Private equity at work : when Wall Street manages Main Street /

This book carefully examines partnerships that buy out corporations using borrowed funds. Private equity can have beneficial economic effects when the partnership expands a firm by providing financing and expert help. But the book also shows how private equity has imposed significant damage to the economy by exploiting implicit governmental subsidies. In many cases, the partnership buys a company using the company's own assets as collateral for loans, pays the general partners high fees, strips away and sells off some of the firm's productive assets, and lays off workers. When successful, the general partners enjoy great gains, and when the firm fails, the bankruptcy is at the expense of pension funds, lenders, and taxpayers. Authors Appelbaum (Center for Economic and Policy Research) and Batt (Cornell Univ.) describe the irony of union pension funds as limited partners in risky operations that end up destroying jobs and reducing wages. The authors recommend reforms that will reduce the legal privileges that create perverse incentives. The book--which includes original case studies and interviews, legal documents, bankruptcy proceedings, and existing academic scholarship--is essential for anyone seeking to understand both the constructive and the destabilizing roles that private equity has played in the American economy. --Fred E. Foldvary, San Jose State University

Deregulation of the financial markets and investor thirst for higher profits have given an enormous boost to private equity financiers. They buy companies, issue huge debt, and reconfigure or dismantle them for profitable returns, sometimes at the expense of workers, suppliers, customers, and creditors. Yet because they are not publicly owned, private equity firms have little transparency or accountability. Economic scholars Appelbaum and Batt shine some light on the shadowy world of private equity and its high risk-reward profile. They clearly explain how private equity investments differ from publicly traded companies and explore their impact on the broader U.S. economy, particularly because so many pension funds are investors in private equity deals. They explore the impact of private equity deals on the labor market as more and more acquired companies are encouraged to reduce their workforces to give greater return to investors. Finally, Appelbaum and Batt recommend changes in public policy to reduce incentives that overburden companies with debt and to promote greater transparency in such deals. A dense but accessible look at a little-understood sector of the financial markets.--Bush, Vanessa Copyright 2010 Booklist