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Though private equity firms have garnered much more attention recently, the focus has mainly been on how partners in these firms use tax loopholes to amass vast fortunes in part by not paying their fair share of taxes. Much less is known about the sources of these earnings. A new report from the Center for Economic and Policy Research sheds light on this process.
PE firms raise capital from investors - pension funds, mutual funds, insurance companies, university endowments, foundations and wealthy individuals - to acquire a portfolio of companies. The leveraged buyout of a company entails extensive debt financing, with the acquired company - not the PE firm - required to put up its assets as collateral for these debts and to repay the loan. The overriding goal of private equity is to manage its portfolio of companies to maximize returns for itself and its investors. Little is known about how the portfolio companies fare. PE firms claim that their profits come from adding value via better business strategies and operational improvements, and then selling these companies for more than they paid to acquire them. This is one way that PE can create value. But this is not the only, and often not the main, source of PE gains. PE firms have strong incentives to increase their own returns by redistributing wealth from other stakeholders to themselves.
As CEPR economist Eileen Appelbaum, one of the study's coauthors observes, "Private equity does sometimes use its superior access to capital markets and managerial know-how to improve efficiency in the operating companies it acquires. But often the gains that PE firms reap for themselves and their investors result not from the creation of wealth but from transfers from workers, tax payers, portfolio companies and creditors. Economists criticize this as 'rent-seeking' rather than 'profit-seeking' behavior. Breach of trust with stakeholders in the companies they acquire undermines the ability of these companies to create value and, in the worst case, threatens the company's very survival."
In pursuit of maximum profit, a company's new PE owners may be willing to default on the implicit contracts with workers, vendors, suppliers, creditors and others that ensured that the acquired company's stakeholders worked together productively and that were a major source of the economic value created by the company. This breach of trust with other stakeholders was identified as a potential source of shareholder returns in the leveraged buyout wave of the 1980s by Andrei Shleifer and Larry Summers. The report "Implications of Financial Capitalism for Employment Relations Research," examines four contemporary cases in which the private equity owners sought to quickly increase profits by reneging on implicit contracts. The cases demonstrate how PE firms breach implicit contracts in the context of other strategies PE uses to maximize investor returns. The report examines how this process plays out for stakeholders in very varied settings. The U.S. department store chain Mervyn's saw vendors, workers, creditors and the firm itself suffer losses after its buyout. When EMI Music Corporation was bought out, artists, managers, creditors and the firm were economically undermined. The New York rent-controlled complexes Stuyvesant Town and Peter Cooper Village saw renters and creditors lose millions. Finally, in the case of British confectioner Cadbury's, traditional industrial communities face massive layoffs despite assurances to the contrary. These very different cases show the similarities across industries in the mechanisms PE uses to make money.
The analysis challenges the agency theory view that the high levels of debt levered on portfolio companies leads managers of these companies to make better decisions, and that leveraged buyouts increase the profits of acquired companies through a better alignment of the interests of shareholders and managers. The cases presented in "Implications of Financial Capitalism for Employment Relations Research" illustrate how the use of portfolio companies' assets as security for these loans exposes these assets and, in turn, employees and former employees to risk in leveraged buyouts. The necessity to service debt or face bankruptcy allows the new owners to break implicit contracts to meet debt obligations, undermining the relationships among managers, workers, suppliers, and local communities. The earnings of PE owners may come at the expense of other stakeholders rather than from an increase in efficiency, and the future of the portfolio company may be put at risk.
An important aspect of the financialization of the U.S. economy has been the rise over the past three decades of new financial intermediaries - private equity firms, hedge fund firms and sovereign wealth funds - that raise private pools of capital and provide an alternative investment mechanism to the traditional banking system. The growth of these funds and the implications of their business models for firms and employees are examined in another report, "Financial Intermediaries in the United States." Attitudes of these investors towards unions vary from hostile to pragmatic to indifferent. As long as unions don't get in the way of making anticipated returns, these financial intermediaries can live with them. Whether attitudes are hostile or not, however, the lion's share of the wealth created by the productive enterprises in which these funds invest goes to investors while workers are left with less secure employment and lower pay and benefits.
The Center for Economic and Policy Research (CEPR) was established in 1999 to promote democratic debate on the most important economic and social issues that affect people's lives. In order for citizens to effectively exercise their voices in a democracy, they should be informed about the problems and choices that they face. CEPR is committed to presenting issues in an accurate and understandable manner, so that the public is better prepared to choose among the various policy options.(202) 293-5380
While the front-runner for the 2024 GOP nomination faces various legal issues, it is the first time a former U.S. president has faced federal charges.
This is a developing story… Please check back for possible updates...
Former President Donald Trump said Thursday night that he has been indicted in the special counsel investigation into his handling of classified documents, a development that sources familiar with the matter also confirmed to multiple media outlets.
While the Manhattan district attorney in April charged Trump with 34 felony counts involving alleged multiple hush money payments during the 2016 election cycle, the latest indictment marks the first time an ex-president has faced federal charges. Both CNN and The New York Times reported that he faces seven new criminal counts.
According toABC News, the charges "include willful retention of national defense information, conspiracy to obstruct justice, withholding a document or record, corruptly concealing a document or record, concealing a document in a federal investigation, scheme to conceal, and false statements and representations."
"Today is a historic day for accountability and upholding the principles upon which our democracy was founded. No one is above the law—not even an ex-president," said Lisa Gilbert, executive vice president for Public Citizen, in response to the news. "This fact should unite us, not divide us."
"The Justice Department has found what numerous legal scholars have found: sufficient evidence that Trump committed a federal crime in the handling of classified documents since he left office," added Gilbert. "Even Trump's own attorney general, Bill Barr, told CBS News that 'This would have gone nowhere had the president just returned the documents, but he jerked them around for a year and a half… There is no excuse for what he did here.'"
"What's left is for the courts to decide," she said, "as they would in any criminal case."
Trump, the front-runner for the 2024 Republican presidential nomination, announced the indictment in a series of posts on his Truth Social platform. After taking aim at President Joe Biden, who beat him in 2020 and is seeking reelection, Trump said that he has been summoned to appear at the federal courthouse in Miami on Tuesday afternoon.
The ex-president proclaimed his innocence and declared that "this is indeed a DARK DAY for the United States of America." He posted a four-minute video about what he called "A CONTINUATION OF THE GREATEST WITCH HUNT OF ALL TIME" and is already fundraising off of the development, urging supporters to "prove that YOU will NEVER surrender our country to the radical Left."
After Trump announced his 2024 campaign in November, U.S. Attorney General Merrick Garland appointed Jack Smith, a longtime federal prosecutor, as special counsel to oversee probes into the twice-impeached former president's role in the January 6, 2021 attack on the U.S. Capitol and his handling of classified documents.
Smith's appointment came after the Federal Bureau of Investigation executed a search warrant at Mar-a-Lago, Trump's Florida residence, last August. Later that month, the U.S. Department of Justice released a redacted affidavit which explained what prompted the raid, during which agents retrieved several boxes of materials.
Ahead of Trump's announcement Thursday, David Rothkopf argued in a piece for the Daily Beast that "my brothers and sisters in the media and the D.C. commentariat need to stop referring to the former president's theft of classified documents vital to our national security as merely 'the documents case.'"
Based on evidence that has already been made public we know that Trump did not mistakenly shift a classified document or two from the White House to Mar-a-Lago. He was briefed repeatedly on the proper handling of classified materials. He has even acknowledged, on tape, that he understood how such sensitive, easily weaponizable documents should be treated.
But he ignored the law. He ignored the advice he was repeatedly given. And, based on reporting to date, he stole scores of items that were not his, to which he had no right, which could put the lives of Americans and our national interests and those of our allies at risk.
Linking to the article, Noah Bookbinder, head of the watchdog group Citizens for Responsibility and Ethics in Washington, tweeted: "This is important. Donald Trump is likely to be charged soon not for mishandling documents, but for endangering America's national security. How we talk about this matters, and that is a more accurate and appropriate description."
"Carbon capture and storage is a scam, and as these documents show, the call is coming from inside the house," said one campaigner.
As wildfires continued to cause air pollution problems across eastern North America on Thursday, The Narwhalrevealed it obtained documents showing that fossil fuel giant Suncor "provided input on the first draft" of the Canadian government's forthcoming Carbon Management Strategy and a company executive sat on an "obscure" advisory panel.
Highlighting the "important reporting" from The Narwhal's Carl Meyer, Torrance Coste—national campaign director at the Wilderness Committee, a Canadian nonprofit—tweeted that "carbon capture and storage is a scam, and as these documents show, the call is coming from inside the house."
Meyer, an investigative reporter at the nonprofit Canadian media outlet, shared details from a February 2022 briefing note prepared for Natural Resources Canada Deputy Minister John Hannaford—whom Prime Minister Justin Trudeau has just named as clerk of the Privy Council and secretary to the Cabinet, a promotion set to take effect later this month.
The briefing note was developed for a meeting with Jacquie Moore—then Suncor's vice president of external relations and now its top lawyer—and lobbyist Daniel Goodwin that "served as Hannaford's introduction to some Suncor 'key initiatives,' including the company's membership in the 'Oilsands Pathways to Net Zero alliance,' the former name of the Pathways Alliance, which was then a fledgling organization in the oilpatch," Meyer reported.
"The alliance wants to soak up at least $10 billion in public funding to build a mammoth, unprecedented system that would capture carbon from oilsands operations in Alberta and pipe it to an underground reservoir in the province's east," the journalist noted.
\u201cSuncor recently announced it will be cutting 1500+ jobs to ensure profitability. There's no incentive for them to create a climate strategy that limits their own production. All this will likely mean is that our climate strategy will be weaker for their involvement.\u201d— Phillip Meintzer (he/him) (@Phillip Meintzer (he/him)) 1686247028
While serving as Suncor's vice president of regional development, Chris Grant was chosen to be on a "thought leaders' senior reference group" for the government plan—previously known as the Carbon Capture, Utilization, and Storage (CCUS) Strategy—according to the briefing note. Grant has since retired from the Calgary-based energy company.
Although Grant, Suncor, and the Pathways Alliance did not respond to requests for comment, Natural Resources Canada spokesperson Michael MacDonald told The Narwhal that "Suncor's input had no impact whatsoever on the timelines for the development of the strategy," the company was "one of nearly 1,500 organizations and individuals" who weighed in, and "input was solicited from all interested Canadians" online from July 2021 to November 2022.
MacDonald also said that members of the 13-person advisory board, including Grant, "were asked to bring their expertise and experiences to the table as individuals, not as representatives of their respective organizations."
The board included a University of Alberta professor, a clean energy consultant, a Shell Canada manager, the NRG COSIA Carbon XPrize executive director, CEOs of CarbonCure and Svante, president of Wolf Carbon, and vice presidents at BMO's Impact Investment Fund, Carbon Engineering, Cement Association of Canada, International CCS Knowledge Center, and Scotiabank.
"As the entire country burns, one has to wonder: should fossil fuel companies be weighing in on our national climate change policy?"
Meyer reported that the panel—convened by Drew Leyburne, Natural Resources Canada's assistant deputy minister for energy efficiency and technology—met three times between April and July 2021, then corresponded over email the following year. One member said they served as "a sounding board," providing "casual, nonbinding, nonconsensus advice."
The government spokesperson did not say when the plan will be released but said that "it was determined that a more holistic view of carbon management solutions was necessary in this space," given that CCUS "technology is not, on its own, a silver bullet to combat climate change," but it is "one component of an overarching strategy" that will also include nature-based solutions such as tree-planting and wetland restoration along with other technologies like direct air capture.
Some global campaigners and experts have long argued that CCUS is "a false solution" that has become "a dangerous distraction driven by the same big polluters who created the climate emergency," as Common Dreams has reported. Critics have also warned that industries promote "nature-based solutions" so they can "keep burning fossil fuels, mine more of the planet, and increase industrial meat and dairy production."
\u201cas the entire country burns, one has to wonder: should fossil fuel companies be weighing in on our national climate change policy? \n\nhttps://t.co/JCdTLKXxwb\u201d— Michelle Cyca (@Michelle Cyca) 1686235428
The reporting on the Canadian government's evolving carbon plan came as smoke from Canadian wildfires—intensified by global heating largely driven by fossil fuels—disrupted travel and outdoor activities across the U.S. East Coast as officials warned millions of people to stay indoors due to poor air quality.
Fatima Syed, Meyer's colleague at The Narwhal, tweeted that "this story is bonkers when you consider wildfires."
Emma McIntosh, another reporter at the outlet, similarly said that his "scoop feels like a bad joke when you read it under a layer of wildfire smoke: Suncor, a massive oil company, helped the federal government write its climate change strategy. Which is now a year late."
The president "can stop MVP just like he stopped Keystone XL" and "can reclaim his climate legacy by stopping all new fossil fuel projects."
Progressives descended upon the White House on Thursday to demand that U.S. President Joe Biden use his executive authority to cancel the Mountain Valley Pipeline and declare a climate emergency to expedite the end of the fossil fuel era.
Approval of the Mountain Valley Pipeline (MVP) was fast-tracked last week via the debt ceiling agreement that Biden, eschewing his options for unilateral action, forged with House Republicans who took the global economy hostage. The fracked gas development in Appalachia—pushed hard by the GOP and Sen. Joe Manchin (D-W.Va.), a coal profiteer and Congress' top recipient of Big Oil money—is one of several fossil fuel projects that Biden has the power to stop.
While Biden was inside the White House talking with right-wing United Kingdom Prime Minister Rishi Sunak, hundreds of people gathered outside to remind the president that "he can stop MVP just like he stopped Keystone XL." The rally was organized by People vs. Fossil Fuels, a coalition of more than 1,200 organizations. It marks the start of multiple days of action nationwide.
\u201cBREAKING: Frontline communities (@OurWVRivers, @POWHR_Coalition, and more) and allies are rallying for Biden to declare a climate emergency and stop dirty oil and gas projects like the Mountain Valley Pipeline.\u201d— Elise Joshi (@Elise Joshi) 1686250842
Many people wore masks due to the hazardous air quality in Washington, D.C. The East Coast's smoke-filled skies are a direct result of climate change-intensified wildfires now spiraling out of control in Canada—a fact that observers were keen to point to as evidence for why Biden should revoke the permits needed to complete MVP and other planet-heating fossil fuel projects.
\u201cLawmakers in the Senate now can\u2019t see the Washington Monument because of wildfire smoke. Those same lawmakers just voted to expedite a fossil fuel pipeline.\u201d— David Sirota (@David Sirota) 1686228891
\u201cCan\u2019t stop thinking about how Congress just had to prevent a fake and manufactured \u201cdebt ceiling crisis\u201d by fast-tracking fossil fuel projects like the Mountain Valley Pipeline which will only make the very real climate crisis even worse. This is the price of corruption. Look up.\u201d— Warren Gunnels (@Warren Gunnels) 1686191276
When asked by a reporter Wednesday if the coalition planned to cancel Thursday's protest as a public health precaution, Fossil Free Media director Jamie Henn said, "No, this is exactly why we have to take these sorts of actions." On Thursday, he added that "we're not going to sit idle as the world burns."
A separate rally scheduled for Thursday in New York City had to be canceled, however, because the record-setting air pollution blanketing the country's most populous metropolitan area in an apocalyptic orange haze poses too great a risk.
"We're fighting for a future," West Virginia resident Maury Johnson said during the demonstration in the nation's capital. "Not one that's filled with smoke."
Climate justice advocates were joined outside the White House by Rep. Rashida Tlaib (D-Mich.). Noting that MVP has nothing to do with raising the nation's debt limit—an arbitrary and arguably unconstitutional cap on federal borrowing the GOP has weaponized to impose its agenda on multiple occasions—the progressive lawmaker denounced the inclusion of the project's approval in the debt ceiling deal.
\u201c\ud83d\udd25\ud83d\udd25\ud83d\udd25\u201cWe have the right to breathe clean air. Do you know what 1 asthma attack can do to a whole family? Mountain Valley Pipeline should never have been part of the debt ceiling deal. I call bullshit!\u201d @RepRashida \ud83d\udd25\ud83d\udd25\ud83d\udd25 @POTUS #StopMVP #EndtheEra #ClimateEmergency @FightFossils\u201d— Ben Goloff (@Ben Goloff) 1686249477
As The Guardianreported Thursday, "The Mountain Valley Pipeline project has been enmeshed in legal challenges for years due to opposition from grassroots groups and landowners but the deal passed by Congress to raise the U.S. debt ceiling, signed by Biden over the weekend, singles out the pipeline as being 'required in the national interest' and therefore should be allowed to proceed, shielded from any future judicial review."
The approval of MVP comes just months after Biden greenlighted ConocoPhillips' massive Willow oil drilling project in the Alaskan Arctic. Additionally, despite possessing the executive authority to cancel nearly two dozen proposed fracked gas export projects that threaten to generate heat-trapping emissions equivalent to roughly 400 new coal-fired power plants, the Biden administration has moved to increase fracked gas export capacity, especially in the U.S. Gulf Coast, since Russia invaded Ukraine last February. The president has also rubber-stamped more permits for fossil fuel extraction on public lands and waters than his White House predecessor.
The Biden administration has done all of those things despite mounting evidence of the climate emergency's worsening toll and ample warnings from scientists about the incompatibility of expanding fossil fuels and preserving a livable planet. United Nations Secretary-General António Guterres recently told Biden and other wealthy country officials in no uncertain terms that their current climate policies amount to a civilizational "death sentence."
People vs. Fossil Fuels has argued that the president "can reclaim his climate legacy by stopping all new fossil fuel projects."
Thursday's rally outside the White House marks the beginning of what the coalition called "a stampede of distributed actions across the country" from June 8-11.
Participants have four main demands for Biden:
As another alliance of progressive advocacy groups has explained: "The president has a long list of actions that he could take or instruct his agencies to take, ranging from stopping fossil fuel infrastructure approvals to instructing the [U.S. Environmental Protection Agency] to issue a stringent pollution prevention rule for the oil and gas sector. Declaring a climate emergency under the National Emergencies Act would unlock additional statutory powers, including the ability to halt crude oil exports and directing funds to build resilient, distributed renewable energy."
In a statement this week, Zero Hour organizing director Magnolia Mead said that "young people are angry and fed up with watching President Biden cave to the fossil fuel industry time and time again."
"We need an immediate transition to renewable energy to slow the climate crisis, and that's impossible while our president is still approving massive fossil fuel expansion," said Mead. "If President Biden cares at all for future generations and frontline communities, he must choose to end the era of fossil fuels."