Private Equity 1

see also Hedge Fund

SEE PVT EQUITY HEDGE 2

see sinema carried interest tax dodge

see extraction by algorithm AI

SEE HOUSING RESIDENTIAL

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an 3 26

President Donald Trump can usually rely on The Wall Street Journal Editorial Board to support his economic programs, but on Tuesday the venerable newspaper slammed the Republican Party leader for being too “progressive.”

“Republicans want to show voters they’re doing something to ease housing costs,” the Editorial Board observed. “The result, alas, is a pork-filled bill hitting the Senate floor this week that is a big win for Massachusetts Sen. Elizabeth Warren and the political left.”

Describing the Senate’s 21st Century ROAD to Housing Act as “a melange of some 40 bills,” the editorial board took issue with a provision that bans large investors from purchasing single-family homes to rent.

“President Trump thinks the investor ban polls well and likes to say ‘people live in homes, not corporations,’” the Editorial Board observed. “But who does he think lives in rental homes—hedge fund managers? Most tenants are lower-income. The Senate bill could force many of them out of their homes.”

Arguing that Trump’s bill would bar most investors with 350 or more homes from purchasing new ones, while others would need to sell any properties they acquired under these exemptions within seven years, the Board argued that it is bad both for the investors and for renters.

“Smaller firms will likely exit the market because they couldn’t expand,” the Editorial Board argued. “If investors are forced to unload properties, where will their tenants go? Amherst estimates that roughly 85% of its tenants wouldn’t qualify for a mortgage because of credit constraints or other underwriting restrictions.”

In the name of achieving a political victory, the editorial board argued that “the White House is pressuring Senate Republicans to pass the bill and wants the House to accept it. But why do Republicans want to provide a down payment for Ms. Warren and fellow progressives to expand Washington control over housing in their states?”

This is not the first time the Journal has called out Trump’s economic programs. Earlier in March it pointed out that the February jobs report was “lousy,” adding that “the U.S. shed 92,000 jobs and revised down gains for January and December by a combined 69,000. The question is what to make of the declines.”

Other conservatives have also criticized Trump’s economic policies. Writing for the conservative-leaning publication The Bulwark, commentator Mona Charen denounced Trump’s tariffs and predicted they would cost the Republicans in the upcoming midterm elections.

“Voters are rarely able to connect policy to outcomes, but they have done so in the case of tariffs,” Charen said. “Back in 2024, Americans were about equally divided on the question of trade, with some favoring higher tariffs and roughly similar numbers opting for lower tariffs. Experience has changed their views.”

Indeed, Trump’s tariffs are so controversial that six Republican lawmakers joined their Democratic counterparts to vote for a bill to repeal Trump’s tariffs against Canada. Those lawmakers include Reps. Don Bacon of Nebraska, Brian Fitzpatrick of Pennsylvania, Dan Newhouse of Washington, Kevin Kiley of California, Thomas Massie of Kentucky and Jeff Hurd of Colorado.

an 8 22

sinema gets carried interest loophole reform jettisoned;

https://www.alternet.org/2022/08/one-senator-wealthy-essentially-unaffected/

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pro pub algo Close oct 2022

on a summer day last year, a group of real estate tech executives gathered at a conference hall in Nashville to boast about one of their company’s signature products: software that uses a mysterious algorithm to help landlords push the highest possible rents on tenants.

“Never before have we seen these numbers,” said Jay Parsons, a vice president of RealPage, as conventiongoers wandered by. Apartment rents had recently shot up by as much as 14.5%, he said in a video touting the company’s services. Turning to his colleague, Parsons asked: What role had the software played?

“I think it’s driving it, quite honestly,” answered Andrew Bowen, another RealPage executive. “As a property manager, very few of us would be willing to actually raise rents double digits within a single month by doing it manually.”

The celebratory remarks were more than swagger. For years, RealPage has sold software that uses data analytics to suggest daily prices for open units. Property managers across the United States have gushed about how the company’s algorithm boosts profits.

“The beauty of YieldStar is that it pushes you to go places that you wouldn’t have gone if you weren’t using it,” said Kortney Balas, director of revenue management at JVM Realty, referring to RealPage’s software in a testimonial video on the company’s website.

The nation’s largest property management firm, Greystar, found that even in one downturn, its buildings using YieldStar “outperformed their markets by 4.8%,” a significant premium above competitors, RealPage said in materials on its website. Greystar uses RealPage’s software to price tens of thousands of apartments.

RealPage became the nation’s dominant provider of such rent-setting software after federal regulators approved a controversial merger in 2017, a ProPublica investigation found, greatly expanding the company’s influence over apartment prices. The move helped the Texas-based company push the client base for its array of real estate tech services past 31,700 customers.

The impact is stark in some markets.

In one neighborhood in Seattle, ProPublica found, 70% of apartments were overseen by just 10 property managers, every single one of which used pricing software sold by RealPage.

To arrive at a recommended rent, the software deploys an algorithm — a set of mathematical rules — to analyze a trove of data RealPage gathers from clients, including private information on what nearby competitors charge.

For tenants, the system upends the practice of negotiating with apartment building staff. RealPage discourages bargaining with renters and has even recommended that landlords in some cases accept a lower occupancy rate in order to raise rents and make more money.

One of the algorithm’s developers told ProPublica that leasing agents had “too much empathy” compared to computer generated pricing.

Apartment managers can reject the software’s suggestions, but as many as 90% are adopted, according to former RealPage employees.

The software’s design and growing reach have raised questions among real estate and legal experts about whether RealPage has birthed a new kind of cartel that allows the nation’s largest landlords to indirectly coordinate pricing, potentially in violation of federal law.

Experts say RealPage and its clients invite scrutiny from antitrust enforcers for several reasons, including their use of private data on what competitors charge in rent. In particular, RealPage’s creation of work groups that meet privately and include landlords who are otherwise rivals could be a red flag of potential collusion, a former federal prosecutor said.

At a minimum, critics said, the software’s algorithm may be artificially inflating rents and stifling competition.

“Machines quickly learn the only way to win is to push prices above competitive levels,” said University of Tennessee law professor Maurice Stucke, a former prosecutor in the Justice Department’s antitrust division.

RealPage acknowledged that it feeds its clients’ internal rent data into its pricing software, giving landlords an aggregated, anonymous look at what their competitors nearby are charging.

A company representative said in an email that RealPage “uses aggregated market data from a variety of sources in a legally compliant manner.”

The company noted that landlords who use employees to manually set prices “typically” conduct phone surveys to check competitors’ rents, which the company says could result in anti-competitive behavior.

“RealPage’s revenue management solutions prioritize a property’s own internal supply/demand dynamics over external factors such as competitors’ rents,” a company statement said, “and therefore help eliminate the risk of collusion that could occur with manual pricing.”

The statement said RealPage’s software also helps prevent rents from reaching unaffordable levels because it detects drops in demand, like those that happen seasonally, and can respond to them by lowering rents.

RealPage did not make Parsons, Bowen or the company’s current CEO, Dana Jones, available for interviews. Balas and a Greystar representative declined to comment on the record about YieldStar. The National Multifamily Housing Council, an industry group, also declined to comment.

Proponents say the software is not distorting the market. RealPage’s CEO told investors five years ago that the company wouldn’t be big enough to harm competition even after the merger. The CEO of one of YieldStar’s earliest users, Ric Campo of Camden Property Trust, told ProPublica that the apartment market in his company’s home city alone is so big and diverse that “it would be hard to argue there was some kind of price fixing.”

What role RealPage’s software has played in soaring rents — which in the decade before the pandemic nearly doubled in some cities — is hard to discern. Inadequate new construction and the tight market for homebuyers have exacerbated an existing housing shortage.

But by RealPage’s own admission, its algorithm is helping drive rents higher.

“Find out how YieldStar can help you outperform the market 3% to 7%,” RealPage urges potential clients on its website.

Few tenants know that such software, owned by a privately held company, has had a hand in rent increases across the country.

In Boston, renter Kaylee Hutchinson said she was puzzled when her landlord — unbeknownst to her, a RealPage client — told her days into the first pandemic lockdowns that her rent was going up. Building staff insisted that the market rate for her apartment was 6.5% higher than she was paying, despite her protests that people were fleeing the city.

Kaylee Hutchinson’s landlord, who uses RealPage’s pricing software, told her rent was going up at the start of the pandemic even as many people were fleeing the city. Credit:Philip Keith, special to ProPublica

A few weeks later, she and her fiancé saw a newly vacant unit in their building advertised online for less. One of their landlord’s policies permitted moving to another unit owned by the company, so they did.

Hutchinson, who is an analyst for the police department, wondered if a computer algorithm was behind building staff’s inflexibility. “It was pretty obvious they should have been dropping prices,” she said. “They were digging their heels in.”

Hutchinson said she watched apartments in her building sit vacant at prices that didn’t make sense to her.

“A normal mom-and-pop landlord, they’re worried about having a good tenant and protecting their interest in the agreement,” Hutchinson said. “These companies, they’ll just replace you.”

The Origins of YieldStar

One of YieldStar’s main architects was a business executive who had personal experience with an antitrust prosecution.

A genial, self-described “numbers nerd,” Jeffrey Roper was Alaska Airlines’ director of revenue management when it and other major airlines began developing price-setting software in the 1980s.

Competing airlines began using common software to share planned routes and prices with each other before they became public. The technology helped head off price wars that would have lowered ticket prices, the Department of Justice said.

The department said the arrangement may have artificially inflated airfares, estimating the cost to consumers at more than a billion dollars between 1988 and 1992. The government eventually reached settlements or consent decrees for price fixing with eight airlines, including Alaska Airlines, all of which agreed to change how they used the technology.

At one point, federal agents removed a computer and documents from Roper’s office at the airline. He said he and other creators of the software weren’t aware of the antitrust implications. “We all got called up before the Department of Justice in the early 1980s because we were colluding,” he said. “We had no idea.”

When Roper returned to the United States in the early 2000s after a stint in central and eastern Europe, he said, he discovered the apartment rental industry was so far behind technologically that it resembled the emerging markets he’d just left.

Apartment managers were “basically pricing their product on a paper napkin,” said Roper, who eventually formed his own company.

Old computers and manual recordkeeping were mainstays of the industry. Leasing agents gauged how their buildings compared by calling up competitors. “This was just a ripe business,” with lots of money and lots of opportunities for technological improvement, Roper said.

RealPage hired Roper as its principal scientist in 2004 to improve software it had bought from Camden Property Trust, a large investor-backed owner and manager of apartment buildings.

Roper quickly realized he required data — a lot of data — to get the algorithm working properly. He began building a “master data warehouse” that pulled in client data from other RealPage applications, such as those for leasing managers.

A proof-of-concept version of the software had performed well in tests at townhouses Camden offered for rent in its home city of Houston.

At the time, the street behind Camden’s townhouses was shut down while a grocery store was being built. Leasing staff wanted to discount rent for the townhouses because of the nuisance, said Kip Zacharias, who worked with Camden as a consultant.

Instead, YieldStar suggested boosting rents. “We were like, ‘Guys, just try it,’” Zacharias said.

The units ended up renting for significantly more than staff had expected, he said. “That was kind of the eureka moment,” Zacharias said. “If you’d listened to your gut, you would have lowered your price.”

The practice of lowering rent to fill a vacancy was a reflex for many in the apartment industry. Letting units sit empty could be costly and nerve-wracking for leasing agents.

Such agents sometimes hesitated to push rents higher. Roper said they were often peers of the people they were renting to. “We said there’s way too much empathy going on here,” he said. “This is one of the reasons we wanted to get pricing off-site.”

Unimpeded by human worries, YieldStar’s price increases sometimes led to more tenants leaving.

Camden’s turnover rates increased about 15 percentage points in 2006 after it implemented YieldStar, Campo, the company’s CEO, told a trade publication a few years later. But that wasn’t a problem for the firm: Despite having to replace more renters, its revenue grew by 7.4%.

“The net effect of driving revenue and pushing people out was $10 million in income,” Campo said. “I think that shows keeping the heads in the beds above all else is not always the best strategy.”

(Reminded of that quote, Campo told ProPublica it “sounds awful” and doesn’t reflect how he or Camden views renters today. “We fundamentally believe our customers are the most important part of our business,” he said. “We’re not about pushing people out.”)

Hiking rents at the same time benefited all landlords, the industry learned. “A rising tide lifts all boats,” one real estate executive and revenue management proponent told the industry publication Yield Pro in 2007.

One of the greatest threats to a landlord’s profit, according to Roper and other executives, was other firms setting rents too low at nearby properties. “If you have idiots undervaluing, it costs the whole system,” Roper said.

Jeffrey Roper helped develop YieldStar, which uses an algorithm to suggest prices for apartments across the country. Credit:Shelby Tauber for ProPublica

Roper wasn’t the only technologist working on an apartment pricing algorithm. Donald Davidoff, the primary developer of rival software called Lease Rent Options, or LRO, said he designed his program differently, to head off any concerns about collusion.

Instead of relying on a digital warehouse that includes competitor data, Davidoff used a complex formula and public market data to steer LRO’s algorithm. The system relied on incremental price shifts to manage demand for apartments, said Davidoff, an MIT-educated former rocket engineer. “That’s not dissimilar to changing a trajectory of a rocket through inflection of a nozzle,” he said — making small changes that can dramatically alter something’s course over time.

Davidoff said he was careful to avoid features that might run counter not only to anti-discrimination laws, such as the Fair Housing Act, but also those that bar competitors from conspiring to set prices.

“I had many conversations with attorneys to understand where the boundaries are,” he said. “Anybody who’s building one of these systems or is involved in these should care a lot about fair housing and should care a lot about price collusion to avoid both.”

Roper told ProPublica that when he was developing the YieldStar software more than a decade ago, he was concerned about avoiding both issues. He also said he didn’t want to misuse private data in pricing.

“I was highly sensitized to: You just don’t do it,” Roper said.

Despite differences in the software’s design, RealPage acquired LRO in 2017 after months of scrutiny by the antitrust division of the justice department. Federal regulators review mergers above a certain size — right now, it is transactions valued at $101 million — and typically allow them to proceed after only a preliminary review. But some are flagged for a more extensive look. The government can challenge a merger in court if it believes it could substantially harm competition.

RealPage’s purchase of LRO received such a second look, but the DOJ allowed it to proceed in late 2017. The department did not respond to requests for comment.

The approval allowed RealPage to acquire its only significant competitor, Roper said, adding, “I was surprised the DOJ let that go through.”

RealPage was pricing 1.5 million units, and the acquisition of LRO would double that, Steve Winn, RealPage’s then-CEO, said at a mid-2017 investor conference. “I don’t think there’s any concentration, enough concentration, of buying or pricing power here” to warrant DOJ concerns, he said. A third company had a substantial footprint in the market, Winn said, but property managers’ own manual pricing processes or proprietary systems were RealPage’s largest competitor.

“We expect our combined platform to drive accelerated, sustained revenue growth,” Winn said in a media release announcing the deal.

RealPage’s influence was burgeoning. That year, the firm’s target market — multifamily buildings with five or more units — made up about 19 million of the nation’s 45 million rental units. A growing share of those buildings were owned by firms backed by Wall Street investors, who were among the most eager adopters of pricing software.

RealPage renamed its combined pricing software AI Revenue Management. By the end of 2020, the firm was reporting in a Securities and Exchange Commission filing that its clients used its services and products to manage 19.7 million rental units of all types, including single-family homes. The private equity firm Thoma Bravo bought the public company a few months later for $10.2 billion.

Winn, whose net worth Forbes estimates at $1.7 billion, stepped aside. He did not respond to requests for comment.

A spokesperson for Thoma Bravo declined to comment.

Who Uses the Software and How It Works

Somewhere around 2016, according to one trade group, the industry’s use of the pricing software began to achieve “critical mass.”

The more property managers who sign on to RealPage services, the more data flows into the company’s repository. That in turn aids its pricing service, which the company says “leverages multifamily’s largest lease transaction database.”

RealPage’s clients include some of the largest property managers in the country. Many favor cities where rent has been rising rapidly, according to a ProPublica analysis of five of the country’s top 10 property managers as of 2020. All five use RealPage pricing software in at least some buildings, and together they control thousands of apartments in metro areas such as Denver, Nashville, Atlanta and Seattle, where rents for a typical two-bedroom apartment rose 30% or more between 2014 and 2019.

Greystar and FPI Management each control hundreds of buildings in metro areas where rents have risen steeply in recent years. And Equity Residential, Lincoln Property Company and Mid-America Apartment Communities each manage dozens of buildings in high-growth markets.

In contrast, these same companies control fewer buildings in metro areas such as Philadelphia, Tampa and Chicago, where rents have increased more slowly, the analysis found.[much more, see bak]

https://www.desmog.com/:{2022/02:(style="background-color:#ffff66;"):}:/16/private-equity-fossil-fuels-blackstone-kkr-carlyle-dapl/

Jessica Corbett, Common Dreams. Originally published on Common Dreams.

A report published Tuesday by a pair of nonprofits shines a light on the “Wall Street heavyweights” at private equity firms who “burnish their reputations through hundreds of millions of dollars in philanthropy, even as their investments help drive climate catastrophe.”

“The private equity industry largely evades public scrutiny, despite investing billions in fossil fuel investments.”

The new analysis from LittleSis and Private Equity Stakeholder Project (PESP) — entitled Private Equity’s Dirty Dozen: 12 Firms Dripping in Oil and the Wealthy Executives Who Run Them — highlights that as asset managers and big banks face rising scrutiny for their climate-wrecking conduct, “private equity firms and the billionaires and multi-millionaires who lead them have largely escaped scrutiny.”

“This needs to change,” the document declares. “Private equity firms are fueling the climate crisis and environmental injustice with investments in fracked gas, oil pipelines, coal plants, and offshore drilling. These damaging investments mirror private equity’s other destructive impacts in other areas of the economy like in retail, restaurants, healthcare, and incarceration.”

Meanwhile, executives at these firms “are some of the most influential people in the world,” the analysis continues. “They are chummy with powerful elected officials, to whom they donate piles of money. They hold prestigious trusteeships at elite universities and cultural institutions. Buildings are named after them. They own professional sports franchises.”

“Between their yachts, mansions, and private jets, these private equity executives live some of the lushest lives of anyone on the planet,” the report adds. “But in many cases, they sustain their wealth and status by steering their firms’ investments into — among other dubious things — dirty energy.”

LittleSis and PESP targeted:

Stephen A. Schwarzman of the Blackstone Group;
David M. Rubenstein of the Carlyle Group;
Henry Kravis of Kohlberg Kravis Roberts & Co. (KKR);
Daniel R. Revers of ArcLight Capital Partners;
Marc Rowan and Leon Black of Apollo Global Management;
Antony “Tony” Ressler of Ares Management;
Adebayo Ogunlesi of Global Infrastructure Partners;
Richard “Ric” Kayne of Kayne Anderson;
Bruce Karsh and Howard Marks of Oaktree Capital;
Chip Kaye and Timothy Geithner of Warburg Pincus;
David M. Leuschen of Riverstone Holdings; and
David B. Miller of EnCap Investments.

While some of the firms didn’t respond to requests for comment from the Guardian — which was granted exclusive access to the report — others pushed back, with spokespeople for Blackstone and KKR pointing to each firm’s investments in the global energy transition.

Blackstone, the world’s largest private equity firm, “has one of the most substantial portfolios of fossil fuel assets across its various funds,” the report says, specifically noting its nearly 7 percent stake in the company that owns the Dakota Access Pipeline, which has provoked years of Indigenous-led protests met with brutal crackdowns by law enforcement and private security. [TWT]

Dubbed “Wall Street’s top political donor,” Schwarzman “is a top ally, donor, and fundraiser” for former President Donald Trump, the analysis says, pointing out that the Blackstone executive reportedly “even defended Trump’s election denialism at a CEO meeting shortly after the 2020 election.”

Schwarzman — the firm’s chairman, CEO, and co-founder — has also “doled out hundreds of millions to get prestigious buildings named after him” and “is a current or past member of some of the most powerful business, policy, and think tank boards,” the report notes.

Report co-author and LittleSis research director Derek Seidman said in a statement that “it’s a serious problem when superrich private equity executives who invest billions in harmful fossil fuels can greenwash their reputations through acquiring coveted board seats at prestigious universities and cultural institutions.”

“This helps these Wall Street billionaires hide the fact that they’re among the world’s biggest oil and gas barons,” Seidman said.

For each executive, the groups put together graphics that illustrate their ties to powerful institutions and people as well as their firm’s investments in the fossil fuel industry. Schwarzman’s chart reveals connections to prestigious universities along with controversial fossil fuel projects.

A screenshot from the report illustrates Blackstone Group CEO, chairman, and co-founder Stephen Schwarzman’s connections to fossil fuels.

The other profiles continue in a similar fashion. The Carlyle Group section states that “no other private equity buyout firm—not Blackstone, not KKR—is currently as bullish on oil and gas as Carlyle,” and “few private equity tycoons have bought as much influence—and are as waist-deep in dirty fossil fuels—as billionaire David Rubenstein,” its co-founder.

In addition to holding positions at various other institutions, KKR co-founder and co-chairman Kravis is a “director of the Palm Beach Civic Association alongside other hedge fund billionaires, and the city’s main performing arts center bears the Kravis family name,” the report says. “He owns a beachside mansion alongside a slew of other Wall Street billionaires like Stephen Schwarzman (Blackstone), Carl Icahn (Icahn Enterprises), Ken Griffin (Citadel), and Nelson Peltz (Trian).”

“Private equity threatens to undermine our hard work to tackle the climate crisis and advance environmental justice.”

“KKR owns dozens of energy companies, with over 80% of its energy holdings in the extraction, transportation, or burning of climate-destroying fossil fuels,” according to the document. “Moreover, from racist and colonial pipelines to toxic oilfield development, KKR is behind some of the dirtiest and most controversial oil and gas projects around.”

Along with pouring money into activities that heat the planet, “Kravis and KKR have no qualms about pillaging companies or investing in unethical products in order to turn a profit,” the analysis adds, noting that “the firm helped oversee the notorious raid of Toys ‘R’ Us that devastated the company’s workers.”

Responding to the report, Sen. Elizabeth Warren (D-MA) — a member of the Senate Committee on Banking, Housing, and Urban Affairs — tied its findings to criticism of the private equity industry’s broader practices.

“By plowing money into dirty coal plants, offshore drilling, and deforestation, private equity threatens to undermine our hard work to tackle the climate crisis and advance environmental justice,” she told The Guardian. “It’s just another page from private equity’s standard playbook: boost short-term profits at the expense of the long-term well-being of communities.”

Reiterating that “the private equity industry largely evades public scrutiny, despite investing billions in fossil fuel investments that have spewed greenhouse gases from pipelines, fracking operations, and power plants across the globe,” report co-author and PESP research director Alyssa Giachino advocated for a swift shift across the industry.

“Private equity should move away from fossil fuels,” she said. “It’s necessary to help mitigate climate change and it’s necessary for environmental justice.”

intercept boguslaw 921

no lnx

DEMOCRATIC SENATOR threatening to block the party’s ambitious social policy agenda in order to preserve former President Donald Trump’s tax cuts for corporations and for the wealthy spent last summer interning at a winery owned by the private equity baron Bill Price.

In the summer of 2020, Sen. Kyrsten Sinema, D-Ariz., interned at Three Sticks, a winery in Sonoma, California, owned by Bill Price, co-founder of the private equity leviathan TPG Capital. According to the job description, interns “assist in all facets of harvest work including cleaning and sanitizing equipment, sorting fruit, punchdowns, making basic additions and managing fermentations according to winemaker instructions, barrel work, and other winery-related tasks.”

Sinema’s personal financial disclosures show that she was paid $1,117.40 in wages for her work. But an ensuing fundraiser at Three Sticks, held in August, netted her campaign coffers much more.

Sinema has told Democratic colleagues, according to the New York Times, that she will oppose any tax increases on either corporate or personal rates, essential pillars of the legislation. Her opposition to tax hikes on the rich comes amid a major spending blitz to encourage her to stand against any tax increases on private equity executives or hedge funds.

The same summer that Sinema completed her internship, Three Sticks was one of three stops on a weekend fundraising tour. Tickets to the fundraiser cost $5,000 per guest, with contributions going toward both her own campaign committee and the Getting Things Done political action committee, a leadership PAC used to support fellow congressional moderates such as New Jersey Rep. Josh Gottheimer. Sinema courted major donors that summer, including Lyft CEO Logan Green, Microsoft founder Bill Gates, and of course Price himself, who contributed $5,000.

In the past two years, Sinema has received tens of thousands of dollars in maxed out donations from private equity partners like Price and investment firm CEOs.Now, many of those same senior firm executives stand to lose millions to the IRS if a bill targeting the carried interest tax loophole is included as part of the Senate’s budget reconciliation process. Those executive donors include senior directors at TPG and billionaire Blackstone CEO Jonathan Gray.

Sponsored by Sens. Ron Wyden and Sheldon Whitehouse, the Ending the Carried Interest Loophole Act would require hedge fund managers and private equity executives to pay taxes on their income at the same rates as other workers, ending favored treatment for such executives. Right now, their compensation is not considered income. It is instead classified as a tax deferrable capital gain, subject to far lower rates, despite its near-identical function.

In June, the private equity industry lobby launched a pressure campaign targeting Sinema and fellow Arizona Sen. Mark Kelly to leave the carried interest tax loophole intact.

The Joint Committee on Taxation estimates the bill would raise more than $63 billion over 10 years, serving as an important part of the pay for — the taxes used to offset new spending — in Democrats’ proposed $3.5 trillion budget reconciliation plan. Sinema has repeatedly described the plan as too expensive.

Multiple congressional aides who spoke to The Intercept on the condition of anonymity said that Sinema’s office has been silent on whether or not she will support closing the loophole, despite her concern over the price tag of her party’s budget reconciliation bill and the vast sums the carried interest tax could raise.

BEFORE OPENING HIS winery, Price co-founded TPG, one of the largest private equity firms in the world, in 1992. Despite announcing his departure from TPG in 2006, Price listed TPG as his employer on a 2020 Federal Election Commission filing with the title of “partner emeritus.” A spokesperson for Price told The Intercept, “Bill Price no longer has any affiliation with TPG and has not for a decade.” When shown a copy of the FEC filing, the same spokesperson did not respond for further comment. In 2019, during the college admissions pay-to-play scandal, Price’s connection to the firm resurfaced when he defended Bill McGlashan, the husband of his wife’s sister and a senior TPG partner he brought to the firm in 2004. TPG did not respond to multiple requests for comment.

Last week, Sinema announced explicit opposition to yet another critical budget reconciliation revenue mechanism: Democrats’ drug pricing plan, which various estimates say could save the government between $450 and $700 billion over 10 years. In July, Sen. Mitch McConnell called Sinema’s rejection of the budget reconciliation price tag “very courageous.”

As The Daily Poster first reported, Sinema, who has raised over $500,000 from the pharmaceutical and health products industry, was featured in ads by a pharma-funded dark-money group just before she went public with her opposition to drug pricing legislation. Data from the Center for Responsive Politics shows that since entering Congress, Sinema has also grossed well over $6 million in donations from the finance, insurance, and real estate industry.

Earlier this month, the Chamber of Commerce put out a report claiming that closing the carried interest tax loophole would cost almost 5 million jobs and create billions in tax shortfalls.

“The carried interest loophole rewards one narrow class of workers, fund managers, whose compensation already is in the stratosphere compared to almost everyone else, with a deeply discounted income tax rate. It’s indefensible,” Bob Lord, tax counsel at Americans for Tax Fairness, told The Intercept.

“Carried interest also allows fund managers to defer tax on their compensation until the fund’s investments are sold. The rest of us pay tax on our labor income currently, not years later,” Lord said. “Apologists at the Chamber of Commerce justify this travesty with claims the country would lose jobs if fund managers paid tax at the same rate as the rest of us. By that logic, why wouldn’t we reduce their rate to zero? More jobs, right? Or perhaps the IRS should pay them? Even more jobs, right? How any member of Congress would take the Chamber of Commerce seriously here mystifies me.”

COMPARED TO HER Democratic colleagues and corporate donors, Sinema’s personal financial disclosures are sparse. Her 2020 filing lists two retirement plans, adormant consulting business, and income generated from a teaching job at Arizona State University alongside her paltry internship income. This places Sinema’s personal finances in sharp contrast to the income generated by congressional allies like Joe Manchin, who has grossed millions from his coal interests over the course of the past decade.

When it comes to raising campaign cash though, few outmatch Sinema’s zeal for fundraisers and phone banking. According to multiple Democrats who served with Sinema in the House, she was the only member who seemed to actively love being in the Democratic Congressional Campaign Committee call center, claiming a couch for her sole personal use and complaining to other members when they had to leave to vote.

In 2020, she delivered a keynote speech followed by a fundraiser at SFVegas, the lavish securities conference held at the Aria Resort and Casino in Las Vegas and featured in the film “The Big Short.” Former British Prime Minister Theresa May headlined last year’s conference.

Sinema gave a keynote address at a Women in Securitization event before a fundraising reception sponsored by the Structured Finance PAC, which has donated tens of thousands of dollars to powerful members of the House Financial Services Committee such as Reps. Gregory Meeks and Carolyn Maloney. Sinema’s recent votes and public posturing suggest that the cash and advertising blitz launched by financial industry lobbyists may have achieved their intended effect.

In August, Sinema was the only Democrat to vote against an amendment to “establish a reserve fund relating to protecting family farms, ranches, and small businesses while ensuring the wealthy pay their fair share.” A day later, she voted against “a reserve fund relating to increasing the progressivity of the tax code.”

Sinema’s dramatic rightward shift toward the barons of finance and pharmaceuticals at the cost of progressive tax reform stands in sharp contrast to her childhood origin story, in which she talks about having grown up in an abandoned gas station without electricity or running water, at one point living out of a car.

In response to a colleague’s expression of support after anNPR story detailing her family’s struggles with financial hardship, Sinema, then a representative, speaking to colleagues in the Democratic cloakroom just off the House floor, deadpanned: “Yeah, voters love that stupid shit. They eat it up.”

https://www.alternet.org/2020/12/voting-2020/

After initially focusing on the surprisingly lopsided results of the senatorial election in Kentucky, DCReport broadened our scope to look at the electronic vote-counting software and electronic voting systems that we rely on to tally our votes. This prompted us to raise questions about Electronic Systems & Software (ES&S), America's largest voting machine company. What we found was a revolving door between government officials and ES&S.

Voting results in three states that saw surprising majorities by vulnerable incumbent Republican senators—Maine, North Carolina and South Carolina—were almost all tabulated on ES&S machines.

Trump and his inept legal team have barely mentioned ES&S, focusing almost exclusively on Dominion Voting Systems.

Rudy Giuliani, Sydney Powell and Fox hosts have been making such bold and naked claims against the ES&S competitors, without any substance or evidence, that Fox News, NewsMax and OAN have all been threatened with litigation unless they fully retract their claims and correct a number of egregious factual errors.

Team Trump has been so vigorous in going after Dominion that it prompted us to look into how ES&S operates. What we have found so far is far from comforting.

Owned by a private equity firm, ES&S has been elusive about identifying the people in its ownership.

A number of ES&S executives and lobbyists have ties to top GOP election officialsand politicians.

The ES&S executive in charge of the security previously worked in the Trump administrationas a government executive at Health and Human Services before leaving under a cloud.

Forty of the 50 states use ES&S to cast & count some of their votes.

Of the 25 states Trump won, all but 3 either partially or fully relied on ES&S machines. The states where Trump won that didn't use ES&S machines were Oklahoma, Louisiana, and Alaska.

[map]

Counties that used ES&S equipment in the 2020 elections. (Verified Voting)

Concerns about the reliability of vote-counting software are not new, dating back to the 1980s. Having the ability to audit votes, and making sure ballots are counted properly, has long been a major concern of computer scientists, politicians and election officials.

In December 2019, Democratic lawmakers sought answers from those top three voting machine vendors which "facilitate voting for over 90% of all eligible voters in the United States."

Three separate letters were sent to the private equity firms who "reportedly own or control each of these vendors, with very limited 'information available in the public domain about their operations and financial performance.' "

Elections at Risk

In the second letter, addressed directly to the McCarthy Group, the private equity firm that owns ES&S, lawmakers wrote that "voting machines are reportedly falling apart across the country, as vendors neglect to innovate and improve important voting systems, putting our elections at avoidable and increased risk."

In requesting details about the ownership of ES&S, the lawmakers specifically noted "we are particularly concerned that secretive and 'trouble-plagued companies,' owned by private equity firms and responsible for manufacturing and maintaining voting machines and other election administration equipment, 'have long skimped on security in favor of convenience,' leaving voting systems across the country 'prone to security problems'."

DCReport placed numerous calls and emails to ES&S at its headquarters on John Galt Boulevard in Omaha. Only once was the phone answered by someone who would not put us through saying "they are not going to be able to talk to you.". DCReport was directed to ES&S's website. DCReport submitted the form repeatedly but got no reply.

Understanding the Software

Our democracy now relies onprivate companies, which build proprietary electronic systems, to reliably count our votes. It seems reasonable, if not crucial, to understand who is behind these companies as a standard to ensure election integrity. Without such knowledge, we run the risk that zealots, or investors with a financial stake in who wins elections, or those susceptible to bribery, have an incentive to use subtle software programming techniques to deliberately miscount votes to guarantee an outcome. In close elections, software code that invalidates or miscounts a mere sliver of ballots can change the outcome.

One of our concerns is ES&S providing junkets and gratuities to election officials, as uncovered in June 2018 by McClatchy newspapers. For at least 11 years, the voting equipment and software company curried favor with election officials by paying for trips to Las Vegas, tickets to shows and gifts.

"As many as a dozen election officials" attended a meeting in Las Vegas, with a number of them accepting airfare, lodging, and meals, McClatchy reported. A company spokeswoman told McClatchy that the junkets were "immensely valuable in providing customer feedback. One of our key results is customer satisfaction, and this is how we achieve that."

Marci Andino, the current executive director of the South Carolina State Election Commission, received more than $19,000 worth of flights, hotels and meals from ES&S since 2009, according to South Carolina Ethics Commission disclosure forms.

Andino's influence extends beyond the Palmetto State. She is also a member of the U.S. Election Assistance Commission's Standards Boardand has testified on election issues. She is a former President of the National Association of State Election Directors (NASED). To have an election official tied to a voting company creates concerns about conflicts.

Executives with Political Ties

DCReport also looked into the careers of some key ES&S executives. What we found is concerning.

Kathy Rogers, ES&S's senior vice president for government affairs, landed at ES&S after controversy over her work as a Georgia state elections official. She opposedlegislation trying to ensure vote counts could be verified.

In 2019, The New Yorker wrote about her actions in "How Voting-Machine Lobbyists Undermine the Democratic Process."

"In 2006, a bill requiring a verifiable paper record of each ballot, introduced in the Georgia legislature at the urging of election-integrity advocates, failed after the state's elections director, Kathy Rogers, opposed it," the magazine reported.

Georgia used ES&S machines in 2018 but now relies on Dominion equipment.

Georgia's 2018 gubernatorial race is noteworthy because it was overseen by Brian Kemp, who was then in charge of Georgia elections as secretary of state. That year, Kemp also ran for governor while overseeing his own election, a conflict of interest that he dismissed.

Kemp won a narrow victory over Democrat Stacey Abrams, but only after his office blocked 53,000 voter registration applications using a "strict" name matching protocol comparing state records to voter registration forms.

Kemp's Conflicts

Registrations were tossed if, for example, a person used a first name, middle initial and last name, on one form, but then used all three names in full on another. This invalidated a huge number of voter registration applications under Kemp's policy.

After Kemp won, a federal judge declared that Georgia had to implement a completely new voting system in time for the 2020 elections, replacing what the judge called "unsecure, unreliable and grossly outdated technology." Kemp tried to keep using the ES&S equipment for future elections, prompting Peach State Democrats to assert cronyism in the Kemp administration.

In January 2019, the Georgia Democratic Party challenged the integrity of voting machines that did not create an auditable paper trial, a policy he pursued through the creation of the Secure, Accessible & Fair Election or SAFE Commission.

The Democrats demanded a delay on recommendations for a new voting system "following the discovery that a leading vendor under consideration, whose machines are currently being investigated in a lawsuit due to errors in the 2018 election, has deep connections to Brian Kemp's office". That vendor was ES&S. The deep ties were due to Kemp having hired a longtime associate who was a registered lobbyist for ES&S.

As Politico characterized it at the time: "Georgia likely to plow ahead with buying insecure voting machines." It also reported that "Critics argued that the bill appeared to be written with one vendor in mind: the voting technology giant Election Systems & Software, whose former top lobbyist, is now Kemp's deputy chief of staff."

How many other states are conducting elections on "grossly outdated" or otherwise unreliable ES&S technology in 2018 and in 2020? This is an issue we are still investigating.

In Georgia, it was Brad Raffensperger, a Republican who succeeded Kemp as the elections overseer, who announced Dominion Voting Systems as the new elections vendor.

A Clean Election

The most recent Georgia election seems to be the first election in recent Georgian history not marred by voting-machine controversy other than Trump's nakedly false claims of vote stealing and corruption aimed at Republican Raffensperger.

The 2020 voting took place on a new system with an auditable paper ballot system. Three recounts, including an audit requiring "roughly 5 million votes in that contest to be recounted by hand" and as Secretary of State Raffensperger stated, showed results as close as imaginable.

"We have now counted legally cast ballots three times, and the results remain unchanged," Raffensperger said. Furthermore, a Judge declared Trump's legal team produced "precious little proof" in their pleadings.

ES&S's revolving door policy means its lobbyists taking top government official positions as well as government political appointees becoming ES&S executives.

One of these is Chris Wlaschin, who left the Trump Administration in March 2018. He was the chief information security official in the Health & Human Services Department. A few weeks later he landed at ES&S as "its new vice president of systems security responsible for the company's security efforts."

HHS to ES&S

Wlaschin abruptly left the Trump administration after HHS Secretary Alex Azar received a letter from a lawyer representing two HHS executives. The letter asserted that Wlaschin had improperly removed the pair and cited an eye-popping false claim Wlaschin used to justify disciplinary action.

"Mr. Wlaschin has stated that my clients were removed from their positions in order to protect an ongoing OIG investigation," wrote lawyer I. Charles McCullough, a former Inspector General for the National Security Community.

"You can, therefore, imagine the shock and surprise of my clients when they were both recently advised, unequivocally and categorically, by senior investigators from the HHS OIG, that neither of them are currently or were at any time in the past under investigation" by the inspector general's office, McCullough wrote.

The letter was dated March 12, 2018. Wlaschin's resume says he joined ES&S the next month.

The integrity of voting systems, and especially the ability to audit vote counts, has been the subject of public debate for more than four decades. But most of the recent attention has been focused on one company, Dominion Voting Systems, most recently because of frivolous lawsuits filed by Trump lawyers Rudy Giuliani and Sydney Powell and others. But is that simply a distraction.

We think the issue of who counts our votes, how they are counted, and what ties the companies selling these systems have to politicians deserves more attention. Politicians who must win elections, in order to wield power, must not be able to exert influence on the companies we rely on to tally our votes. We need serious scrutiny over our elections so we can be assured that they represent the will of the people, not of the politicians themselves, and the companies they hire to process our ballots.

FROM YOUR SITE ARTICLES

Civil society groups protest the sale of .ORG to a private equity fund and a collection of Republican billionaires

11/19

Earlier this month, management of the .org top-level domain underwent a radical shift: first, ICANN dropped price-caps on .org domains, and then the Internet Societ (ISOC) flogged the registry off to Ethos Capital, a private equity fund, and a consortium of three families of Republican billionaires: the Perots, the Romneys, and the Johnsons. Read the rest

World May Hit 2 Degrees of Warming in 10-15 Years Thanks to Fracking, Says Cornell Scientist

In 2011, a Cornell University research team first made the groundbreaking discovery that leaking methane from the shale gas fracking boom could make burning fracked gas worse for the climate than ...

https://www.ecowatch.com/wall-street-fracking-revolution-2566742237.html

How Wall Street Enabled the Fracking 'Revolution' That's Losing Billions

By Justin Mikulka

The U.S. shale oil industry hailed as a "revolution" has burned through a quarter trillion dollars more than it has brought in over the last decade. It has been a money-losing endeavor of epic proportions.

In September 2016, the financial ratings service Moody's released a report on U.S. oil companies, many of which were hurting from the massive drop in oil prices. Moody's found that "the financial toll from the oil bust can only be described as catastrophic," particularly for small companies that took on huge debt to finance fracking shale formations when oil prices were high.

And even though shale companies still aren't turning a profit, Wall Street continues to lend the industry more money while touting these companies as good investments. Why would investors do that?

David Einhorn, star hedge fund investor and the founder of Greenlight Capital, has referred to the shale industry as "a joke."

"A business that burns cash and doesn't grow isn't worth anything," said Einhorn, who often goes against the grain in the financial world.

Aren't investors supposed to be focused on putting money toward profitable companies? While, in theory, yes, the reality is quite different for industries like shale oil and housing.

If the U.S. financial crisis of 2008 has revealed anything, it is that Wall Street isn't concerned with making a "shitty deal" when it means profits and bonuses for its traders and executives, despite their roles in the crash.

Wall Street makes money by facilitating deals much like a Vegas bookie makes money by taking bets. As the saying about Las Vegas goes: "The house always wins." What's true about casinos and gambling also holds true for Wall Street.

Wall Street caused the 2008 financial crisis, with some of its architects personally benefiting. However, while a few executives profited, the result was a drop in employment of 8.8 million people, and according to Bloomberg News in 2010, "at one point last year [2009] the U.S. had lent, spent or guaranteed as much as $12.8 trillion to rescue the economy."

JP Morgan (along with much of Wall Street) required large sums of money in the form of bailouts to survive the fallout from all of the bad loans made, which brought about the housing crisis. Is JP Morgan steering clear of making loans to the shale industry? No. Quite the opposite.

As shown in this chart of which banks are loaning money to shale company EOGResources, while all of the big players in Wall Street are in on the action, JP Morgan has the biggest bet.

To understand whyJP Morgan and the rest of these banks would loan money to shale companies that continue to lose it, it's important to understand the gambling concept of "the vigorish" or the vig. Merriam-Webster defines vigorish as "a charge taken (as by a bookie or a gambling house) on bets."

Wall Street makes money by taking a cut of other people's money. To a gambling house, it doesn't matter if everyone else is making money or losing it, as long as the house gets its cut (the vig)—or as it's known in the financial world—fees.

Understanding this concept gives insight into why investors have lent a quarter trillion dollars to the shale industry, which has burned through it. If you take the vig on a quarter trillion dollars, you have a big pile of cash. And while those oil companies may all go bankrupt, Wall Street never gives back the vig.

Trent Stedman of the investment firm Columbia Pacific Advisors LLC explained to The Wall Street Journal at the end of 2017 why shale producers would keep drilling more oil even when the companies are bleeding money on every barrel produced:

"Some would say, 'We know it's bad economics, but it's what The Street wants.'"

And "The Street" generally gets what it wants, even when it is clear that loaning money to shale companies that have been losing money for a decade and are already deep in debt is "bad economics." But Wall Street bonuses are based on how many "fees" an employee can bring to the bank. More fees mean a bigger bonus. And loans—even ones that are clearly bad economics—mean a lot more fees.

Shale Oil Companies Are "Creatures of the Capital Markets"

In 2017 "legendary" hedge fund manager Jim Chanos referred to shale oil companies as "creatures of the capital markets," meaning that without Wall Street money, they would not exist. Chanos is also on record as shorting the stock of heavily leveraged shale oil giant Continental Resources because the company can't even make enough money to pay the interest on its loans.

And he has a point. In 2017 Continental spent $294.5 millionon interest expenses, which is approximately 155 percent of its 2017 adjusted net income generation. When you can't even pay the interest on your credit cards, you are broke.

And yet in 2017, investor capital was still flowing, with Continental Resources among those bellying up to the Wall Street trough for another billion in debt.

"In 2017, U.S. [exploration and production] firms raised more from bond sales than in any year since the price collapse started in 2014, with offerings coming in at around $60 billion — up nearly 30 percent from 2016, according to Dealogic. Large-cap players like Whiting Petroleum, Continental Resources, Southwestern, Noble, Concho and Endeavor Energy Resources each raised $1 billion or more in the second half of 2017."

How big of a problem is this business of loaning money to an industry burning through billions and burying itself in debt? So big that the CEO of shale company Anadarko Petroleum is blaming Wall Street and asking its companies to please stop loaning money to the shale oil industry. Yes, that's right.

In 2017, Anadarko CEO Al Walker told an investor conference that Wall Street investors were the problem:

"The biggest problem our industry faces today is you guys. You guys can help us help ourselves. It's kind of like going to AA. You know, we need a partner. We really need the investment community to show discipline."

The Wall Street Journal reported that Walker maintains: "Wall Street has become an enabler that pushes companies to grow production at any cost, while punishing those that try to live within their means."

Imagine begging banks to stop loaning you money. And being ignored.

Growing production at any cost is the story of the shale "revolution." The financial cost paid so far has been the more than $280 billion the industry has burned through—money that its companies have received from Wall Street and, despite the plea from Al Walker, continue to receive.

The Economist summarized the situation in 2017:

"It [the shale industry] has burned up cash whether the oil price was at $100, as in 2014, or at about $50, as it was during the past three months. The biggest 60 firms in aggregate have used up $9 billion per quarter on average for the past five years."

Higher oil prices are now being touted as the industry's savior but, as The Economist noted, the shale industry was losing money even when oil was $100 a barrel.

Still Wall Street keeps giving the shale industry money and the shale industry keeps losing it as it ramps up production. To be clear, this arrangement makes shale company CEOs and financial lenders very rich, which is why the trend is likely to continue. And why Continental Resources CEO Harold Hamm will continue to repeat the myth that his industry is making money, as he did at the end of 2017:

"For anybody to even put forth the suggestion we haven't had great expansion and wealth creation in this industry with horizontal drilling and all the technology that's come about the last 10 years, I mean, it's totally ridiculous."

No one will argue that Hamm and his partners on Wall Street are not extremely wealthy. That has happened despite Hamm's company and the rest of the fracking industry losing epic sums of money. The same year Hamm made that statement, his company couldn't even cover its interest expenses. To put that in perspective, Continental Resources couldn't even make the equivalent of the minimum payment on its credit card.

Watch What the Industry Does, Not What It Says

Higher oil prices are yielding more storiesabout how 2018 will be the year that the shale industry finally makes a profit. Harold Hamm refers to it as Continental Resources' "breakout year." Interesting how potentially not losing money for a year is considered a "breakout year" in the shale industry.

As reported on DeSmog, the industry certainly got a huge boost from the recenttax law,which will help its companies' short-term finances. Continental Resources alone took home $700 million in tax relief.

Recent reports in the financial press detail how the new approach in the shale industry will be to focus only on profitable oil production, not just producing more barrels at a loss. As The Wall Street Journal put it in a headline: Wall Street Tells Frackers to Stop Counting Barrels, Start Making Profits.

In that very article, Continental CEO Hamm assures that he is on board with this new approach, saying, "You are really preaching to the choir."

But has Continental actually embraced this new approach of fiscal responsibility and restraint?

Not so much.

The fracking firm appears to have done the opposite, increasing production to record levels along with the rest of the shale industry. Continental recently reported plans to drill 350 new wells at an estimated cost of $11.7 million per well, which adds up to over $4 billion in total costs on those wells. The company currently holds more than $6 billion in debt and less than $100 million cash.

How will Continental fund those new wells? Hamm has promised that going forward, there would be "absolutely no new debt." Perhaps Continental will fund it by selling assets because without more debt, Continental does not have the money to fund those new wells. However, if past is prelude, then Wall Street will happily lend Continental as much money as it wants.

Why would Hamm say one thing and do another? Well, he personally has accrued billions of dollars while his company has burned through billions.

Despite leading Continental to another money-losing year in 2017, Hamm took home a fat raise.

https://www.propublica.org/article/how-david-rubenstein-helped-save-the-carried-interest-tax-loophole

The Patriot: How Philanthropist David Rubenstein Helped Save a Tax Break Billionaires Love

A private equity mogul lauded for his patriotic donations has quietly worked to protect one source of his wealth — the carried-interest loophole.

by Alec MacGillis, ProPublica

March 7, 2016

This story was co-published with The New Yorker.

On Aug. 23, 2011, a magnitude-5.8 earthquake shook the Washington Monument for about 20 seconds, sending tourists on the observation deck down eight hundred and ninety-seven steps. One of the two strongest quakes ever recorded east of the Rockies, it fractured two dozen of the stone protrusions that hold up the marble slabs at the monument’s peak. That December, Congress appropriated half of the $15 million required to repair the obelisk, saying that the rest would have to be raised from private citizens.

The Breakdown

How politics and government really work, and why they don’t.

See the full series.

Within weeks, David Rubenstein, the co-founder of the Carlyle Group, a private-equity firm, announced that he would provide the funds. On June 2, 2013, Rubenstein joined the Secretary of the Interior and the head of the National Park Service to inspect the progress, atop the scaffolding. In public appearances, he often tells what happened next, in a deadpan manner that he says is joking. As he recalled last year in a talk at Rensselaer Polytechnic Institute, he decided, while his hosts were looking away, to leave his mark: “I took a pen out and I wrote my initials at the very top.”

Rubenstein, with an estimated net worth of $2.6 billion, is one of the wealthiest people in Washington. He is an American-history buff, and practices what he calls “patriotic philanthropy,” on behalf of the national heritage. In 2007, he spent $21.3 million on a 710-year-old copy of the Magna Carta. He loaned it to the National Archives and, four years later, financed the construction of a new, $13.5 million gallery to house the document. He has bought two copies of the Emancipation Proclamation, signed by Abraham Lincoln, and loaned one to President Obama, who displayed it for a time in the Oval Office. He has made substantial gifts to Monticello, to James Madison’s estate at Montpelier, to Robert E. Lee’s mansion, to the Iwo Jima Memorial, and, last month, to the Lincoln Memorial. (Although he has also donated generously to hospitals, universities, and other traditional beneficiaries, more than half of the several hundred million dollars he has given away fits the “patriotic” theme.)

His role as a civic patriarch extends to other projects. He is the president of the Economic Club of Washington, which brings together the city’s business élite for discussions with government and financial leaders, and he sits on the boards of the Kennedy Center, the Brookings Institution, and the Smithsonian. Every few months, he funds a bipartisan dinner salon for senators and representatives at the Library of Congress, where he interviews a prominent presidential historian, such as David McCullough, Ron Chernow, or Doris Kearns Goodwin.

David Rubenstein views the 715-year-old copy of the Magna Carta he bought and gave on longterm loan to the National Archives in Washington. (Karen Bleier/AFP/Getty Images)

In 1987, after a short career in politics, Rubenstein founded Carlyle, building it around his Washington relationships and those of his partners — “access capitalism,” Michael Lewis called it, in a critical 1993 profile of Rubenstein in The New Republic. For the most part, Rubenstein has received favorable press coverage, including widespread praise for his charitable work. In 2012, the Washington Post described him as the “generous repeat benefactor for Washington’s endangered national icons,” and the magazine Washingtonian named him a Washingtonian of the Year. He is a frequent guest on Bloomberg Television and on CNBC. Last May, on a “60 Minutes” segment titled “All-American,” he said, referring to the Washington Monument, “The government doesn’t have the resources it used to have. We have gigantic budget deficits and large debt. And I think private citizens now need to pitch in.”

Until recently, relatively little attention had been paid to one source of Rubenstein’s wealth, which he has quietly fought to protect: the so-called carried-interest tax loophole. The tax break has helped private equity become one of the most lucrative sectors of the financial industry. Since the end of the recession, private equity has reported record profits, and at least eighteen private-equity executives are estimated to be worth $2 billion or more each. And during the current presidential campaign, with its populist themes, the loophole has become a target among Democrats and Republicans alike.

The notion of “carried interest” derives from the share of profits that twelfth-century ship captains received on the cargo they carried. It came into its modern usage in the 1920s, in the oil-and-gas industry, and was enshrined in the federal tax code in 1954. When a group of partners drilled for oil, a few would put up the money and others would invest only their labor, or “sweat equity” — finding land and investors, buying equipment, and so on. If the partners sold out, the IRS would tax the profits of all the partners at the lower rate for capital gains rather than as ordinary income.

Over time, partnerships in other industries, mainly real estate and venture capital, began taking advantage of the same form of taxation. Private-equity firms stretched the model to its breaking point. Their work is essentially a combination of investment banking and management consulting: they are compensated not for building new ventures from scratch, with the risk that entails, but for managing the investments of wealthy individuals and pension funds and other institutional clients. These funds are pooled, along ?with borrowed money, to acquire private companies or to take public companies private — before making improvements or cutting costs and selling at a big profit.

Even if no profits are realized, private-equity firms get paid: under the “2 and 20” compensation structure, they receive a two percent fee annually on assets under management, in addition to a 20 percent cut of profits beyond a given benchmark. The IRS characterizes the managers’ cut of the profits as carried interest, taxing it as though it were capital gains made through the sale of a person’s own investment. For most of the past fifteen years, long-term capital gains have been taxed at 15 percent, compared with 35 percent for ordinary income in the top bracket.

One name for the tax break is the “hedge-fund loophole,” but hedge funds benefit much less than private equity does, because their trades tend to be too short-term to qualify for the low capital-gains rate. At a Credit Suisse forum in Miami, in 2013, Rubenstein said of private equity, “Carried interest is really what the business has historically been about — producing distributions for your investors from good sales and IPOs … and getting 20 percent of the profits for yourself.” He went on, “That’s how we’ve really grown our business.”

Barack Obama, during his first presidential campaign, pledged to reform the tax on carried interest and, in 2012, went after Mitt Romney for having enjoyed its benefits as the co-founder of Bain Capital. This year, Bernie Sanders, Hillary Clinton, and Donald Trump have all attacked the loophole, often using hedge-fund managers as the rhetorical target. As Trump put it in August, “They’re paying nothing, and it’s ridiculous. … These are guys that shift paper around and they get lucky.” Jeb Bush, who made a foray into private equity in 2014, also called for closing the loophole during his ill-fated campaign. Private-equity partners argue that their tax treatment is justified under the tradition of encouraging risky business partnerships and is necessary for their industry to flourish. So far, the partners have won out: despite the rise of anti-Wall Street sentiment after the 2008 financial collapse, the loophole has withstood every effort at reform....

http://www.alternet.org/cities-and-states-paying-massive-secret-fees-wall-street

California’s report said $440 million. New Jersey’s said $600 million. In Pennsylvania, the tally is $700 million. Those Wall Street fees paid by public workers’ pension systems have kicked off an intensifying debate over whether such expenses are necessary. Now, a report from an industry-friendly source says those huge levies represent only a fraction of the true amounts being raked in by Wall Street firms from state and local governments.

“Less than one‐half of the very substantial [private equity] costs incurred by U.S. pension funds are currently being disclosed,” says the report from CEM, whose website says the financial analysis firm "serve(s) over 350 blue-chip corporate and government clients worldwide."

Currently, about 9 percent -- or $270 billion -- of America’s $3 trillion public pension fund assets are invested in private equity firms. With the financial industry’s standard 2 percent management fee, that quarter-trillion dollars generates roughly $5.4 billion in annual management fees for the private equity industry -- and that’s not including additional “performance” fees paid on investment returns. If CEM’s calculations are applied uniformly, it could mean taxpayers and retirees may actually be paying double -- more than $10 billion a year.

Public officials are overseeing this massive payout to Wall Street at the very moment many of those same officials are demanding big cuts to retirees' promised pension benefits.

“With billions of public worker and taxpayer dollars put at risk in the highest-cost, most opaque investment schemes ever devised by Wall Street for a decade now, investigations that hold Wall Street profiteers accountable are long, long overdue,” said former Securities and Exchange Commission attorney Ted Siedle.

Private equity firms have argued that their fees are worth the expense, because they supposedly deliver returns for investors that beat low-fee index funds which track the broader stock market. But those private equity returns are typically self-reported by the firms over the life of those longer-term investments, meaning there are few ways to verify whether the returns are real. Indeed, a recent study from George Washington University argued that private equity firms are using their self-reporting authority to mislead investors into believing their returns are smoother and more consistent than they actually are.

In a 2014 speech, the SEC’s top examiner, Andrew Bowden, sounded the alarm about undisclosed fees in the private equity industry, saying the agency had discovered “violations of law or material weaknesses in controls over 50 percent of the time” at firms it had evaluated.

---

http://www.prwatch.org/node/12540

“Hurricanes, Tornados and Earthquakes: Volatility as an Asset Class”

While activists push to protect precious water resources during the extended drought, others are looking to profit from the crisis.

Participants in this month's Freedom Fest in Las Vegas, an annual libertarian conference, were advised to capitalize on water shortages due to fracking by David Norcom of NorCap Advisors, a Dallas-based investment management firm specializing in energy-related stocks.

"Now, let's have fun," Norcom told the audience near the end of his presentation, which wastitled “Hurricanes, Tornados and Earthquakes: Volatility as an Asset Class.”

"This is the curve ball I wanted to throw at you. How many millions of gallons of water do you think it takes to frack one well?"

Norcom said that the total amount of clean water that could be spent on a single fracking well over its use is 10 million gallons, Norcom told the audience, "Those of you in California know how bad it's getting there, but you need to have a portfolio of water stocks in your account. If you had bought water stocks at the beginning of this year, they're up without dividends between fifteen and thirty percent."

The cost of water to Americans across the Southwest has risen dramatically since 2000, increasing more than sixty percent in cities like Phoenix, El Paso, and Los Angeles, and over one hundred percent in San Diego, Santa Cruz, and Las Vegas, according to a report by USA Today.

Some see this crisis in one of the essential needs for human life as an opportunity for profit.

"I will substantially argue to you that the water resource problem that we have in this country is very, very likely to continue, part of it being sucked up by the drillers over here," Norcom said.

From his perspective, that means water will have "a great place in a portfolio" of investments.

Whatever value fracking may have for speculators, its costs to those living near drill sites are serious. Fracking has been implicated in the record seven earthquakes that hit Oklahoma in just two days over the past weekend. According to the U.S. Geological Survey, which is investigating possible links between fracking and the quakes, Oklahoma's rate of earthquakes has increased by fifty percent since October 2013.

Perhaps seismometers will be the next "asset class."

Private-Equity Firms Target the US Health-Care Industry

Private equity (PE) firms are targeting the US health-care providers. Growing PE interest in low profit or non-profit sectors like hospitals is expanding. PE investors are betting on new profit opportunities from the growing needs of the baby-boomer generation and from the Affordable Care Act, which will dramatically expand health-insurance coverage.

Investors Seek Ways to Profit From Global Warming

By Matthew Campbell and Chris V. Nicholson on March 07, 2013

http://www.businessweek.com/articles/2013-03-07/investors-seek-ways-to-profit-from-global-warming

Investing in climate change used to mean putting money into efforts to stop global warming. Morgan Stanley (MS), Goldman Sachs (GS), and other firms took stakes in wind farms and tidal-energy projects, and set up carbon-trading desks. The appeal of cleantech has dimmed as efforts to curb greenhouse gas emissions have faltered: Venture capital and private equity investments fell 34 percent last year, to $5.8 billion, according to Bloomberg

New Energy Finance.

Now some investors are taking another approach. Working under the assumption that climate change is inevitable, they’re investing in businesses that will profit as the planet gets hotter. (The World Bank says the earth could warm by 4C by the end of the century.) Their strategies include buying water treatment companies, brokering deals for Australian farmland, and backing a startup that has engineered a mosquito to fight dengue, a disease that’s spreading as the mercury climbs.

Derivatives that help companies hedge against abnormal weather and natural catastrophes are drawing increased interest from some big players. In January, KKR (KKR) bought a 25 percent stake in Nephila Capital, an $8 billion Bermuda hedge fund that trades in weather derivatives. (The firm is named after a spider that, according to local folklore, can predict hurricanes.) “Climate risk is something people are paying more and more attention to,” says Barney Schauble, managing partner at Nephila Advisors, the firm’s U.S. arm. “More volatile weather creates more risk and more appetite to protect against that risk.”

Private Equity and Media Consolidation

The business practices of private equity firms have been forced into the spotlight as attacks on Mitt Romney’s past leadership of Bain Capital become a central theme in the Republican primary race. I hope that as journalists focus more attention on private equity firms, they also turn around and look at their own industry. Over the last ten years private equity firms have become major players in the media, introducing new questions and considerations in the debate over media ownership.

It just so happens, that this new focus on private equity also comes as the Federal Communications Commission launches its next review of media ownership rules. In January of 2008 I wrote about the role of private equity firms in the debate around media consolidation. At the time, the FCC had just voted through troubling changes in its media ownership rules (which were later overturned in the courts) and they had just approved the sale of Clear Channel to two private equity firms. One of those firms was Romney’s Bain Capital, which has a stake in a number of media properties.

At the time, the Broadcast Law Blog wrote “Private equity should be aware that, in a future FCC, an investigation of the economics of their operations should be expected.” That has yet to happen.

A year later, Matt Crain conducted an in-depth study of the regulatory challenges raised by a media system so intertwined with private equity. He wrote:

“Private equity’s entrance into media ownership compounds the already convoluted networks of attribution that characterize the U.S. media landscape. Clear Channel’s takeover by Bain Capital and Thomas H. Lee Partners illustrates this dynamic. Both private equity firms own stakes in Cumulus Media, one of Clear Channel’s main radio competitors, and both firms are heavily invested in Warner Music, a major music supplier to the radio industry. Thomas H. Lee Partners holds stakes in Univision, also an active radio broadcaster.”

In his final assessment, he writes, “The evidence presented in this analysis strongly indicates that private equity, in its perpetual search for profit maximization, is, at a foundational level, antithetical to the public interest obligations of the media sector.”

Below is the post I wrote in 2008, much of which is more relevant now than ever. Read the rest of this entry »

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