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Republican and Democratic administrations both worked eagerly for forty years to make possible the growth of private credit and private equity firms’ role within it. In 1982, for instance, the Securities and Exchange Commission (SEC) under President Reagan issued Regulation D, through which companies could generally borrow from “accredited investors”—shorthand for wealthy or sophisticated lenders—without registering with the SEC.16 This created a new class of firms from which companies could borrow money. Then, in 1990, the SEC allowed for the syndication of private capital to certain institutional buyers. Investors could now make loans on the private market and then bundle the promises of payment on those loans and sell them to other investors. This Rule 144A, in essence, created a new, secondary market for private credit.
These regulations were issued under SEC chairmen appointed by Presidents Reagan and Bush, respectively. But Democratic administrations got in on the game too. In 1996, Congress passed, and President Clinton signed, legislation that lifted the requirement that private funds—funds that made loans on the private credit market—be limited to one hundred or fewer investors.17 This created the opportunity for investors to build vast stores of capital with which to make private loans.18 The legislation passed overwhelmingly in the House (just eight members voted against it) and by unanimous consent in the Senate.19 Then, in 2012, Congress passed, and President Obama signed, the JOBS (Jumpstart Our Business Startups) Act, which further expanded the private credit market by permitting borrowers to make general solicitations for money.20 This meant that private credit sales could be advertised publicly and essentially obviated the purpose of going public. The legislation passed with bipartisan majorities in both chambers of Congress.21
Faced with all this pressure, over the course of 2020, Gores and Securus announced a number of new measures. They would give away $3 million to reduce recidivism and improve prisoner reentry,64 they would continue to reduce the cost of calls,65 and Gores himself would give away his personal profits from the company.66 Gores told the Detroit Free Press, with considerable self-importance, that “ultimately it’ll be a blessing that I’m in there and that somebody cares about what’s happening.”67 But Tylek responded, “We’re not asking you to come save people; we’re asking you to stop taking from them.”68 She added, “So before you can argue that you want to do something good and all these things, you have to stop doing the harm that you’re trying to unwind. Those two things can’t operate in the same space.”69 Thus far, Gores hasn’t heeded Tylek’s direction: he has not yet sold Securus—now rebranded Aventiv Technologies—nor has he shut it down. It remains, as of this writing, a part of Platinum Equity’s portfolio.70
Finally, as part of their rollup, private equity firms are expanding their carceral reach beyond prison itself and into prison release cards. These are debit cards that facilities give inmates when leaving jail or prison, in theory holding the money that the inmates brought with them, that they made inside, or that the facilities gave them. But multiple lawsuits allege that the business model of these companies was largely to extract fees from prisoners. For instance, one plaintiff, Jeffrey Reichert, was arrested for driving while intoxicated.151 When he was detained, the local jail confiscated the $177.66 he had in cash. He spent just four hours in detention but upon his release was not given his money back. Instead, he was given an ironically named Access Freedom debit card.152 Reichert quickly found that the card, which he had not previously agreed to take, was slowly draining him of his money: there was a weekly maintenance fee, an inquiry fee to check the balance, and an issuer fee to withdraw funds.153 This, it turned out, was company policy: the Keefe Group, which issued the card and which was owned by H.I.G. Capital, charged fees for card activity, for card inactivity, to request too much money, to ask about how much money there was to request, to replace a card, and to close the account. “Clearly, these cards are designed to make it impossible to avoid fees,” wrote Lauren Sanders of the National Consumer Law Center.154 A portion of the case was settled, and Keefe agreed to pay a percentage of the fees it took from prisoners, but much of the litigation remains ongoing.155 Additionally, the Consumer Financial Protection Bureau (CFPB) eventually fined JPay, which issued many of these cards and which was owned by Tom Gores’s Platinum Equity. The CFPB said that JPay’s tactic to attach fees to credit cards after people were released from prison was abusive.156 In the settlement, JPay agreed to give the former prisoners $4 million and pay a penalty of $2 million, as well as limit the fees that it would charge in the future.157
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The situation was even worse in Bayonne, New Jersey, which had taken a similar deal with KKR and its operating partner a few years before. In announcing the agreement, the parties made big promises. A law firm hired by the water authority estimated that the city could save over $35 million over forty years.22 The CEO of the operating company extolled “KKR’s long-term vision,” which, he said, “brings credibility to address America’s water challenges.”23 The Clinton Global Initiative even featured the partnership as an innovative new business model in its annual meeting.24
The 911 dispatch was just one small part of private equity’s expansion into emergency services; the far larger part was its acquisition of ambulance companies. It may be surprising to learn that ambulances were once free, overwhelmingly provided by the government—especially for younger people who have only known the prohibitive costs of calling an ambulance. In fact, in 1988, a national survey of cities found that not one had privatized its ambulance services.52 But in the 1990s, amid municipal budget cuts and a growing distrust in government, that began to change. By 1997, 16 percent of cities had privatized their ambulance services.53 By 2012, nearly 40 percent had.54 If localities were looking to sell their ambulance operations, private equity firms were looking to buy them, as people who called emergency services were willing to pay perhaps enormous sums to save their own lives. So, over the course of fifteen years, Patriarch Partners, Warburg Pincus, Clayton, Dubilier & Rice, and KKR, among other firms, all bought ground ambulance companies.55 KKR and American Securities also bought the largest air ambulance companies—those that delivered patients by helicopter and plane—which, together with one other firm, controlled two-thirds of the industry.56
The salespeople were themselves under tremendous pressure. Managers allegedly forced people to stand at their desks when they missed sales targets and prodded them to make bets on one another’s performances.95 One manager had a “Guess Who” game where she showed her team’s metrics and asked people to guess who had gotten each. Another saved the key cards of fired admissions staff on a key ring, which she would rattle in front of salespeople to remind them of what would happen if they failed to meet their targets. Because of these tactics, one director of admissions—that is, one of the salespeople—at Ashford said, “you stop thinking of these students as people, you start putting numbers on people.… Your entire day was consumed with a number so that you wouldn’t get in trouble.”96 Ultimately, California succeeded in its lawsuit against Ashford, which the court ordered must pay $22 million for defrauding students.97
nice
Require reporting on the ultimate parent entity of nursing homes. Private equity firms often obscure their ultimate ownership of nursing homes to avoid legal liability. The Center for Medicare or Medicaid Services has regulations that require homes to disclose any investors with a 5 percent or greater ownership stake.13 These regulations should be updated to require nursing homes to identify the ultimate parent entities of the investors, as well as the ultimate parent entities of the contractors that they use (nursing homes often obscure their wealth by paying money to contractors that they themselves own). This information should be made public so that the families of those who die in nursing homes know whom to sue.
i mean sure but it is crazy to end on a sentence like that
There was a good reason for this. Economics satisfied the two most basic needs of investment bankers. First investment bankers wanted practical people, willing to subordinate their educations to their careers. Economics, which was becoming an ever more abstruse science, producing mathematical treatises with no obvious use, seemed almost designed as a sifting device. The way it was taught did not exactly fire the imagination. I mean, few people would claim they actually liked studying economics; there was not a trace off self-indulgence in the act. Studying economics was more a ritual sacrifice. I can't prove this, of course. It is bald assertion, based on what economists call casual empiricism. I watched. I saw friends steadily drained of life. I often asked otherwise intelligent members of the prebanking set why they studied economics, and they explained that it was the most practical course of study, even while they spent their time drawing funny little graphs. They were right, of course, and that was even more maddening. Economics was practical. It got people jobs. And it did this because it demonstrated that they were among the most fervent believers in the primacy of economic life.
[...] Investment bankers had a technique known as the stress interview. If you were invited to Lehman's New York offices, your first interview might begin with the interviewer asking you to open the window. You were on the forty-third floor overlooking Water Street. The window was sealed shut. That was, of course, the point. The interviewer just wanted to see whether your inability to comply with his request led you to yank, pull, and sweat until finally you melted into a puddle of foiled ambition. Or, as one sad applicant was rumored to have done, threw a chair through the window.
One of the benevolent hands doing the stuffing belonged to the Federal Reserve. That is ironic, since no one disapproved of the excesses of Wall Street in the 1980s so much as the chairman of the Fed, Paul Volcker. At a rare Saturday press conference, on October 6, 1 1979, Volcker announced that the money supply would cease to fluctuate with the business cycle; money supply would be fixed, and interest rates would float. The event, I think, marks the beginning of the golden age of the bond man. Had Volcker never pushed through his radical charge in policy, the world would be many bond traders and one memoir the poorer. For in practice, the shift in the focus of monetary policy meant that interest rates would swing wildly. Bond prices move inversely, lockstep, to rates of interest. Allowing interest rates to swing wildly meant allowing bond prices to swing wildly. Before Volcker's speech, bonds had been conservative investments, into which investors put their savings when they didn't fancy a gamble in the stock market. After Volcker's speech, bonds became objects of speculation, a means of creating wealth rather than merely storing it. Overnight the bond market was transformed from a backwater into a casino. Turnover boomed at Salomon. Many more people were hired to handle the new business, on starting salaries of forty-eight grand.
Once Volcker had set interest rates free, the other hand stuffing the turkey went to work: America's borrowers. American governments, consumers, and corporations borrowed money at a faster clip during the 1980s than ever before; this meant the volume of bonds exploded (another way to look at this is that investors were lending money more freely than ever before). The combined indebtedness of the three groups in 1977 was $323 billion, much of which wasn't bonds but loans made by commercial banks. By 1985 the three groups had borrowed $7 trillion. What is more, thanks to financial entrepreneurs at places like Salomon and the shakiness of commercial banks, a much greater percentage of the debt was cast in the form of bonds than before.