Steven Senne/AP Photo
A passer-by steps away from a PetSmart store, December 20, 2022, in Westwood, Massachusetts.
These Are the Plunderers: How Private Equity Runs—and Wrecks—America
By Gretchen Morgenson and Joshua Rosner
Simon & Schuster
Plunder: Private Equity’s Plan to Pillage America
By Brendan Ballou
PublicAffairs
It had somehow never occurred to me how much of the average PetSmart worker’s job involves managing the corpses of dead animals. Some of them show up dead on arrival; some die in the backroom sick area if managers consider them too visibly ill to sell; some die on the showroom floor of infectious diseases transmitted through filthy cages; some die of malnutrition, caused by budget cuts or when the company fails to schedule a staffer for feeding duty; some die of heatstroke and hypothermia during power outages that stretch as long as a week because PetSmart is too cheap to equip stores with backup generators; and some even die from the neglect of undertrained $9-an-hour pet sitters and groomers—though most of those workers love animals so much they are willing to sign neo-feudal “training repayment” contracts that force them to pay PetSmart thousands of dollars if they don’t last two years in the job.
But however they die, the animals tend to go slowly, because not only do PetSmart’s owners not deem unsold guinea pigs or bearded dragons worthy of care at the veterinary hospitals conveniently housed in roughly half their 1,500 stores, they do not deem them worthy of euthanasia. And when their tiny organs finally capitulate, their bodies are also not deemed worthy of incineration. A half dozen current and former PetSmart employees told Vice News their freezers regularly overflowed with dead animals, and managers would periodically order cashiers and groomers to dispose of them on their own time, between shifts, in random dumpsters or whatever, in violation of an official PetSmart policy requiring the bodies to be transferred weekly to a veterinary crematorium. “I wouldn’t let myself sleep. I felt selfish going to bed,” a former PetSmart associate told Vice. “But at my job, animals passed away so often, there was nothing you could do.”
PetSmart could not afford to treat or euthanize or even cremate its pets, even though sales jumped more than 60 percent and gross margins soared to unprecedented heights during the pandemic, because its owners had legally stolen $30 billion from the balance sheet, buying the company with a minuscule down payment, siphoning off cash and assets into its own pockets, and forcing the retailer to submit to a punishing payback plan that sucks every last penny the stores generate into usurious interest payments.
For some reason, we allow the ownership class to call this form of legalized embezzlement “private equity.” The ideologically diverse authors of two recently released books on the topic, journalist/analyst duo Gretchen Morgenson and Joshua Rosner’s These Are the Plunderers and prosecutor Brendan Ballou’s Plunder, concur on a more accurate term, though the late private equity mogul Teddy Forstmann’s pet name for his contemporaries, “barbarians,” seems more literally descriptive of his profession’s impact and influence on the companies they massacre.
I guess this is progress. Where Obama-era explorations of private equity, like Joshua Kosman’s excellent The Buyout of America, mostly focused on how private equity firms eroded quality standards and gouged customers of the companies they conquered, the Plunder chroniclers characterize private equity as the unmitigated evil it is. The bad news is, this shift in the mainstream discourse has been largely achieved on the backs of millions of human lives (which private equity moguls seem to view as similarly precious as rodentia). While knowledgeable, our tour guides through the hellscape left behind by their conquests have little to say about how we might, as Plunderers puts it, “stop the bleeding.”
PRIVATE EQUITY EXTRACTION IS ESPECIALLY BARBARIC in our woebegone health care system, as Morgenson and Rosner most extensively explore. In a wholesale inversion of the Hippocratic oath, tens of thousands of PE-owned rural and inner-city hospitals, dialysis centers, nursing homes, emergency rooms, and psychiatric hospitals ultimately begin to resemble something like landfills of subprime humanity, with the only alternative for many being the soft euthanasia of PE-owned hospice agencies.
The Carlyle Group wanted to pay its investors a billion-dollar dividend, so it pawned the real estate holdings of a nursing home chain, forcing it to cough up a half-billion-dollar yearly rent check, which was managed through savage staffing cuts that likely condemned thousands of elderly Americans to die slowly of dehydration, gangrenous bedsores, and preventable falls even before COVID-19 killed a quarter-million residents nationwide. KKR wanted to extract its own payday from a chain of group homes for developmentally disabled adults that had already been sucked dry by a Canadian private equity firm, so it slashed pay to $8 an hour and told workers that it would have them arrested for patient abandonment if they attempted to leave “early” from open-ended “shifts” that lasted as long as 36 hours. On five separate occasions, Texas health inspectors visited KKR’s facilities to find no staff at all. In a single August 2020 day at one West Virginia group home, three of eight unsupervised residents very nearly killed themselves; the unnamed soul who drank antifreeze and was not hospitalized for nine hours damaged his organs permanently.
Ballou’s Plunder spends a chapter surveying private equity’s takeover of correctional services, introducing readers to Miami’s $55 billion H.I.G. Capital, whose portfolio company TKC Holdings fired a Michigan cook for refusing to serve 100 bags of rotten potatoes that were covered in green and black mold at Kinross Correctional Facility. “It was the most disgusting thing I’ve seen in my life,” said the cook, whose employer maintains contracts with 400 prisons. In addition to feeding people in prison, TKC is also the “leading” supplier of correctional commissaries, from which inmates can buy edible junk food and clean water with the 10 or 25 cents an hour they make working for … TKC. So rotten cafeteria food sending incarcerated people to price-gouging commissaries is baked into the business model, and workers who object to poisoning inmates are 86’d on grounds the cook described to the Detroit Free Press: “They told me I was trying to start a riot.”
Ironically, TKC had been contracted by the Kinross prison after a riot had broken out over the maggot-infested meals served by Aramark, a publicly traded company that had been raided in the past by the private equity firm Warburg Pincus. TKC demanded (and obtained) an extra million dollars a month in state funding to take the job, using the same workers and the same processes. And yet, “somehow, the food has gotten worse,” one inmate said. “No matter what they serve, it’s always worse.”
For some reason, we allow the ownership class to call this form of legalized embezzlement “private equity.”
Though it did not seem possible, everything somehow got worse is a sentiment one hears endlessly from workers whose employers have been acquired by private equity firms. I can’t help but recall the story of Monowitz, the for-profit concentration camp the massive German chemicals conglomerate IG Farben built in 1942 four and a half miles from Auschwitz, after its plans to staff a rubber plant with slaves marched in from the camps each morning proved too costly and inefficient to deliver a speedy return on investment. So Farben bought 25,000 slave laborers, many of them children who were cheaper, to build a new camp next to the rubber plant, with even tighter living quarters and more inhumane treatment than the rest of Auschwitz.
At Monowitz, the beatings were so cruel the SS complained to Berlin, the hospitals so crowded that the SS repeatedly asked to build more; Farben refused on account of cost. (A whistleblower even claimed the SS lacked ultimate authority over Monowitz.) The average Monowitz inmate lost between six and nine pounds a week and was dead within three months. And while the operation was a colossal failure in its stated goal of producing synthetic rubber, it generated robust dividends for Farben’s subsidiary Degesch, from which the SS began to purchase a special odorless version of the insecticide Zyklon B for the purposes of accelerating and optimizing its murder of those too weak to work.
My point is not to draw parallels between history’s most unimaginable atrocity and your local state prison or pet store, but to ponder whether the universal acknowledgment of “Auschwitz” as shorthand for the unquestioned nadir of human civilization perhaps unhelpfully obscures the fact that there was a privatized corporate camp right next door in Monowitz that was quantifiably one or two Hell circles deeper, even though its corporate overlords were by all accounts reluctant and late-adopting antisemites. (Some Farben execs later tried at Nuremberg had vainly gone to some lengths to bribe Nazi officials to spare its Jewish co-founder Arthur von Weinberg.)
The difference between Monowitz and other Nazi concentration camps was of course the profit motive. In the analysis of the late Farben historian Joseph Borkin, the company broke “from the conventional economics of slavery in which slaves are traditionally treated as capital equipment to be maintained and serviced for optimum use and depreciated over a normal lifespan. Instead, I.G. reduced slave labor to a consumable raw material, a human ore from which the mineral of life was systematically extracted.”
Like Plunder author Ballou, Borkin was a 30-something antitrust attorney in the U.S. Department of Justice when he published his first book, Germany’s Master Plan: The Story of Industrial Offensive, detailing the ingenious methods of economic warfare Farben had used to produce the worldwide commodities shortages that guaranteed Hitler’s early victories. The populist tome was a 1943 bestseller, widely viewed by Roosevelt-era trustbusters as a blueprint for unwinding the international warmonger cartel. By 1945, however, Farben co-conspirators Dow Chemical and Standard Oil were pressuring Borkin’s publisher to retract his findings, and by the following year he was gone, with news reports casting the resignation of “the man who had more than any other to do with making ‘cartel’ a horrid word in American politics” as “the final admission … that an era has come to an end.”
It is an era Ballou, who dedicates Plunder to the towering trust-busting jurist Louis Brandeis, clearly hopes to revive. But as with most neo-Brandeisians, it is the sins of Robert Bork’s generation he seeks to undo, and not the more puzzling failures of the earlier generation of Brandeis protégés who watched like Borkin in silent horror as 24 Farben executives were put on trial at Nuremberg in 1947, while a panel of American judges nodded along when defense attorneys entreated them to think of the shareholders.
In the end, most of the Farben killers were acquitted on most of the charges, and the prison sentences topped out at five years; just nine were convicted of “plunder.”
RECENTLY, MORGENSON AND ROSNER WERE INTERVIEWED about These Are the Plunderers by Bloomberg Radio’s Carol Massar, one of those lifelong broadcast journalists whose voice is so mellifluous you forgive them for being so aggressively uninteresting. Bloomberg, with its information advantages supplied by its monopoly on bond market information that is otherwise inaccessible by most journalists, has been one of the most thorough chroniclers of the mechanisms by which private equity has impoverished, injured, and killed workers and customers. Still, Massar wanted to know, wasn’t it a bit mean to call them “plunderers”?
Massar: I have to say though, Plunderers, it’s a pretty strong word … Right and I just like kinda … ahhh, let’s throw it up in Google: Plunderers. “Someone who steals or removes things, especially in a violent or severe way. To rob of goods by force, a loaded word, a strong word. Why? Why that word?
Rosner: Well, I mean … when you’re going into a company and the focus is to get yourself paid out as quickly as possible, regardless of the impact on the employees, the pensions, the communities in which you exist, the broader economy … I’m not sure that’s an unfair or particularly harsh word …
Once upon a time, and I know Massar is old enough to remember this, everyone called them “corporate raiders.” No one in my family knew anything about money, yet I knew the term before I really grasped what “sex” even was. The term originally surfaced in the 1950s to describe a comparatively benign class of predator who stealthily borrowed money to buy up enough shares in a small or midsized company to control its biggest bloc of votes, then force a stock swap and install himself as CEO. Eli Black was one of the strategy’s most successful practitioners in the 1960s, using a bottle cap manufacturer as a platform for buying a large meat processor and ultimately the famously CIA-enmeshed banana company United Fruit, from whose 44th-floor headquarters he hurtled to his death one early morning in February 1975, in what everyone concurred (though he left no note) was a suicide.
United Fruit’s losses, first from a newly formed Central American tariff regime, then a bribe Black paid the Honduran president to back out of the regime, then a catastrophic hurricane that killed 8,000, had snowballed. In those days, the raiders were not so keen to casually bankrupt a failing division by transferring assets away from creditors. (A revisionist Harvard University Press business history released last month actually depicts Black’s demise as a parable about the perils of “woke” capitalism, because the raider negotiated a contract with Cesar Chavez while he was bribing a military dictator.) Whatever the multitudes within him contained, no one who knew Eli Black seems to have doubted the former rabbi would rather die than face the shame of corporate insolvency. No one who knew Eli’s son Leon, who would later earn the nickname “Pizza the Hut” for the voraciousness with which he consumed junk food while plotting the next raid, reckoned he was capable of so much as experiencing shame.
Leon Black, the alpha villain in Morgenson and Rosner’s Plunderers, went to work for Michael Milken’s Drexel Burnham Lambert two years after his father’s death. Drexel was a pioneer in trading what is now called “distressed” debt, the illiquid but high-yield bonds of corporations that had fallen on hard times. Milken’s innovation involved creating enough demand for those bonds to sustain a distressed-debt assembly line, linking the raiders Black called “the Robber Barons of the future” with steady access to junk bonds that Milken in turn sold to corrupt money managers. Black further optimized the supply chain by “inventing” the “highly confident letter” that Drexel would furnish to favored raiders, assuring the boards of companies they sought to acquire that the brokerage was “highly confident” it would be able to swiftly finance the buyout with junk bonds, secured by the company’s assets.
Through these innovations, corporate raiders used junk bonds in the 1980s to acquire more than 2,000 companies, approximately one-fifth of which would file for bankruptcy within ten years. There was little ambiguity about what was going on at the time, as iconic drugstore and supermarket chains, snack food brands and manufacturers were swiftly gutted, sold off, and relieved of thousands of employees. A Business Roundtable representative testified before Congress on the problem in 1985:
We believe it is fiscal insanity to let the country go on with this phenomenon because the whole country loses. Behind the smokescreen of doing good for shareholders and punishing stupid, entrenched management and using the magic cloak of the words “free market” a small group is systematically extracting the equity from corporations and replacing it with debt, and incidentally accumulating major wealth.
Incidentally, they were also breaking the law, albeit in complicated ways that were difficult for prosecutors to explain and easy for attorneys to obfuscate. Milken’s “confidence” in his ability to sell the bonds of doomed raid victims stemmed in large part from his illegal control of a sprawling network of corrupt banks, whose failures gave regulators the foundation of a racketeering investigation into the Drexel enterprise. Black refused to cooperate, instead demanding a $16 million cash bonus and hastening the bank’s chaotic 1989 collapse, whereupon he proceeded to his second act as a billionaire re-raiding dozens of companies he’d junked at Drexel.
Plunderers devotes a sickening six pages to Black’s reign of terror at the luggage maker Samsonite, a bankrupt-but-healthy company he subjected to 12 humiliating years of repeated fee extractions, debt-funded dividend payments, brutal plant closings, and hideous schemes to induce employees to buy its worthless stock, which was ultimately delisted in 2003. By that point, in one of the most monumental gaslights of all time, the corporate raiders had rebranded their business “private equity,” after the very first thing they looted from every sad company they conquered.
Black’s shop Apollo Advisors gained control of Samsonite and numerous other companies by convincing an insurance commissioner to fast-track his secret acquisition of a $6 billion junk bond portfolio amassed by a troubled life insurer that had been a large Drexel client. Virtually everything about the deal appeared illegal. The insurance commissioner seized the insurer, which was arguably solvent; Black partnered on the bid with French government–backed financiers who were prohibited by law from owning a domestic life insurance company; the commissioner fraudulently pegged the value of the bonds at $3.2 billion; the deal unilaterally stole $3.9 billion from innocent people who needed the money to pay for loved ones’ funerals, irreparable injuries, etc.
For some reason, it didn’t matter. Black seemed to wield absolute control over the insurance commissioner—now California congressman John Garamendi—as he would countless politicians from former Connecticut governor John Rowland to former president Donald Trump, even as he inexplicably wired $188 million to convicted pedophile sex trafficker Jeffrey Epstein and profitably bankrupted countless companies along the way.
BLACK WAS NOT ALONE, OF COURSE. As both books explore in depressing detail, public servants in every agency and branch of government have bent over backwards to assist private equity firms in securing public pension fund financing for their exploits. Cities signed lucrative privatization deals with PE-owned ambulance operators and infrastructure subsidiaries. Regulators proved incapable of enforcing consumer protections or fraud statutes that might threaten PE profit margins. Perhaps most maddeningly, PE firms are routinely immunized from the possibility of private-sector consequences for their profiteering, as 38 state legislatures did most recently in 2020 when they passed blanket liability shields on nursing homes and hospitals for the duration of the COVID-19 emergency.
Our elected officials are in fact so committed to nurturing and subsidizing the barbarian elite that they have made a kind of biannual joke of rubbing our faces in it, via their continued empty promises to eliminate the “carried interest loophole,” through which private equity executives avoid income tax by misclassifying their income as capital gains. That these promises are by now comically hollow did not soothe Blackstone founder Steve Schwarzman, who declared in response to Barack Obama’s empty promise in 2010 to impose income taxes on billionaires: “It’s a war. It’s like when Hitler invaded Poland in 1939.”
I sometimes wonder if this is actually a war, with our loophole-enablers in elected office mere collaborationists, and the only reasonable response to the plunderers’ annexation of our every institution being some kind of armed revolution. But with even the entry-level “solutions” like “taxing professional looters commensurately with the general populace” so implausible as to be essentially off the table, students of the plunder are left reading about micro-options like “transparency” and “fee disclosure requirements” and “ban abusive arbitration requirements” and “tweet your outrage if you have a moment.” (“Most importantly,” Ballou helpfully writes in the introduction of his section containing these and other prescriptions, “do not give in to despair or nihilism.”)
And remember there are evils our most mythologized military heroism could not destroy. The odd leniency observed at Nuremberg toward the genocide profiteers of IG Farben was nurtured by an insidious coalition of far-right proto-McCarthyites like Sen. Robert Taft and liberals like Supreme Court Associate Justice William O. Douglas, who decried the proceedings variously as a “high-grade lynching” and the unconstitutional prosecution of an offense that had “never been formalized as a crime with the definiteness required by our legal standards,” whatever that means. A congressman assailed the chief prosecutor as “a known left-winger who has been a close student of the Communist Party line”; the executives’ defense attorneys reasoned that no company man of any race or creed would have acted differently from their clients in the face of the “Bolshevist danger.” The exec who personally sold Zyklon B to the SS’s chief disinfection officer (a lifelong anti-Nazi, it turned out, who had infiltrated the SS to investigate the disappearance of a family member) got his conviction overturned after just three years.
As Borkin would later explain, the Farben executives “were among the industrial elite of Germany, not Hitler’s black- and brown-shirted hooligans. They represented a combination of scientific genius and commercial acumen unique in a private industrial enterprise.” The reality that they also represented the most staggering and unprecedented evil the human race had ever known was somehow … not a thing. Following his four-year sentence, the old Farben CEO would be named to the board of Deutsche Bank. The executive who ran the Monowitz operation got gigs advising Dow Chemical, the U.S. Army, the company that sold thalidomide as a tonic for morning sickness and, for three decades, the killer asbestos giant W.R. Grace, which was recently taken private in a $7.1 billion private equity buyout backed by Apollo.
