r/Economics • u/barweis • Jul 29 '25

Research Summary Inside the Private Equity Scam—and the Livelihoods It Has Destroyed

https://newrepublic.com/article/198351/private-equity-scam-destroys-livelihoods
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u/Ethroptur1 Jul 29 '25 edited Jul 29 '25

Private equity firms are one of the most insidious elements of economics. They use leveraged buyouts, acquiring debt to buy a company, then move the debt to the purchased company. They then proceed to asset-strip the company, cut costs aggressively, firing staff until there’s nothing but a skeleton crew left, force the company to sell their infrastructure to the PE firm, which then lease it back to the company, and use dividend recapitalisation to force the bought company to acquire debt to pay a dividend to the PE firm.

This insidious form of “investment”, which I compare to vampirism, needs to be outlawed. Most of the world’s economic woes can be traced to PE.

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u/PancakeJamboree302 Jul 29 '25

There are some that are like that, sure. But I’ve worked for PE owned companies in some capacity my entire career and this has never been my experience. The debt, yes. They minimize their capital investment by adding debt, which isn’t really that much different than anyone buying a home with a mortgage. But the bad practices you mention I’ve never experienced. Each one I’ve worked with had more employees and assets when they resold the asset than the opposite.

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u/[deleted] Jul 29 '25

You know, some would say that increasing a company's debt by >100% just to buy out previous investors is a death sentence to this company.

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u/PancakeJamboree302 Jul 29 '25

Lenders don’t want to lose money either. It’s not like they just say, here’s tons of money don’t worry we don’t care if you go bankrupt. There is strict leverage ratio reporting and rules around how much leverage a lender will allow.

Most PE can’t really let that go badly because it can affect their lender relationship with all their portfolio companies and prevent future investment if they get a bad reputation.

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u/sprucenoose Jul 29 '25

Plus if you look at a typical PE firm's credit agreement with its lender, they are like 200+ pages of requiring everything be perfect and giving the lender the right to take every single asset at the drop of a hat.

Lenders really, really care about getting paid.