Private equity firms are screwing over student-loan borrowers, workers, and consumers, Elizabeth Warren says in a call for fixing the bankruptcy process

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Elizabeth Warren
Sen. Elizabeth Warren (D-MA). Patrick Semansky-Pool/Getty Images
  • Sen. Elizabeth Warren introduced a bill to reform the private equity industry.

  • Private equity firms typically focus on hypergrowth, but can still profit if companies go bankrupt.

  • Warren's bill would fix the bankruptcy code and protect workers and consumers from companies that fail.

The private equity industry has boomed over the past decade, receiving billions in taxpayers dollars during the pandemic and profiting from its stakes in colleges, housing, and nearly every part of the economy.

Massachusetts Sen. Elizabeth Warren says that's a bad thing - and she has a plan to fix it.

Private equity firms are, as the name suggests, privately owned by a limited group of investors or directors. They tend to invest in companies by focusing on hypergrowth and often saddle them with debt to keep up with investor expectations. Even if they push the company into bankruptcy, the private equity firm can still make money by selling off the company's parts.

But, as Elizabeth Warren points out, employees at the company aren't so lucky. In a press release laying out her proposal for industry reform, Warren said private equity firms are "incentivized to pursue short-term profits and pocket huge fees" at the expense of workers.

"What almost every American experienced as a crisis, private equity viewed as an opportunity," Warren said during a hearing last week.

That's why Warren reintroduced the Stop Wall Street Looting Act, which would reform the private equity industry and hold the firms accountable for the outcomes of the companies they own. Specifically, the bill would prevent firms from walking away when a company fails by prioritizing worker pay in the bankruptcy process and require the firms to "have skin in the game" by sharing responsibility for the liabilities of the companies they own.

Currently, when a company owned by a private equity firm goes bankrupt, the firm can appoint independent directors to present the case in bankruptcy court, where they can often shield the firm from any penalties for wrongdoing. However, that could create a conflict of interest that works in favor of the firms. Warren's bill would eliminate that conflict.

"The Stop Wall Street Looting Act ends these abusive practices by putting private investment fund managers on the hook for the companies they control, ending looting, empowering workers and investors, and safeguarding the markets from risky corporate debt," Warren said in a statement.

Warren explained during last week's hearing how private equity firms have such a strong hold over the economy, stressing the urgency for reform. For example, students at for-profit colleges owned by the firms can be taken advantage of and pushed into debt, while those living in mobile-home communities have seen rents skyrocket when private equity takes over as landlord.

The bill now sits in the Senate banking committee and will need to gain support from Republicans before reaching the House and Senate floors.

"Congress must ensure that the greed and recklessness of Wall Street can never destroy the livelihoods of everyday Americans ever again," Vermont Sen. Bernie Sanders, a supporter of the bill, said in a statement. "Now is the time to end Wall Street's greed, protect workers, and create an economy that works for everyone, not just the 1%."

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