This post was guest authored by Fahim Badal.
Private equity firms are little-known Wall Street investment houses that wield a disproportionate and often destructive impact on the economy and an outsized political influence from the industry’s flood of campaign contributions.
“Without significant reforms, these firms will aggressively exploit the exceptions and loopholes in the law with the same devastating results – job losses and broken communities – as before,” said Heather Slavkin Corzo, Director of Capital Markets Policy at the AFL-CIO. “Until we change the heads-we-win-tails-you-lose logic of current law, Wall Street executives will always get richer at everyone else’s expense.”
The private equity (PE) industry’s gusher of campaign cash encourages Congress to turn a blind eye to the industry’s detrimental behavior, such as private equity firms Bain Capital and KKR driving retailers like Toys “R” Us into bankruptcy that cost 33,000 jobs. And the generous political donations ensure that the PE industry can protect the beneficial tax, regulatory, and bankruptcy rules that create the misguided incentives that fuel PE predatory practices.
Given the detrimental behavior of firms like Blackstone and Cerberus, political contributions from private equity should cast a pall on candidates’ ethics. These firms are determined to transform and retain beneficial tax laws, such as the carried interest loophole, and weaken regulatory authority.
The PE industry has a firm grip on the U.S. political system. It contributed nearly $70 billion to candidates and elections over the years, including the continuing generous contributions to candidates for the 2020 U.S. presidential election, according to Americans for Financial Reform Education Fund’s analysis of data from the U.S. Federal Election Commission (FEC) and the Center for Responsive Politics’ Open Secrets database.
Private Equity Political Spending is on the Rise, Big Time
The top 30 private equity firms contributed $68.7 million to federal elections and candidates from 2007-2018, with 54% of the donations going to Republicans and 46% to Democrats. To put that number in perspective, PE donations dwarf the tobacco industry’s political spending of $52.6 million since 2000 — about a third more money in half the time. And the federal campaign spending has rapidly accelerated, jumping seven-fold from the 2010 to 2018 election cycles, according to research by the Center for Popular Democracy.
Who are the Biggest Spenders?
Blackstone and Bain Capital have by far been the biggest political spenders, with each firm giving over $16.9 million between 2007 and 2018. Blackstone is the largest owner of rental homes in the United States after buying over $5 billion in foreclosed homes after the financial crisis. Residents of Blackstone-owned homes have faced extreme rent hikes and evictions. Its CEO, Stephen Schwarzman, has also positioned himself as chief defender of the “carried interest” loophole, which allows fund managers to misclassify investment profits as capital gains in order to pay a lower tax rate than teachers and firefighters.
Bain Capital was part of the 2005 buyout of Toys “R” Us and was also recently implicated in a home nursing scandal, where cutting corners has resulted in threats to childrens’ health.
Number three on the list is the DC-based Carlyle Group, no stranger to controversy. Carlyle owned the Pennsylvania oil refinery that exploded into flames earlier this year and closed, laying off hundreds of workers while extracting $600 million in fees. Carlyle also bought up the nursing home chain Manor Care and loaded the chain with debt and implemented cost-cutting measures and abuses before filing for bankruptcy in 2016. Also on the list is Cerberus, who came under fire after it acquired the grocery chain Albertsons. Since Albertsons’s buyout of Safeway in 2015, Cerberus has increased the company’s debt burden to an unsustainable $12.5 billion. To service the debt, Cerberus has threatened to take away pensions and raises for Safeway workers, but encouraged Albertsons to launch a $330 million stock buyback in 2018 to cover its debt to Cerberus and pay out to investors.
Private equity investing in the 2020 election
The predatory practices of private equity firms has not deterred congressional and presidential aspirants from taking the suspect industry’s campaign cash. In the current election cycle, where Wall Street and the billionaire class have been a key focus, these firms have increased their contributions to candidates in hopes of changing the narrative and expanding their influence. Halfway through the 2020 election cycle, the private equity industry has already spent $5,092, 684 trying to influence the 2020 presidential primary race.
Who are the Biggest Recipients?
Almost every candidate for the 2020 U.S. Presidential elections receives political contributions from private equity firms. However, former Vice President Joe Biden is by far the largest recipient of private equity contributions in the current cycle, with $38,825 in donations from Blackstone Group and $30,900 from Bain Capital.
Pete Buttigieg comes in second, and has been linked to big money donors from the start of his campaign. Cory Booker comes next in private equity contributions to his campaign.
Do the Candidates Vote with Private Equity?
The contribution numbers tell a story, but do those donors necessarily mean the candidates have been influenced by these firms? After all, individuals must list their employer, but presumably not all their political contributions fall perfectly in line with their employer’s interests.
The evidence is a mixed bag.
Of the Democratic candidates who are, or have recently been, members of Congress, all voted against the Tax Cut and Jobs Act (2017), which preserved the carried interest loophole in a big win for private equity firms. However, only Elizabeth Warren and Bernie Sanders have co-sponsored legislation to address private equity’s predatory model.
As previously mentioned, Joe Biden has received the most contributions from private equity in this election cycle. Biden is a career politician with a long record that has generally veered pro-corporate. For example, during his time as a senator, he voted in favor of the 2002 Sarbanes-Oxley Act, which brought strict regulations against fraudulent reporting by Wall Street corporations. On the other hand, as a longtime member of the Delaware delegation, he looked out for the interests of the massive incorporation industry in his home state, including doing battle with proposed bankruptcy legislation that threatened business there, and working on behalf of credit card and student loan lenders to limit bankruptcy write-downs for borrowers — one of the contributors to the 2008 financial crisis. He has also received large donations from corporations and attended Wall Street-backed fundraisers. Many of these Wall Street executives encouraged him to run in the first place as a pushback against anti-corporate candidates like Warren and Sanders.
Pete Buttigieg is the Blackstone Group’s largest recipient, and the executive vice chairman of Blackstone, Tony James, has held fundraisers for Buttigieg. The Blackstone Group has actively organized against affordable housing plans, though as a candidate, Buttigieg has proposed a Community Homestead Act to buy abandoned properties and provide them to eligible residents in pilot cities.
In the 2012 election, Cory Booker made ripples for reaching across party lines to defend the private equity industry. President Obama had chastised Senator Romney for his work as an executive for Bain Capital, particularly criticizing the firm’s central role in closing down a Missouri steel mill and laying off workers. Senator Booker, who receives major contributions from Bain Capital, called Obama’s attack “ridiculous” and “nauseating.” He later somewhat walked back the comment after a barrage of criticism. Booker has also declined to co-sponsor most anti-Wall Street legislation. On private equity specifically, Cory Booker has not yet co-sponsored or commented on the Stop Wall Street Looting Act, and he declined to co-sponsor the Accountability for Wall Street Executives Act, which would have given more regulatory power to states over the banks.
Bernie Sanders is one of the most vocal anti-Wall Street and private equity candidates in the field. He advocated for a ban on private equity-owned hospitals after a hospital in Philadelphia closed down, leaving a poor community without quick medical access and causing the loss of thousands of jobs. He has introduced, co-sponsored or voted in favor of many anti-Wall Street and private-equity-related bills, including the Stop Wall Street Looting Act. However, Sanders has received private-equity contributions in this election cycle, including $11,618 from Cerberus Capital Management and $4,224 from KKR employees.
Accepting private equity donations has not always prevented candidates from voting to curtail the industry’s power, though. Elizabeth Warren is a case in point. In comparison to the other candidates, she received the second lowest contributions. She received $4,324 in total contributions, including $2,117 from Cerberus Capital Management in the most recent election cycle, in spite of the fact that she regularly rallies against Wall Street interests. On private equity, she has said: “Let’s call this what it is: legalized looting — looting that makes a handful of Wall Street managers very rich while costing thousands of people their jobs, putting valuable companies out of business, and hurting communities across the country.” Warren introduced the Stop Wall Street Looting Act to combat private-equity interests and hold them accountable for quick profiteering through bankruptcy. In her time in the Senate, she has both introduced and co-sponsored legislation on all of the Take on Wall Street policy priorities.
Julian Castro received the least amount of private equity contributions in the current election cycle. However, during his tenure as President Obama’s Secretary of Housing and Urban Affairs (HUD), Castro was criticized for selling long-delinquent mortgages to Wall Street instead of implementing homeowner-friendly policies. Under his leadership the loans that banks controlled were sold to private equity firms like Blackstone.
What Does this Mean for the 2020 Election?
There is no doubt about the harmful actions of private equity firms. These firms have closed down hospitals, fired thousands of employees, and raised millions in unsustainable debt and stock buybacks to pay investors. Receiving contributions from them may be ethically questionable, but politicians continue to take their money. For the most part, contributions, statements, and voting records do not always line up neatly. Elizabeth Warren and Bernie Sanders have both received modest private equity contributions, but have not voted in favor of private-equity-backed legislation and proposals. On the other hand, 2020 candidates like Cory Booker, Joe Biden, and Pete Buttigieg seem to be actively aligning themselves with the financial industry. In general, the trend is that Pete Buttigieg, Joe Biden, and Cory Booker have been more aligned with Wall Street’s policy priorities. However, whoever emerges as the candidate, it’s a safe bet that the private equity industry plans on winning the election.