The money changers
The Guardian reports that skits mocking private equity are racking up millions of views. Johnny Hilbrant Partridge’s PE Guy character scoffs at a bill to ban private equity from youth sports: “This country used to reward innovation, and suddenly it’s wrong to charge $11,000 for a development lacrosse weekend.”
It lands because we were led to believe capitalism is what spawns innovation. And for most of our lives we lived a delicate balance: people have the right to profits, but they shouldn’t take advantage of others.
I was raised by a conservative grandfather who taught me gouging was wrong. Not only illegal, but immoral. We don’t build and keep a society only to take advantage of each other.
We also debated often whether this was a “Christian” country. We usually settled on a country of Christians. Private equity is not that. It’s the temple money changer, taking advantage right in the church. Our everyday lives are the sacred spaces, with our family and friends. The vet, the dentist, the funeral home, the kids’ hockey rink.
Where this ends
This isn’t a new story. Debt piled on top of debt, with the profit taken early and the risk left for someone else, is how panics start. It’s why Walter Bagehot wrote down the rule of the lender of last resort in 1873, and why the Federal Reserve exists at all, after the Panic of 1907. When it gets big enough, the public is the one left holding it.
Look at the small version. Bain, KKR and Vornado bought Toys “R” Us in 2005, mostly with borrowed money, and the debt went on the company. It filed for bankruptcy in 2017 and was liquidated in 2018, with more than 30,000 people out of work. The buyers took their fees and the workers were left with the bill. The toy store was the one left with the loan.
So at what point is this a public issue? When do the lenders run out of things to hollow out, and what do they have left? Funeral homes, dentists and veterinary clinics are all being bought up the same way. At some point that stops being a few bad deals and starts being the market itself.
Flip the tables
It’s the same point as It’s not demographics. When profit is protected over individuals, when the institution is worth more than the person in front of it, evil reigns. And the answer isn’t a better villain. We change the system.
And there’s an opening here. These companies are leaving gaps everywhere: the local shop, the clinic, the toy store, the rink. People are ready for something that isn’t hollowed out.
Go build the new brands. Do it.
American innovation isn’t dead. It’s being strangled by an industry that extracts and builds nothing. Buying a company, loading it with debt and selling off the pieces doesn’t add a single new product to the world.