could you tell me what Private Equity is and why it's a bad thing?
Oh man okay first of all I'm pretty sure that only MBAs truly understand private equity, and I'm so far from being an MBA that I don't even file my own taxes, but I'll try to give a really rough explanation.
At the most basic level, a private equity firm is just a business that buys up stock in companies that are not public (not on the stock exchange for people to buy public shares). In practice, these firms are massive, and in 2021 they managed close to 20% of corporate equity in the US. Importantly, that's a MUCH bigger share than it was ten years earlier, and private equity is a fast-growing part of the world market.
Why it's bad is that this sector of investing falls at the juncture of just a lot of loopholes and blind spots in government regulation, allowing these private equity firms to manage the companies they own in very predatory ways.
For example, private equity firm Golden Gate Capital killed Red Lobster. Basically, they bought the company and started stripping it for parts, because their only interest in the companies they buy is investment profit. They don't have any incentive to care about the company's long-term health. The biggest thing they did to Red Lobster was what's called a sale/leaseback. Basically, insofar as I understand it, they sold the real estate the company owned--i.e. the actual restaurants, took the profit from that, and then made Red Lobster pay them to lease the restaurants. Ultimately this proved crippling for Red Lobster, but through evil finance magic and careful corporate structuring, Golden Gate Capital gets the profit, while Red Lobster got all the debt.
Private equity firm KKR is what killed Toys R Us, again with sale/leaseback and other management methods that favor short term profit over long-term viability, like firing people until there isn't enough staff, pushing store credit cards, assorted other bullshit I barely understand.
Basically, private equity is companies that buy up businesses using leveraged funds (borrowed money) and then "strip and flip" them, squeezing as much profit out of them as possible and then dipping out to leave the company to deal with the fallout. A lot of recent major company bankruptcies besides the ones I mention above came on the heels of the company being managed by a private equity firm. JoAnn Fabrics is one of the most recent.
Yeah. That's the best I can do. Basically, it's a very fast-growing sector of vulture capitalism and it's making a small number of people very rich off killing otherwise viable companies that the rest of us plebes liked and wanted to keep.