I’m a Private Equity Investor. Here’s Why We Need to Rein in Private…

If you look at our economy from 30,000 feet, it’s easy to believe President Donald Trump’s boasts that we’re living in boom times.

But if you get closer to the ground, where too many good jobs are being replaced by precarious ones, where large-scale employers waver at the brink of going under, and where the faux boom’s profits are overwhelmingly going to the wealthy, you can see a practice escalating across the economy, a practice that has already had disastrous effects on workers generally and a practice with the potential to take down hundreds of thousands more jobs and put investors and consumers alike in jeopardy.

That practice is the unchecked and reckless overuse of heavy burdens of debt, and then of bankruptcy laws, by some private equity (PE) firms and hedge funds to the overwhelming detriment of employees and retirees.

That’s why we all need to pay attention to a new bill introduced this week by Sen. Elizabeth Warren and other members of Congress that would curtail the threat financial predators pose and remove the incentives for them to further harm our economy. It would also eliminate a tax abuse I have written against several times and one that Trump even campaigned he would eliminate, namely, the so-called carried interest loophole.

Though the existence of private equity firms and hedge funds is taken for granted today, I’m long enough in my career to remember when the PE boom really took off in the mid-1980s.

Before Gordon Gekko and his maxim that “greed is good,” things worked differently. Private equity investors had a specialization then that they focused on, and when they invested, they invested for the long term.

It was a different time.

It was before hundreds of thousands of workers across the retail sector lost their jobs as retailer after storied retailer closed their doors, crushed by the debt that PE firms and hedge funds imposed on them.

It was before some PE firms and hedge funds began taking over nursing homes and major hospital systems and cutting costs to the bone to turn a quick buck, sparing nary a thought for the patients and senior citizens who would lose quality care.

It was before some PE firms took over and privatized the water systems of a growing list of cities, spiking costs for a resource that’s critical to life.

Today, too many PE fund managers are generalists, with little or no experience in the industry they’re investing in. And we’re seeing them use a much-discredited playbook: cut costs, take out cash for their own short-term benefit, add little genuine competitive value, and then slash jobs and worker benefits in a desperate bid for greater operating cash flow.

This is why this week’s legislation matters so much. The aptly-named Stop Wall Street Looting Act would finally hold predatory private equity firms and hedge funds liable for the damage they cause, close tax loopholes that encourage excessive debt and let executives avoid paying their fair share of taxes, and limit the debt that predatory firms can access to seize control of companies.

And, tremendously importantly, the bill would protect workers when employers go bankrupt, giving them added recourse to pursue the severance that is currently denied them.

These solutions don’t come out of nowhere. They are what workers, consumers, and pension fund investors have been calling for across the country. Last year, for example, Toys R Us workers, through a brave and innovative campaign, won $20 million in severance pay from the company’s PE owners.

But they shouldn’t have had to fight for it. Adequate severance—and other protections for workers—should be the bare minimum provided in a bankruptcy.

Private equity isn’t going away, nor should it, as in the right hands and with the right target company, it can bring great value to investors and employees alike. Now, some will say that the proposed bill will hurt PE and in turn, hurt economic growth. It won’t, and in fact it will only improve the sector as appropriate balance is restored among PE managers and investors and employees.

I recognize also that the bill as introduced may not be perfect in every respect. Bills rarely, if ever, are made into law without a few changes here and there, and this bill is no different. But it’s an excellent start to bring about very needed changes to a set of abuses that has demonstrably harmed entire classes and groups of employees, and which if not fixed will continue to ravage ever greater numbers of employees.

But one thing’s for sure: If we don’t act, nothing will change. There are simply too many incentives in place today for reckless and often immoral behavior by some PE investors. So, let’s enact the Stop Wall Street Looting Act before even more damage is done.

Leo Hindery Jr. Is co-chair of the Task Force on Jobs Creation and a member of the Council on Foreign Relations. Formerly the CEO of AT&T Broadband and its predecessor, Tele-Communications, Inc. (TCI), he is currently an investor in media properties.