Blog written by Kristina Burn
No, this is not a ride at six flags. It is the GM building in
Recently, someone took notice of the earnings of one man Henry Kravis, who is famous in the financial world for co-founding and heading the leading private equity firm, Kohlberg Kravis Roberts & Co. With an estimated current net worth of around $5.5 billion, he is ranked by Forbes as the 69th richest person in the world. Headlines such as KKR’s multi-billion dollar payouts, Blackstone’s Chief Executive Steve Schwartzman’s $400/leg crab legs leave the common man wondering how private equity financiers can make billions of dollars and live extravagant lifestyles, while the average, blue-collared working man suffers from the backlash of their transactions.
Director Robert Greenwald was the one who noticed this private equity “injustice” and decided that it’s time the public knew about it. He has started production of a four part series named “The War on Greed” starring the massive homes of Henry Kravis. The film prompted a number of protestors to set up shop outside of Kravis’s home and show that they have had enough of private equity. Protestors claim that private equity makes too much money, sucks value out of the economy and the pocketbooks of the working class. What these protestors fail to do is take a deeper, economic dive into the value that private equity actually adds to the economy.
In an economic system such as our own, private equity shops actually work to make the economy more efficient. They buy a company for many reasons, a few of which are bad management, poor balance sheet maintenance, inefficient use of employees, among many others. So in effect, private equity shops in fact make the businesses they buy more efficient and therefore healthier in terms of their effect on the greater economy. While it’s true that some jobs may be lost, they are only lost because they weren’t efficient to begin with. Those people will inevitably find other jobs, ones that add a greater amount of value to the economy. Thus the economy and the country may actually be better off. Sure some people get rich, but what’s necessarily wrong with that? That money is eventually put back into the economy, be it in 400 crab legs, a Louis Vuitton bag, or charitable gifts to hospitals, libraries, and other organizations. So is private equity really that evil?