YouSaid · the spoken record

Matt Stoller

lines on the record: 71
first: 2023-06-13
most recent: 2023-06-13
sittings or episodes: 1
sources: podcast

Every line below is reproduced as it was said and linked to the record it came from. Nothing here is summarised or generated. Directory · Search · Corrections

“I think part of it is the work that you're doing, which is helping to educate people on private equity and sort of the challenges with the business model. The other thing we need to do is just empower the activist community here so that they can keep doing this work of both educating people and pushing elected officials and people in government. So there are a number of organizations out there, the private equity stakeholder project, Americans for Financial Reform, American Economic Liberties Project, to name just three of several, empowering those groups to really help build a grassroots movement is going to be really important here. Because I want to be clear, this is not a thing that we're going to solve in 18 or 24 months. This is the work of a generation to fix a flawed business model, just as it was the work of a generation to constrain the trust. But if we did it once, we can potentially do it again.”
2023-06-13 · Decoder with Nilay Patel · Private equity bought out your doctor and bankrupted Toys”R”Us. Here’s why that matters. · IDENTIFIED FROM THE TRANSCRIPT
“Kind of on time here. What's next in this movement, right? You're describing it as a movement. You do have this list of specific things to move. You have this notion that maybe it will be more diffuse across states and maybe private litigants. What's next? What's the next turn here, do you think?”
2023-06-13 · Decoder with Nilay Patel · Private equity bought out your doctor and bankrupted Toys”R”Us. Here’s why that matters. · IDENTIFIED FROM THE TRANSCRIPT
“Too easily on the idea of some of these bigger structural changes in that, you know, in one way of talking about it's an obscure legal common law doctrine. On the other, it's a basic idea of fairness that the people who make decisions should be responsible for those decisions. And if an institution like Congress historically has struggled on some of these policy issues, there are a lot of different avenues here. You know, states could be acting here. If you're a state legislator, a great thing to say would be, okay, I'm going to introduce a bill that says if you're a company headquartered in our jurisdiction and a private equity firm buys you lays off a bunch of people, the company goes bankrupt, the private equity firm should be liable to the losses of the workers. You know, that is a pro-worker pro-resident reform. It makes intuitive sense. So I think that there is a way to have these big structural reforms. It might just not happen through.”
2023-06-13 · Decoder with Nilay Patel · Private equity bought out your doctor and bankrupted Toys”R”Us. Here’s why that matters. · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, no, I think it's a really good point about activism and organizing, which is it's I was getting dinner with an activist. She's in her 80s and she was giving me good advice. And she says, you know, it's hard to start a movement if you don't have something to move. And I think I've seen that happen with a lot of activists is they figure out something to move. And often it's easiest to do that around a very specific issue because you can personalize it. You can humanize it. It's harder to do that around abstract issues on how do we change corporate veil piercing doctrine and so forth. That said, I don't want to give up.”
2023-06-13 · Decoder with Nilay Patel · Private equity bought out your doctor and bankrupted Toys”R”Us. Here’s why that matters. · IDENTIFIED FROM THE TRANSCRIPT
“It seems politically easier to get them. It seems politically easier to defend them in a court, right? And say, look, here's all the harm that was caused. Here's the rule. The rule will stop the harm. Here's the authority that's vested in whatever part of the United States code that governs this agent. Like we're soft to the races, right? And it's weird that it's like easier for the government to make some rule that's like all the doorbells should be blue than it is for the government to say we should have a bunch of competition and actually have a market that decides what color the doorbells should be. Why do you think that? Because that's the one where it's like when you go talk to the conservative Republican, they should see that protecting the market keeps the government regulation off of them. But it seems like many of these firms would prefer the sort of here's one regulation, one specific regulation at the cost of a phone call from prison at a time approach than the market approach.”
2023-06-13 · Decoder with Nilay Patel · Private equity bought out your doctor and bankrupted Toys”R”Us. Here’s why that matters. · IDENTIFIED FROM THE TRANSCRIPT
“Changing their mind and A recurring theme we have on this show and across the verge is that particularly our audience, a tech audience wants to think of the legal system as a computer, like a deterministic system with inputs and outputs. And that's, I think, how many judges want to think about it famously, right? John Roberts, I just call balls and strikes. Like that's a deterministic argument. And I think that might change. We're just in for an era of Gen Z judges, is all I'm saying. I think it's going to be pretty wild. Actually, this is You have a lot of these specific prescriptions here for agencies, right? The Department of Health should require minimum staffing in nursing homes around prison phones. You say the FCC should regulate the cost of phone calls from prison. Those kinds of very specific regulations of specific businesses and specific industries. And here are the rules.”
2023-06-13 · Decoder with Nilay Patel · Private equity bought out your doctor and bankrupted Toys”R”Us. Here’s why that matters. · IDENTIFIED FROM THE TRANSCRIPT
“Two things on that. One is I don't want to sort of armchair psychologize, but I do think it's often very hard for judges to rule against companies when those lawyers for those companies who make five times what the judge makes, who dress extremely well, who have an army of associates sitting on the back benches, say, you know, hundreds of people are going to lose their jobs. The company's going to fall apart, and you're going to be held responsible. I think it's very hard for a judge to go against that just as a human in sort of thinking about their psychology. So that's one thing. The other thing is this has happened before. The trusts were ultimately constrained. We had, as you know, what was called the Lochner era. You had an era of court opinions that was incredibly hostile to sort of social progress. And ultimately, that changed through judges, you know,”
2023-06-13 · Decoder with Nilay Patel · Private equity bought out your doctor and bankrupted Toys”R”Us. Here’s why that matters. · IDENTIFIED FROM THE TRANSCRIPT
“I have to say, I was reading the book and I was struck at how many extremely sensible, well meaning cases you discuss. And then at the end, the caveat is, and then they lost the case. And that just seems like a recurrent theme throughout this book. Like, people have a great legal theory that Kate, again, to the sort of. Innocent bystander. The case makes a lot of sense. The problem seems obvious. And then they lose on a technicality of standing or corporate structure or funding sources or whatever latches. It's all just like crazy legal, technical legal defenses, not the substance or the merits of the case itself.”
2023-06-13 · Decoder with Nilay Patel · Private equity bought out your doctor and bankrupted Toys”R”Us. Here’s why that matters. · IDENTIFIED FROM THE TRANSCRIPT
“Exactly, exactly. But I will say, I think that there's been really encouraging sort of civic-minded litigation against private equity firms for some of their practices. So, for instance, the American Academy of Emergency Medicine sued a private equity firm and its physician staff and company for violating state corporate practice of medicine laws, saying, hey, you guys are coming into emergency rooms and essentially telling us how to practice medicine that violates state law. Now they ultimately lost that case, but it kind of, but I have to.”
2023-06-13 · Decoder with Nilay Patel · Private equity bought out your doctor and bankrupted Toys”R”Us. Here’s why that matters. · IDENTIFIED FROM THE TRANSCRIPT
“Is DOJ and FTC are not the only enforcers here states and especially private litigants can take action here. Not to get too in the weeds. I mean, one of the challenges that you've got with private litigants is they just don't see where the money is going to come from in taking on these cases. You know, it's like, okay, especially because he's because he”
2023-06-13 · Decoder with Nilay Patel · Private equity bought out your doctor and bankrupted Toys”R”Us. Here’s why that matters. · IDENTIFIED FROM THE TRANSCRIPT
“Obviously, can't go too far into specifics here, but I will say the basic laws of antitrust apply to everybody, whether it's a gigantic multi-billion dollar acquisition or if it's a small purchase of an OBGYN or veterinary or dermatology clinic. These laws apply no matter what the size. If the effect is to quote the relevant statute to substantially lessen competition. So I think there is a real possibility here. Obviously, you have sort of the physical constraints of the Department of Justice and FTC, which is DOJ antitrust staffing levels is at what it was in the 1970s. Fortunately, there's been some legislation to change that, but there's a limited number of cases that can be taken on. I will say I think the leadership of both the FTC and DOJ Antitrust are very attuned to these sorts of issues. I'll also say at the risk of being repetitive here.”
2023-06-13 · Decoder with Nilay Patel · Private equity bought out your doctor and bankrupted Toys”R”Us. Here’s why that matters. · IDENTIFIED FROM THE TRANSCRIPT
“You have a lot of specific solutions at the end of the book. I want to talk about those. One of them is actually regulating rollups, regulating mergers, regulating combinations of firms. That does connect to, I think, the antitrust reform movement to say we should stop more of this. We should have more companies, not fewer. We should not allow companies to roll up every veterinarian in Chicago. Is that possible? I mean, it seems like you would have a particular insight into that. Like that seems at once the easiest thing to suggest to just the random person and also for some reason the hardest thing to achieve.”
2023-06-13 · Decoder with Nilay Patel · Private equity bought out your doctor and bankrupted Toys”R”Us. Here’s why that matters. · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, well, the other, and maybe this isn't quite responsive to your question. The other interesting possibility is that venture capital firms become more like PE firms. You know, it's like Andreessen Horowitz is just becoming such a massive entity that eventually they might be looking at sort of more the leverage buyout model than sort of the traditional bet and hope you win the lottery or something like that. But I get your point, which is there's so much money sort of around tech right now that it's possible that the private equity business model essentially becomes inevitable to at least one of the players there.”
2023-06-13 · Decoder with Nilay Patel · Private equity bought out your doctor and bankrupted Toys”R”Us. Here’s why that matters. · IDENTIFIED FROM THE TRANSCRIPT
“I don't think I need it. I mean, again, in our world here on Dakota, right, we must get startup CEOs or mid-sized company CEOs that are saying, look, there's a kill center around these companies where if we make a product that competes with them, they'll just bundle it into the operating system and my company's doomed. And that seems like one set of competitive problems. But the other set of competitive problems is they'll just buy everything, right? And that stopping that does not seem to have worked very well for the DOJ or the FTC at least until recently when there's more of an effort to file the cases and lose just to try to change the law. Do you see an interplay there?”
2023-06-13 · Decoder with Nilay Patel · Private equity bought out your doctor and bankrupted Toys”R”Us. Here’s why that matters. · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, it's interesting. I mean, Apple seems to have handled its excess of cash by doing stock buybacks. So, you know, there's another way that you can use that money. I think it's a really interesting idea, which is eventually you've got enough money sitting around and you need to figure out what to do with it. Private equity is a tactic certainly seems like it would be very appealing. And I think that should be concerning if you think that this is ultimately going to be a drain on the economy. But Neil, I wouldn't give them any ideas if I were you.”
2023-06-13 · Decoder with Nilay Patel · Private equity bought out your doctor and bankrupted Toys”R”Us. Here’s why that matters. · IDENTIFIED FROM THE TRANSCRIPT
“Do you see a future where the big tech companies, which now control just massive swaths of the economy themselves and have enormous amounts of money in the bank start to do the sorts of things that the PE companies do? Like if you had Apple's amount of cash, the number of things that you can do to move the needle is like vanishingly small, which is why they keep chasing after cars and health care. But it might be easier for them to just go buy a bunch of nursing homes and run the PY book and achieve at least fiscal growth that way. I'm not saying that comports with their values, particularly in Apple's case, but you just see, well, if you've got a war chest like that, this is a set of options you might have on the table.”
2023-06-13 · Decoder with Nilay Patel · Private equity bought out your doctor and bankrupted Toys”R”Us. Here’s why that matters. · IDENTIFIED FROM THE TRANSCRIPT
“So, part of it is that private equity is moving into the tech industry. But the other part is what we need to be caring about is the overall vibrancy and competitiveness of the American economy. And one of the challenges that we've got, America faces this every 30, 40 years, is we invent a broken business model. You know, 20 years ago, it was subprime lenders. 40 years ago, it was savings and loans. 60 years ago, it was conglomerates. 100 years ago, it was truss. It's something that we keep doing. And it ultimately has a tremendous drag on economic performance. So if you care about the country growing and prospering, then the challenges that we face with the PE business model should probably concern you.”
2023-06-13 · Decoder with Nilay Patel · Private equity bought out your doctor and bankrupted Toys”R”Us. Here’s why that matters. · IDENTIFIED FROM THE TRANSCRIPT
“That's a great point. And I'm always adamant about pushing back slightly on the story on Toys R Us. Toys R Us was profitable the last year before it declared bankruptcy. The challenge was that it had so much debt that it was servicing that rather than able to expand its operations. And it had advantages that Amazon didn't have in terms of physical stores and so forth. But that's a rant perhaps for a future podcast. In terms of if you're in the tech industry, why should you care about private equity? Because to the extent you're interacting with finance, it's probably through venture capital firms and not through established PE firms. Well, two things. One is private equity has expanded into the tech industry in a lot of different ways. The most prominent example, unfortunately, is probably the purchase of solar winds, which was the cause of”
2023-06-13 · Decoder with Nilay Patel · Private equity bought out your doctor and bankrupted Toys”R”Us. Here’s why that matters. · IDENTIFIED FROM THE TRANSCRIPT
“And they're going to say, Well, look, that's a problem for the dead companies. We're going to start new companies that do a better job and win. That just seems like a pretty big tension if you're describing an economy that's being taken over by PE.”
2023-06-13 · Decoder with Nilay Patel · Private equity bought out your doctor and bankrupted Toys”R”Us. Here’s why that matters. · IDENTIFIED FROM THE TRANSCRIPT
“I have to say, I am really encouraged by what's happening around private equity in specific industries. I just mentioned prison phone services where PE has been very active. There have been a number of activist organizations that have had extraordinary success in limiting the rates that need to be paid by prisoners to make phone calls. At one point, it's as high as $25 for a 15-minute call. This is activism that was happening at the local state, and now the federal level. In fact, legislation was just passed in Congress last year to address this. Similar movements are happening around nursing homes. And so I think often there can be real movement on this if you focus on a specific issue or a specific industry. And I think that because we've seen it happen.”
2023-06-13 · Decoder with Nilay Patel · Private equity bought out your doctor and bankrupted Toys”R”Us. Here’s why that matters. · IDENTIFIED FROM THE TRANSCRIPT
“It's a super interesting question. And I mean, it's been really fun talking about this book with people because I was doing an interview with a fairly conservative Republican at the beginning of the week. I was doing an interview with some DSA adjacent folks in the middle of the week. And I said to them both, you know, wherever you are on the spectrum from sort of true free market capitalists to Heronian socialist, like the basic problem of the private equity business model should concern you because it is not capitalism. It is a perversion of capitalism or sort of an aberration of capitalism. And so I think that there should be sort of a bipartisan sort of cross ideological consensus on this, which is if you want a healthy economy that works for people and works for the long run, we need to change the incentives of private equity. Now, can that be done?”
2023-06-13 · Decoder with Nilay Patel · Private equity bought out your doctor and bankrupted Toys”R”Us. Here’s why that matters. · IDENTIFIED FROM THE TRANSCRIPT
“Call your representative, like you want to write the solutions, and you have a lot of solutions. I do want to talk about them. But broadly, there's this idea that, okay, you've got full hyper capitalist lazse-faire just go for it. The market will figure it out. And then you end up with a quasi-controlled market anyway because you just have a handful of giant firms dominating entire sectors of the economy and they're just instead of having state control of it you just have like two guys right and That seems like a problem that we can see expressed right now, right? This is the in the private markets you've got a handful of pee companies and the public markets you've got a handful of index funds and they might as well just be controlling the economy That seems like a problem that should cut across party lines, right? We should have functional markets. Everyone agrees that competition is good for consumers and that having new firms enter like lowers prices and makes better”
2023-06-13 · Decoder with Nilay Patel · Private equity bought out your doctor and bankrupted Toys”R”Us. Here’s why that matters. · IDENTIFIED FROM THE TRANSCRIPT
“Here are the consequences of understaffing nursing facilities. At private equity owned nursing homes. Here's the consequence of private equity firms not having a fiduciary duty to their limited partners when pension funds make investments. Here's the challenge that we've got when prison phone services charge exorbitant rates at the direction of their private equity owners. I think it's a project of helping people understand how private equity works and then how it impacts their life. And if we can do that, there are a lot of different levers that we can move to have some change.”
2023-06-13 · Decoder with Nilay Patel · Private equity bought out your doctor and bankrupted Toys”R”Us. Here’s why that matters. · IDENTIFIED FROM THE TRANSCRIPT
“So fortunately, we have podcasts like Dakota to educate people on the basics of private equity and help people understand sort of the problems that we've got on the business model. I do think that there are a lot, and again, maybe I'm showing my bias here as a bureaucrat, but I think that there are a lot of people in state, local, and federal government that want to do the right thing by ordinary people, but don't understand the consequences of some of these actions. So, you know, just to go back to bankruptcy, there's really technical arguments around things like credit bidding and 363 sales that really judges just need to be made to understood sort of the consequences of these things. But there's nobody on the other side often helping them do that. I see the same thing happen in other agencies. It would be really helpful if there were ordinary people talking about”
2023-06-13 · Decoder with Nilay Patel · Private equity bought out your doctor and bankrupted Toys”R”Us. Here’s why that matters. · IDENTIFIED FROM THE TRANSCRIPT
“You've got another claim in the book that says, Look, the problem here is that judges and members of Congress and regulators, they just don't see how it works. All these moves are hyper-technical, hyperfinancialized, and your average district court judge is just flabbergasted what's going on and saying, look, it's capitalism at work. Is that changing? Is there a mechanism to change that? Is that they've just gamed it too hard and they've hired too many people under their boards of directors? Like how do you fix that kind of problem? We see it in tech all the time. Every tech lawsuit is sort of like a disaster of misunderstandings. But you're saying here it's happening on the business side as well.”
2023-06-13 · Decoder with Nilay Patel · Private equity bought out your doctor and bankrupted Toys”R”Us. Here’s why that matters. · IDENTIFIED FROM THE TRANSCRIPT
“Which was reading the court documents around this. It was like a fascinating sort of shadow play of, you know, sort of describing this as a third party. And I was like, no, it's just a different fund of some capitals. And it was not, I should be clear, fraud or deception or anything like that. It was just clever lawyering. But the reason that they do that is it allowed them to push off the company's pension funds from their books and onto the quasi-government agency, the pension benefit guarantee corporation. And so it meant that Sun Capital and Friendlies would no longer be responsible for the pension debts. The PBGC would. And that's one of the ways that they can use bankruptcy to their advantage. I'll say if you're both the owner and the largest creditor, you can kind of push aside the other unsecured creditors. And that gives you another advantage here.”
2023-06-13 · Decoder with Nilay Patel · Private equity bought out your doctor and bankrupted Toys”R”Us. Here’s why that matters. · IDENTIFIED FROM THE TRANSCRIPT
“I can't speak generally, but the examples that I've been interested in have been when there have been purposeful bankruptcies by private equity firms. And if I can tell one story, I think you might have even touched on it very briefly, is friendlies, which is a dining chain in the Northeast or was. Sun Capital, the private equity firm bought it and then did all the tactics that we were talking about earlier. They executed a sale leaseback. They did a dividend recapitalization, had layoffs, ultimately pushed the company into bankruptcy. They were the equity owner of friendlies, but they were also the largest creditor of friendlies. And in the bankruptcy process, normally the ownership sort of flips. And so as the largest owner and creditor, Sun Capital was able to sell friendlies from itself to itself.”
2023-06-13 · Decoder with Nilay Patel · Private equity bought out your doctor and bankrupted Toys”R”Us. Here’s why that matters. · IDENTIFIED FROM THE TRANSCRIPT
“There's an interplay here with bankruptcy, which is a move that you say a lot of private equity companies use. It was part of their playbook. And it just strikes me that your creditors are usually pretty good at getting their money back. And so if you're going to go into a company, load it up with debt, load it up with fees on servicing that debt, do a lease back where now you're loading up with even more fees and credit obligations. And then you're going to tank the company and walk with having collected your bag. The creditors are going to say who was responsible for this disaster. We want our money back. Are they winning?”
2023-06-13 · Decoder with Nilay Patel · Private equity bought out your doctor and bankrupted Toys”R”Us. Here’s why that matters. · IDENTIFIED FROM THE TRANSCRIPT
“I'm not sure the argument's even really being made at this point. I think that I've been researching on West Law, and I think that the cases that have been made have generally gone in favor of the investors, not the plaintiffs. We haven't added sort of wrinkle here in that a lot of times plaintiffs don't even know that the company is owned by a private equity firm. I went to this conference of lawyers that represent nursing home patients, and they were saying, look, it's impossible for us to figure out who owns the nursing home. And in fact, they'll play very complicated games to put the assets in related shell companies so that, you know, even if you do win the case, you don't know how many assets there are for you to recover. So partly it's a challenge with the law. Partly it's the challenge of very sophisticated investors and companies structuring their businesses in a way that makes it even harder to figure out who's responsible.”
2023-06-13 · Decoder with Nilay Patel · Private equity bought out your doctor and bankrupted Toys”R”Us. Here’s why that matters. · IDENTIFIED FROM THE TRANSCRIPT
“It's really interesting. Yeah, and we're kind of geeking out like first year law students here, but it's really hard to hold the private equity firms responsible for their portfolio companies' actions and to put a pin on the doctrine that you just said, this is called piercing the corporate veil. The legal doctrines around veil piercing vary from state to state, but generally it is extraordinarily hard to do that in large part thanks to good litigating from defense side law firms. As a result, it's almost, I don't want to overstate the case. It's almost impossible for a private equity firm to be held legally responsible under common law, veil-piercing arguments. And that might make sense for ordinary investors. Like if Brendan or Nili were invested in a given company through a Vanguard account, it wouldn't really make sense to sue us because we don't really control their operations. But if you control 51% of the stock,”
2023-06-13 · Decoder with Nilay Patel · Private equity bought out your doctor and bankrupted Toys”R”Us. Here’s why that matters. · IDENTIFIED FROM THE TRANSCRIPT
“I wasn't great at that either. None of that went well. But this thing you're talking about where the private equity companies actually operate the companies that they're invested in through their funds, they direct their operations, they roll them up, they have preferred supplier agreements. I think you have the example of Talbot's in the book where they force them to change clothing suppliers and Talbots folded. It's just very obvious that you could go to a court and say, look, get through the corporate veil, the law school term is pierce the corporate veil and get to the people making the decisions. This whole show is about decisions. Like get to them. We can see them. They're right there. And they bought this clothing retailer and they own that t-shirt maker and they're forcing this clothing retailer to switch from this vendor to the one they own. And people hate it. And now the company's like, just go look at them. And it doesn't seem like that is easy or even possible.”
2023-06-13 · Decoder with Nilay Patel · Private equity bought out your doctor and bankrupted Toys”R”Us. Here’s why that matters. · IDENTIFIED FROM THE TRANSCRIPT
“Millions of people's lives. But I think private equity firms have managed to seem very opaque, very dull, and almost kind of prestigious in a way that I think a lot of other industries have not been able to do.”
2023-06-13 · Decoder with Nilay Patel · Private equity bought out your doctor and bankrupted Toys”R”Us. Here’s why that matters. · IDENTIFIED FROM THE TRANSCRIPT
“I think it's a combination of those things. I think a lot of former government officials went to PE and so they've got a friendly face when it comes to lobbying in a way that I think people go to private equity in a way that they might be more reluctant to go to an oil and gas company or even a healthcare company or something like that. But I also think it goes directly to what you just said, which is private equity is sort of everywhere and nowhere in a lot of ways. And one of the things that I think PE firms have been most successful at is making their issues seem boring, you know, which is when you talk about the carried interest loophole, like your eyes start to glaze over. It sounds so dull, and yet it has such profound implications for the equity of our tax code. Or when you talk about surprise medical billing, I mean, those laws are the difference between a fifth of Americans carrying significant medical debt and not. It affects literally tens of millions.”
2023-06-13 · Decoder with Nilay Patel · Private equity bought out your doctor and bankrupted Toys”R”Us. Here’s why that matters. · IDENTIFIED FROM THE TRANSCRIPT
“Is that because people can't see? I feel like the healthcare industry, for example, lobbies quite a bit in this country, the pharma industry lobbies quite a bit, but they're villains, right? People can see what they're doing. They understand the experiences they're having. They understand that there's a different kind of experience you might have if you just go to Canada or something. And they are villains. The P companies are kind of invisible, right? You can't quite see how those rules affect regular people. Is that why they've built such a political advantage here? Or is it they just revolving door every ex-government official onto the board of a PE company?”
2023-06-13 · Decoder with Nilay Patel · Private equity bought out your doctor and bankrupted Toys”R”Us. Here’s why that matters. · IDENTIFIED FROM THE TRANSCRIPT
“Equity firms have been in protecting their legal advantages over the years. Private equity firms have donated something like $900 million since 1990 to federal candidates. They have a bench of employees that include former cabinet members, secretaries of state, treasury, defense, chairman of the FCC, SEC, and so forth. And so when it comes to protecting preferred legal advantages like the carried interest loophole, a surprise medical billing, and so forth, I think that they've just been really, really effective in a way that even”
2023-06-13 · Decoder with Nilay Patel · Private equity bought out your doctor and bankrupted Toys”R”Us. Here’s why that matters. · IDENTIFIED FROM THE TRANSCRIPT
“So just to set a baseline on the sorts of tactics that we're talking about, and we've already sort of referenced this a little bit, a sale leaseback is where the private equity firm directs the company to sell its assets, the shopco store, the factory, the hardware that it has, and then lease it back to itself. And that gives you a short burst of cash from the sale, but then you're shouldered with the ongoing obligation to pay back the things that you once owned. We also mentioned dividend recapitalizations where a company will, well, a firm will direct a company to borrow money to pay itself a profit. These sorts of things have been on the books for a long time. I think private equity firms have been really smart about identifying the opportunities here and using them. And sort of extracting from those two examples specifically, I think it's just important to note how effective private”
2023-06-13 · Decoder with Nilay Patel · Private equity bought out your doctor and bankrupted Toys”R”Us. Here’s why that matters. · IDENTIFIED FROM THE TRANSCRIPT
“It seems like another piece of the puzzle here is just some of the tactics you've described, right? We're going to go buy Manorcare. We're going to sell all of the real estate and have the company lease it back. So we've made money on a sale. And now we might have sold it to ourselves. They're going to lease it back. I think they did that with Shopgo, which was a big retailer in Wisconsin where I grew up. That kind of strategy seems very obvious. It seems to create the same exact kind of chaos for every kind of company that undergoes those moves. Why is something like a lease back arrangement so common and why doesn't it seem to be as regulated as it should be given it's very obvious negative consequences?”
2023-06-13 · Decoder with Nilay Patel · Private equity bought out your doctor and bankrupted Toys”R”Us. Here’s why that matters. · IDENTIFIED FROM THE TRANSCRIPT
“Well, and obviously, I can't get into the details here because of my work, but I will say I think that the leadership of the Department of Justice and the Federal Trade Commission are very attuned to those arguments and thinking about how can the antitrust laws be used to help regular people, you know, not sort of these abstract airy arguments. I'll also say, and I think that this is a really important point, is under the law, the federal government is not the only enforce of the antitrust laws. Every state Attorney General has the authority to enforce the Clayton Act, individual litigants have the power to do that too. So I think as public awareness is growing on these issues and people are understanding how these roll-ups are occurring, there are a lot of different levers people can push on to make action here.”
2023-06-13 · Decoder with Nilay Patel · Private equity bought out your doctor and bankrupted Toys”R”Us. Here’s why that matters. · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, I mean, I don't want to push too hard on this because I know you want to keep some distance here, but I just have to say that sounds absolutely backwards to me, right? Like we're going to do, we're going to try to block the AT&T Time Warner merger and we're going to do calculus in front of a judge to show that prices will go up or down 15 cents when it's obvious what the real problem is, but we can't say that. That was a very complicated big deal that was like a 50-50 shot because you had to make a bunch of complicated leaps about what AT&T's business logic was, which ultimately made no sense and they sold it anyway. Fine. I'm going to buy all the veterinarians in Chicago and then plan to make that worth it is raise prices is absolutely straightforward, right? Like I can explain that to anyone and say, do you think you should allow this? And the answer, regardless of political belief.”
2023-06-13 · Decoder with Nilay Patel · Private equity bought out your doctor and bankrupted Toys”R”Us. Here’s why that matters. · IDENTIFIED FROM THE TRANSCRIPT
“You know, it's interesting. I can't get into too much of the details because of my work, but I will say one of the interesting challenges that you've got with private equity roll-ups is looking at antitrust sort of potential cases, you know, when it's one big company planning to buy another big competitor, I wouldn't say it's an easy case, but it's a straightforward one because it's a national or international market and you look at, okay, how are the market shares of these companies going to change? And then you hire some economists and try to figure out, okay, is that enough to raise prices? Here, because the acquisitions are much more distributed across geographies and antitrust, you have to define a geographic and product market. It's actually a much larger case in some ways to go after these smaller acquisitions because you're not looking at a national market, but rather many local ones. So I think that these sorts of roll-ups are subject to the answer.”
2023-06-13 · Decoder with Nilay Patel · Private equity bought out your doctor and bankrupted Toys”R”Us. Here’s why that matters. · IDENTIFIED FROM THE TRANSCRIPT
“That fascinates me. You were in the antitrust division in the Department of Justice. We've talked a lot about antitrust law on this show. We've talked a lot about the neoprandesians, the hipster antitrust movement, getting away from the consumer welfare standard. This seems squarely outside that we need to reform antitrust problem. You're going to buy all of the veterinarians in a city and raise prices. You don't need to reinvent antitrust law. Robert Pork would say you've bought up all of the veterinarians in the city and raised prices. You've literally harmed the consumer welfare. We should stop.”
2023-06-13 · Decoder with Nilay Patel · Private equity bought out your doctor and bankrupted Toys”R”Us. Here’s why that matters. · IDENTIFIED FROM THE TRANSCRIPT
“In 2021, so a not insignificant part of the U.S. economy. But one of the surprising things that I saw in my research was private equity firms often target businesses that service working class people rather than rich people. Which I have always found very surprising. You'd sort of think if you're in the business of making money, you'd go after the rich people. But it seems that the model is that often businesses that service working class people are attractive because poorer customers don't have alternatives. And so you can raise prices. You can cut quality care, whether it's in prison services, whether it's in mobile homes across a range of practices. You can do all these things essentially without consequence because your customers don't have an alternative.”
2023-06-13 · Decoder with Nilay Patel · Private equity bought out your doctor and bankrupted Toys”R”Us. Here’s why that matters. · IDENTIFIED FROM THE TRANSCRIPT
“So I think it's two things. One is a lot of the acquisitions that we're just talking about are part of roll-up strategies. So the idea here is we're going to buy all of the dermatology or many of the dermatology practices in a given geography. And potentially that has efficiencies. You have the same back office billing and so forth. But potentially it's an opportunity to exert market power. If you control a significant percentage of the dermatologists in a given geography, you can raise prices. You can cut quality care because there's only so far people are going to be able to drive to get to the next location. So roll-up strategies are really common in the private equity sort of playbook. I think the other thing to get to why certain businesses are attractive. Obviously private equity is expanding a lot of different directions. There's 1.2 trillion dollars in acquisitions.”
2023-06-13 · Decoder with Nilay Patel · Private equity bought out your doctor and bankrupted Toys”R”Us. Here’s why that matters. · IDENTIFIED FROM THE TRANSCRIPT
“You know, she won't prescribe me off label as much as I want. Why is this happening in these markets? That one in particular to me, just candidly, just watching my sister go through it. It's like, okay, this entire market is being taken over by PE companies. They can't all exit the same way, right? They can't all just extract fees from the same client base in the same cities. And yet they're all rushing in to literally the same markets, like dermatology. Right, like there's only so many that you need in a city, and yet they all seem to be rushing into the same markets. Why is that”
2023-06-13 · Decoder with Nilay Patel · Private equity bought out your doctor and bankrupted Toys”R”Us. Here’s why that matters. · IDENTIFIED FROM THE TRANSCRIPT
“It's a great question. And again, I think that private equity can be tremendously successful, certainly for the private equity firm, oftentimes for the limited partners that invest with them. And generally for the executives of the companies that sell to the private equity firms. So, for instance, whether it's a big company like Toys R Us that sells to KKR or a small one like a veterinary clinic or a dermatology clinic whose doctor wants to sell retire, selling to a private equity firm can make a lot of sense because you'll get a large payout because you've got a lot of equity. The challenge that you've got typically is for the people that remain in the medical space, for instance I just mentioned dermatology. The challenge of private equity ownership has become so pervasive that I look at job listings now and they will literally say, you know, we need dermatologists at such and such a practice.”
2023-06-13 · Decoder with Nilay Patel · Private equity bought out your doctor and bankrupted Toys”R”Us. Here’s why that matters. · IDENTIFIED FROM THE TRANSCRIPT
“These companies are bad at operating businesses and they tend to break things apart and extract the value and run away, leaving you in bankruptcy as they did with Toys R Us or whatever else, why do people make these deals”
2023-06-13 · Decoder with Nilay Patel · Private equity bought out your doctor and bankrupted Toys”R”Us. Here’s why that matters. · IDENTIFIED FROM THE TRANSCRIPT
“Shoe source. They made a number of operational mistakes like buying World Cup soccer sandals for countries that they didn't actually have stores in or shutting down a factory that did quality control checks on a Chinese production facility that ultimately because it was shut down, they had so many bad shoes that it more than made up the savings in inventory that they had to throw away. Now that is just one example and there are thousands of acquisitions that are out there. But the basic thing that's going on here is when private equity firms buy companies because they have a financial background generally the changes that they're trying to make are financial ones whether it's loading a company up with debt, spinning parts of the company off, or quite often trying to combine companies in a roll-up. But that's different from experience in running a company.”
2023-06-13 · Decoder with Nilay Patel · Private equity bought out your doctor and bankrupted Toys”R”Us. Here’s why that matters. · IDENTIFIED FROM THE TRANSCRIPT
“Know, and I don't want to make sweeping claims that every private equity firm is bad at operations. That's certainly not the case. And we've got some examples of firms that invested for the long term and brought sector-specific knowledge that I think ultimately did a lot of good for the companies they bought. But the basic issue is look at the biographies of the people that run private equity firms. And this is no slight against them, but generally, you know, they're not folks with experience in engineering product development, sales or marketing, logistics or anything like that. They have experience in finance. And so the expertise that they bring to an acquisition is financial expertise. Just as, you know, to the extent that I would bring expertise to something would be legal expertise. You know, you wouldn't want me running the company. The challenge that we've got is oftentimes when private equity firms think that they do have operational experience, it sort of blows up in their face. The New York Times did a really fascinating profile of a series of private equity firms acquisition of payload.”
2023-06-13 · Decoder with Nilay Patel · Private equity bought out your doctor and bankrupted Toys”R”Us. Here’s why that matters. · IDENTIFIED FROM THE TRANSCRIPT
“This is one of the first claims you make in the book that stood out to me private equity companies when it comes down to it are pretty bad operators of businesses, which strikes me as one, a pretty huge claim, also counterintuitive, right? This is a group of people that go, they buy companies, they do whatever they're going to do to try to make them better companies, sharper companies, you'd think they have at least some experience on a broad level of being able to look at a company's books and say, here's a workshop, here's what a fat is, we're cutting it, here's where your opportunity is, we're growing it. This is the pitch that every PE person I've ever talked to has ever made, right? We're at least good at the business part of this. We might not know anything about running nursing homes or steel mills, but the abstract business logic you need to make a company leaner or more efficient, we're great at that. Bring us in for that. And your argument is that actually they're pretty bad at that.”
2023-06-13 · Decoder with Nilay Patel · Private equity bought out your doctor and bankrupted Toys”R”Us. Here’s why that matters. · IDENTIFIED FROM THE TRANSCRIPT
“Carlyle gets a case against it dismissed. And what it says is, it says to the court, oh no, no, we don't technically own Manarchare. Instead, we advise a series of funds whose limited partners through a series of shell companies ultimately own Manorcare. That was enough to convince the judge to dismiss the case. And what I think it illustrates is how a private equity firm can often control the operations of a company without ultimately being responsible for what happens at that company.”
2023-06-13 · Decoder with Nilay Patel · Private equity bought out your doctor and bankrupted Toys”R”Us. Here’s why that matters. · IDENTIFIED FROM THE TRANSCRIPT