Cite at least two relevant details from the excerpt below and at least one claim made by elite theory about the nature of society and politics, and discuss whether Robert Reich’s description of how some private equity firms generate profits is consistent with elite theory’s description of society and politics.
Private equity firms are privately owned financial organizations in which wealthy people invest large sums of money. Here’s how they make a profit: they buy struggling companies with borrowed money, often using the companies’ assets as collateral for the loans. They then make the purchased company profitable by cutting wages, outsourcing jobs, and stripping assets. Then they resell what’s left of the company, often laden with debt, and pocket the returns. Private equity managers have their tentacles in so many industries that they touch almost every part of your life without you even knowing it. For example, private equity has a hand in today’s skyrocketing housing costs.
Private equity-backed real estate corporations are buying up both single-family homes and apartment buildings at record rates. In 2021, private equity investors bought nearly one in seven homes in the country’s top metro areas, and private equity-backed corporations now own at least 260,000 homes across the country. It’s a lucrative business. Blackstone, one of the largest private equity firms in the world, made a cool $7 billion when it sold off its shares of the rental company it created, Invitation Homes – more than double what it initially invested. So what happens when your landlord becomes a private equity firm? Higher rent.
Faster evictions. Punitive fees. Shoddier repairs and services, if anyone even shows up at all. Even if your building isn’t owned by a private equity firm, their impact on the market is probably driving your rent up. When corporate landlords gobble up already-scarce homes, they shut out millions of people from being able to buy their own homes, preventing them from building financial stability and generational wealth.
In essence, it’s a direct transfer of wealth from the middle and working class into the pockets of private equity managers. If private equity is doing such damage to working and middle-class prospects for home ownership, why isn’t the government acting to even the playing field?
Private equity and hedge funds accounted for over $625 million in political spending during the runup to the 2020 election. About $547 million of the total went to campaign contributions. The rest went to lobbying.
