Transcription
So, my colleague Megan has been a journalist many years. She's worked at Wired, you know, she's there, Esquire, and a range of other places. I don't want to spend too much time in, but what I'm here to say is this is probably one of the best narrative competition books I've read in a very long time, uh, and I'm really glad we have her here. Uh, if you know what we do at Reimagine the Economy, we do a lot of work on, uh, local economic development-based policies, economic resilience in the face of shocks. And both in terms of the perspective this takes in terms of the impacts of private equity on communities of workers, but also in terms of what a private equity takeover could mean for local economic resilience and job losses. This just fits really well into our team. So, Megan, we're very happy to host you. Um, I know you're going to present one of your favorite pieces. Uh, not that you, but over to you. And then post.
>> Thank you all for having me. I was going to like write a little talk for this intro part, but I decided I'm just going to talk at you. Um, so forgive me ramblers, but we'll keep it short so we can get to questions.
Um, so I got interested, I got interested in writing about private equity because I worked for a company that got taken over by private equity, and it went pretty bad, pretty quickly, and I got driven out of my job within about three months. Um, but what really interested me was that there was so much good academic research out there. There were some good books by journalists about private equity out there, but they were all like a primer, right? It was like, here is how it works, and here's why you should understand how it works. That is so not the kind of journalist I am. Like, I have never had a, um, subject specialty. I am just like a narrative journalist. I, when people ask me what I do, I say, "I write stories about how systems affect people." And what it felt like was missing from the writing about private equity was sort of that narrative non-fiction approach, like, let's talk about the people who are actually affected here. Um, so that's what I set out to do.
I talked to about 300 people for the book, and about 150 of them were candidates for what became four protagonists. So, I was like being really, really picky because I knew that this book would live or die on whether people cared about these people, right? Like, they're not, none of them are perfect people. They all talk very openly in the book about the ways in which they're not perfect people. And that's what I wanted. I wanted people who were never going to refuse to answer a single question. I embedded in these people's lives for like, days and weeks. Um, and so I really needed people who were just going to like, let me come in and never say, "I'm not touching that question." And I was lucky enough to find those people.
So, I'll tell you about one. Um, his name's Roger Go. He's 80. He just turned 86 in the fall. Um, and he's spent his entire career as a rural doctor. Um, he grew up in cities, uh, in Texas, moving around a bunch, but when he went to medical school at the University of Texas, he knew even then that what he wanted to do was be a rural doctor. And so he worked in like, a fancy suburban hospital in Texas for a couple of years, but then he moved to Wyoming to become the second ever doctor in this small town called Riverton, Wyoming. And he just loved it. I mean, it is, being a rural doctor is a hard life. Um, you don't have all of the technology the doctors in other places do. You sort of have to do everything. I mean, technically he is a primary care physician, but he had to deliver babies. He had to provide, um, gerontological care. Like, he really had to do everything because there wasn't a huge roster of people to rely on. And it's just like, you know, if somebody needs a surgery or needs treatment in the middle of the night, like, and it happens to be your night on call, like, you're getting up. It doesn't matter what else is going on. Um, I'm married to an academic doctor who has like, a very different kind of life. And I was thinking about his life and our life compared to Roger's life and just sort of marveling at how much harder that must be. And so for a long time, Roger just had this life that was really hard, but that he deeply loved. Um, he told me, you know, he started weeping when he told me that when he moved to Riverton, Wyoming, his only goal was to leave the community better than he found it.
And so obviously, the balance between, should medicine ever be for-profit has been a very controversial topic. Um, his hospital in Riverton was for-profit since the late '80s. Um, and Roger's, you know, pretty, like, Wyoming left. Um, but he was like, "You know what? A for-profit hospital works for us because the challenge of making money in rural medicine is really hard." There were some structural advantages. So, he was not saying, "Let's burn down the medical system and like, provide everything for free." He was very happy working in this for-profit system.
Then, um, his hospital, called Riverton Memorial Hospital, and their sister hospital in a town called Lander, about 30 miles away, became part of this great rollup, um, a company called LifePoint, that was owned by, that was then bought by Apollo Global Management. And what ended up happening was Roger went into this, he was a board member at that point of the hospital, and he went into this pretty optimistic. He was like, "Look, they have money. They're going to do this consolidation in a smart way, right? They can consolidate our billing, our IT, whatever. We don't have to have that at a small hospital. This rollup model will actually work great for us."
That's not what happened. Um, they started consolidating medical services. And so originally, they said that we have these two hospitals 30 miles away, we'll have some central services, or we'll have all basic services at both hospitals. For specialty services, you know, these are rural communities, for specialty services, you might have to go to one or the other. So Riverton might not have oncology, and Lander might not have orthopedics. Um, but for basic stuff, you know, you have a heart attack in the middle of the night, like, and it happens to be your night on call, like, you can go to wherever.
And instead, what happened was they started just drastically cutting all of the services from Riverton's hospital in particular, from both of them, but Riverton was hit much worse. And the thing that really sent Roger over the edge was, um, they completely eliminated the ability to, um, have a baby at Riverton Memorial Hospital. They said, "You can just go to Lander for that." Now, Lander is 30 miles away. It is a pretty treacherous, I've driven it many times, pretty treacherous, windswept canyon, even if it's not like Wyoming winter. And so simply driving 30 miles away when you are in active labor is not always a good solution. And then they started cutting more and more and more other services. So, um, you know, even general surgery, like, you, you no longer could get it, like an appendix out, like the most basic kinds of surgery. Um, at one point, one of Roger's friends who had young children, his kid was like dancing on the coffee table in socks, slipped, busted his head open, just needed like six stitches. But because it was after hours, the only hospital in town could not even stitch up a cut. And so the result was medevac flights out of that county in Wyoming increased like 600-something percent. Medevac companies, interestingly, also a big private equity target. Um, and so people just had no way of getting basic medical care in their home community because what was supposed to be sort of a consolidation and a rollup to allow them to focus only on their central services became a thing where it was like, "We're just going to squeeze money out of this place no matter what."
It does not seem that anybody from Apollo Global Management ever set foot in Riverton, Wyoming. This is obviously super common with private equity. They don't have investment in the places. Um, they saw maternity care, for example, as something that loses money, and so if it lost money, it was going to get cut. They also never tried anything to make more money, right? So this was only cost-cutting. There was no effort to boost revenue. And I found that this is super common in private equity stories, right? Like, providing new services that can generate income is almost never part of the plan. It is so often just cutting and cutting and cutting and cutting.
So, in Riverton, what happened was that Roger, um, banded together with a bunch of his neighbors. And originally, they went to Apollo Global Management and were sort of like, "You guys aren't interested in running a hospital here. Why don't you sell it to us? If we can raise the money, will you sell it to us?" No response. Could never get anything. Um, so then they started a group, they called it Save Our Riverton Hospital, where they were trying to agitate for all of these things. No response ever to anything. And so instead, they decided, "We're going to build our own hospital from scratch." And I think anybody saying was sort of like, "That's very sweet. That's such a nice idea. That is never happening, right?" There, this is a town of 10,000 people. There is, on some level, already a hospital in this town. Um, so they're going to have to go head-to-head with one of the richest private equity firms on Earth. And they don't have any money, right? Like, this is a poor town. Um, so they basically scraped together $150,000 for a feasibility study. The guys from like the Maine Rural Hospital Consultancy, which is based in Maine, um, came in and said, "Look, technically, yes, you can build a hospital. You would have the market to support it. I can't recommend it. Don't do it." Um, I, I interviewed the guy from the consultancy, and he was like, "I'm an accountant. My job is to forecast the worst-case scenario, and basically, like, 60% of your scenarios are this is bad." Um, so don't do it.
And they said, "Great, your feasibility study says we can technically do it. So, you know what? We're doing it." And the result was they got the largest grant in the history of the USDA in the state of Wyoming, relevantly, under the Biden administration. Um, and so they got a, uh, $49 million, $49 million low-interest loan plus some money in straight grants. And once they had unlocked that pot of money, like that allowed them to unlock all of these other sources of funds. So, they have a new hospital opening in November. They just hired a CEO and their first physician. And it's, we'll talk a little bit about this in the Q&A, but to me, it's like such an interesting story of these people with no resources, no particular connections to power, um, but a really deep knowledge of a particular community. And that was sort of their cheat code that unlocked the ability to go against this like, many billion-dollar company that had all of the structural power and no knowledge of their community. Um, so maybe I'll stop there and we can, we can do questions.
One of the reasons I really like that story is because, you know, it tells you what the incentives of the private equity managers are, but also sort of points you to some of the countervailing forces that can be leveraged to address this challenge. And I know we'll get to that in a moment. Um, I do want to start, though, with, uh, you know, right in the beginning of the book, you say this book was written not out of spite, but out of pure curiosity. Just so we can get this out of the way, where are you on that curiosity-spite spectrum today?
>> I, I don't have spite toward individuals who work in private equity. I've been asked that question a lot, like, "What do you say when you meet like a private equity guy at a party?" I live in New York, so like, this happens. Um, and I, like, honestly, that's so uninteresting to me. Like, I am interested in the structure. And so, yes, it has made me disillusioned about the structures our country has in place that are undermining communities, but I, I still don't think I have spite, exactly.
>> Okay, let's get one more thing out of the way. There was, I read, I've read only one bad review of the book, one negative review of the book. It happened to be in,
>> It was in Bloomberg. It was written by someone who is the managing director of a private equity firm.
>> Yes.
>> Uh, and it basically accuses you of cherry-picking only the bad stories and not focusing on the stories where private equity does, you know, of stories where private equity works well. Can you give me, can, let's just get this out of the way. Can you give me an example of a good private equity story that worked out well?
>> Sure. So, um, not to get too bogged down in the history, but private equity started in the 1960s with what were then called bootstrap deals, which were essentially private equity firms buying small family-run companies that showed the potential for investment but didn't have the liquid capital they needed to do it and pumping in the capital, right? So, that company could go public or get acquired or whatever. Um, that is still a lot of what private equity does. And those stories seem basically benign. They're also sort of uninteresting stories because it's like, we're affecting a very small number of workers here. The biggest, um, examples tend to be the ones that go the worst. But, um, Pete Stavros, who runs, uh, KKR, was the only private equity executive who would talk to me on the record for the book. Many talked to me off the record, but, um, he runs a nonprofit called Ownership Works where he is basically, every time KKR, and now a bunch of other firms as well, does a deal, they give the workers of that firm some small ownership stake in the company. And there's one example that Stavros loves to talk about, and I roll my eyes a little, not because it's not good, just because it's not particularly representative, but there's an overhead garage door manufacturer in Illinois, um, that had a couple hundred workers, you know, truck drivers, factory workers, whatever. KKR bought that company, gave the workers an ownership stake, and then when KKR sold the company, you had like, truck drivers and factory workers getting mid-six-figure payouts. That is like unequivocally a good thing, right? Unfortunately, companies owned by private equity are 10 times as likely to enter bankruptcy proceedings as other kinds of companies. So the idea that this overhead garage door manufacturer is at all representative, I think, is just wildly off base. But also, like, we can all agree, like, it is great that those factory workers and truck drivers got their six-figure payouts.
>> Uh, but that's an outlier.
>> Um, yeah, but you asked for a positive.
>> I gave you one.
>> Um, and I hear this review increased the sales of your book significantly.
>> Yeah. Well, I mean, I thought it was so funny that they had literally assigned the review to a private equity executive that I like rolled with it on social media. Um, and it went like, pretty viral on Blue Sky, hilariously. And I had posted it with like, my Bookshop affiliate link, um, which allows me to track how many sales have come in through that particular link. And, um, yeah, posting about that review sold me a bunch of copies, which was great.
Um, what I really like about this book is, you know, you've obviously spent a lot of time selecting the right cases, selecting, you know, the protagonists that made the most sense. But in addition to that, you weave in really well a larger history of, uh, you know, uh, the American economy in the late 20th century, whether it's, you know, uh, the engagement with what Greta Krypner has called the financialization of the economy, or whether it's, you know, engaging with, uh, you know, Milton Friedman's shareholder primacy doctrine. Tell me how those broader, you, the broader cultural, uh, shifts in how we think about markets and the economy more generally influence the story you're trying to tell here.
>> Yeah. So, I did not study economics in college, and I never went to grad school. Um, so,
>> I mean, that's why this is such a readable book. Um, so I was like, like, woefully unfamiliar with a lot of this work when I went in, and so I sort of like, had to give myself like a baby MBA, um, just through the reporting. And there were so many wonderful academics who would just like, sit there and answer all of my like, very dumb questions. But it was really Milton Friedman that got me interested in this subject in a larger way. Um, Milton Friedman's 1970 essay on shareholder value theory, which essentially says the only purpose of a company is to make money for its shareholders. That's the only thing. Um, it's really worth reading, um, if you haven't read it. It was printed as like a full, like section in the New York Times, um, which was a super, like, just a, like, journalist choice that I'm super interested in. Um, and so you can trace so much of what has become our modern private equity system to that decision. Um, and the Krypner paper that Rohan's, uh, referring to, which came out in 2005, essentially says that like, between the '60s and the '80s, um, there was this huge turn in the economy such that non-financial companies were all of a sudden making way more of their money from like, financial tricks, essentially, rather than from the goods or the services they're providing. And, um, it's maybe the most mind-altering academic paper I've ever read. It's like, running through my head constantly, um, because you really, like, that is what, that is what happened. That is where our, how our economy got the way that it got. But to go back to Friedman, I think what is really interesting when I reread that essay for probably the fourth or fifth time in the early stages of reporting this book, a line stuck out to me that had not stuck out to me before, which said that he carves out exceptions for companies that specifically have a charitable purpose. Right? So, even if they're for-profit companies, maybe their only goal isn't to make money for shareholders if they're supposed to be providing a valuable service. And the two examples he names are education and healthcare. Education and healthcare are these days two of the most active areas of investment for private equity firms. Milton Friedman, obviously long dead, but like, I, like, what I would do to be able to ask him the question of like, "So, is this what you had in mind or not?" Because, you know, he, he wrote this exception. Um, so I, yeah, it's, it's a tension that like, will never be answered, but it is also clear that so much of this comes from Friedman.
>> Right. And I mean, even beyond education and health, as your book demonstrates, the, the consequences of shareholder primacy are devastating for people across all the sectors. Yeah. That you touch on in your book. So, you know, from leveraged buyouts to, you know, carry, uh, tax. Tell me a little bit about what shapes the incentives of a manager in a private equity firm once, you know, once a firm has been taken over, uh, you know, what are, what are the incentives? What, what does decision-making look like?
So, private equity deals, I mean, when I say private equity deals, and I think when most people in lay terms are talking about private equity deals, they're really talking about leveraged buyouts. And the way leveraged buyouts work for, sorry for those of you who probably already know this, but just in case anybody doesn't, the way leveraged buyouts work is that a private equity firm pulls money from outside investors. So, university endowments, um, state, uh, sovereign wealth funds, ultra-wealthy individuals, whoever, pension funds, and uses that money to buy companies. But that money, even all pulled together, only makes up about 20 to 30% of the equity of a given private equity deal. The rest of the money is just straight bank loans. And the trick with private equity deals is that they're taking out these massive, massive loans, but the private equity firm itself is not responsible for paying those loans back. Only the portfolio company is. So, if I come in and I say, you know, "I want to buy this hospital in Riverton, Wyoming," I'm going to take out $500 million in loans to do it. The hospital now has those loans on its books. I, as the private equity firm, do not. If the company enters bankruptcy, I, as the private equity firm, have no legal obligation to step in and cover those loans.
So, to the incentives question, what you end up with is a split in incentives between the incentives of the private equity firm and the incentives of its own portfolio company. Right? This is why I think there's like an element of this that is actually a corruption of free market capitalism because the owner is not working on behalf of its own company. So, for example, one of the primary moves of private equity firms in a lot of companies, in a lot of industries, is when you buy a company, you do, um, you execute what's called a sale-leaseback agreement, which basically means you sell all of the company's real estate holdings and start charging the company rent. So, if you're the private equity firm, this is like unquestionably a good thing, right? You're pocketing the proceeds from the real estate sale and you get a cut of the rent payments for the exact same properties that that company once owned. This was very famously a part of the Toys R Us story. So, you are quite literally weakening your own portfolio company to strengthen yourself. So, the, the short answer at the tail end of my long answer to your question is like, the only incentive is to make money for the private equity firm,
>> That whether sometimes that can mean strengthening the portfolio company because you want to take it public or what have you. Sometimes that means weakening your own portfolio company. And it does not matter which of those strategies, um, is, you know, morally correct or whatever they are, they are equivalent as long as the private equity firm profits.
>> Right. And I, I think it was telling in your book that this is very industry-agnostic where, you know, in media, 14% rate of return was, you know, particularly high, but apparently was not enough for,
>> Yes.
>> The private equity investors. Um, the other, you know, the other broader landscape, and, you know, to your point about taking the systems view and, you know, seeing how these individual challenges interact with a much larger system, uh, I think the other place that's very evident, I mean, across all your stories, but I think the Toys R Us example is a great one where private equity didn't cause all the problems, where private equity entered when a lot of other challenges were already occurring, whether it's, you know, the, you know, the M&A, uh, the mergers and acquisitions, not just for Toys R Us, but also in your media story, or whether it was the Amazon deal that Toys R Us was forced into. Yes. Uh, and the tech consolidation there. Can you say a little bit about how private equity exacerbates or, you know, interacts with some of these other challenges?
>> Yes. Um, so private equity sort of positions itself as turnaround specialists, right? We take companies that have been weakened, and we do essentially house-flipping on them, right? And sell them for a profit, but, but sell them for a profit because we've strengthened them. Um, because of this divorce of incentives, that's not really what happens. Um, but they do often like to target companies that have been weakened in some way. So, I think the Toys R Us example, which I write about in my book and which is, um, on the cover of the book, is a super interesting example because Toys R Us got bought by two private equity firms and a real estate investment trust in 2005. 2005 was like a rough time for Toys R Us, right? Like, Amazon was coming on the scene in a huge way. Um, they were under threat from Amazon. Also, like, Walmart had become, this feels sort of quaint now, when like, Walmart was like the biggest threat to retail, but that was, that was a thing. Um, and so Walmart had gone deeper and deeper and deeper into toys. Um, it is unquestionably true that Toys R Us was a dramatically weakened company. But what happened was the private equity firms never made any real attempt to strengthen Toys R Us as a company. They made no effort to develop a real web presence in 2005. Like, this was pretty late. Um, they sold off all of Toys R Us's real estate. So they were just, they had $5 billion of debt from the leveraged buyout, plus now they had just absolutely crippling rent payments. But they also just like, never tried to improve the store experience, right? Historically, Toys R Us had been like, "We're a warehouse, and the store won't look nice, but you can come find everything." That was a model that was very pioneering when, when Toys R Us started it, but was not a working model in 2005. It felt very outdated. And the protagonist of that section in my book was like, you know, a floor manager. She was not particularly high up in the company, and she was saying, "Come renovate our store." Like, "I'm talking to customers every day, and I know what they want." But there was no money to renovate the store because it was all going to rent payments and debt payments. And so the problem with private equity is that they're buying weakened companies, but they, they don't have any incentive to actually strengthen the companies. Um, and so Toys R Us did enter bankruptcy proceedings and eventually liquidated, and the two private equity firms both made money off of the lifespan of that deal, um, by shuttering every single Toys R Us in existence. Um, it's just, there's just no way to strengthen companies if you're burying them under so much debt. And there are specialty retailers who were very similarly situated to Toys R Us in 2005 that have done just fine, right? But they had money to invest. So, one of the statistics I think about a lot is the 50 biggest retailers on the National Retail Federation list, not a single one is owned by private equity. Actually, that just changed because private equity bought Walgreens.
>> But not a single one is owned by private equity because that model just doesn't work when, when your goal is actually to fix a struggling company.
>> Mhm. But what this narrative also points to the fact that yes, private equity causes the ultimate demise of a lot of these firms, but it's a multifarious market failure and policy failure where you know you enable consolidation, you enable bad deals with Amazon because of the lack of tech regulation, and you know you're putting the firm in a place where it literally has no other option apart from, you know, engaging with someone else to turn around.
>> Totally. Yes. And I think, you know, in the media, uh, sector, this has been a huge thing where, just, there is no regulation designed to protect a healthy, flourishing media industry. And so the result is that the entire media industry is weaker every single year to the point that like, basically the only truly functional publication in America right now is the New York Times. Um, and, and so there would be ways, you don't even have to say, "Here's a law that private equity cannot buy newspapers." It doesn't have to be as simplistic as that. It, there can be structural reforms that say, "This is an industry that is valuable for our society to have, and we are going to encourage this industry in X and Y ways." And that inherently is going to make private equity less interested because they are functionally vultures, right? Like, they want to go after the weak ones. Um, yeah.
I mean, relatedly, I have to ask you, how do you situate this book circa 2025, 2026? I mean, right now we're talking about, uh, a Warner Brothers Paramount deal that's going to lead to significant, you know, cuts and job losses. The Washington Post, owned by Bezos, you know, uh, uh, laid off, uh, you know, a number of reporters. And then, you know, you have a consolidation of power among tech billionaires. And I don't, I know this is not about tech billionaires, but it's a part of the same, yeah, general system problem. How do you situate this book within that larger environment right now?
>> I've talked to a lot of people who have said, you know, "My company isn't owned by private equity, but I see the exact same thing play out." And essentially, it's like, everything is private equity now. Whether it is private equity or not technically, it is all operating that way, right? Because you have other kinds of owners looking at how private equity firms operate in their given industry and saying, "Oh, we can do that, too." Um, you know, you saw this with Doge, um, going into the federal government. And I had so many calls from politics reporters being like, "So, can you explain how private equity works to me?" Because I think that's functionally what we are seeing with how Elon Musk and his crew of 22-year-olds are like, cutting, but not just cutting, right? Like, cutting with no strat, cutting the things that save the government money, right? Just cutting sort of almost randomly. Um, like throwing spaghetti at the wall. And so I do think, you know, this book is narrowly focused on private equity specifically, but it does feel like this is the story of our economy now. You know, the parts of it that are private equity and the parts that are not.
One of the things I really liked about the book was, so let me start, what I, I really, you know, it really evokes my sugarin when a lot of good narrative non-fiction spends a whole book complaining about something and has a quick chapter of hand-wavy solutions at the end. And I'm really glad you avoid, you don't do that in this book. Though, what's great to see also is that throughout the book, you do point us to countervailing forces or ways in which, or, you know, things that look promising in terms of solutions. One of them, obviously, is community action that you point to in Wyoming. Uh, the other is the role of philanthropy, especially in media, uh, in, you know, local news. And then, you know, you talk about policy change, the broader regulatory and policy changes that are needed. Where do you see the biggest hope, uh, at this moment, and what are the kind of, you know, what are the kind of solutions you want to see from each of these different spaces?
I think what gives me hope is that there are so many people thinking about this from so many different angles right now. Um, there is not, this is such a big industry, right? There is not like one silver bullet that's going to come in and fix everything. Um, Elizabeth Warren has proposed what she calls the Stop Wall Street Looting Act almost every year since 2018, 2019. Um, and it would functionally drive private equity out of business, but like, that, that's not happening, right? Like, that's never come anywhere close to getting out of committee. Um, so this multifaceted approach is really interesting to me, and that includes, you know, the people like in Wyoming, but there's also like, a lot of movement toward regulation on the state level in a lot of places right now. Um, so Massachusetts, after the Steward healthcare disaster, um, at the end of 2024, passed what was then a, maybe the, the strongest legislation against, um, private equity in healthcare. Um, essentially saying that like, no private equity deal in healthcare could go through without, um, uh, the governor signing off personally. Um, and what's interesting is now, that's probably only, that was at the end of 2024. Now, I would say that was probably only the fourth or fifth strongest anti-private equity and healthcare law in the country. Um, Oregon's is probably now the strongest. And I, the thing about my book's reception that has surprised me the most is just how much of my time I'm talking to politicians now, and not trying to make, like, I am so not a policy person. Like, I, I'm not in the business of making policy recommendations, but I can say to them from my reporting, "Here's what's happening here, here, here, and here, and what you should look at." And so, I've talked to people in at least half a dozen states and another one next week, as well as, um, lawyers, uh, from the Senate Health, Education, Labor, and Pensions Committee. Um, so, yeah, the, the, like, the juice on this right now is really interesting to me and probably hasn't gotten enough mainstream attention. Um, because people often ask me this with the tone of like, "Well, nothing's ever going to happen on the federal level, so like, should we just lose all hope?" And I think it's basically true that functionally nothing is going to ever happen on the federal level. Um, 88% of members of the House and Senate take private equity donations. That's across both sides of the aisle. So, there's just not a lot of appetite to do anything.
>> Based on what he said, greater on one side.
>> Often in many cycles, it is more Democrats than Republicans. So, um, Chuck Schumer, my home state senator, uh, is very often the, um, top recipient of private equity money in the entire country. Um, and often by a huge margin. Um, so I don't think without a dramatic change in the composition of Congress, I don't think serious federal legislation is on the table anytime soon. But, but to lose hope because of that ignores so much of what can be done outside of Capitol Hill, right? And so many of these state bills are things that are much more effective because they are coming from the state rather than coming from the federal level. Um, so, yeah, I definitely don't think we're in a, we're in a hopeless place.
>> Let's step outside of policy for just a moment. There was a good philanthropy example in your book, and you know, there's a larger, disparate conversation about local news. And I think there's so much we have to lament about the loss of local news in the last 25 years because even the narration of these stories at the local level about jobs being lost and, you know, addressing those information asymmetries that are so important to your larger story about private equity, when you have the collapse of local news, you're also losing out that larger, you know, environment in which markets operate more effectively. How do we address the local, you're a journalist, how do we address this local news challenge with consolidations and, you know, news, local news shutting down? And what is the role of philanthropy in this? And I know I'm pointing you towards a specific example that you cite in your book.
>> Yeah. So, there is a lot of momentum behind philanthropic funding of local media right now. Um, the biggest group is called the American Journalism Project. Um, and they're essentially, they're kind of a bundler. So, they get money from a whole bunch of other foundations, package it together, and fund startup local newsrooms. And their model is like, not uncontroversial because they do what they call venture philanthropy, which essentially means they're like following a venture capital model where they really need their publications to grow immediately, and if they don't, they will cut off funding. But they are also providing a ton of support to help those nonprofits figure out how to get there. Um, and so they now have startup local newsrooms in places all over the country, and places you wouldn't necessarily expect, that are doing phenomenal journalism. So, um, one called Mississippi Today, based in Mississippi, won a Pulitzer a couple years ago, um, for exposing a scandal that like, if we lived in a just world, would have brought down the governor. Did not, in fact, bring down the governor, but like, showed him to be incredibly, like, almost mind-bogglingly corrupt. Um, and that is a publication that like, three years earlier, did not exist. And they are also financially sustainable now. So, it is cool to see these little green shoots. Um, I don't think there's one in Massachusetts because the Boston Globe is, you know, still quite strong, but if you're from a place, um, elsewhere in the US originally, or you have connections to one, I would go to the AJ website and see if there's a publication from the place you're from because there are like, a lot doing really interesting work. I don't think philanthropy can be the only solution to the local news crisis. Um, there's going to have to be some government intervention. Um, unfortunately, we're probably also going to have to rely on some more benevolent billionaires who then later turn out not to be benevolent. Like, so, as with so many of these things, there is no one silver bullet, but there is so much energy around many different aspects of it right now. So, I, what's going on in the media is obviously so depressing, but I do think I do see some hope there.
>> Yeah. Speaking of philanthropy, one of the funnier tweets I read, we still call them tweets, right? Uh, in the context of the, with the Washington Post layoffs, was that Mackenzie Scott could do the funniest thing ever and hire pretty much everyone who was laid off.
>> Totally.
>> But yeah, that's right. That's not the long-term solution. Um, I do think one area of a long-term solution is the community action that you helpfully pointed out to, pointed to even in your opening remarks. But if community action was that easy, you know, it, it would happen. Can you walk us a little through the nuts and bolts of what was actually happening in Wyoming? Because it took effort. I mean, you, to animate the community around this new initiative. There were, you, you also point, you know, in your story, you, you, you know, you talked about how, uh, in your narration of it right now about how they got federal funding, but also a lot of federal funding incentives were not aligned with,
>> Yes.
>> Uh, you know, setting up a new startup hospital either. Can you say a little bit about what it means to animate a community and get the right federal supports?
>> Yeah. I mean, I don't think a lot of communities could replicate what Riverton, Wyoming did. Um, they, this took six years to even get to the place of having the money in place, um, and then, you know, plus actually building the thing, etc. And there's no guarantee that it will succeed, right? Because like, Apollo Global Management could say, "All right, fine. We're going to staff this hospital again with what is pocket change for us. Literally just to drive this other thing out of business, right?" Like, that is totally an option on the table. Um, and they did, you know, the nuts and bolts were, they had to get this feasibility study. They raised $150,000 in a very poor community to do it, which was like a huge accomplishment. And then they got the feasibility study, submitted it to the USDA, and the USDA said, "This isn't even audited. You have to have, you have to go through this whole separate process of having your report audited." And that was going to cost like another $100,000. And so they had to start the fundraising process over again. Um, so all of this is to say that I don't think building a new hospital in every community that has lost its hospital to private equity is a realistic option. But that's not to say that there aren't realistic options in every community. And what it actually requires is people with deep knowledge of a place banding together, you know, not in a symbolic kind of kumbaya way, but like actually working together, putting aside whatever differences. You know, I talked about Roger, the doctor, who is again, like, Wyoming left. Um, but this is a red town, even by Wyoming standards. Um, and what united them all was that they were just so furious that they wouldn't have a hospital, right? They were furious that these decisions for their community were being made from a gleaming office tower in Manhattan, and it didn't really matter what their like electoral politics were. And I think there is something so powerful about that. And I often struggle to talk about this because it can sound so cheesy, and there is a cheesy version of it, but I actually mean in the like, most, like, nitty-gritty way. Like, the only way to combat private equity is to bring together a lot of people with deep local knowledge and put them on the task of coming up with the solution that works best for their local community.
All right, let's open up for questions.
>> Yeah, so,
>> Thank you very much. Yeah, uh, my name's Nick. Um, yeah, so my mom actually lost her job due to private equity, and she worked for Wall Bounds, which was, uh, owned by AM. It's a grocery chain in New York City. I'm also from New York City, by the way. But yeah, you know, like, I remember, uh, she told me how, like, they originally denied her severance and her coworker severance, but thankfully the union was able to fight back, and they were able to get, you know, some severance. But I, I know the similar story happened with Toys R Us. So I was wondering like, maybe you could speak on the power of unions to push back against private equity.
>> Yeah. I mean, so one problem is private equity loves industries with low rates of unionization. So retail, for example, has like, I think, like, 3% of retail workers are in unions. Um, so they do sort of like, steer away from them. The, the challenge here, and I've thought about this a lot because I was in a union at the job I was driven out of after private equity acquisition, and it certainly helped me get better severance. There was no way in which that union could have saved my job. Like, the structural imbalance was just far too great. But that's not to say that like, unions are useless. Um, I think that that's exciting. Um, I think that first of all, if private equity wants to stay out of industries that are heavily unionized, like, great, make your industry heavily, you know. Um, and also like, obviously, the, the protections that that unions can extract are, you know, much better than nothing. But it's, it's, it's tricky as a solution because I'm not sure it actually confronts the root problems. It just like, sort of makes the effects better.
>> There's one back there. You can do one here.
>> Hi, thank you. Um, I wanted to ask you, what do you think about, uh, what it, what the industry of private equity does to the people who actually work there, and the way that we think about morality of returns, um, of like wealth, and the way that it sort of, uh, gets passed on? Because in, from my experience of the people that I know that kind of work both in the private equity firms, but also in sort of the big consultancies, they actually are necessary for the private equity to actually function. Um, there is a, like, there's both the talent, like, you have people that could have been, you know, doing, you know, many great things in the world, and instead of there, sort of doing, um, very big spreadsheets trying to sort of pump more money from from a company that's effectively dying. But also a lot of the private jobs and the most elite companies are actually passed through, you know, uh, family and school sort of networks and so on. Um, and I'm just kind of like thinking, how do you think about what this sort of does to our sense of both meritocracy, sort of the way that we attribute, you know, moral dessert, um, and,
>> Yeah.
>> Yes.
So, interesting. So, I work, um, I help run a program at Princeton, um, for low-income high school journalists, and we like, do a 10-day boot camp with them over the summer, and then we do college admissions stuff with them, um, to help them get into the kinds of colleges that they can go to, um, for free. And so, I had a student, um, who came through our program, went to Dartmouth, and was like, like, did private equity internships every summer. And then the fall of his senior year, he called me and he was like, "I have to tell you, I can't do it. I'm not going into private equity after graduation." And I was like, trying to stay calm about it and just be like, "Tell me why." Rather than being like, "Hell yes, I saved one." Um, but I think what was really interesting about that was we did, he and I did talk a lot about why he had made that decision, and he just felt like he, he felt strongly that he wanted to make a lot of money because he had
Grown up very poor. He wanted to help support his mom and so he wanted to go into something lucrative, but he just decided that, like, he couldn't do that. Like, he could go into management consulting, right? Like, there are other highly paid industries, and he just couldn't make the choice because he had seen so much during his internships. And I talked to a lot of people for the book too, um, who either had left private equity jobs or were trying to figure out a path out. Um, you know, like I said, I am so not interested in condemning individuals, no matter what their job is, but I do think we have this unfortunate structure where, like, it's it's one thing to go to Harvard undergrad and then, like, get a job in private equity afterward, but a lot of the kids I know who went to Harvard and peer schools and got jobs in private equity afterward were doing it because they felt like that was the quickest way to go from a low-income background to making a lot of money and feeling like they finally had, like, stability in this country of ours.
Um, and so I don't even know where I'm going with this, but it is a thing I think about a lot because I think a lot of people end up there not because they are interested in destroying companies. They end up there because somebody said, "You're smart and talented and would be good at this, and we will also pay you a starting salary of $175,000 a year." It's hard to, like, condemn anybody too much for, like, taking that deal. I don't know. It's It's all very complicated.
>> Yeah. Let's just hope the management consulting is not the alternative is not the antidote to the private equity.
>> I know how the recruiting cycle every fall at these schools work.
>> Yeah. Um, right here. Yeah.
>> I I hope you're thinking about your favorite question.
>> Oh, sorry.
>> Hi, Megan. Um, I am really curious to read the book, but I wanted to hear more on the journey of entrepreneurs that independent business owners that you might have, like, met along the way. And what are the conditions or patterns you observe that, like, push them to look to private equities as sort of an inevitable, necessary evil at some point? And, um, if not that, then what are the alternatives that truly exist for these business owners? And one last addendum to that is, do you see that there might be, um, a capital owner and a working-class divide even at the level of independent business owners versus their employees?
>> So, I've talked to a lot of small business owners. They email me. I mean, I get multiple emails a week from people saying, "I run a small business. I've been approached by private equity. How do I think about whether to make this, how to make this decision?" And usually, it's that they are thinking, "I want to retire at some point, and I want this business that I have, like, sunk my heart and soul into to continue to exist." And so, like, they are generally trying to, like, you know, make themselves some money for retirement, but they're also trying to say, like, "It'll be okay for me, right? Um, my business will survive under private equity ownership, right?" And it's it puts me in a very weird position because it's like, I I honestly can't give you the answer to that question.
Um, but I think because so much of the money is in loans, private equity will throw, like, kind of crazy amounts of money at small business owners, especially if it's in an industry where they're trying to do, like, a huge roll-up, right? So, this is big in dentistry right now, where private equity firms will target a particular geographic area, and they'll try to get basically every successful dentist in that industry. And so if you are a holdout, they will just come keep coming at you with more and more and more money. And I am not going to begrudge anybody who's trying to, like, sell their practice and get out because they want to have a nice retirement. But I do think that it's like it it just all goes back to the structure being so broken because if there were, like, you know, if antitrust and monopoly laws had more teeth to it, like, quite possibly you wouldn't be able to own every dentist in Indianapolis or whatever, right? Um, and so there would just be, like, a structural barrier to doing this and to putting this small town dentist in that position.
Um, so I, yeah, it's it's such a tricky one because I don't think advising individual business owners, like, "Hey, don't do it," actually really solves anything. Like, you kind of have to solve the structural problem and then allow the individual business owners to benefit from that.
>> Let's do one right there.
>> Hi, thank you so much. Um, my apologies if this is covered in the book. I haven't read it yet, but, um, I'm curious from, you know, hearing about the lived experience of workers at, uh, organizations that were bought by private equity, sort of what the level of consciousness is for, sort of, working-class folks in these companies about the effect of private equity. Um, I actually worked at a hospital in Boston during the whole Steward Healthcare thing, and certainly felt that across Massachusetts, you know, consciousness of private equity raised, both because of, sort of, the political climate generally about corporate greed, let's call it, as well as, sort of, the like, utter disaster and craziness that was Steward. But I'm curious, sort of, like, maybe especially when things aren't going wrong, or because things are going wrong, how does that level of consciousness change?
>> Yes. Um, this is covered in the book in a way that, like, makes me very grateful that you asked the question because it's something that I think about so often. So, three of the four characters in my book did not know that their employer was owned by private equity. So, not even knowing anything about how private equity operates. They did not know who was controlling their own job circumstances, right? And why would they? Like, the woman I talked about who worked at Toys R Us, who was a floor manager. Her bosses seven layers above her were all Toys R Us. Her paychecks came from Toys R Us. Unless you are, like, a journalist or somebody deeply nosy, that would just lead you to believe that my employer is Toys R Us. And so it was only when the company literally was about to liquidate that she found out, a, that they were owned by private equity, and b, even the basics about how private equity works. And so, um, her group of former Toys R Us workers has done a lot of great work with the backing of a nonprofit that is complicated for reasons I won't go into because it's a little tangential, but they've done a lot of work, like, trying to inform other workers of, like, "If you are unhappy in your workplace, this could be the reason why, right?" And I think there's room to do a lot more of that because free market capitalism, like, relies on parity of information. If you don't have that, you have lost the conditions for free market capitalism because the workers don't have any power over their bosses, right? And private equity firms have to disclose so little about their operations that, you know, again, to go back to my argument about how I actually think this is a corruption of free market capitalism, like, we're violating the basic conditions. Um, so I do think there's a lot of room for people who are interested in this space to just, like, do some education campaigns, right? Because workers should at least know who their bosses are.
Time for two more questions. Let's do one there and one there.
>> Yes, thanks for your discussion. Uh, it's really interesting. I was wondering, um, could you elaborate a bit about the role of banks in this, given that you said, okay, um, private actors use a lot of loans and put these then on the companies they acquired, and these companies have a high probability of bankruptcy. Thanks a lot.
>> Yeah. Yeah. Yeah. Um, so banks, like the private equity firms themselves, have total protection when they go into a deal. I get this question a lot, like, "Why would the banks, if the company is likely to fail, why would the banks buy it?" The banks are at the very top of the creditor list, right? And they also have relationships with the private equity firms that are making sure the private equity firms will then protect them. So, in the Toys R Us deal that I talked about, for example, all of the bank lenders got their money back with full interest, Um, because they were at the very top of the creditor list. Um, the suppliers lost a ton of money, and suppliers for a company the scale of Toys R Us, like, that's huge, right? They're losing gazillions of dollars. Um, the workers obviously got totally screwed, but the banks were fine. So there's this, like, nice symbiotic relationship between the private equity firms and the banks to make sure even if everybody else loses all their money, we're okay.
>> Thanks for being here. Uh, I look forward to reading the book. And I have no ties to private equity, but I just wanted to ask you a little bit more. A lot of your critiques strike me as critiques of shareholder capitalism in general, or private-owned or for-profit hospitals, or for-profit newspapers. It's unclear to me, and I was hoping you could maybe revisit the idea of, like, what is it about the private equity model distinct from a strategic private owner? So, like, another company coming in, say, a large-scale healthcare conglomerate buying that hospital, versus the private equity owners. You talked a little bit about, you know, the tendency to have a lot more leverage. Um, the fact that 10% more go going bankrupt. I think that's, you know, very characteristic of private equity, but could also be characteristic of other, you know, acquisitions or transactions elsewhere. Uh, you know, and I think of governance, you talked a little bit about how there's very little reporting requirements and other things, but what exactly is it about private equity and the way it's set up that would be that's discreet from other forms of ownership?
>> Yeah. Yeah. Yeah. Totally. No, it's a it's an entirely reasonable question, and I I do have my quibbles with with free market capitalism, but I actually do think that this is a particular and very different system. Um, and the main reason is just because of the debt structure. I mean, Toys R Us, they took out $5 billion worth of debt, and the firms were not responsible for paying that back, right? So if I am an owner and I buy, you know, let's use the dentist example, right? Like, I buy five, 10, 100 dentists. The only way I make money is by making those dentists make money. Private equity doesn't work that way. I, as a private equity firm, can make huge profits for myself literally by driving my own companies into the grave. That is what happened in the Toys R Us example. The two private equity owners, when the company liquidated, they profited off of the life of the deal, right? So, I'm frequently asked about the difference between private equity and venture capital. Venture capital is certainly a system that has its problems, but what they are trying to do, what they're unicorn hunting, right? They are trying to find companies that will make a ton of money. And yes, absolutely, sometimes making money requires cutting costs, but it also requires making more revenue. And that's sort of the underpinnings of free market capitalism in the, like, sort of romantic way we usually talk about it. But if we have a system where the company can lose a ton of money or even die off altogether, and yet its owners still profit, that just seems to me like a broken system.
Um, and, you know, so it's not 10% of 10% more companies enter bankruptcy. It's 10 times as many companies under bankruptcy as companies under other types of ownership. To me, that indicates that this system doesn't work. If you had any other system in which one version of the system was successful or or failed 10 times as many time 10 times as often as other kinds, we would say, "Okay, so that one doesn't work. Let's look at these other ones." Right? But because private equity gets theirs no matter what, there's no incentive to just like make profitable, lucrative companies. And I think that's really the thing that strikes me as broken about this system.
>> All right. What's your favorite question?
>> Oh, shoot. I really liked the question about, um, about business owners.
>> Great. Um, thank you.
>> You know what we typically do after every such conversation is we put out, you know, a list of key takeaways or a report of sorts.
>> Oh, interesting. I feel like post this, it just seems to me like, you know, we need to drop a systems map with all these different players people have mentioned, you know, because there is that dichotomy between morality left to an individual and not to a system, but, you know, people operating in an unfair system and expecting morality at the individual level, and then, you know, the interaction with politicians, the interaction with banks that create their own system failures in this much larger network of challenges. Yeah. And thank you for unpacking that so well in the book and in these, you know, in these answers. Thank you for being here.
>> Yeah. Thank you for having me.