Freakonomics Radio

565. Are Private Equity Firms Plundering the U.S. Economy?

Nov 16, 2023

Brendan Ballou, a Special Counsel at the DOJ and author of "Plunder," teams up with investor Sachin Khajuria, author of "Two and Twenty," to shine a light on private equity's role in the economy. They explore whether these firms really enhance efficiency or merely profit at the expense of consumers. The discussion highlights powerful anecdotes, the rise of controversial business models, and the troubling impacts on local communities, especially the decline of beloved institutions like Fairway Market. Is more regulation needed? The answer may surprise you!

51:17

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Episode guests

Brendan Ballou

Sachin Khajuria

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Quick takeaways

Private equity firms aim to make improvements and sell for profit through the acquisition and management of companies.

Private equity firms tend to load acquired companies with debt, extract fees, and evade financial and legal responsibility.

Acquisitions by private equity firms in industries like veterinary clinics can lead to decreased care quality, increased prices, and reduced worker flexibility.

Deep dives

Private equity firms and their business model

Private equity firms take their own money, investor money, and borrowed money to buy companies, aim to make improvements and sell for a profit.

The Downsides of Private Equity: Examining the Business Model

01:22

The Role of Private Equity in Corporate Misbehavior

01:20

The Influence and Power of Private Equity Firms in Government

01:22

Intro

3min

Unveiling Private Equity: Impact and Accountability

18min

The Struggle Against Corporate Power and the Love for Local Groceries

4min

Fairway Market's Rise and Fall

9min

Private Equity: Mainstream Influence and Insights

5min

Private Equity Uncovered

14min

Examining the Impact of Private Equity on Society

5min

They say they make companies more efficient through savvy management. Critics say they bend the rules to enrich themselves at the expense of consumers and employees. Can they both be right? (Probably not.)

RESOURCES:

Plunder: Private Equity's Plan to Pillage America, by Brendan Ballou (2023).
Two and Twenty: How the Masters of Private Equity Always Win, by Sachin Khajuria (2022).
"Local Journalism under Private Equity Ownership," by Michael Ewens, Arpit Gupta, and Sabrina T. Howell (NBER Working Paper, 2022).
“Owner Incentives and Performance in Healthcare: Private Equity Investment in Nursing Homes,” by Atul Gupta, Sabrina T. Howell, Constantine Yannelis, and Abhinav Gupta (NBER Working Paper, 2021).
“Leveraged Buyouts and Financial Distress,” by Brian Ayash and Mahdi Rastad (Finance Research Letters, 2021).
“Have Private Equity Owned Nursing Homes Fared Worse Under COVID-19?” by Ashvin Gandhi, YoungJun Song, and Prabhava Upadrashta (SSRN, 2020).
“When Investor Incentives and Consumer Interests Diverge: Private Equity in Higher Education,” by Charlie Eaton, Sabrina T. Howell, and Constantine Yannelis (The Review of Financial Studies, 2020).
“The Economic Effects of Private Equity Buyouts,” by Steven J. Davis, John Haltiwanger, Kyle Handley, Ben Lipsius, Josh Lerner, and Javier Miranda (SSRN, 2019).
“How Acquisitions Affect Firm Behavior and Performance: Evidence from the Dialysis Industry,” by Paul J. Eliason, Benjamin Heebsh, Ryan C. McDevitt, and James W. Roberts (The Quarterly Journal of Economics, 2019).
"In Silicon Valley, Even Mobile Homes Are Getting Too Pricey for Longtime Residents," by Tracy Lien (Los Angeles Times, 2017).
“The Operational Consequences of Private Equity Buyouts: Evidence from the Restaurant Industry,” by Shai Bernstein and Albert Sheen (SSRN, 2013).
"Private Equity and Employment," by Steven J. Davis, John C. Haltiwanger, Ron S. Jarmin, Josh Lerner, and Javier Miranda (NBER Working Paper, 2011).

EXTRAS:

"Should You Trust Private Equity to Take Care of Your Dog?" by Freakonomics Radio (2023).
"Do You Know Who Owns Your Vet?" by Freakonomics Radio (2023).
"Mobile Home Parks," by The Economics of Everyday Things (2023).
"The Secret Life of a C.E.O.," series by Freakonomics Radio (2018).
"Extra: David Rubenstein Full Interview," by Freakonomics Radio (2018).

SOURCES:

Brendan Ballou, special counsel at the Department of Justice.
Dan Glickberg, venture-capital investor.
Hannah Howard, food writer.
Sachin Khajuria, investor.

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Freakonomics Radio

565. Are Private Equity Firms Plundering the U.S. Economy?

Episode guests

Podcast summary created with Snipd AI

Quick takeaways

Deep dives

Private equity firms and their business model

Consequences of private equity business model

Negative impact on industries

Influence and lobbying of private equity industry

Concerns and calls for regulation

The Downsides of Private Equity: Examining the Business Model

The Role of Private Equity in Corporate Misbehavior

The Influence and Power of Private Equity Firms in Government

Remember Everything You Learn from Podcasts