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Neoliberal Business


Stephen Schwarzman, the chief executive of Blackstone, at the White House on Friday with President Trump.CreditAl Drago/The New York Times 

For devotees of President Trump, the first gathering on Friday of his business council, which featured 17 executives, may have looked like a colorized version of “Mr. Smith Goes to Washington,” but for those focusing exclusively on the rapport between the two leaders, it resembled “Goodfellas.”
Sitting alongside Mr. Trump was the head of the council, Stephen Schwarzman, the chief executive of the private equity firm Blackstone Group, wearing Washington’s newly obligatory red tie. Since its founding in 1985, Blackstone has accumulated more than $361 billion in assets and made Mr. Schwartzman a fortune estimated at $11 billion — a figure that no doubt dwarfs whatever it is that Mr. Trump is worth. In 2015, Mr. Schwarzman was paid $799 million.
Mr. Schwarzman has flourished during the four decades that the people Mr. Trump purports to represent have languished. In the pursuit once known as leveraged buyouts — before some marketing genius fastened on “private equity” as a way to disguise the fact that the business still rests on a mountain of debt — Mr. Schwarzman and his brethren have become symbols for the economic inequality that Mr. Trump deplored during his campaign. They are able to borrow billions and deduct interest payments from their corporate tax bills while $75,000-a-year wage earners in Ohio, Michigan or Pennsylvania are unable to secure a mortgage and get no tax break on their monthly rent.
Just like Mr. Trump’s real-estate business, groups like Blackstone rely on enormous debt to prop up their business. The playbook for any of their acquisitions is to gain 100 percent control by financing the purchase of a company with a small down payment and a heap of debt secured not (heaven forbid) by their own savings or houses, but by the business they are looking to acquire. They then cut costs — which almost always means making sizable layoffs at the company they’re taking over — and figure out a way to reward themselves financially.
It’s the equivalent of making a small down payment on your neighbors’ house; paying for the balance by taking out a mortgage secured by their savings, jewelry, silverware and car; selling off the contents of their property; and then siphoning off some of the loan for yourself.

Perhaps, after Friday’s meeting, traveling together aboard Air Force One to Mr. Trump’s club in Florida, Mr. Schwarzman explained to Mr. Trump that he could make America great again by employing the same tactics Blackstone used after its $4.1 billion acquisition in 2006 of Travelport, a travel-reservations business that within a year of the purchase had laid off 841 workers, or 10 percent of its work force.
The story of this fiasco is enough to make anyone weep: Laid-off workers were forced to sell their homes; others lost their health insurance and postponed plans to start a family; some were stuck on unemployment lines. Even more brazenly, Blackstone, seven months after its investment, layered more debt on Travelport, which it used to pay itself back for the original purchase. Travelport subsequently underwent two restructurings of its debt.
Firms like Blackstone will, with a straight face, argue that they are making American companies more efficient and that we are all better off as a result. Were that it were so. They do not advertise the fact that their principals benefit from an indefensible quirk in the United States tax code that allows them to pay lower taxes on their capital gains. (I also benefit from this quirk, albeit in a very different capacity, as an investor in Silicon Valley. I should stress that the opinions expressed in this piece don’t necessarily reflect those of Sequoia Capital.)
In 2010 Mr. Schwarzman denounced an attempt to remove this loophole as comparable to Hitler’s invasion of Poland, a remark for which he later apologized. You will also not find any mention on Blackstone’s website that for the past 14 years all of its buyout funds — which together generate hundreds of millions of dollars a year for Mr. Schwarzman and his partners — have ranked among the top 25 percent of such funds.
This then was the backdrop for the agenda for the inaugural meeting of Mr. Trump’s business council. Little wonder that the agenda appeared to center on deregulation, the loosening of restrictions of the financial industry and stepped-up protectionism. No surprise either that missing from the menu was the abolition of the carried-interest loophole (a loophole Mr. Trump vowed to close during his campaign) and the deductibility of interest payments. It is wishful thinking that this group will ever contemplate anything so daring as to make private equity principals personally liable for the loans they assign to companies — a move that, with the stroke of a pen, would curb many abuses and protect American workers and others whose standard of living has barely budged in a couple of decades.
The lower- and middle-income Americans who voted for Mr. Trump in droves would do well to listen hard to what Mr. Schwarzman is advising. They’ll hear the sound of dollars being sucked out of their pockets and slipped into the wallets of the 1 percent.


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