The great thing about "Careless People" is that reading about these corporate misdeeds is not dry. You can laugh at the outrageous stories, get to know the characters along the way, share in Sarah's early naivete. At the end though, the damage done across the world becomes crystal clear. Close your Facebook/Meta/Instagram account today! "Careless People" is available for $40 at Whitcoulls and Paper Plus.

THE BIG MYTH
How American Business Taught Us To Loathe Government And Love The Free Market
Naomi Oreskes & Erik M Conway, Bloomsbury, USA (2023)

"The Big Myth" is the second-best book I read for this issue, after the brilliant "Careless People". It's very well researched and written, uncovering plenty you probably don't know about the calculated work of US business over many years to convince Americans to hate Government and trust markets. To their great credit, the authors also go beyond corporate manipulation to delve into how and why Keynesian* economics went into decline from the 1970s. *John Maynard Keynes (1863 - 1946) advocated Government spending on public works to stimulate the economy and provide employment. He was the most influential Western economist for several decades after World War 2, until he was supplanted by the monetarists. Ed.

It is easy to show how clandestine corporate manipulation of public perceptions underpinned free-market fundamentalism going mainstream, but many countries struggled to deal with stagflation after the oil price shock. The economic and social consequences of that crisis opened the door for neoliberalism, so it's important we look back again at those difficult economic problems, and ask what we can learn with the benefit of hindsight and 50 years of experience. Put like that though, it is obvious that much more work should have been done on this critical question. Economists have this blind spot for their past failings when there is so much money to be made in the present...

1970s: Complex Problems Require Complex Solutions - And Clear Public Messaging

After the introductory coverage of American corporate propagandising, a chapter titled "The Dawn Of Deregulation" gives a very thoughtful analysis of the complex problems America - and the world - faced in the 1970s, and the political failure to negotiate an effective response. The authors argue it was this political failure which created an opening for the rich to reshape economics.

Like me, you may remember stagflation as the description of the problem, and high interest rates as the preferred solution. In the USA, prime mortgage rates peaked in December 1980 at 21.5%. New Zealand's floating interest rates were increased later, to 20% in March 1985, and I remember it well because a friend of mine lost their home in a mortgagee sale.

Before then, inflation had been associated with economic expansion, so while earlier inflation caused some problems, the growth provided balancing compensation. In the 1970s unemployment peaked at 9%, the highest rates since the end of WW2, alongside double-digit inflation. Nixon tried wage and price controls, and after his resignation Ford declared inflation "public enemy number 1", though he introduced only voluntary responses. Neither helped reduce inflation much, and unemployment was not targeted at all. Spending money on jobs programmes would have helped, but that would increase debt, which at the time was perceived as inflationary.

Stagflation had multiple causes. Oil shocks were the obvious one; Nixon's abandoning of the gold standard added to inflation; rapid growth in international trade was another, as West Germany and Japan grew to outcompete the US; and key US unions like the Teamsters, which benefitted from regulation which encouraged trucking to break the earlier railroad monopoly, expected pay rises regardless of productivity increases.

When Carter became the next US President his key advisor was Alfred Kahn, an economist who still believed in the power of institutions and regulation to foster technological change and drive economic growth. His published magnum opus was "The Economics Of Regulation", where one of his key case studies was energy markets, as critical then as they are now and in the future. He pointed out that early regulation gave large power users cheaper rates, encouraging both consumption and pollution. This drove investment and growth when introduced, but after oil prices went sky-high a rethink was required.

Kahn argued for pricing to vary with demand, to reduce the high cost of building inefficient peak-only plants, and to include social costs in pricing to reduce pollution. Looked at from today, Kahn represented the best thinking of his times. As the authors put it: "They showed that it was possible for Government to learn from experience, respond to evolving technologies, and make midcourse corrections, while neither being trapped in an obsolescent paradigm nor forgetting the lessons of the past".

Looking back with hindsight, the Carter era gives a glimpse of what could have been: a future in which some of the excesses and bluntness of the earlier New Deal were corrected, without swinging the pendulum too far in the other direction. But it also shows how antiregulatory, antigovernment ideology had also seeped into Democratic thinking, laying the groundwork for the excessive pendulum swing that followed. We commonly hear that business-friendly deregulation and skyrocketing inequality started with Reagan, but that shift began under Jimmy Carter.

Politics Trumped Economics

To win election, Carter sought "to combine strong safeguards for consumers with minimal intrusion of Government in our free economic system. We Democrats believe competition is better than regulation". And he was right to emphasise the need for reduced pricing regulation, coupled with new regulation which encouraged more socially effective competition. Blunt earlier legislation had over time led to distortions in the economy which significantly limited both efficiency and competition.

But the reforms proposed by Carter, Teddy Kennedy and Kahn fell at the political hurdle. After a lot of back-and-forth debate in Congress, his broad effort to combine reform and conservation was reduced to grants for insulating low-income homes; taxes on heating oil and gasoline were dropped, while gas pricing regulations got more complex but less effective.

Airlines were the other main area which Carter and Kahn combined to deregulate. Viewed from a pricing perspective, deregulation was very successful with average fares dropping by half, flight use increased and more staff were hired. But the US economy was returning to the boom-bust cycle of times past. Many airlines went bust, the big became much bigger, wages fell, and airlines didn't stay competitive. Today, US airlines are a case study in monopsony*, with four major competitors, but each dominates the market in their region. *A market situation in which there is only one buyer. Ed.

Meanwhile, the neoliberal solution of pushing interest rates sky-high crushed the economy from 1980-83, and the unions. "By the time the recession was over, the world had changed again: foreign policy in the Persian Gulf states had been transformed by the Iranian Revolution of 1978-79 and then the Soviet invasion of Afghanistan in 1979, and the resulting Carter Doctrine - which included permanent stationing of US military forces in the Gulf".

"There would be no more oil embargoes. In fact, an oil glut would drive prices down throughout the 1980s." Keynes was out, rethinking regulation to foster competitive markets was out. Deregulation was normalised, market domination became the name of the corporate game, "independent" (pro-business) setting of interest rates by the Reserve Bank replaced Government spending as the preferred response in crises.

Tax Changes Power Up Inequality

"The growing power of the business lobby, and the concomitant waning of labor influence in American politics, is nowhere more visible than in the 1978 Revenue Act. During the preceding decades, American tax policy had become more progressive, with higher rates for higher earners and lower, or zero, rates for lower-income people. But industrialists hated this, and the relatively new (and, until 1978, relatively moderate) Business Roundtable, a group designed to mobilise CEOs (chief executive officers), revived an old National Association of Manufacturers' argument against progressive taxation: capital formation and investment (would fall)".

The Business Roundtable blamed falling productivity on falling investment and a capital shortage. Union leaders agreed there was a shortage of investment, but pointed out this was driven by companies investing more of their capital overseas. Meanwhile, Carter had been elected on tax reform, promising to close loopholes that allowed the wealthy and well connected to avoid taxation. He proposed increasing the tax on capital gains, which was lower than the tax on earnings for most wage-earners. But when a Republican introduced an amendment to lower the proposed capital gains tax increase, encouraged by an electronics industry lobbyist, Carter began to lose Democratic votes for the legislation. The haggling began.

The capital gains tax increase became a big decrease, and since Carter wanted his tax reform to be revenue neutral, he abandoned middle-class income tax relief for inflation too. Another tax instrument, the investment tax credit, could have been expanded to ensure reinvestment in the US, but it wasn't, so US investment continued to flow abroad.

While reading this book, I learned that this cross-party political haggling was a recurring theme in Congress. On many of the key economic changes which underpinned deregulation, legislators didn't vote on party lines. Presidents had to gather support from both sides, resulting in laws that were much less effective. Today, economists like to credit Carter's choice for a new Chairman of the Federal Reserve, Paul Volcker, with ending inflation. He did, but at the cost of crashing the economy. A better mix of policies would have achieved the same result with less damage.

Now the Federal Reserve had primacy in macro management of the economy, making low inflation rather than low unemployment the primary economic goal. Way back in 1926, economist Irving Fisher had highlighted the inverse relationship between inflation and unemployment, so this new preference for low inflation was also a preference for higher unemployment, conveniently a driver of lower wages.

Magical Thinking

Moving on to the Reagan era and beyond, the authors trace the roots of recurring financial crises and bailouts in deregulation, and also take a closer look at the outcomes of free trade agreements, concluding, for example, that NAFTA (North American Free Trade Agreement) produced much more modest economic gains than claimed by its advocates, with much larger distributional effects which transferred income from blue-collar workers to the owners of capital.

"Government is not the solution to our problem; Government is the problem," as Reagan famously declared. Reagan's style of Government was certainly a problem. The recession dragged on to 1983 with no sign of the promised investment-led growth. The "supply side" story that tax cuts would finance themselves was proved wrong, but the conservative mantra didn't change. Tax cuts to stimulate the economy were the Republican gospel.

The authors are most scathing about the intersection of pro-market ideology and climate change, titling that chapter "Magical Thinking". By the 1980s, scientists had identified multiple major environmental threats - acid rain, the ozone hole, and climate change - which sprang directly from market failures. There were simply not enough costs attached to the corporations which profited from pollution.

Rather than admit that the ideology was wrong, or at least incomplete - that markets could not solve all our problems, and that in cases of market failure Government might be an essential part of the solution - the Reagan Administration responded by cutting the budgets of environmental protection agencies, while misrepresenting or disparaging the science. That came easily to the man who once claimed publicly that "trees cause more pollution than automobiles do". In speech after speech, he claimed that trusting "the magic of the marketplace" would solve everything.

Changing The Gospel

In this review I've focused on the failures of neoliberalism and what we can learn from history, but there is one other angle in this book I hadn't read about before, and which is very relevant to the USA today. That's the story of how business reshaped American religion, told in a chapter titled "A Questionable Gospel". Here's an early example of how business patronage worked.

James Fifield was a minister in Los Angeles, taking the pulpit of the First Congregational Church in 1935 just after it completed a major expansion with a $US750,000 mortgage. His message was not just spiritual; it was also economic and political. He demanded the clergy lead a revival of "individual thought on a wide-spread scale" to prevent American descent into "the abyss of totalitarianism". By 1940 he was invited to speak at the National Association of Manufacturers' annual congress, and in 1942 "Spiritual Mobilization" was incorporated, with a mailing list of 23,000 ministers.

"In 1943, Sun Oil president J Howard Pew increased his donations to Spiritual Mobilization, but first, he did some homework, hiring economist Alfred Haake to investigate the organisation. Haake saw the potential to recast religion; 'Christ or Caesar' became 'Freedom vs Security', 'Capitalism vs Communism'. Pew added influence to incentive, putting Haake on the board and introducing Fifield to other 'captains of American industry'". This story of business influencing religion flows right on up to today's conservative churches.

Patronage At Work

Returning to the book's opening chapters which trace clandestine corporate manipulation of public perceptions and, you know Ronald Reagan started in films, but did you know he only became famous through hosting General Electric Theatre, a weekly prime-time TV show funded by industrial giant General Electric? Did you know that "Little House On The Prairie" was heavily manicured by the author's daughter, Rose Wilder Lane, to emphasise libertarian themes, with Lane going on to write one of the classics of libertarian self-publicity, "The Discovery Of Freedom", notable for its heavy use of blunt assertions and disregard for facts?

Did you know that private backers paid $US15,000 per year for ten years to secure Friedrich Hayek's* tenure at the University of Chicago's Law School, after their Economics Department refused to hire him. The University of Chicago was nurtured/funded through the Free Market Project to create today's home of Rightwing economics. *Friedrich von Hayek (1899-1992), a reactionary economist who opposed the Welfare State and championed market forces. Ed.

"The Big Myth" gives you the full story of the calculated way business manipulated the public to get today's distrust of Government, the only institution which stopped them from maximising profits by disregarding social costs. Many business-funded organisations have worked across all levels of American life to manipulate public opinion.

Spiritual Mobilization was funded by Sun Oil to convince Christian clergy that unregulated capitalism was founded on Christian values; the Ayn Rand* Foundation donated 400,000 copies of her books to Advanced Placement high school programmes; this depressing list could go on and on, but you get the picture. *Ayn Rand (1905-1982) was a writer and philosopher who championed laissez faire capitalism. The patron saint of today's libertarians. Ed.

Back in the early 20th Century, Americans had been rightly suspicious of "Big Business" given its track record of abuse, and saw the Government as their ally. By the later decades of the century, this had flipped: many Americans admired business leaders, while seeing the Government as dead weight, taxation as unfair or even a form of theft. Quiet, steady persuasion and propaganda had done their job.

That's The USA, So How Is Aotearoa Doing?

We don't face the extremes of the US corporate-political-economics-military alliance, but many of the same neoliberal policies shape our economy too, while the steady rise of lobbying influence and funding is not being addressed, and depth in our policy making teams is being replaced by centralised power in the Department of Prime Minister and Cabinet.

"The Big Myth" emphasises the critical role of good economic policymaking and regulation, which implies we need big changes in how we create good policy. Meanwhile, our coalition Government dissolved the Productivity Commission, plans permanent annual reductions in public service capacity, and introduced the Regulatory Standards Bill to privilege corporations over people.

We desperately need a wide-ranging rework of how our Government develops and promotes good policy. That's a big ask - clearly it needs some combination of better funding for both the public service and academic-specialist research and expertise; better public consultation and democratic input; and better communication to win public support. Can we do that? I hope so, because if not it's down the gurgler we go with climate change disaster, rising corporate power, and authoritarian government.

I hope so, because if not it's down the gurgler we go with climate change disaster, rising corporate power, and authoritarian Government. The most positive signs so far are the rising clarity among unaligned economists that neoliberal economics is bad economics, and the very poor performance of their policies when applied. They may control the wealth and the hype, but their real-world results aren't inspiring confidence.

Finding The Book

"The Big Myth" is available to preorder in paperback for $38.70 on The Nile. Otherwise, check your local library or splash out for the hardback ($57.89 delivered, by Book Hero). This is an in-depth book for readers searching for answers on what good policy really looks like in complex times, to counter corporate power and influence in economic debate. If you just want a short overview of neoliberal propagandising and how the Left can counter it, try "The Invisible Doctrine" by George Monbiot and Peter Hutchison, which I reviewed in Watchdog 168 (April 2025). It's only $31.99 for the hardcover through Whitcoulls (though they may have to order it at your request).

PLUNDER
Private Equity's Plan To Pillage America
Brendan Ballou, PublicAffairs, USA (2023)

"Plunder" ran a very close third to "Careless People" and "The Big Myth" as my favourite new books. It is an excellent follow-up to Brett Christophers' superb "Our Lives In Their Portfolios"*, which broke the story of how giant private equity firms like Blackstone work. Their main business model is to draw other peoples' capital into fixed term funds which buy assets, then maximise short term profits while extracting high fees. The result is assets loaded with debt, increased prices to consumers for reduced services, then the portfolio is sold on for capital gains. *Reviewed by Linda Hill in Watchdog 164, December 2023, Ed.

Taking large rental portfolios as an example, the result is permanently higher rates of extraction by landlords from tenants. The next company owner has bought a huge portfolio of homes at pumped up prices, so must continue charging higher rents to get a return on the now-overpriced asset. Meanwhile, the "asset managers" have moved on to buy up a new set of homes for short term profit.

And in recent years, private equity has been expanding its scope, buying up retailers, medical practices, for profit education, insurance, retirement funds, private credit, prison services, nursing home chains, mobile-home parks, etc, with devastating impacts. Ballou is blunt about the active support of the American government in this process. There is so much short-term money to be made, it's no problem to divert a little to politicians who smooth the way for this business model.

How big are they? Ballou recently said in an interview: "When you look at the number of employees that these portfolio companies employ, Blackstone, Carlyle, and KKR, not necessarily in that order, they would be the third, fourth, and fifth-largest employers in the United States behind just Walmart and Amazon". Brendan Ballou is a federal prosecutor and served as Special Counsel for Private Equity at the US Department of Justice. He has plenty of ideas on what to change to prevent these abuses. There are still professionals in America who see the damage done and speak out - but don't hold your breath waiting for effective regulation of private equity there. It's all downhill in the USA lately.

Even in tiny New Zealand we should watch this trend. New ways to make high profits can expand dangerously quickly. Rember those obscure American housing derivatives. We'd only just heard about them in 2007 and bingo, global financial crisis. In addition to their cost-inflating service-reducing business model, asset managers are also notable for their lack of ethics and their lack of relevant management expertise.

They purchase whatever new businesses they perceive as underpriced, particularly those that deliver services to the poor, because the poor have less options when prices are hiked. And private equity specialises in externalising the risks to other parties - think public private partnerships where the Government picks up the bill for cost overruns. Ballou tells many scary stories from personal experience.

Prisons A Captive Audience

"Over the past two decades, New Zealand's dairy and meat industries, led by powerful lobby groups like Dairy NZ and Federated Farmers, have effectively stalled efforts to regulate agricultural emissions through a combination of political influence, disinformation campaigns, and promises of future technological solutions".

American prisons are increasingly run by private equity firms. They like prisons because a) there are steady cash flows from Government contracts; b) with a literally captive audience, you can cut costs and services without consequences; c) prisons are run by Government agencies that can be co-opted to become firms' allies and advocate.

So today, you may pay a fee for every minute you read an e-book from the prison library, and if you get sick a private company service will be your only option. Privately run phone companies will pay to provide prison phone services, because they can extract such high charges from inmates and their families. Costs of $US12 per 15-minute call were common, and of course there are add-on fees for prison payment cards. One study found a third of all family members went into debt to pay for calls.

Years of grass roots lobbying struggled to slow this extreme exploitation, while the Sheriffs' Association listed a big private prison phone company as a diamond-level sponsor and became one of private equity's most vocal advocates. When Barack Obama appointed a sympathetic Commissioner to the Federal Communications Commission, he edged closer to regulating the crazy cost of private prison calls. Then Trump appointed a former Verizon (phone company) lawyer as the new Chairman; one week later the new appointee announced they would not defend much of their existing regulation, and forget any improvements.

Turning Our Homes Into Businesses

Recurring claims by private equity are that its use of debt and focus on short term profits incentivise excellence; that the intelligence of its leaders improves outcomes for companies. This corporate public relations nonsense is so laughable, a mirror image of reality. Ballou provides case after case of wrecked companies going bankrupt, and the only expertise shown is in financial manipulation to extract cash and legal expertise to exploit regulatory loopholes.

For example, in 2006 the private equity firm Fortress purchased a small mortgage servicing firm and renamed it Nationstar, applying the standard private equity rollup model to hoover up smaller companies with billions of dollars of mortgages, so it serviced three million loans by 2020. Fortress was suddenly the largest non-bank mortgager in the US and the third largest overall.

But Nationstar struggled with the basic tasks of servicing its mortgages, repeatedly losing customer files and recording inaccurate information, often failing to detect its own errors until after foreclosures began. It was eventually forced to settle lawsuits in all 50 states (while of course admitting no wrongdoing). A study of another large property manager owned by private equity, Colony, found it routinely used eviction notices to ensure excessive rents were paid, threatening to evict one third of all its tenants in a single year. The rapid acquisition of property by private equity was a disaster for homeowners, but it sure was lucrative for private equity. Fortress, which bought the company for $US450 million in 2006, and sold it for $US3.8 billion in 2018.

It followed this up with large scale purchases of mobile home parks, sensing the increase in demand. In the US, many low-income workers and retirees own their own "manufactured homes", small and basic buildings on temporary piles in a single large lot. They pay site rentals but need $US20k for a moving truck, so have little choice but to pay price increases. Rent hikes of 50% by the new private equity owners left them in poverty, while also reducing demand so lowering the capital value of their homes, the last investment these poorer households had.

Big Equity = Big Lobbying Power

Not only are private equities bad property managers, they have something small landlords do not - billions of dollars. They use that wealth to lobby against tenant protection and other forms of regulation that limit exploitation. In California they spent millions to defeat Proposition 10, which would have allowed rent stabilisation to protect families from eviction in the aftermath of the housing crisis. Private equity gave over $US200 million to influence the 2020 election.

I also learned some telling detail about the backstory behind the 2008 Global Financial Crisis here too. Everyone has heard of Fannie May and Freddie Mac, the two Government-sponsored housing companies which issued many of the risky mortgages behind the crash. But Fannie May's specific purpose was to buy up mortgages from banks and securitise them, which was the root cause of the crash.

After the crash, these two companies had the power to keep people in their homes, by reducing principal closer to the true valuation. This was proposed under Obama, but Director Edward DeMarco simply refused, claiming the "anticipated benefits do not outweigh the costs and risks". His refusal set up the buying spree by asset managers which followed, especially when he made sure that distressed mortgages were sold in such large packages that only investors, not homebuyers, could bid. DeMarco then became president of the Housing Policy Council, a lobbying group for mortgage lenders and servicers.

And I haven't yet told you about the increased deaths in private-equity run nursing homes; obscuring those homes and their contractors' beneficial owners to hide transfers; running down retailers for short term profits then exploiting their bankruptcy to offload staff pension entitlements to the State; for profit colleges with 10% of students but 50% of loan defaults; the lost jobs and reduced wages in ruined companies; and the hundreds of millions in political donations.

How Big Is Private Equity

Private equity refers to investment firms which are not publicly traded on the share market. These firms are so much more complex and so much bigger than they were a generation ago. Blackstone has expanded from private equity to private credit, real estate, insurance and hedge funds. It has become the largest private sector property owner in America and manages a fund with some $US30 billion to spend on infrastructure projects. Blackstone has $US79 billion of other people's money under management in 2007; today it has $US731 billion. "Since 2005, nearly two dozen private equity executives have become multibillionaires. None of the CEOs of the largest investment banks, save one, is worth close to that much".

How Did Private Equity Get So Big So Fast?

In the leadup to the Global Financial Crisis of 2008 (GFC), US investment banks expanded from their traditional work of advising companies on acquisitions and public offerings. They traded stocks, bonds and futures contracts, and sold packages of mortgages. But as they knowingly drove the housing market towards collapse by selling ever more risky mortgages, they sold as many of these derivatives overseas as they could, hence the "global" in the GFC.

After the crash and the giant Government bailout, the big investment firms that survived were either bought up by, or transformed into, bank holding companies. This ensured they were more tightly regulated, less free to make loans, and less able to trade for their own benefit. And for the first time, many had to report their executives' pay, and those eye-watering numbers hit credibility.

Private equity leapt in to fill this gap, and a large share of investment banking staff transferred over to take their cut of the profits there. Pay at investment firms like Goldman Sachs fell by half. Private equity firm Blackstone is now the largest private sector property owner in the USA, while others have large holdings in infrastructure, healthcare, energy, and insurance.

Private equity firms are less regulated because they structure their investments as a private fund, rather than a share market listing. Reporting requirements are less transparent, so they can make riskier investments without detection. Ironically, this let them escape designation as "systemically important" after the GFC, which then freed them to grow so fast they could become systemically important. Their capital requirements are lower too, so they have less cover when things go bad. In short, after the GFC crash, the USA has created a higher-risk replacement, whose business model is to make everyday living costs higher for the most vulnerable.

And It's Done With Workers' Savings

Don't imagine hedge funds are just investing cash from the mega-rich. Much of their funding comes from US pension funds. In the USA, there are two types of funds; "pension funds" or defined-benefit, which means company-run schemes, and 401(k) funds or defined-contribution, which hold worker pension savings. Originally, 401(k) fund managers avoided investing with asset managers, as they rightly feared being held liable for the failure of higher risk investments.

So, of course, private equity lobbied Government to insulate the pension funds from lawsuits, to get access to those funds and buy up more companies to asset-strip for profit. "Plunder" highlights the key roles of several Trump appointments here. Lawyer Eugene Scalia earned $6 million in the year and a half defending companies against employees and Government before he was appointed Secretary of Labor, where he reduced reporting requirements for companies and opposed extending unemployment benefits during covid. And Jay Clayton, previously a corporate lawyer specialising in dealmaking for finance and private equity firms, was appointed Chairman of the Securities and Exchange Commission (SEC).

In 2020 with their support, the Department of Labor issued a letter that endorsed funds managing 401(k)s to invest in private equity, essentially insulating these retirement funds from lawsuits by fund members. At that time, private equity had about $US4 trillion in assets under management; 401(k) funds had about $US6 trillion. Many of these assets they are buying are pooled smaller businesses, with only part of each sector coming on the market each year. With more funds coming in, they can buy up a new share of each sector each year. Private debt also grew rapidly, so that by 2019 private solicitations for money raised over $US1.5 trillion, more than all the money raised through the stock markets that year.

Wrecking Economies Wherever They Can

I'll just restate what's going on here, so it really sinks in. When asset management funds talk about these huge total assets under management, these are fixed term funds, not at all like share market portfolios. Each fund buys up a chunk of viable businesses, sells off all the viable assets, loads them with debt, extracts huge cashflows - then dumps the wreck back on the market.

They extract huge amounts of capital - a large share of which goes to themselves, not their fund's investors; ruin the real productive assets; and avoid legal consequences for the damage. Over time, they will wreck entire economies - and they are active all around the world now. This type of investment needs to be banned, not regulated. Think about it at a personal level. One day they'll be taking over your Kiwisaver fund, ruining it financially, then dumping it for bailout by remaining funds and/or Government.

Here is Ballou's summing up: "Private equity firms are transforming America - not for the better - and creating systemic risks for our economy as a whole. These firms have done so not because of great business acumen - most of the people who run the largest private equity firms do not know how to write software, run a factory, or market a product - but in large part because of their ability to find, or create, gaps in our legal system".

"Our various arms of Government, from the courts to Congress to our federal and state regulators, not only allowed this to happen but, often, actively encouraged it". While all levels of Government have contributed to this failure, Ballou is particularly critical of the failure of Congress in the 21st Century to legislate responses to our greatest challenges, including the opioid epidemic and climate change. And Congress did that, despite the large majority of Americans supporting positive changes.

Is The Private Equity Run Over? And Is This GFC2?

In 2025 the financial press has been full of stories of falling investment flows into private equity, and growing problems for their short-term funds to find willing buyers at exit. Part of this is awareness of the growing risks, as interest rates and borrowing costs return to normal higher levels. Private equity's business model is built on leveraged debt and wealth extraction.

In the 2010s investors typically got returns equivalent to 30% of net asset value, a level which shows how damaging these buyouts are (Financial Times, 31/5/25). Today the returns are closer to 10% of net asset value, underperforming the S&P 500 over the last five years (McKinsey). Investment inflows have plummeted and default rates for private equity-backed companies have risen to 17%.

A rising share of fund sales is now to murky entities which amount to private equity selling to itself to achieve a nominal exit and defer liability for the damaged final business. Will this cause a wider crash? Who can tell? There's no transparency here, because if there was, they couldn't pull this con. What's clear is that without regulation private equity will be back bigtime whenever borrowing is cheap, with devastating consequences for ordinary citizens.

What To Do

Ballou provides an American agenda for reform, and who would trust America to change for the better, but this gives a flavour of what's required and the vast scope of private equity's social damage:

• Investigate rollups, where private equity acquires many smaller firms to extract maximum profits
• Change merger guidelines, to reduce anticompetitive buyups
• Investigate interlocking directorates, where private equity has representatives on competing companies
• Prohibit and prosecute tacit collusion to raise prices
• Investigate private equity abuse of prison health, phone and release cashcard services
• Fairly enforce the bankruptcy code to stop private equity offloading employee pensions to the State
• Government support so plaintiffs can seek redress from the controlling equity firms, which deliberately insulate themselves from the consequences of failures they create in portfolio firms
• Remove private equity access to pension funds' investments
• Improve payday lending and debt collection rules, companies being bought up by private equity
• Impose minimum staffing levels on nursing homes, again bought up and lives lost through staff cuts
• Require owning-entity reporting on nursing homes, as private equity routinely disguises ownership
• Regulate abuse of for-profit colleges which reduce service and increase fees to extract higher cashflow
• Reduce the size and increase the transparency of private credit markets
• Bring transparency to the industry, including fiduciary duties and fee disclosure
• Prohibit incentive-based pay in private equity firms when they abandon pensions and similar
• Remove tax loopholes which reduce tax on private equity executives
• Shift tax enforcement to large tax abusers; most private equity is structured as partnerships who fail to report $US75 billion a year through misstating incomes but are not prosecuted
• Limit bank lending to overleveraged private equity portfolio companies
• Protect tenants with distressed mortgages, requiring sales to nonprofits who respect tenants, not private equity
• Put the largest private equity under the Financial Stability Oversight Council as systemically important