by Eric Jackson
For four years, we’ve been writing about the perils of private equity, how the business has become enormously destructive to companies, have cost jobs and hurt the economy. Now things are getting worse.
Last year we would track how many weeks it took one of the investment banks that have been involved in countless buyouts to lose their investment banking license. Up until this year (even the most publicly-traded private equity deal in 2017 never had investment bank backing), that wasn’t an issue. In 2017, five private equity firms have lost their investment banking licenses, with the last being Noonday Capital Partners, which was just stripped out of the banking space.
High-frequency trading and the bailouts of private equity firms are even influencing things today. The Justice Department is suing Blackstone and the Justice Department are also suing Goldman Sachs, alleging the firms rigged stock markets by poaching valuable clients. The government is accusing Goldman, a big player in private equity, of engaging in a series of “voluntary actions” that hindered investigations by the Justice Department into the trading of the futures markets in the United States. Goldman, based in New York, was founded by Wall Street icon J.P. Morgan.
And if that’s not enough, the Federal Reserve board’s proposed policy of limiting debit card swipe fees is really pushing the private equity and hedge fund industry (represented by the Association for Financial Professionals), against Americans.
Contrast that with what we have in Europe. France recently allowed an activist hedge fund to nominate four of its board members. It also approved a law that allows shareholders to vote on all board seats instead of just allowing them to elect only 10 percent of the boards. That’s the equivalent of Washington allowing stock votes for U.S. senators or congressmen — against the wishes of most Americans.
Frankly, I know it’s early, but I think the Federal Reserve board’s agenda is a bridge too far. In my mind, it opens the door to the creation of an aristocracy in America — one in which the few have more power and, in many ways, more might. This is what the rats learned from the Greeks and Romans. We just closed the barn door after the freight train hit it.
Eric Jackson is founding partner of Ironfire Capital.