Leashing the financial predators
by Tom Sullivan
There is a reason for leash laws.
Sen. Elizabeth Warren’s latest plan for bringing metastasized capitalism to heel is “red meat for the Democratic party’s liberal base,” per CNN. That characterization presupposes her attention to Wall Street’s predations is a presidential candidate’s gimmick. In fact, it is the reason Warren conceived and fought to create the Consumer Financial Protection Bureau. It is the reason the former professor of commercial law sits in the U.S. Senate today.
Conservatives and business lobbyists argued for decades unleashing U.S. capitalism through deregulation would spur economic growth and enrichen everyone. They let large dogs loose on the playground with predictable results. People got hurt. And no, they didn’t enrichen everyone.
In a press release for Warren’s plan co-sponsored by Tammy Baldwin (D-Wisc.), Sherrod Brown (D-Ohio), Ranking Member of the Senate Banking Committee, plus Reps. Mark Pocan (D-Wisc.) and Pramila Jayapal (D-Wash.), Warren explains:
“For far too long, Washington has looked the other way while private equity firms take over companies, load them with debt, strip them of their wealth, and walk away scot-free -leaving workers, consumers, and whole communities to pick up the pieces,” said Senator Warren. “Our bill ends these abusive practices by putting private investment funds on the hook for the decisions made by the companies they control, ending looting, empowering workers and investors, and safeguarding the markets from risky corporate debt.”
Once known as leveraged buyout firms, the industry rebranded itself private equity after financial scandals of the 1980s, writes The American Prospect’s Robert Kuttner. The rebrand meant “to mislead the public to believe that it is similar to the venture capital business, in which investors actually contribute new capital. But private equity exists to extract capital.”
Ask Dylan Ratigan about America being “extracted.”
For decades, Washington has lived by a simple rule: If it’s good for Wall Street, it’s good for the economy. But it just isn’t true. Big banks are making record profits and handing out huge bonuses as average wages barely budge.— Elizabeth Warren (@ewarren) July 18, 2019
In a Medium column, Warren adds, “Private equity firms raise money from investors, kick in a little of their own, and then borrow tons more to buy other companies. Sometimes the companies do well. But far too often, the private equity firms are like vampires — bleeding the company dry and walking away enriched even as the company succumbs.”
As Kuttner concludes, “there is no constructive reason for this industry to exist.” Except to make those in it very, very rich standing on the backs of workers who have lost their jobs and more. As Matthew McConaughey said in The Wolf of Wall Street (2013), “We don’t create shit. We don’t build anything.”
Warren’s Stop Wall Street Looting Act would:
● Require Private Investment Firms to Have Skin in the Game.
Firms will share responsibility for the liabilities of companies under their control including debt, legal judgments and pension-related obligations to better align the incentives of private equity firms and the companies they own.
In order to discourage irresponsible leverage, the bill ends the tax subsidy for excessive leverage and closes the carried interest loophole.● End Looting of Portfolio Companies. To give portfolio companies a shot at success, the proposal bans dividends to investors for two years after a firm is acquired and ends the extraction of wealth from acquired companies through excessive fees.● Protect Workers, Customers and Communities. This proposal prevents private equity firms from walking away when a company fails and protects stakeholders by:○ Prioritizing worker pay in the bankruptcy process and improving rules so workers are more likely to receive severance, pensions, and other payments they earned.○ Creating incentives for job retention so that workers can benefit from a company’s second chance.○ Ending the immunity of private equity firms from legal liability when their portfolio companies break the law, including the WARN Act. When workers at a plant are shortchanged or residents at a nursing home are hurt because private equity firms force portfolio companies to cut corners, the firm should be liable.○ Clarifying that gift cards are consumer deposits, ensuring their priority in bankruptcy.● Empower Investors by Increasing Transparency. Private fund managers will be required to disclose fees and returns so that investors can monitor their investments and shop around. The bill will also prevent firms from requiring investors to waive their fiduciary duties and end secret side deals that privilege some investors over others.● Require Risk Retention. Reinstates the Dodd-Frank provision that requires arrangers of corporate debt securitization to retain some of the risk.
Occupy Wall Street was a reaction to the financial collapse of 2008. Donald Trump’s election was, among other factors, a reaction to the Obama administration’s failure to rein in Wall Street and address the foreclosure crisis that put millions of Americans out of their homes so too-big-to-fail banks could prop-up their balance sheets. Much of the country has still not recovered.
As the congress is presently configured, Warren’s plans will go nowhere. Still, they accomplish two things. First, put the fear of God in the right people.
Trump supporter Peter Thiel, co-founder of PayPal and Palantir Technologies, told Fox News’ Tucker Carlson on Monday, “I’m most scared by Elizabeth Warren.” Reflecting on 2020 Democratic candidates, Thiel said, “I think she’s the one who’s actually talking about the economy.”
Good. https://t.co/8buEJGkW32— Elizabeth Warren (@ewarren) July 16, 2019
Second, Warren’s plans demonstrate at least some Democrats are prepared to stop American families from being harmed by financial predators allowed to run loose since the 1980s.
Adam Levitin of Georgetown Law School, one of the bill’s advisers, tells Kuttner, “This is literally the first major bill on financial regulation since Dodd-Frank.” Levitin adds, “It shows that Democrats are back on the offensive on financial reform.”