What are these phantasmagoric money machines that they call "private-equity firms"?
They're much in the news now, with former private-equity tycoon Mitt Romney running for president on the claim that, because of his years in that business, he knows how to "fix" our economy.
Sure enough, private equity whizzes are all about the fix.
They operate by borrowing big piles of cash from rich speculators to buy out XYZ Corporation. Then, to pay the high interest rates on this debt and to siphon off a financial killing for themselves, the fixers do two things.
First, they plunder XYZ's assets, selling off profitable chunks of the corporation.
Then they severely downsize the XYZ workforce, firing as many workers as possible and demanding deep wage cuts and benefit givebacks from the employees whom they decide to keep on the job.
It's a redistribution-of-wealth scheme.
The strategy is obvious, transferring XYZ's revenues from its many workers to its few equity partners, while creating no new products or wealth.
Nothing equitable about it.
But the fix also includes a set of very special partners, few of whom are even aware that they're in on the deal: taxpayers.
The private-equity business model is not structured on old-fashioned free enterprise, but on a skewed system of tax loopholes punched into federal law by these financiers' lobbyists and, of course, the lawmakers whom they own.
For example, they are able to load up on such heavy debt to finance their corporate takeovers only because all of the interest that they must pay to speculators for that borrowed money happens to be, that's right, tax-deductible.
In other words, our government directly subsidizes this private-equity plundering by covering their huge interest payments.
Simple as that.
To add to their fun, many of these tax-code scammers grab such big debt deductions that they pay zero corporate income taxes, even though they rake in millions in profit.
Jim Hightower is the best-selling author of Swim Against the Current: Even a Dead Fish Can Go With the Flow, on sale now from Wiley Publishing. For more information, visit jimhightower.com.
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