with Wall Street-issued bonds, sometimes called “junk.” The debt PE creates to purchase a company must then be paid by those purchased, a little like buying an apartment building with tenants’ rent money—all while charging added fees and letting maintenance go to hell.
By now, it’s become an Occupy movement by the 1 percent. It is bigger and far more destructive than those bland words “private equity” can convey. Two shocking 2023 books more accurately use the word “plunder” in their titles to describe what’s happening.
If you’ve ever wondered whatever happened to iconic U.S. businesses like Sears and Friendly’s Ice Cream, Samsonite Luggage and Zales’ Jewelry, or even Toys-R-Us, you’ll find distressing answers in Brendan Ballou’s Plunder: Private Equity’s Plan to Pillage America and Gretchen Morgenson and Joshua Rosner’s These are the Plunderers: How Private Equity Runs—and Wrecks—America. Both books describe PE’s largely secret and little understood 40-year-long hit-and-run scam.
Brendan Ballou calls our time “a new gilded age” and opens his book with:
“Private equity surrounds you. When you visit a doctor or pay a student loan, buy life insurance, or rent an apartment, pump gas or fill a prescription, you may—wittingly or not—be supporting a private equity firm. These firms, with obscure names like Blackstone, Carlyle, and KKR, are actually some of the largest employers in America and hold assets that rival those of small countries. Yet few people understand what these firms are or how they work.”
He explains how PE firms own more businesses than all those listed on U.S. stock exchanges combined.
“KKR’s portfolio companies employ over 800,000 people; Carlyle’s 650,000; and Blackstone’s 550,000. Considered together, they would be the third-, fourth-, and fifth-largest employers in America, behind only Walmart and Amazon.”
Employment isn’t the problem; quality and wages are; viability of business and our economy are. PE goes for the most vulnerable and captive customers, like emergency room visitors, mobile home park renters, nursing home patients and shoppers like you.
The U.S. loses an estimated $75 billion in taxes a year from complex legal structures like private equity, which are unlikely to be audited by the IRS.
In the case of a leveraged buyout, PE’s cash cow is its employees and any assets on the shelves or real estate underfoot. Labor-leftie Leopold argued that LBOs were really designed to “strip-mine” companies, burdening them with debt, firing workers and cutting pay and benefits, selling assets and cutting quality—all while enriching PE partners with nonsensical fees.
PE imposes trickeries like “dividend recaps,” which pay the owners a bonus with their company’s credit card, increasing debt for doing nothing.
They also enjoy a mysterious benefit called “carried interest.” Unlike your credit card that carries interest to your detriment if you don’t pay in full, PE’s carried interest is a tax loophole, called “two and 20.”
Two and 20 entitles PE firms owners to take just 2 percent of project assets as income, taxed like yours, while banking 20 percent at the much lower capital gains tax rate. When you’re talking billions, this adds up. Ballou reports the U.S. loses an estimated $75 billion in taxes a year from complex legal structures like PE, which are unlikely to be audited by the IRS.
All this complexity serves the purpose of quickly “flipping” a private or publicly listed company, and either selling it for a profit over the small amount PE paid in—or as it so happens in a fifth of their leveraged buyouts after 10 years, picking off morsels from its bankrupted bones.
Both books show a PE business plan that explains why malls have so many closed retailers and shoddy products, why healthcare is hurried and hard to come by, and why your mom’s nursing home has roaches. Academic studies cited in both books show that wherever PE enters: death rates go up; companies shut down; and peace of mind, long-standing jobs with benefits, and local taxes supporting communities diminish or vanish.
Morgenson and Rosner focus more on the names and intricate deals of the clubby men involved—and yes, both books reveal how very male and pale the PE gang is. These Are the Plunderers frames their tale with the 1991 scandal of California’s Executive Life Insurance shutdown to show how ineffective and sometimes collusive government has been.
They include moving stories. Sue Watson’s little girl, Katie, not yet 2, went to the hospital with pneumonia and came home with brain damage. Katie’s parents sued the hospital for malpractice, and the court awarded them a structured settlement, directing them to purchase a guaranteed insurance contract to provide enough monthly income to care for their daughter. They went with an A+ rated company, Executive Life, in California.
Just four years later, in 1991, the state’s insurance commissioner seized the company. Long story short, the politically ambitious commissioner quickly sold its investment portfolio for a song to a New York financier and his partners, who promised to make good. Under the vastly reduced terms of the new post-takeover policy, however, the Watsons had to shoulder Katie’s care.
Katie passed away in 2017, having received millions of dollars less than her parents’ contract had promised to pay. Unable to keep up on their mortgage, the Watsons lost their home to foreclosure.
They weren’t alone: 300,000 policy holders took similar hits. “A 2008 audit of the deal by the state of California tallied policyholder losses at over $3 billion, a figure that is probably low,” Morgenson and Rosner wrote.
The New York financier in the deal was Leon Black, co-founder of private equity firm Apollo Global Management, another one of the biggest companies. His multibillion-dollar fortune and seat of prestigious power was rooted in the ashes of Executive Life’s fire sale in 1991. The Plunderers says Black’s conflicts of interest and shady business dealings started there, inspiring what became a national PE takeover.
Though Black exited Apollo in 2021 in a cloud of salacious lawsuits, including a mistress who claimed rape and abuse, a partner whom Black said financed her case, and his smarmy “tax advice” payments to Jeffrey Epstein, Black never admitted wrongdoing. Sue Watson, however, had her own opinion:
“There is a special place in hell for these thieves.”
Neither of these books hold out much hope for government help for the people, given their track record. However, both books do indicate that a few on both sides of the aisle may be awakening from a stupor.
A few agencies that should pay attention, are beginning to—like the Department of Justice, the Federal Trade Commission and the Securities Exchange Commission. Somewhat strange is the news that in 2020, Trump’s Department of Labor newly allowed worker-investors to put their 401k money into private equity firms. Studies reveal that PE’s early big returns have shrunk to match those of simpler and safer index funds. Biden’s DOL is rethinking this 401k rule.
Agency regulations should instead be addressed by public debate and clear legislation. Yet Congress, lobbied and supported by big PE donations, appears largely broken.
There is legislation you should know about, though. It is righteously called the Stop Wall Street Looting Act, introduced by Sens. Elizabeth Warren (D-Mass.), Tammy Baldwin (D-Wis.) and Sherrod Brown (D-Ohio) as well as Reps. Mark Pocan (D-Wis.) and Pramila Jayapal (D-Wash.). It would give workers higher priority in bankruptcy, end PE’s “carried interest” 2-and-20 loophole and prevent companies from pocketing unearned “dividend recaps” that can break a company.
If you’re worried about the deteriorating appearance of downtown areas, hospitals or the housing market, if you’ve noticed a growing shabbiness, or if you’ve notice the government’s indifference, these books will help explain not only what’s wrong, but what we ordinary people can and must do to stop the steal—the real steal.
Up next:
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