Book SummaryThese Are the Plunderers, by Gretchen Morgenson and Joshua Rosner

1-Page Summary1-Page Book Summary of These Are the Plunderers

The rise and consolidation of power among private equity firms have resulted in forceful tactics that exploit companies, their workers, and the communities where they function.

The realm of private equity has experienced considerable expansion and diversification in recent times.

This segment of the story explores the birth and expansion of the sector, tracing its development from a small group of investors using junk bonds for corporate acquisitions in the 1980s to its present status as a powerful entity in today's economic landscape, managing countless jobs and wielding significant political power. Morgenson and Rosner document the widespread expansion and entrenchment of private investment firms throughout various sectors of the U.S. economy, crediting this trend to a mix of elements including reduced regulatory oversight, favorable tax conditions, and the passive approach of oversight agencies.

During the 1980s, the surge in leveraged buyouts led to the prominence of investment firms like Blackstone, KKR, and Apollo.

During the 1980s, there was a surge in the practice of purchasing corporations by taking on substantial debt, frequently financed by bonds rated as high-risk that carried significant interest rates. The book details how firms like Kohlberg Kravis Roberts (KKR), supported by Drexel Burnham Lambert and the notorious Michael Milken, took over companies, loaded them with significant debt, and siphoned off assets to enhance their personal fortunes. Morgenson and Rosner argue that this approach established the foundation for the modern concept of private equity within the financial industry. The writers highlight that the acquisition of RJR Nabisco by KKR in 1988, which was worth $25 billion, exemplifies the way these transactions often benefit the dealmakers to the detriment of the workforce and pension funds. During this period, Leon Black honed his expertise in orchestrating transactions, frequently utilizing borrowed capital to benefit his position, a strategy that often resulted in disadvantage to others.

Practical Tips

• Engage in a peer-to-peer lending platform as a micro-investor to get a hands-on understanding of how debt can be used to generate returns. Start with a small amount of money you're comfortable with and lend to various ventures or individuals, observing how the interest from these loans contributes to your overall return on investment.
• Engage in a thought experiment where you imagine running a company and decide whether to fund an expansion through debt or equity. Write down the pros and cons of each option, considering factors like interest rates, control over the company, and long-term financial health. This exercise can sharpen your decision-making skills in finance and investments.
• Create a personal finance plan that focuses on minimizing your own debt to avoid the pitfalls of over-leverage. Start by listing all your debts and categorize them by interest rate and balance. Focus on paying off high-interest debts first and consider consulting with a financial advisor to develop a strategy that keeps your debt levels within a manageable range.
• Create a personal finance game with friends or family where you simulate investment scenarios using borrowed funds. Each participant can propose an investment, and others can lend virtual money with agreed-upon terms. This game will help you understand the perspectives of both the borrower and the lender, fostering a deeper understanding of how borrowed capital can be used effectively and ethically.

Private equity entities have broadened their influence into various sectors of the economy, including healthcare, retail, and manufacturing.

Morgenson and Rosner illustrate how private equity firms have progressively infiltrated various segments of the American economic landscape, underscoring their significance to crucial sectors that bolster community foundations and play a significant role in ensuring job security, pension advantages, and the overall financial health of their workforce. They argue that the negative influence these companies have had on the American economy has been concealed, not just because of global market movements and technological progress, but also due to the lack of transparency in private equity transactions. Beginning in the 1990s and accelerated by government deregulation and favorable tax policies, the firms expanded their portfolios by acquiring companies in various industries, such as manufacturing, exemplified by their bold purchases of businesses like Samsonite, known for travel luggage; retail, where their acquisitions resulted in a wave of insolvencies among well-known entities including Toys "R" Us, and healthcare, where their pursuit of profits had dire repercussions in nursing homes.

Practical Tips

• You can diversify your investment portfolio by including non-public equity. Since private equity firms have a significant presence in various sectors, balancing your investments with publicly traded stocks, bonds, and perhaps even commodities can mitigate the risk associated with any one sector's performance. For example, if you typically invest in mutual funds that hold a lot of private equity, consider allocating a portion of your future investments to index funds that track the broader market.
• You can assess your current job's security and benefits by creating a personal job security index. Start by listing factors such as company stability, industry growth, and your role's demand in the market. Score each factor on a scale from 1 to 10 based on your research and personal assessment. A higher total score indicates greater job security. This index can help you identify areas for improvement or the need to acquire new skills to enhance your job security.
• You can scrutinize the investments in your retirement account to ensure they align with your values and economic perspectives. Many people invest in retirement funds...

These Are the Plunderers Summary The role of government officials and deregulation in enabling private equity's exploitation and harming the middle and working classes

The book explores how state and federal institutions have played a role in fostering the growth of private equity. Morgenson and Rosner argue that a mix of policies favoring deregulation, tax schemes that favor the wealthiest at the expense of the typical employee, and a regulatory landscape marked by inadequate examination, have enabled firms centered on private equity to accumulate substantial power and wealth, leading to profound disturbances in the social fabric of the United States.

The expansion of the private equity sector was markedly shaped by the Reagan administration's policies that favored deregulation.

During President Reagan's administration, the book demonstrates how government policies routinely favored the finance sector over the workforce. The laissez-faire approach of the authorities, coupled with the conviction that markets operating without regulation are advantageous to society, enabled certain individuals to use junk bonds as a means to aggressively acquire numerous publicly traded companies. As regulatory oversight was lacking, there was a surge in the frequency of buyouts in tandem with a rise in executive pay. American consumers have seen a steady...

These Are the Plunderers Summary The negative impact that arises when private equity firms become involved in specific industries, such as healthcare, extends to both the broader economy and society.

This section of the narrative scrutinizes the repercussions that arise when critical industries, such as healthcare, fall under the control of corporations primarily concerned with amplifying returns for shareholders, frequently disregarding the subsequent effects. The authors provide persuasive examples of the significant harm caused by private equity firms entrenched in various sectors of the U.S. healthcare system, such as hospitals and nursing homes. The consequences extended past the medical sector, influencing broader economic and social realms.

The medical sector encountered significant obstacles, resulting in a decline in the quality of care, adverse effects on patient well-being, and unfair treatment of medical staff.

Morgenson and Rosner's research illuminates the adverse consequences that ripple through the healthcare industry and its clientele when investment groups with private equity take the reins of various components within the healthcare system. Citing academic research, journalistic investigations, and legal cases, the authors argue that the firms' push for profits has resulted in lower quality of care, patient harm, and exploitation of healthcare...

These Are the Plunderers Summary Regulatory measures and transformative attempts have not significantly diminished the persistent control exerted by companies focused on private equity.

The final section of the book scrutinizes the difficulties encountered by lawmakers and regulatory agencies in their attempts to monitor the private equity industry, highlighting the frequent ineffectiveness of such efforts, which is largely attributed to the significant sway these companies hold within political circles, their skill in circumventing fresh regulations, and their capacity to shape public opinion with misleading narratives and claims of societal benefit.

Efforts to legislate and regulate have targeted the forceful strategies used by private equity-focused entities.

The book details the efforts of various regulatory agencies to address the pervasive unethical practices within the private equity industry over time. These efforts have been sporadic, and largely ineffective.

Efforts to improve openness by enforcing stricter regulations for the dissemination of information, curbing acquisitions predominantly financed by borrowing, and putting an end to practices that enable tax evasion.

Morgenson and Rosner offer a range of suggestions for regulating the industry, including the Congressional Budget Office's advice on preparing the healthcare system for a...