How Private Equity Killed the American Dream

In his new book, Bad Company: Private Equity and the Death of the American Dreamjournalist and former alum Megan Greenwell Tells the devastating impacts of one of the most powerful but poorly understood forces of modern American capitalism. Rinse with money, largely not regulated and unreachable on profit, Investment Capital Companies have quietly reshaped the American economy, taking charge of large pieces of industries ranging from health care for retail – often leaving a financial ruin in their wake.

In the United States, twelve million people are now working for companies belonging to investment capital, writes Greenwell, or about 8% of the total employee population. Her book focuses on the stories of four of these people, including an American “R” toy supervisor who loses the best job she has ever had and a Wyoming doctor who looks at her rural hospital cut off from essential services. Their collective experiences are an overwhelming account of how innovation is replaced by financial engineering and ways whose change is paid by all, except those at the top.

In a review of Bad business For Bloomberg, a long-standing capital-in-watershed has accused Greenwell of inevitably looking for sad stories “Sad endings. “But the characters selected by Greenwell are not content to sit down and look at the investment capital devastating their communities.

Greenwell spoke to Wired at the end of last month of what is and is not, how he transformed different industries and what workers do to recover their power.

This interview has been modified for more clarity and length.

Wired: What is investment capital? How is the business model different, say, venture capital?

Megan Greenwell: People confuse investment capital and venture capital all the time, but it is completely reasonable that normal people do not understand the difference. Basically, the easiest way to explain the difference is that venture capital companies invest money, generally in startups. They essentially take a participation in the company and expect a kind of yields over time. They generally play a much longer game than investment capital.

But the way in which the investment capital works, in particular with the leverage redemptions, which I focus on in the book, is that they buy businesses. In venture capital, you put your money, you condemn it to a CEO and you probably have a advice seat. But in the leverage redemption model, the investment capital company is really the owner and the control decision-maker of the portfolio company.

How do capital-investment companies define success? What types of businesses or companies are attractive to them?

In venture capital, the VC evaluates the opportunity to conclude an agreement based solely on the fact that they think that the company will succeed. They are looking for unicorns. Will this company be the next Uber? The Private Equity seeks to earn money from companies in a way that does not really require the company itself to earn money. It’s like the greatest thing.

So it’s less a bet.

It is very difficult for capital investment companies to lose money on transactions. They obtain management fees of 2%, even if they put the company in the soil. They are also able to carry out all these tips, such as selling the company’s real estate, then invoice the company’s rent on the same land as it owned. When investment capital companies contract loans to buy companies, the debt of these loans is assigned not to the investment capital company but to the portfolio company.