E-mail:
Jack Balkin: jackbalkin at yahoo.com
Bruce Ackerman bruce.ackerman at yale.edu
Ian Ayres ian.ayres at yale.edu
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Mary Dudziak mary.l.dudziak at emory.edu
Joey Fishkin joey.fishkin at gmail.com
Heather Gerken heather.gerken at yale.edu
Abbe Gluck abbe.gluck at yale.edu
Mark Graber mgraber at law.umaryland.edu
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Andrew Koppelman akoppelman at law.northwestern.edu
Marty Lederman msl46 at law.georgetown.edu
Sanford Levinson slevinson at law.utexas.edu
David Luban david.luban at gmail.com
Gerard Magliocca gmaglioc at iupui.edu
Jason Mazzone mazzonej at illinois.edu
Linda McClain lmcclain at bu.edu
John Mikhail mikhail at law.georgetown.edu
Frank Pasquale pasquale.frank at gmail.com
Nate Persily npersily at gmail.com
Michael Stokes Paulsen michaelstokespaulsen at gmail.com
Deborah Pearlstein dpearlst at yu.edu
Rick Pildes rick.pildes at nyu.edu
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Richard Primus raprimus at umich.edu
K. Sabeel Rahmansabeel.rahman at brooklaw.edu
Alice Ristroph alice.ristroph at shu.edu
Neil Siegel siegel at law.duke.edu
David Super david.super at law.georgetown.edu
Brian Tamanaha btamanaha at wulaw.wustl.edu
Nelson Tebbe nelson.tebbe at brooklaw.edu
Mark Tushnet mtushnet at law.harvard.edu
Adam Winkler winkler at ucla.edu
As lawmakers squabble over the "carried interest" tax rate, it's nice to find an accessible overview of some of the economic activity they're discussing. I recently read Josh Kosman's book The Buyout of America: How Private Equity Will Cause the Next Great Credit Crisis, and I highly recommend it to our readers. Kosman unravels the complex financial maneuvers behind marquee private equity firms which bought "more than three thousand American companies from 2000-2008." He describes in detail how they resist transparency (164) and "hurt their businesses competitively, limit their growth, cut jobs without reinvesting the savings, and generate mediocre returns" (195). The recipe for high earnings is simple: the firms "get large fees up front and are largely divorced from their results if their transactions fail" (195).
Like Kwak and Johnson's account in 13 Bankers, Kosman offers a political economy account of private equity's favored treatment by government. As he notes,
[F]our of the past eight Treasury Secretaries joined the PE industry . . . . and they have significant influence in Washington. President Bill Clinton, and both President Bushes, have also advised PE firms or worked for their companies. . . . KKR retained former Democratic House majority leader Richard Gephardt as a lobbyist and hired former RNC chairman Kenneth Mehlman as head of global public affairs. (196)
Having analyzed a wide array of buyouts, Kosman concludes that "PE firms manage their businesses to satisfy short-term greed, not for long-term survival" (51). It's precisely this mentality that FDIC Chair Sheila Bair indicted in her testimony before the FCIC:
[W]hile the establishment of emergency backstops to contain financial crises can help to limit damage to the wider economy in the short-run, without needed reforms these policies will promote financial activity and risk-taking at the expense of other sectors of the economy. Corporate sector practices [have] had the effect of distorting of decision-making away from long-term profitability and stability and toward short-term gains with insufficient regard for risk. . . .Meaningful reform of these practices will be essential to promote better long-term decision-making in the U.S. corporate sector.
We can only hope that members of Congress keep both Bair's and Kosman's insights in mind. Congratulations to Kosman for authoring a compelling and well-researched analysis of one of the most troubling engines of inequality in the US. And on one final, personal note--I deeply appreciate Kosman's dedication of the book to "the millions of Americans working for private-equity-owned companies." My father was one of these workers--he lost his job as an assistant manager at an Oklahoma store owned by Safeway after KKR took over the chain. This was not a fun time for the Pasquale family, and it's refreshing to see journalists like Kosman put the human costs of "creative destruction" front and center in their books.