FT spills the beans on private equity scam

The super-rich are indulging in an orgy of speculation using the ‘free money’ of low-interest debt. Who pays?

Proletarian writers

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Proletarian writers

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When the Financial Times tells its readers that the government should stop giving free rides to the private equity sector, you know that the ruling class is starting to get worried about preserving social peace.

It is hard to keep mouthing the mantra about how we’re ‘all in it together’ with any conviction when private equity parasites are elbowing their way to the front of the queue for government bail-outs. Wiser bourgeois heads are getting nervous about how this blatant cronyism is going down with public opinion.

According to an editorial published by the FT on 17 August: “One of the areas of the economy hardest hit by the lockdown is the high street. Many of the midsized companies under threat are owned by private-equity funds, which went on a decade-long spending spree in sectors such as hospitality, travel and retail.

“Faced with tens of thousands of jobs potentially being lost, the UK government is now considering ways to offer companies owned by buyout groups access to state-backed loans.” (Private equity should help itself)

The FT spells out exactly how these private equity adventurers operate: “Private equity is all about risk. Funds are notorious for allowing their portfolio companies only a slim financial cushion to ride out economic downturns.

“Investors who buy into these businesses know that there is an increased risk of insolvency. Recent figures also show the industry has unspent cash totalling almost $2.5tn.”

So that’s how the scam works: the parasites use a fraction of their own capital – a ‘slim financial cushion’ – to snap up a company, making up the balance with lashings of debt. If the market weather changes and the company goes bust, the players move on to other investment gambles leaving their debts behind them.

As the FT says, it’s all about risk – but with the equity sector sitting on a pile of cash amounting to nearly $2.5 trillion, it’s clear that when the risk goes wrong it’s not the parasites who are losing out but the workers, laid off in their hundreds and thousands, and bailing out bankrupt governments and banks to boot.