BOYNTON BEACH, Fla.—So-called “private equity” investment funds, one of the worst manifestations of anti-worker corrupt corporate capitalism, left Madelyn Garcia and her co-workers without jobs. And she came to Washington in August to help launch legislation to curb their robberies.
Garcia, you see, spent 30 years at a Toys “R” Us store in Boynton Beach, Fla. She rose to store manager and made sure it was profitable and workers had decent jobs and pay. But a fund swooped in, bought the chain, stripped it of assets, shuttered her store and the rest of the chain – and left Garcia and thousands of other Toys R Us workers out on the street.
If they hadn’t raised public hell, Garcia says, they wouldn’t have even gotten severance pay.
Sen. Elizabeth Warren, D-Mass., wants to put a stop to such financial robbery of workers for profit. So Garcia, now a member of a financial reform group, joined unions – notably The NewsGuild — workers and the Economic Policy Institute (EPI) in lining up behind Warren’s legislation, the Stop Wall Street Looting Act, to do so.
“I put 30 years of my life into Toys “R” Us and built my store into a beloved part of my community. Wall Street profiteers threw that love and value away when they bled Toys “R” Us dry for profit,” Garcia told a D.C. press conference in early August.
“If we hadn’t spoken out, they would have left tens of thousands of us on the street without the severance and respect we had earned. This bill is about giving working people a better chance to stand up to billionaire predators and fight for our jobs, our livelihoods, and our dignity. This bill is what standing up for working people looks like.”
Warren’s measure would protect some 5.8 million workers whose 35,000 firms are now owned or controlled by private equity funds, EPI President Thea Lee said in her think tank’s detailed analysis of the rapacious investors. That doesn’t count Toys ”R” Us, now dead thanks to the funds’ avarice.
Warren’s bill is part of her continuing campaign against corporate greed and the “rigged economy” against workers she constantly discusses on the campaign trail as she marshals support for her bid for the Democratic presidential nomination.
Warren’s been on the crusade against the corporate crooks ever since she created the Consumer Finance Protection Bureau, an agency that also draws the ire of the CEO and financier class. This legislation will draw their hate – and their lobbying dollars to stop it – too.
The private equity scourge has particularly slammed newspapers, said NewsGuild President Bernie Lunzer, one of several union leaders who immediately backed Warren’s bill.
“Private equity firms and hedge funds have played a particularly destructive role in local journalism. Motivated only by greed, they deplete news organizations, eliminate beats, lay off journalists at twice the industry average, and shutter newspapers to sell their assets,” Lunzer said.
“They make it virtually impossible for local news organizations to serve as government watchdogs or effectively tell the stories of their communities. It’s time they are held accountable. Our democracy depends on it,” he added. Warren’s bill “will highlight and limit these predatory maneuvers.”
“For far too long, Washington has looked the other way while private equity firms take over companies, load them with debt, strip them of their wealth, and walk away scot-free — leaving workers, consumers, and whole communities to pick up the pieces, ” said Warren.
“Our bill ends these abusive practices by putting private investment funds on the hook for the decisions made by companies they control, ending looting, empowering workers and investors, and safeguarding the markets from risky corporate debt.” Co-sponsors include Sens. Bernie Sanders, Ind-Vt. – also seeking the Democratic nomination — Sherrod Brown, D-Ohio, and Tammy Baldwin, D-Wis.
House Progressive Caucus co-chairs Mark Pocan, D-Wis., a Painter, and Pramila Jayapal, D-Wash., introduced the legislation there. Reps. Jan Schakowsky and Jesús “Chuy” Garcia, both D-Ill., Rashida Tlaib, D-Mich., Ayana Pressley, D-Mass., and Raúl Grijalva, D-Ariz., and others joined them.
Warren crafted “a comprehensive bill aimed at stemming abusive practices employed by some private equity firms to line their pockets at the expense of workers, institutional investors, creditors, and others with stakes in the companies they acquire — and too often destroy,” EPI’s Lee wrote.
Among other provisions, Warren’s bill bans tax deductions for interest on excessive debt the investment firms saddle onto the businesses they take over. It would also “hold those who have ultimate decision-making authority responsible for damages and debts, including employee back pay and benefits” and bars the investment firms from looting companies of their assets.
And, reversing current bankruptcy law, Warren puts unpaid wages and severance pay for jobless workers first when a firm goes broke, followed by, in order, contributions to worker pensions, damages from breaking labor and employment laws and debts to consumers and suppliers. Fund managers, banks and bosses, including “enhanced executive compensation” for bosses, come last.
Bankruptcy and its impact, especially on workers, was Warren’s area of expertise as a Harvard Law School professor before she won the Senate seat. That helped her craft the legislation.
“Workers’ jobs, benefits, and pensions have been wiped out by private equity executives looking to make a quick buck,” said Brown. “The Stop Wall Street Looting Act will protect hardworking families by ending the risky bets that cripple Main Street companies for the benefit of Wall Street.”
“With the help of our rigged tax code, private equity firms have made out like bandits at the expense of workers and communities. Private investment funds should not be able to cash out by gambling with the wellbeing of hard working families,” Pocan added.
Lee told lawmakers about one study showing private equity firms target “chain stores with real estate holdings,” grabbing the chains, closing the stores, firing the workers, selling the land and buildings and coming out with profits for themselves and losses for everyone else.
Another study, Lee said, found that even when a private equity firm takes over a typical enterprise and doesn’t close it, the financiers still slash the company’s workforce by an average of 13 percent, all to increase investor profits. Such rapacity, though Lee nor the study she cited said so, is particularly common in the U.S. newspaper industry – the point Lunzer made.
“The legislation will not hinder those private equity firms that prosper by delivering efficiency gains to underperforming companies in their portfolios,” Lee added. “Instead, it will simply remove tax and other incentives that allow some firms to realize large gains by inflicting even larger losses on other stakeholders. This type of negative sum strategy is pursued too often in the private equity industry and requires a legislative and regulatory response.”
The firms’ investors also employ the “carried interest” tax dodge to avoid paying their fair share of taxes, Lee pointed out. And too often, taxpayers get stuck with the tab, aiding workers who lose their jobs when financiers close their companies.
Besides Lunzer and The NewsGuild/CWA, the Communications Workers, Unite Here, Public Citizen, the National Employment Law Project and the Americans for Financial Reform are among Warren’s backers.
“For years, private equity fund managers have gotten obscenely wealthy on the backs of the working class,” said CWA Legislative Director Shane Larson. “They have made billions by buying up companies, loading them up with debt and stripping them of assets, and leaving workers and retirees holding the bag if anything goes wrong.”
“They’ve put everyone from manufacturers to retailers to local newspapers out of business in the process. The Stop Wall Street Looting Act will fix that by shining a light on these predatory practices and ensuring that private equity funds will be held accountable for the results of their risky bets.”
“We need policies like those proposed in the Stop Wall Street Looting Act to discourage companies from taking on excessive debt to complete deals, to protect workers in bankruptcy, and to hold private equity owners responsible when the companies they target end up in bankruptcy. We need to make sure wealthy private equity managers pay their fair share of taxes by closing the loophole on carried interest,” added Unite Here President D Taylor.
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