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Federal Reserve Must Stop Predatory, Wealth-Extraction Private Equity Firms from Getting Bailed out With Public Funds Meant for Main Street; Better Markets Joins Coalition to Urge Fed to Follow the Law

FOR IMMEDIATE RELEASE
Thursday, August 13, 2020
Contact: Pamela Russell at 202-618-6433 or prussell@bettermarkets.com
 
Washington, D.C. – Dennis Kelleher, President and CEO of Better Markets, issued the following statement  in connection with a letter sent with 16 other prominent organizations urging the Federal Reserve to not weaken rules preventing private equity firms from getting public funds through the Main Street Lending Programs:
 
“The Federal Reserve should not weaken the rules for its Main Street Lending Programs that prevent private equity (PE) firms or their affiliates from getting public funds meant to help the many legitimate businesses devastated by the pandemic, as we detailed in a letter to the Federal Reserve. Those public funds should not be used to bailout PE firms and their predatory business model that is based on extremely high leverage, which operate on the brink of bankruptcy in the ordinary course to maximize the owners’ short-term profits. 
 
“PE firms are generally based on a wealth-extraction business model, not a wealth-creation business model common among Main Street business, the very type of businesses the Fed’s Main Street Lending Programs were supposed to help. In contrast, PE firms suck the lifeblood out of their portfolio companies through a blizzard of sales, spinoffs, restructurings, recapitalizations, and dividend payments as well as an array of monitoring and other fees. Having enriched themselves by pushing their companies to the edge of bankruptcy, PE firms should not be bailed out of their business gambles that would not likely have survived even a mild cyclical downturn. The Fed must focus on using public funds to save the many legitimate Main Street businesses that were viable and thriving but for the pandemic.
 
“If the Fed nonetheless uses public funds to bailout PE firms and their billionaire owners, then it must require that the PE firms, funds and sponsors be jointly and severally liable with their respective portfolio companies for repaying any and all public funds. And, as detailed in the letter, the Fed should also take other actions to limit rewarding the predatory PE business model and reduce the moral hazards that such actions by the Fed will inevitably create.”
 
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Better Markets is a non-profit, non-partisan, and independent organization founded in the wake of the 2008 financial crisis to promote the public interest in the financial markets, support the financial reform of Wall Street and make our financial system work for all Americans again. Better Markets works with allies – including many in finance – to promote pro-market, pro-business and pro-growth policies that help build a stronger, safer financial system that protects and promotes Americans’ jobs, savings, retirements and more. To learn more, visit www.bettermarkets.com.

 

 
 

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