Democrats’ Private Equity Hearing Fail: Abject Incompetence, Corruption, or Mere Unseriousness?

Even though I didn’t have high expectations for the House Financial Services Committee hearing yesterday on private equity, America for Sale? I didn’t expect it to be a train wreck either.

Today I will focus on the process issues, as in why this hearing ginned up by Team Dem sucked (Lambert insisted I not use that word in the headline) and what that says about the party. In the next day or so, I’ll turn to what was said in the hearing, and more important, what wasn’t said and what appalling lies were told.

The contrast of the Republicans, who all sang loud and hard from the same factually-challenged hymnal, to the Democrats, who were dominated by moderates who typically attributed the damage done by private equity to a few bad actors punctuated by few Representatives giving detailed accounts of harm done in their districts, and a bang up finale by Alexandria Ocasio-Cortez, can most charitably be seen as an exercise in hopey-changey optics. And the Democrats seem unable to pull that off in the absence of a smooth salesman like Obama.

Mind you, this isn’t news per se. When Matt Stoller was a Congressional staffer, he would regularly say that he preferred working with Republicans because they were clear about what they wanted to achieve and disciplined in how they’d go about it. That didn’t necessarily mean their plans would work out (Benghazi) but at least they’d map a path from A to B and commit resources to the trip.

I’m not even sure what purpose this hearing was intended to serve. I’ve embedded the video below; sadly, none of the old YouTube cropping services seem to work any more but I will highligh. Committee chair Maxine Waters said the purpose of the hearing was to look at the damaging practices of the industry and whether Congress needed to do more. So while Waters positioned the session as an investigation, the Warren private equity bill, the Stop Wall Street Looting Act, is already on the table as a proposed Democratic party response, and the Republicans successfully used her bill as a whipping boy.

This wan’t just my take:

Politico was a tad more measured:

A high-profile House hearing Tuesday designed to showcase the dangers of private equity instead revealed that the industry enjoys bipartisan backing in Washington despite a wave of attacks from Sen. Elizabeth Warren and other critics….

But for much of the morning and early afternoon, business-friendly Democrats and Republicans played down the most controversial effects of the industry’s investments in struggling companies, instead highlighting its benefits to the economy and questioning anecdotal evidence of the problems cited by its critics..

The sympathetic attitude toward private equity from one member after another on the Democratic side of the aisle — including those who continue to accept campaign contributions from the industry — illustrated the widening gulf of views in the party about economic policy before the 2020 election.

More accurately, the hearing illustrated the gap between the corporate Democrats and the increasingly disenfranchised and disaffected base of the party.

Nevertheless, did they not know what they are up against, even in terms of the not-high bar of having a credible hearing? Private equity firms are the biggest single source of fees for Wall Street. They are far and away the most important clients of the very top law firms in the Anglosphere. They account for more than half of the revenues at Bain and BCG and probably still do at McKinsey.

And as several committee members pointed out, they’d just gotten a taste of private equity muscle in the form of their inability to pass bipartisan legislation to rein in the medical industry abuse known as surprise billing due to a huge lobbying push funded by private equity.

As we’ve explained, not only is private equity driving the increased frequency and severity of these surprise bills, or using them as a threat to negotiate much higher charges to hospitals, it has also found and exploited other choke points in the medical industry, such as kidney dialysis centers and primary physicians’ practices. And the evidence is that services have not improved with the price increases; if anything, it’s that its has often deteriorated.

In other words, if the Democrats are to have any hope of reversing the sorry trend of Americans paying more than any other advanced economy, in GDP terms, for health care, and having the worst results in terms of outcomes, they will need to confront private equity. Dealing with the health insurers is a cakewalk, by comparison.

Back to Politico:

Rep. Gregory Meeks (D-N.Y.) said he was actually trying to attract “private equity dollars” to a minority-owned company at risk of failing. Rep. Brad Sherman (D-Calif.) said he was “not hostile to private equity” and that the industry was being attacked for “doing things that are done elsewhere in our economy.” Rep. Josh Gottheimer (D-N.J.) highlighted investment returns of private equity funds that beat the stock market.

“As a scientist and a businessman, I find myself a little bit frustrated,” Rep. Bill Foster (D-Ill.) said. “We seem to be having this argument by anecdote rather than statistics.”

The fact that the hearing was long on storytelling and thin on facts on both sides. As readers well know, private equity median fund returns haven’t beaten the stock market for the last decade, per our post Oxford Professor Phalippou: Since 2006, Private Equity Has Produced Only S&P 500 Returns While Reaping $400+ Billion in Fees.

Unfortunately, the Democrats made almost no good use of the only person in the room who was an expert on private equity, Eileen Appelbaum. And her knowledge verges on encyclopediac. For instance, she has carefully analyzed the academic work on private equity, both on returns and on economic effects, and regularly picks apart the methodology, too often showing that undoing sleight of hand leads to different conclusions. Needless to say, she and her research/writing partner Rosemary Batt have performed many deep dives of their own. But Appelbaum was almost never asked to weigh in. If anything, she got more attention from Republicans, who tried to discredit her as a paid-for shill (which she easily dispatched by describing how she and Rosemary Batt had worked for four years with a mere $25,000 grant from Russell Sage) and as a Warren operative deeply involved in her bill (which she again politely disproved).

Too often, the Democrats would instead turn to Wayne Moore, a board member of the Los Angeles County Employee Retirement Association (LACERA). But Moore knows little about private equity; he pointed out that his job was to set policy. His apparent reason for being there was to show that at least one reasonably prominent limited partner was willing to call for more transparency. Even then, Moore said he supported only parts of Warren’s bill. But Moore’s main role appeared to be to say again and again that private equity was the best performing asset class for LACERA and that LACERA had increased its private equity allocation.

Politico skipped over the Republican thumping of the centerpiece of Warren’s bill, of making private equity firms and their controlling persons jointly and severally liable for all the liabilities of the private equity fund and its portfolio companies. We’ll turn to this topic in a later post, because it’s a radical proposal yet Warren seems not to have regarded it as necessary to make a case for it.

Even the Representatives who gave compelling accounts of private equity harm typically made narrow cases based on what they saw in their districts. One exception was Katie Porter (at 2:25:40), who zeroed in on surprise billing. She pointed out that a Stanford study had found that the odds of getting a surprise bill had increased from 32% in 2010 to 43% in 2016, and the average amount had risen over that time period from $220 to $628. Cindy Axne (Iowa, at 2:05:00) described how private equity was undermining affordable housing in her district, via buying up land rented by owners of manufactured homes, jacking up their rentals by 20% to 70%. Needless to say, people who are barely getting by can’t afford these increases, yet they are hostage because their house is costly to move. Rahisda Tlaib (at 3:25:45) described how cash bail was a destructive force in poor communities like the one she represents, and private equity firm Evercore is a major player.

True to form, AOC had far and away the best comment. Go to 3:31:06 to view it in full; the partial excerpt in the tweet leaves out her getting at the key issue that was abjectly misrepresented in the hearing, that of private equity’s performance.

Needless to say, this sorry performance reinforces the need for wresting control of the Democrats from the corporate stooges, or else finding a way to make the party irrelevant. And as much as the power of private equity illustrates how tough a go this might be, the flip side is the trusts were even more dominant forces in the Gilded Age, yet they were brought to heel. And as we’ve been documenting for years, the supposed raison d’etre of private equity, its supposedly superior returns, has for the last decade been achieved only through faulty metrics. As more and more investors wise up that they are paying hugely to get only stock-market-like performance, its hold will start to weaken. Unfortunately, that will take longer than it should because investors are willing to bet on hope.

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  1. Chris


    Team Dem needs coaching.

    “Matt Stoller was a Congressional staffer, he would regularly say that he preferred working with Republicans because they were clear about what they wanted to achieve and disciplined in how they’d go about it.”

    1. The Historian

      Oh, I think Team Dem was coached enough.

      Many of the Dems there have far more financial experience and education than AOC has, yet it took AOC to point out the obvious, didn’t it? How did all of that just escape them if they weren’t coached?

      Appelbaums’s book should arrive today and I cannot wait to begin reading it!

    2. Science Officer Smirnoff

      Mitt Romney, a representative of job-destroyers in his rise, was the face of the Party of Job Creators in 2012. Dems, NYT, . . . could have made hay, but with Obama walking on air the matter only needed a light touch.

  2. Frank Little

    It was very depressing to watch. Not a single Dem that I could see actually tried to push back on the industry shills talking points. Even if you don’t view private equity as inherently predatory (I do, but clearly others do not), it seemed that everyone was able to agree that there were “some bad actors” but nobody even tried to outline what would be necessary to deal with even just these very well-documented cases. No pointed questions about leveraged buyouts, making acquired companies lease back property that they previously owned, and the management consulting fees that private equity can extract even as they run the company into the ground. For all the renewed “debate” in the US over how capitalism is (or is not) working it’s depressing that nobody is made to defend these obviously malignant business practices even though they are business-as-usual for American capitalism in 2019.

    Yes we’re hollowing out the future, but just look at those returns!

    1. leapfrog

      Thank you for this post. I’m thoroughly disgusted by this news. The Orwellianly named “PATRIOT Act” needs to die.

      1. JBird4049

        The article says that the three month extension of the act was snuck in just before the vote on a continued funding resolution of the federal government. Even if AOC knew of the extension which she quite possibly did not, she was voting on keeping the federal government funded and running.

    2. Brooklin Bridge

      Very disappointing! What is AOC getting out of this or what is she avoiding? One would think it went pretty rough against the grain for her.

      1. IMOR

        I read in two places (one was The Hill) that she Omar voted against the CR because it included the extension. No?

        1. Brooklin Bridge

          You may be right. from

          On Monday night, Amash submitted an amendment to strip the Patriot Act language from the budget bill, but the amendment was blocked by Democrats on the Rules Committee.

          Just 10 Democrats defied the leadership to vote against the resolution, including Tlaib, Alexandria Ocasio-Cortez, Ayanna Pressley, and Ilhan Omar (a.k.a. “the Squad”). “I cannot in good conscience vote in favor of a [continuing resolution] that reauthorizes unconstitutional mass surveillance authorities,” Tlaib told me, “especially under a president who has retweeted images of his opponents jailed and suggests anyone who disagrees with him is a criminal.” AOC tweeted before the vote, “Yeah that’s gonna be a no from me dog.”

          Later on it says Ultimately, the funding bill passed 231-192, mostly on party lines.

          I’m confused. Could it be AOC et al voted for the resolution to strip the Patriot language from the bill, but then voted for the bill itself later after and regardless that the resolution failed?

          But the article goes on,

          But when it came time for the floor vote, CPC co-chairs Pramila Jayapal and Mark Pocan voted in favor of the funding measure. So did most of the caucus’s members. The only person in CPC leadership to vote against the bill was Omar.

    3. polecat

      Its a well known fact that the blue-$kinned form of Ferengi gotta fereng … even if it means the furtherance of I-Got-Mine-Jack boots on the ever-to-be-constricted mope’s necks … right ??

  3. NotTimothyGeithner

    In short, Republicans are Republicans, and Democrats are largely non-entities who are attached to the pomp of office than any particular agenda. Corruption exists, but a false celebratory unity is the driving force of the rank and file elected Democrats. Stiller is right about the GOP being easier to work with. They are less alien than non entities. There is a common language.

    Take Virgiina delegate Lee Carter, “scary socialist” as an example of the exception. Has he said anything that is out there or just so out of mainstream discussion or a polysci 101 class? The answer is no, but the Democratic governor of Virginia recently learned blackface Is offensive. II’ve encountered Governor Northam. He’s a special ignoramus. Not being remembered as the black face governor is eating at him now, but that’s what it took to act like he had a job.

    1. Left in Wisconsin

      For Dems, getting the job is the objective (meritocracy!), not accomplishing something once they have the job. Since going against powerful interests can only be detrimental to getting and keeping the job, it runs counter to not just their material interests but their worldview, esp when a little misdirection combined with the need to do some basic math to see how the screwing works (as in the case of PE) means that, among the interests that screw their constituents, it is relatively easy to shift the focus elsewhere.

      Having been there, I do have some sympathy for Greg Meeks. Trying to keep a failing company alive means looking for investors wherever one can find them, even if the only ones you can find are monsters. For many workers over the age of 45 or so, keeping a job subject to PE degradation is seen as less risky than having to find a new job.

    2. Dirk77

      If he had anything to do with the handout to Amazon for HQ2, the sole effect I bet will be to price out other contractors from Crystal City, then I would tend to side with your ignoramus label.

  4. DJG

    And at this point, Yves Smith wrote (and then may have wondered if “confront” and “Democrats” belong in the same sentence (and then had a swig of some good burgundy)):

    In other words, if the Democrats are to have any hope of reversing the sorry trend of Americans paying more than any other advanced economy, in GDP terms, for health care, and having the worst results in terms of outcomes, they will need to confront private equity.

    I think that we all know how to answer this assertion: The Democrats have no intention of delivering to the populace what it needs. The leadership of the Democratic Party believes that the populace thrives on endless war, office politics (the delights of the swamp of degradation that is Ukraine), privatization, and tax breaks for the rich.

    What I also detect here is some nostalgia for a Democratic Party that meant something: It is now time simply to destroy the shaky edifice and let the wreckage turn into whatever it will turn into. We have all been brought up with some ingrained idea that the Democratic Party, as the oldest political party in the world, as the party of Jefferson, Jackson (lest we forget), Stephen Douglas (lest we forget), and Franklin Delano Roosevelt is going to have a Road to Damascus moment. (We’re always having Road to Damascus moments here in America ™.) It isn’t. The Democratic Party is now the obsolete Nancy Pelosi and the mystery-of-incompetence Steny Hoyer telling us that impeachment is more important that an economic program.

    But they checked off a box and gave Rep. Waters some screen time: Hard-Hitting Hearings Held! [Let’s adjourn!]

    Let the bipartisan wreckage collapse. These hearings are more evidence of how it is our duty to push both of the major parties further toward collapse.

    1. 1 Kings

      Think it should be the populace Can Choke on endless war, office politics, privatization and tax breaks for our lords etc.. They’re more ‘what you gonna do about it?…’

  5. KYrocky

    Our country has been engaged in class warfare since 1980. For decades those who made this point were dismissed as flakes, but the economic decline from then until now for the majority of Americans is obvious on even basic graphs.

    AOC continues to show promise as the model for the future of the Democratic Party. She speaks the truth. Corporate Democrats need to be labeled as such, and primary challengers need to be supported against each and every one. Corporate Democrats put money, that of their corporate donors, ahead of our country and their constituents, and they are as odious to the national good as were the racist yellow dog Democrats we suffered for decades.

    Democrats need new leadership, and not the Pelosi-Hoyer-Biden form of leadership addicted to corporate money.

    1. JBird4049

      It has been a war of classes since the country’s founding; it was the political propaganda of TPTB that convinced the American population of the lie of its nonexistence.

  6. divadab

    The power of Private Equity a direct result of the overturning of Glass-Steagall under the Clinton administration. The effort was successfully piloted by Summers and Rubin, for the benefit of themselves and their pals in the big private banks. Effectively it allowed private equity banks to play with funds guaranteed by the US government – because the restrictions on regulated deposit-taking banks from owning brokerages and investment banks were removed.

    SO now these johnnies get their way because they are co-owners of both the Republican and Democrat corporations. (along with the pharmaceutical cartel, the big ag cartel, and so on.)

    Systematic corruption on a massive scale.

    1. Yves Smith Post author

      No, that is not correct on multiple levels.

      First, the formal repeal of Glass Steagall was inconsequential save for being necessary for Travelers to acquire Citigroup.

      Second, the private equity industry sits outside banks. The leaders are firms like Blackstone, KKR, Apollo, TPG, Bain. Goldman does have a PE operation but its far from being one of the industry leaders.

      Third, the leveraged buyout industry, which was what private equity was called in the 1980s, was not part of the establishment. What was critical to them being able to do large, hostile deals was being able to use junk bonds, provided by Drexel, which was not a commercial bank, and being able to hire top M&A players at investment banks to do hostile deals. Those investment banks would even provide bridge financing.

      Fourth, the private equity firms now have credit funds which are major if not the leading players in financing highly leveraged deals.

      1. divadab

        OK, thanks for this, Yves. I’m curious how you view the repeal of Glass-Steagall. It seems to me that it has contributed immensely to the massive concentration of the financial industry into TBTF institutions. And the massive wealth destruction of 2008.

        “As John Boyd had earlier,[10] Minneapolis Federal Reserve Bank president Gary Stern and Arthur Wilmarth warned that the GLBA’s permission for broader combinations of banking, securities, and insurance activities could increase the “too big to fail” problem.” (from Wikipedia)

        Opinions vary but “inconsequential” seems rather a too rosy view of the consequences of repeal.

      2. k

        One internet trick I learned in the 90’s was that it was much easier to elicit a correction to incorrect information than to get someone knowledgeable to recap the basics. So, for example, on a given forum you wouldn’t get any responses to a technical question about how to perform a tricky install for a piece of hardware other than possibly “RTFM”, but if you posted something completely random and wrong about it, detailed and informed corrections would flow.

        I’m not saying that divadab intentionally posted something wrong in order to get an informed and concise two paragraph summary from Yves, but it probably took much less time to get that information that way than it would have using google and wading through links.

        I don’t think this is a good place for a lengthy discussion of how the medium can encourage manipulative behavior, but I feel it appropriate to point out that with so many knowledgeable and time-constrained people reading this blog, it’s a perfect target for that particular form of manipulation.

        1. divadab

          @K – Thanks for the tip. I’m not smart enough or rather manipulative enough to pull it off but I can see how it works. I genuinely appreciate Yves’ correction, and having done further research have learned that much of Glass Steagall had already been nibbled away prior to the Summers-Rubin full takedown.

          Nonetheless why take it down in the first place? Either it was ineffective, and didn;t need to be taken down, or it had some residual effectiveness, and was taken down to eliminate its remaining effectiveness. You can;t have it both ways. And where a Clinton is involved, you know there is corruption.

  7. Chauncey Gardiner

    The hearing doesn’t appear to have credibly met its stated basic purpose: “America for Sale? An Examination of the Practices of Private Funds”. Your observations and the assessments by Politico resonate. The fact that Eileen Appelbaum was not used by the corporate Dems is unsurprising. Reminded me of the observation attributed to FDR: “In politics, nothing happens by accident. If it happens, you can bet it was planned that way.”

    But Perception Is Reality, and ritual and appearances are very important in Washington. Congressional hearings are planned, managed and controlled. Generally, they are based primarily on what those members with the most influence on the committee consider to be “realistic”, “pragmatic” (read “monetary”) considerations, with attention particularly skewed toward the space for inaction or policy dilution in order not to alienate key funding or powerful constituencies. Status quo?… You betcha!… Clearly, the lobbyists for this sector were again successful and no doubt will be enjoying a pleasant Holiday Season.

  8. Gabe B

    Yet again, the priorities of nearly all elected Democrats and party leaders are at direct odds with what’s best for their base, the working class, and most of the country.

    And I used to think it was Republicans who voted against their own interests. How naive I was.

    Why did these hearings exist? To make it easier for the Dem party to lie to itself and everyone else that it cares in any way, shape, or form about the destructive effects of PE on everyday life.

    1. notabanker

      The working class is not their base. The donor class is their base, and they are fighting hard for them.

  9. flora

    Unfortunately, the Democrats made almost no good use of the only person in the room who was an expert on private equity, Eileen Appelbaum.

    Everything for team estab Dem is like CalPERS.

    A Potemkin hearing designed to show the ‘little people’ that Dem estab “feels your pain”, but won’t do anything to remedy the problems. (What else could a wholly owned Wall St. subsidiary do?) Mega donors like [Dem pres candidate] Tom Steyer and George S. might have a sad if team Dem cracked down on financial abuses.

    Thanks for this post.

  10. none

    I started trying to clean up the youtube robo captions starting at 3:31:00 but got tired. This is a mix of AOC and some other people she is interacting with.
    AOC: Thank You Mr. Chairman, and thank you all to all of our witnesses for coming here today. I have to admit that I am quite upset throughout this hearing because I feel like a lot of the initial questions that were hearing almost betray the priorities that we’ve had as in our economy that that have eroded people’s quality of life. Because the first question that I hear from so many members are “how are the returns? But the returns are great aren’t they? how are the returns?”. And I wasn’t sent here to safeguard and protect profi. I was sent here to safeguard and protect people and we’re talking about reining in private equity which is responsible for wiping out tens of thousands of jobs at Toys R Us alone. And then we’re hearing “but what about the companies that made a hundred jobs here or 200 jobs there?”

    Toys R Us 30,000 jobs wiped out shop go 14,000 jobs. Brookstone David’s Bridal Payless not to mention the impacts the undemocratic impacts on media companies splinter Deadspin Sports Illustrated local and regional newspapers in last 10 years. Private equity is behind 597,000 jobs. And it’s not just about the number of jobs, isn’t that right miss dela Rosa? It’s about the quality of jobs right? When private equity took over Toys-R-Us, did you see folks work schedules get cut back?

    Ms. Dela Rosa: Yes definitely.

    AOC: Did you see people’s benefits and in some other ways cut back yes did your access to healthcare care get damaged and after private equity took over toys-r-us?

    DR: yes it was did.

    AOC: your mental health care get was your mental health sacrificed as a result of how your quality of life changed very much?

    DR: very much so um we need to think about our economy not just in terms of the returns for stockholders but in terms of how the lives of workers are impacted in May of this year I sent a letter along with Senator Warren to secretary minuchin I’m regarding the Treasury Department’s involvement in decisions related to the Sears bankruptcy I want to take a step back and think about how some private equity companies on the other end take pension money on the front to acquire poorly rated indebted companies miss Applebaum because of the high returns usually associated with private equity pension funds invest the retirement funds of our teachers firefighters and civil servants in PE firms correct they do but the measure that they use the metric for measuring success is a very poor one they use something called the internal rate of return with more time I can explain why

    (*** 03:34 ***) this is an algorithm that does not really measure money you can take to the bank and so that there’s there’s a lot of illusion creating here they could report the public market equivalent which always give us a lot more infamous yes and so we hear from a lot of folks saying okay we’re using teachers pension funds to buy into private equity they’re getting fabulous returns this should be great right can you explain to me why that may not be great well one of the things that we know we measure this appropriately is that since the financial crisis about half of the private equity funds have underperformed the stock market another quarter of them have barely beaten the stock market CalPERS itself had to roll back its benchmark because it could not be is it it had a benchmark for his private equity returns they are more risky they should yield more return they could not meet that more return and they have cut their benchmark in half so private equity is is contains

    (*** 03:35 ***) more risk than other parts of the market oh absolutely that’s and so and the returns are good for the very top and would you say that more of these teachers and firefighters pensions are do you would you say that they’re exposed to more risk or to more private equity now than they were say 10 years ago 2008 financial crisis they are are and if there’s an economic downturn again would they be exposed to more risk before but I have not been able to say is that in the last economic downturn 27 percent of highly leveraged firms went under and what we know about private equity owned companies is that they are highly leveraged so saying that today there’s no difference between publicly traded and private equity on companies is not really the issue I agree with the with the regulator’s private equity we’re spending a lot of time on it here is really small compared to the rest of the economy so those leveraged loans are not going to bring down the whole economy but trust me there will be a lot a lot of

    (*** 03:36 ***) paying many many companies employing workers that we all care about importance of communities that we all live in are going to go under in the next recession thank you thank you very much thank you thank you very much.

  11. dimmsdale

    Just a short shout-out of gratitude to Yves and this site for pieces like this (and for the informed commenters as well). I’m thick as a brick about business, but what (little) I think I know about the workings and business models of private equity, CDOs, robosigning and other ugly, ugly manifestations of corporate greed over the last decade-plus, came from here. (Not to mention the Boeing debacle, which has been covered here in what is to me a very ‘foundational’ way)

    If indeed control of the country finally passes back to Democrats, I look forward (and will support) vicious trench warfare against corporate conservaDems; they need to be kicked the F to the curb as soon as a Dem majority can establish itself. I’ll just add that Maxine Waters’ conduct of this hearing sounds disappointingly one-sided. I’d have hoped for much, much better.

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