The Plunderers Now Run Our Economy | Gretchen Morgenson

Pulitzer Prize-winning journalist explains how the barbarians are now in the board room

When we talk about the "markets", most people immediately think of publicly traded financial assets: the S&P and Nasdaq indices, stocks of popular companies like Microsoft & Nvidia, their corporate bonds, etc.

We can see the prices of these assets, and how they change minute-by-minute, on the public exchanges. We receive audited financial statements from these companies, as well as quarterly updates on their operating results & forecasts from their executive management.

But there's also a massive amount of capital invested in private companies, where there is FAR less transparency, and many would claim, oversight.

Today's guest expert, Pulitzer-prize winning & NYTimes best-selling investigative journalist Gretchen Morgenson, along with her co-author Joshua Rosner, has shined much-needed daylight into these private markets through their recent book: These Are the Plunderers: How Private Equity Runs―and Wrecks―America

I spoke to her last year when the book first came out. We discussed its central claim that a small cohort of elite financiers -- and their government enablers -- use excessive debt and dubious practices to undermine our nation’s economy for their own enrichment.

Today I sit down with her for an update.

Has anything changed, for the worse or the better, since her book came out?

For the answers, click here or on the video below:

---

I’m so grateful to everyone who has kindly supported me by becoming a premium subscriber to this Substack. It’s making an important difference in helping me afford the substantial startup costs of running Thoughtful Money.

Premium supporters receive my “Adam’s Notes” summaries to the interviews I do, the new MacroPass rotation of reports from esteemed experts, plus periodic advance-viewing/exclusive content. My Adam’s Notes for this discussion with Gretchen are available to them below.

If you, too, would like to become a premium subscriber to this Substack (it’s only $15/mo, less than $0.50/day), then sign up now below:

---

Adam’s Notes: Gretchen Morgenson (recorded 7.22.24)

EXECUTIVE SUMMARY

• Private equity firms often use excessive debt to purchase companies, focusing on cost-cutting to increase profitability. This model leads to the deterioration of service and product quality, increased bankruptcies, and job losses, negatively impacting the broader economy and various stakeholders. Gretchen notes that highly leveraged transactions go bankrupt at a rate 10x higher than non-leveraged acquisitions, illustrating the risks associated with this business model.

• Gretchen highlights the particularly damaging effects of private equity in the healthcare sector. For example, the sale of real estate assets in healthcare institutions leads to increased costs and reduced service quality, sometimes resulting in higher mortality rates in nursing homes owned by private equity firms. She cites a study showing a 10% greater mortality rate in private equity-owned nursing homes compared to those owned by other entities.

• Some states, such as California and Pennsylvania, are beginning to scrutinize private equity mergers, particularly in the healthcare sector. There are ongoing investigations, such as the New Mexico Attorney General's investigation into an Apollo-run hospital for failing to serve the indigent population as promised. Gretchen points out that despite existing laws in many states against the corporate practice of medicine, enforcement has been lacking.

• The rising cost of debt presents a significant challenge to the private equity model. Gretchen predicts more bankruptcies and financial distress in the sector due to the unsustainable nature of the debt-heavy business model, especially if interest rates remain high. She mentions that about $83 billion in debt from private equity firms is maturing in the next two years, with another $170 billion in three years, indicating potential financial strain.

• Recent policy decisions have disproportionately benefited the wealthy, exacerbating economic disparity. She stresses the need for policy reforms to address these inequalities, noting that rate cuts alone may not resolve the wealth divide.

• There is a growing concern about