June 19, 2025 • 35 mins
As of this writing, Israel’s war with Iran has been underway for close to a week, triggered by a surprise attack ordered by Prime Minister Benjamin Netanyahu on Iranian military and civilian targets. Israel’s waves of strikes have killed hundreds of Iranians while dozens of Israelis have died in Iranian retaliatory volleys. Donald Trump has demanded Iran’s “unconditional surrender” and indicated that America might join Israel’s bombing campaign. Iran’s Ayatollah Ali Khamenei has rejected the Republican president’s demand.
While acknowledging that this is a bit further afield from the show’s usual fare, Max Chafkin and Stacey Vanek Smith talk through the Mideast conflict and what it means for the global economy—and for everyone. They’re joined by Bloomberg Opinion columnist John Authers, who’s been covering the war and its implications in his newsletter, Point of Return.
Later in the show, Bloomberg Businessweek contributor Megan Greenwell joins Max and Stacey to talk about the economic destruction private equity has wreaked on the US. Greenwell covers this subject in her critically acclaimed book, Bad Company. PE’s effects on working-class communities are on Max and Stacey’s minds as the industry angles for access to Americans’ 401(k)s.
Finally, Stacey digs into Max’s new feature on Mark Cuban, the Shark Tank billionaire who’s been not not-flirting with a run for president in 2028. They discuss Cuban’s healthcare plans, the challenges of fighting “Trumpiness” with “Trumpiness” and pitch a shark tank-like arrangement for congressional bills.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:02):
Bloomberg Audio Studios, Podcasts, radio news.
Speaker 2 (00:10):
This is Everybody's Business from Bloomberg Business Week. I'm Stacy Mannocksmith.
Speaker 1 (00:14):
And I'm Max Chafkin. Stacy. This week we're gonna talk
about the economic impact of the conflict in Iran.
Speaker 2 (00:20):
We're also going to take a look at private equity,
which is becoming a bigger and bigger part of our lives.
Speaker 1 (00:26):
And we'll have an underrated story about an underrated presidential candidate.
Speaker 2 (00:30):
Yes, who is very famous, has a reality show, is
known for his straight talk, but is not Donald Trump.
Speaker 1 (00:40):
All Right, before we get into the meadia conversation that
we're going to have, I feel like I'd be wrong,
Stacy if I didn't bring up the fact that summer's beginning,
that kids are getting out of school. It is a
joyous time for many people in the United States. As
chaotic and as scary as the world is at times,
it's true.
Speaker 2 (00:58):
And here at Everybody's Business, we have a lot of
little kids, not technically on the staff, but definitely attached
to the staff, and they come up a lot when
we're talking as a team, but we never actually hear them.
Speaker 1 (01:11):
Which is a shame because not only are the children
in our future.
Speaker 3 (01:14):
But they are an important economic force.
Speaker 1 (01:17):
Right when I see my three children, I don't think
you know this is my legacy on earth. I think
three consumers, the consumers of tomorrow.
Speaker 3 (01:26):
Here they are, we can study them.
Speaker 1 (01:27):
They are going to be what keeps our economy going
and what cares for us in our decrepitude.
Speaker 2 (01:33):
So we thought we would hear from them to ask
the kids of everybody's business how they are planning to
spend their money this summer.
Speaker 4 (01:43):
Well, I have two hundreds of dollars, but unfortunately for
my behalf, I lost my wallet, so I don't have
any major plans.
Speaker 5 (01:55):
I don'tly have one.
Speaker 4 (01:57):
Makeup for Halloween like old Navy and so Flora and cocoa,
like the bubble teeth.
Speaker 2 (02:02):
Place, anything that you're bought for yourself, t.
Speaker 4 (02:05):
Shirts, necklaces, anything, jacket?
Speaker 2 (02:09):
What are you excited to buy this summer?
Speaker 4 (02:12):
Vestball?
Speaker 2 (02:14):
How much do you think it costs?
Speaker 1 (02:15):
One dollars?
Speaker 4 (02:17):
A big, big, big big ice cream chalk with a
big cherry cat.
Speaker 5 (02:22):
On the top.
Speaker 1 (02:23):
Lois.
Speaker 2 (02:24):
Do you know what a tariff is?
Speaker 5 (02:26):
Uh?
Speaker 4 (02:26):
Something?
Speaker 6 (02:27):
Templates?
Speaker 2 (02:27):
Do you know what a tariff is?
Speaker 5 (02:30):
What a tariff? Now?
Speaker 1 (02:33):
It attacks for imports salt.
Speaker 3 (02:35):
What's a tariff?
Speaker 1 (02:37):
I don't know. Do you know what inflation is?
Speaker 4 (02:40):
Are you talking about like balluted inflation? We're like a
different type of inflation, like that should do with money.
That's all I guess.
Speaker 2 (02:52):
Wow, lost his wallets. Yeah, it happens to all of us.
Speaker 3 (02:56):
It's in his sock draw, it's there.
Speaker 1 (02:59):
But I was a little disappointed that they didn't have
like a more nuanced understanding of what a tariff was.
But on the other hand, they did kind of get
the essential of it.
Speaker 2 (03:09):
I feel like almost no one understands exactly how tariffs
work and what they are, And despite you know, a
raft of explainer pieces having written them, I sometimes don't
feel like I entirely have a grasp of tariffs. I
actually think they have a pretty sophisticated grasp of the
economy and inflation like a balloon.
Speaker 3 (03:30):
That's not wrong, Stacy, What are you gonna buy this summer?
Speaker 2 (03:34):
What am I going to buy this summer? I have
plans to do like an ice cream crawl. I want
to try all the best ice cream in New York.
That's my love it, that's my plan.
Speaker 3 (03:43):
That's do you have?
Speaker 1 (03:45):
I'm gonna buy all the stuff you just heard about.
Speaker 2 (03:47):
Oh, that's true. Your spending plans have been laid out
my small children.
Speaker 1 (03:57):
All right, Stacy, we were planning on having a whole,
very entertaining conversation about the NBA.
Speaker 2 (04:04):
Finals today, best slave plans, but we just thought.
Speaker 1 (04:07):
That right now, the most important story, even the most
important business story, really is what's happening in the Middle East. Yeah.
Speaker 2 (04:15):
Absolutely, the conflict between Israel and Iran, which began on
Friday of last week. We are recording as of right
now it is Wednesday, and it has just been escalating.
Israel has been intensifying their bombings and Donald Trump has
started posting on social media a lot of threats that
even suggest the US might join the conflict.
Speaker 1 (04:36):
Yeah, this is a bit outside of what we usually
talk about. Neither Stacy nor I is an expert in
grand strategy, even though it might seem that way sometimes.
But this conflict has economic implications and really important economic implications,
both for the people who are in the Middle East
who are affected by what is happening, but also the markets,
(04:58):
of course, And that's why we want to bring in
John Authors. He's a Bloomberg Opinion columnist, markets editor, and
he's been writing about this in his newsletter Points of Return.
He is here with us right now, joining us from Madrid.
Speaker 5 (05:10):
I believe, hey, John, Yes, I am indeed in Madrid.
Speaker 3 (05:13):
Let's be with you, so John, on Tuesday morning.
Speaker 1 (05:17):
This was before President Trump had put out a series
of increasingly aggressive truths posts on truth social saying unconditional
surrender all caps or we know exactly where the so
called supreme leader that's in scare quotes is hiding. He's
an easy target. He's safe there. We're not going to
take him out kill, at least not for now. You
(05:38):
basically said at that point that the markets hadn't reacted
very much to what was actually like a kinetic conflict.
There were bombs flying in both directions, and yet the
markets were barely moving. Can you talk us through your
sort of thinking? There is that observation still true?
Speaker 5 (05:56):
That observation is still more or less true. Basically a
fairly dramatic response to the news which broke Friday morning,
American time, all of which was corrected back on Monday,
with the exception of the oil price, which is still
somewhat higher than it was. And that makes sense because
the risk of a Middle Eastern conflagration is that it
(06:19):
affects the supply of oil, that it affects the ability
of Western companies to access the product, and also obviously
its price.
Speaker 1 (06:26):
Like a regional war between two potentially nuclear powers, could
have a bad effect on the global economy.
Speaker 3 (06:33):
Is what you're saying?
Speaker 5 (06:34):
Nuclear war would be bad for the stock market? Yes,
I will stand firm on that position.
Speaker 2 (06:39):
Yes, I do have a question about the impact on
specifically oil markets, because Iran has a huge amount of oil.
It's one of the biggest producers in the world, but
they've also been under sanctioned that was actually put in
place by Donald Trump in twenty eighteen. There aren't very
many places they can even sell their oil right now.
It's mostly to China. So I was one wring why
(07:01):
you were expecting to see a bigger global impact given
how restricted things are.
Speaker 5 (07:06):
Okay, I was expecting that question. So twelve month moving
average of Iranian oil exports to China, that's increased tenfold
since twenty twenty two, and it's currently higher than it
has been. The Bloomberg data I'm looking at goes back
to twenty fifteen. It's comfortably higher exports to China than
(07:27):
there have ever been at that point. You know, I
think I'm right in saying still the world's biggest consumer
of oil. That's quite a big problem. That does potentially
mean that one of the most alarming possibilities facing us
is much less likely to happen, which is that Iran
could close the Straits of Hormos, which would basically mean
(07:47):
that most of Saudi Arabian oil and most of Iranian
oil couldn't get out of the Gulf. But as substantially
all of the oil they sent to China goes through
the Straits of Hormos, that would be a very dangerous
thing for them to do that China really does not
want them to do that.
Speaker 2 (08:03):
Yes, and the Strait of Hormus is a strait between
the Persian Gulf and the Gulf of Oman. It is
the only cea passage from the Persian Gulf out into
the open ocean, and so much of the world's oil
goes through.
Speaker 1 (08:16):
There very small band of water that Iran effectively controls. Stacy,
Can we just talk a little bit about what the
economy of Iran is like apart from the question of
oil exports, and like what the sanctions have meant for
people who live there and for the country as a whole.
Speaker 2 (08:33):
Yeah, I mean this really got started in twenty eighteen
when President Trump pulled US out of the we had
an Iranian nuclear deal and put in the highest level
of sanctions against Iran and also threatened sanctions against anybody
who did business with them. At the time, it was
just really devastating because Iran was doing a lot of
business with Japan, It was doing a lot of business
(08:54):
with Italy. We had I mean, ge Boeing had like
multi billion dollar contracts there. All of those things to
appeared overnight. People lost their jobs. Right now, fifty percent
of Iranians live below the poverty line. I mean, is
this a very highly educated population. Iran has everything to
have a real powerhouse economy. It really hamstrung them for
(09:14):
the lives of people there. Inflation forty percent, like price
is going up. I mean, it decimated the economy.
Speaker 1 (09:21):
It is fascinated weird paradox here, which is that you
can at once be cut off from large aspects of
the global economy and still be a global actor. So
like Iran is basically a pariah state as far as
like the US is concerned. You know, we're not selling
them consumer goods. US companies aren't doing business here and
yet John, like you're saying, there are a lot of interdependencies,
(09:41):
starting with the oil exports to China, you know, the
strait of horror moves like there are ways in which
if something bad happens in Iran, it will affect all
of us.
Speaker 5 (09:51):
Yes, Iran has more than ninety million people in it.
It's actually quite an advanced economy. You cannot remove it
completely from the global picture. It will have a very
significant influence, and it has ways of exerting that influence.
Speaker 1 (10:08):
One of the things you brought up in this newsletter
that I mentioned from a couple of days ago was
that basically markets never go down, and when there's a
global conflict like that, it really has to be bad
on like historic proportions. I think in this piece you said,
you know Hitler invading France, that was one where there
was like a protracted decline the nineteen seventy three Young
(10:29):
Kapor War when Israel's neighbors attacked it, you know, a
surprise attack. I mean, on one hand, it's kind of comforting,
like wow, stock market traders are just like very chill.
It also just it strikes me as a somewhat dark observation,
and it feels like what you've been kind of writing
about and pushing towards. Is this idea that this confidence
that everything's fine may be misplaced.
Speaker 5 (10:51):
Well, I certainly feel that it is. I'm paid to
try to find where people might be getting things wrong.
It is unquestionably true that for the most part, markets
can deal with geopolitical shocks in the short term. Many
geopolitical shocks aren't that clear at the time and take
(11:11):
a long time to take an effect, so there is
in the jargon there's a tail risk. But on average,
when you have a shock that creates a big sell off,
it's over inside a month, and because traders know this,
it's widely known. There then becomes an assumption this is
(11:32):
what I believe, This is what they are assuming without
realizing that all geopolitical shocks can be ignored. Because most
geopolitical shocks can be ignored, you are making an assumption
if you don't think that this is going to be
more like the Yong Kippur War than like the Six
Day War, which had almost no impact on the markets
(11:53):
when it happened.
Speaker 2 (11:54):
I was wondering if you wouldn't mind kind of playing
out some of these tail risks that you're seeing, some
of the potential fallout from a conflict, short obviously of
nuclear armageddon, but between Iran's oil exports and the Straits
of Hormones, Like, what are some risks that you're seeing
looking at this.
Speaker 5 (12:12):
One interesting way to look at this is that Iran
wants the US to restrain Israel rather than to each
it on and very counterintuitively, the way to do that
might be to start attacking oil infrastructure to start expanding
the war. And that I think is one of the
(12:35):
great concerns is that Iran is weaker than it was before,
but it could close off the Straits of Hormus if
it's genuinely has reason to believe that the US is
thinking of assassinating their supreme leader. Things are getting very serious.
Maybe they do play that desperate card of closing the
Straits of Hormos.
Speaker 2 (12:56):
And that cuts a lot of the world off from
a lot of the world's oil.
Speaker 5 (13:00):
That cuts off most Saudi production and Kuwait and Iraq
and Iran, which is a lot. So that is the
single racist concern out there. Also the idea of whether
you get attacks on other countries, whether they try to
limit production in other countries, given that the degree of
(13:20):
hostility there is between Iran and the other countries in
the region, that's a Machiavelian response that makes it very
hard for the US to continue to push on. And
then the other big tail risk that I think is
what scared people on Tuesday after you had those Donald
Trump tweets, was oh, lord, he's really thinking he's going
(13:44):
to change the regime here. This fear that it will
create a new fiscal drag on the US, that all
of a sudden there will be this massive new overseas
commitment requiring money, feeding into all the worries about fiscal policy.
That it's possible that the US is about to be
dragged into an extremely expensive mistake.
Speaker 1 (14:05):
John, you brought up Trump's statements in your newsletter this morning.
You wrote a really interesting sentence. These gyrations you're talking about,
the market gyrations, oil going up, oil going down, have
happened with no obvious, concrete new developments, driven instead largely
by the news flow produced by the president on social media.
Isn't that all we have?
Speaker 3 (14:25):
Though?
Speaker 1 (14:26):
Like when you say the news flow produced by the
president of social media that you're just talking about the news, right,
I mean, it's all just Trump's tweets.
Speaker 5 (14:34):
Okay, this is turning into rather an enjoyable meta conversation
at this point. You don't need to be as old
as I am to remember a time when there was
more to news than what one seventy nine year old
man had on social media.
Speaker 2 (14:50):
Not just any seventy nine year old man.
Speaker 5 (14:52):
I mean, he is, unfortunately, it's the most powerful. I
think what you play into here, though, is that under
the old rule of doing politics, that's not the kind
of brinkmanship behavior that happened in general. If you're thinking
of intervening militarily, you do not talk about it. You
certainly don't broadcast it to however, and a million followers.
(15:14):
Donald Trump has one of the things from the tariff situation,
the number of different tariffs that have been announced and
I guess their news because he said he's going to
do them, and they never happen. I remember one weekend,
it's about four months ago. Do you remember there was
going to be a fifty percent tariff on Columbia. Yes,
And it lasted about five or six hours. I was
(15:36):
sort of desperately swatting up on the Colombian economy, just
like I've been swatting up on the Iranian economy. But
it's like if a tree falls in the wood with
nobody to see it. If a tree doesn't fall in
the woods, but somebody tweets about it, does it mean
that the tree has in fact fallen?
Speaker 4 (15:52):
You know?
Speaker 5 (15:53):
I mean trying to sort of invert it. But if
we're living in a reality where the news is every
time the resident vocalizes something on his mind, that's not
normally how leaders communicate and markets don't normally have to
deal with this huge dilemma of do I take this
(16:13):
seriously or don't ty.
Speaker 2 (16:20):
We're really excited to have Megan Greenwell with us. She
is a Bloomberg BusinessWeek contributor and author of the new
book Bad Company, Private Equity and the Death of the
American Dream. Welcome Megan, Thank you.
Speaker 1 (16:31):
For having me Yeah. I was super excited about this conversation,
not only because Meghan's book is great. You are investigating
how private equity affects people's lives or communities the economy,
but also because this topic is super noosy. Right now,
we're at this moment where private equity, after being this
ridiculously successful asset class from an investor perspective, is facing
(16:54):
all these challenges. Places like Yale are trying to get
out of their investments in private equity, trying to their
holdings in private equity, and meanwhile, the private equity industry
is desperately trying to bring the rest of us regular
people into the asset class via their four one K
is trying to get these businesses into your retirement plans,
(17:16):
into my retirement plans, and I thought we could talk
about that as well.
Speaker 2 (17:19):
Yes, definitely a lot to discuss, Megan, before we get started,
Would you mind defining private equity for us? What is
private equity and how does it work?
Speaker 7 (17:27):
Private equity bundles money from various types of investors, so
university endowments, public pension funds, ultra wealthy individuals, investment firms, whatever.
But then they combine that money together with huge bank
loans to take over companies and what they call leveraged buyouts.
So often people confuse private equity and venture capital. Venture
(17:50):
capital is investing in startups and taking a piece of
that company. Private equity, for the most part, is executing
these leveraged buyouts to take over companies.
Speaker 2 (18:01):
Wholesale, they want to take them over in order to.
Speaker 7 (18:04):
I mean ideally they'd like to take them public.
Speaker 1 (18:07):
I mean they need to sell them basically, either selling
them to the public via an ito.
Speaker 2 (18:11):
Saving houses where you're like, we're going to buy this house,
We're going to install a new kitchen, fix, shine it up,
and then sell it for triple what we paid to.
Speaker 1 (18:18):
Yeah, except a lot of the time these are kind
of either declining businesses or businesses that are healthy but
in shrinking industries, or businesses.
Speaker 3 (18:27):
That are troubled in one way or another.
Speaker 1 (18:29):
Right, And the whole point of the private equity firm
is they're going to very quickly, and you said it
in your answer, like turn things around, cut costs, and
then it'll be worth more and that and they will
get paid along the way, and then also, hopefully if
everything works out, sell for a higher price than they
bought for.
Speaker 2 (18:44):
And what kinds of businesses are they in right now?
Speaker 7 (18:49):
One of the interesting things about reporting this book was
seeing the evolution of which businesses they used to be
in versus which ones they're in now. So I write
in the book a bunch about toys r US which
which was acquired by two private equity firms or ip Yes,
two private equity firms and a real estate trust in
two thousand and five. And at that time retail was
(19:10):
huge for private equity. They really wanted in on big
retail chains because they were under threat from Amazon, but
there was some thinking that a bunch of them could
still be saved. What ended up happening was a bunch
of them were saved, but not the ones owned by
private equity. But now, for the most part, private equity
is largely out on retail. Now you see a ton
(19:31):
of private equity in hospitals, veterinarians, dentists, preschools, all of
these kind of like recession proof industries because like your
kid has to go to preschool and your grandma needs
to go to a nursing home regardless of how the
economy is doing. So you can really like trace that
(19:52):
evolution over time and also see how they use the
same playbook in retail businesses like toys r US and
now are using it in businesses like hospitals.
Speaker 1 (20:02):
I mean, the whole argument of this book is that
private equity and the way it does business is bad.
It's bad for the economy, it's bad for these businesses.
Can you just lay that out for us, Like, why
you think that's the case that the subtitles private equity
and the death of the American Dream.
Speaker 2 (20:17):
That doesn't sound bad.
Speaker 7 (20:20):
So I think private equity is really good for private
equity firms and pretty good most of the time for
their investors. Though it's complicated and it turns out to
be very bad for the companies they acquire and their
workers and the communities that rely on them. And one
of the biggest reasons for that is when they take
out these loans to acquire a company, the debt for
(20:42):
those loans is assigned not to the private equity firm
that made the decision to take them out, but actually
to the company it's acquiring. So if I come in
and buy Toys r Us. In this case, what happened
was Toys r US was purchased for something like six
billion dollars and five five point two billion dollars of
that was loans, and only Toys Rs itself was responsible
(21:06):
for paying that debt back. And Toys RS had always
been a very fiscally conservative company. They did not have
a lot of debt. Ever, now all of a sudden,
they were just buried under interest payments and their private
equity owners were not helping them repay that money. And
so the reason toys Rs went out of business was
not Amazon. It was the fact that they didn't have
(21:28):
any money to compete with Amazon or anybody else because
they were so buried under interest payments.
Speaker 1 (21:34):
Well, it's kind of like how if you're an investor
flipping houses, you might borrow against the property that you're flipping, right, Yeah,
it's exactly like that.
Speaker 3 (21:41):
I guess.
Speaker 1 (21:41):
The difference is that a lot of these businesses have
an importance to the community that maybe viewed from the
thirty thousand or fifty thousand whatever, far away view of
a bunch of Wall Street investors, it just looks like
an asset and an asset that you can maybe try
to optimize if it if it fails, you know, who
cares or whatever.
Speaker 3 (22:00):
But up close, there's like a real human cost.
Speaker 1 (22:03):
Yeah.
Speaker 7 (22:04):
So in the case of toys Rs, I focus on
this woman who was supporting her family of five single
handedly on a toys Rs salary, and when she and
thirty three thousand toys Rs workers lost their jobs, their
contracts guaranteed severance but because it was a bankruptcy brought
on by these huge loans, they didn't get any severance.
(22:25):
And so now all of a sudden you have this
situation where all of these people are out of jobs
and cannot feed their families. Meanwhile, you know Toys Rs.
Speaker 2 (22:34):
Yes it's a big.
Speaker 7 (22:34):
Box store, but it was an important part of a
lot of communities tax revenue wise, also like seemingly dumb
little things like sponsoring the local Little League team.
Speaker 1 (22:45):
You said that private equity has been good at making
money for private equity investors. I'm curious the Trump administration
and in particular the people running the sec for Donald Trump,
are very interested in basically getting rid of the barrier
that prevented normal people. Do you think that that actually
makes sense for a normal investor?
Speaker 2 (23:06):
Well, and we should say that right now from what
I understand, for one case, can't invest in private.
Speaker 3 (23:11):
Actually four to one CA's.
Speaker 1 (23:12):
But like regular piece regular people, you have to be
what's called an accredited investor, meaning you have to like
show that you either have like a decent amount of
sophistication or wealth or both.
Speaker 2 (23:22):
And there's a push now to kind of get rid
of some of those barriers let people in in private
equities go again, Oh totally.
Speaker 7 (23:29):
Private equity has to disclose very little about how it operates,
where it's money it is going, or even how it's performing.
So if you are not a very, very highly trained,
very obsessively observant investor, I would be very nervous about
getting involved in private equity.
Speaker 2 (23:51):
So do you think that, for one, CAS will start
getting into private equity?
Speaker 7 (23:56):
So, I mean private equity is very exciting about this
possibility because it would give them literally trillions of more
dollars at their disposal. And so if you're looking to
fund other private equity acquisitions, you know you're a bank
or something that starts to look pretty good too. It
would give private equity so much more power in our economy,
(24:21):
and it is already so powerful in our economy. So yes,
I think it is very likely to happen.
Speaker 1 (24:27):
What's your sense of why private equity firms are suddenly, like,
really excited about getting retirees money instead of just having
pension funds and university endowments and the sort of you know,
quote unquote institutional investors who in the past have been
their main source of capital.
Speaker 7 (24:44):
Part of it is the private equity industry is just
worried right now their rates of return have gone down.
Yale is now pulling a bunch of its money out
of private equity.
Speaker 2 (24:53):
They have a big endowment, they're huge investors. Correct, why
are they pulling out?
Speaker 7 (24:57):
They are pulling out because they are concerned about, you know,
having their money in their long term, whether it's going
to pay off well enough for them long term. The
Pennsylvania State Public Employees' pension Fund recently did something similar
where they downscaled the amount of money they have in
private equity because even if they're getting good returns year
(25:20):
to year, they're just worried that ay, they're not getting
enough information to really know, and b they're not performing
at the level that private equity is promising over the
long term. You know, they just want to make sure
they're proactive in finding new sources of capital. And part
of it is this requires a regulation change. And I
(25:42):
think Donald Trump has really stacked his inner circle with
private equity people, and it is a good time to
sort of say, hey, buddy, you know all that money
we gave to you during the campaign cycle, like give
us this little favor in return.
Speaker 2 (25:59):
What is the danger here? Like, what is the real
danger that you see of the trajectory we're on of
private equity getting involved in kind of new industries and
growing and potentially getting four one K money? Like where
does this end or why is this potentially a problem.
Speaker 7 (26:16):
I think as private equity swallows more and more of
our lives, we see the effects of that in more
and more ways. Right, So, you know, classically, when private
equity comes in, prices go up and quality of care
goes down. That is one thing when it's like toys
r us. That is a much bigger problem when it
(26:37):
is a hospital. So I write about this doctor in
rural Wyoming who I followed for two years. The hospital
he worked at got taken over by private equity and
all of a sudden, you couldn't deliver a baby at
that hospital. And it's rural Wyoming, so that means you
can't deliver a baby within thirty miles, and that's thirty
miles through windswept canyon in a Wyoming winter. So I
(27:02):
do think that in very real ways, people's quality of
life and actually people's real lives, you know, people's life
or death is determined by this in ways that private
equity firms don't seem particularly invested in and as that
continues to grow and grow and grow unchecked, we need
(27:26):
to have a reckoning about the real world effects of
this industry that doesn't really care about the rest of
us having that kind.
Speaker 2 (27:36):
Of power and is getting into sort of more personal
and sensitive parts of our lives.
Speaker 7 (27:43):
If they're in your hospital and your grandma's nursing home
and your kid's preschool, they're in public utilities. Now they
own a lot of landlords.
Speaker 2 (27:52):
They can really run.
Speaker 7 (27:54):
Your entire life in a lot of cases without you
even knowing it, and so then you don't even have
the information much less the ability to sort of push
back and say no, no, I want to live my
life under some different model of capitalism.
Speaker 2 (28:10):
Megan, thank you so much for talking private equity with us.
The book is called Bad Company. It is really it's
such a great read. Check it out.
Speaker 1 (28:19):
And Stacy, it's time to talk about our underrated story
of the week. I think the story we need to
talk about this week is the Trump mobile, a new
mobile trump phone that Trump is using my new mobile carrier.
Speaker 3 (28:36):
I can only assume.
Speaker 1 (28:38):
But right as we were getting in the studio, yeah,
you called an audio.
Speaker 2 (28:41):
Okay, so, Max, you wrote a feature piece this week
which I have not been able to stop thinking about,
and it is about someone very similar to Donald Trump
in a lot of ways. Very famous entrepreneur, hit television show,
someone kind of known for straight talk, who's very much
connected to our day to day lives, Mark Cuban.
Speaker 3 (29:02):
Yeah.
Speaker 1 (29:03):
The funny thing is your tea's worked whether or not
we were talking about Cuban or Donald Trump. But yeah,
we just BusinessWeek published a story about Mark Cuban, and
it's a profile of his latest thing, which is a
attempt to make healthcare prices lower.
Speaker 3 (29:19):
But it's also a look at this.
Speaker 1 (29:21):
Very unlikely political figure. People probably remember that Cuban was
sort of involved tangentially in the twenty twenty four election
as a as a surrogate for Kamala Harris, although.
Speaker 2 (29:31):
Not a very when not judging Shark Tank. Yeah, when
most famous for.
Speaker 1 (29:36):
It, right, he's famous for previously owning the Dallas Mavericks,
being a star of Shark Tank, being this kind of
just like Donald Trump, like a kind of professional billionaire,
a guy who plays a billionaire in the media. And
you might think, first of all, he's not that he's
not that liberal. He's basically a centrist. He's a fan
of Ein Ran And in any case, he is not a
(29:59):
conventional Democratic politician, and that is kind of why actually
a lot of Democrats are excited about him.
Speaker 2 (30:04):
Has he talked about running for president or has his
name been floated?
Speaker 1 (30:08):
His name has been floated, because at various times over
the last ten years he has said he might run
for president. He told me in our interview that he
is not interested in running for president.
Speaker 3 (30:20):
This is always the lie, which is a little bit.
Speaker 1 (30:23):
Different from saying like, you're definitely not going to do it.
It wasn't what I think is called a Shermanesque denial.
It was a denial, but one that, of course you
could imagine changing. And when you look at kind of
what he's doing, he is acting like someone who is
at least exploring the possibility. And that's what I heard
when I talked to political consultants on both sides of
(30:43):
the aisle.
Speaker 2 (30:44):
Well, the thing that really struck me is the idea
of the power of being a public businessman. That was
a lot of white people like Trump too. He's just
known to be a businessman. He's a successful businessman. He
plays one on TV. And Mark Cuban also has that
where you look at me like, oh, that guy knows
what he's doing. He can take care of the economy,
(31:04):
even this election when immigration was a huge issue, Economy
is always the top issue for voters, And that was
really interesting to me that that was kind of Trump's superpower.
People kind of de facto trusted him, and that Mark
Cuban might have that quality too.
Speaker 1 (31:18):
Yeah. I mean, the other interesting thing about Cuban is
that he's able to simultaneously be moderate. He said things
like he wants to cut the deficit things like that,
while also sounding like a populist and like that has
been one of Donald Trump's like secret secrets success. Yeah,
so Cuban is simultaneously sounding like a moderate while also
(31:40):
railing against the insurance industry, sounding basically not that different
from like Bernie Sanders on an issue like healthcare, although
advocating very different policy positions. And there's something like inherently
funny about the idea of like a Mark Cuban who's
sort of famous for, like you said, playing a billionaire
on TV, and also of like shouting at the Dallas
(32:00):
Mavericks from the sidelines and getting in trouble for shouting.
Speaker 2 (32:03):
But also giving people like the little guy a shot
at their dreams, funding these tiny companies. Like, what's more
American dream than that? I love shark Tank. It's so emotional.
It's all about business, which of course I spend all
my time thinking about, and I love small businesses. I'm
just thinking, if Mark Cuban did become president, he could
do like a shark tank for like bills, right, like
(32:24):
people bring their proposals, they could shark tank the bills.
Speaker 1 (32:28):
I would not hate that Mark Cuban. Stacey Vannick Smith
is available. Just email the chief of staff everybody dot
net if you're interested, absolutely, Stacy. We've had a lot
of reviews come in. Yes, we shot.
Speaker 2 (32:42):
Thank you everybody who's left reviews.
Speaker 1 (32:44):
You promised and I agreed that I was going to
write a haikup.
Speaker 2 (32:48):
I promised that you would write haikus every reviewer.
Speaker 1 (32:51):
Yes, and I am behind. But luckily you have stepped
in and written one for us. You want to tell
us about it and then perform it.
Speaker 2 (32:57):
Yes, well, I've based mine on the economic principle of
negativity bias, which means that if your salary goes up
by five percent, you're like kind of happy, but if
it goes down by five percent, you are furious. And
so this happens with ratings too, right, Like, most of
our ratings have been very, very positive and it's been
lovely to see and we've been really excited.
Speaker 1 (33:17):
But we didn't want to leave out the hen because he.
Speaker 3 (33:22):
Is still still a Listen.
Speaker 2 (33:24):
We did get one star review from Guy InChI and
he said that there was a liberal bias. So here
is my hikup for him. This is for you Guy.
To the Guy InChI who says we are too liberal,
my dad thinks so too. He does shout out, shout
(33:46):
out to.
Speaker 1 (33:46):
Shout out to you dad. Listen, you keep leaving the reviews,
and we are grateful. There are actually a bunch of
positive reviews here. Bring us and trumpets, nors Zeig, Sean,
Michael Man. We appreciate you too, and we will have
more high Who's in the days that come. As people
leave more reviews, please do and we will hit you up.
We will Stacy will write you another poems.
Speaker 2 (34:07):
No is it supposed to be you?
Speaker 3 (34:08):
Okay or me?
Speaker 1 (34:09):
Okay, I'll do it, And thank you again for leaving
those reviews.
Speaker 3 (34:12):
Keep them coming.
Speaker 1 (34:19):
The show is produced by Stacey Wong. Magnus Hendrickson is
our supervising producer, Amy Keen our editor, and Brendan Francis
Newham is our executive producer. We get engineering help from
Blake Maples and Dave Purcell fact checks.
Speaker 6 (34:31):
Big thank you to Laura Milian Rodrigo, Arriuela, Clara Ernans,
Lita Raga, and of course our good friend Jeff Muscus
Sage Bauman heads Bloomberg Podcasts.
Speaker 1 (34:43):
And we got to say thank you to the parents who.
Speaker 3 (34:45):
Helped us collect that audio.
Speaker 1 (34:46):
You are awesome and your kids are so cute. I'm
not talking about my kids, by the way, And if
you have a story that we should be talking about,
email us at everybody's at Bloomberg dot net. That's everybody
with an s at Bloomberg dot net. Thanks for listening
and we'll see you next week.
Bloomberg Audio Studios, Podcasts, radio news.
Speaker 2 (00:10):
This is Everybody's Business from Bloomberg Business Week. I'm Stacy Mannocksmith.
Speaker 1 (00:14):
And I'm Max Chafkin. Stacy. This week we're gonna talk
about the economic impact of the conflict in Iran.
Speaker 2 (00:20):
We're also going to take a look at private equity,
which is becoming a bigger and bigger part of our lives.
Speaker 1 (00:26):
And we'll have an underrated story about an underrated presidential candidate.
Speaker 2 (00:30):
Yes, who is very famous, has a reality show, is
known for his straight talk, but is not Donald Trump.
Speaker 1 (00:40):
All Right, before we get into the meadia conversation that
we're going to have, I feel like I'd be wrong,
Stacy if I didn't bring up the fact that summer's beginning,
that kids are getting out of school. It is a
joyous time for many people in the United States. As
chaotic and as scary as the world is at times,
it's true.
Speaker 2 (00:58):
And here at Everybody's Business, we have a lot of
little kids, not technically on the staff, but definitely attached
to the staff, and they come up a lot when
we're talking as a team, but we never actually hear them.
Speaker 1 (01:11):
Which is a shame because not only are the children
in our future.
Speaker 3 (01:14):
But they are an important economic force.
Speaker 1 (01:17):
Right when I see my three children, I don't think
you know this is my legacy on earth. I think
three consumers, the consumers of tomorrow.
Speaker 3 (01:26):
Here they are, we can study them.
Speaker 1 (01:27):
They are going to be what keeps our economy going
and what cares for us in our decrepitude.
Speaker 2 (01:33):
So we thought we would hear from them to ask
the kids of everybody's business how they are planning to
spend their money this summer.
Speaker 4 (01:43):
Well, I have two hundreds of dollars, but unfortunately for
my behalf, I lost my wallet, so I don't have
any major plans.
Speaker 5 (01:55):
I don'tly have one.
Speaker 4 (01:57):
Makeup for Halloween like old Navy and so Flora and cocoa,
like the bubble teeth.
Speaker 2 (02:02):
Place, anything that you're bought for yourself, t.
Speaker 4 (02:05):
Shirts, necklaces, anything, jacket?
Speaker 2 (02:09):
What are you excited to buy this summer?
Speaker 4 (02:12):
Vestball?
Speaker 2 (02:14):
How much do you think it costs?
Speaker 1 (02:15):
One dollars?
Speaker 4 (02:17):
A big, big, big big ice cream chalk with a
big cherry cat.
Speaker 5 (02:22):
On the top.
Speaker 1 (02:23):
Lois.
Speaker 2 (02:24):
Do you know what a tariff is?
Speaker 5 (02:26):
Uh?
Speaker 4 (02:26):
Something?
Speaker 6 (02:27):
Templates?
Speaker 2 (02:27):
Do you know what a tariff is?
Speaker 5 (02:30):
What a tariff? Now?
Speaker 1 (02:33):
It attacks for imports salt.
Speaker 3 (02:35):
What's a tariff?
Speaker 1 (02:37):
I don't know. Do you know what inflation is?
Speaker 4 (02:40):
Are you talking about like balluted inflation? We're like a
different type of inflation, like that should do with money.
That's all I guess.
Speaker 2 (02:52):
Wow, lost his wallets. Yeah, it happens to all of us.
Speaker 3 (02:56):
It's in his sock draw, it's there.
Speaker 1 (02:59):
But I was a little disappointed that they didn't have
like a more nuanced understanding of what a tariff was.
But on the other hand, they did kind of get
the essential of it.
Speaker 2 (03:09):
I feel like almost no one understands exactly how tariffs
work and what they are, And despite you know, a
raft of explainer pieces having written them, I sometimes don't
feel like I entirely have a grasp of tariffs. I
actually think they have a pretty sophisticated grasp of the
economy and inflation like a balloon.
Speaker 3 (03:30):
That's not wrong, Stacy, What are you gonna buy this summer?
Speaker 2 (03:34):
What am I going to buy this summer? I have
plans to do like an ice cream crawl. I want
to try all the best ice cream in New York.
That's my love it, that's my plan.
Speaker 3 (03:43):
That's do you have?
Speaker 1 (03:45):
I'm gonna buy all the stuff you just heard about.
Speaker 2 (03:47):
Oh, that's true. Your spending plans have been laid out
my small children.
Speaker 1 (03:57):
All right, Stacy, we were planning on having a whole,
very entertaining conversation about the NBA.
Speaker 2 (04:04):
Finals today, best slave plans, but we just thought.
Speaker 1 (04:07):
That right now, the most important story, even the most
important business story, really is what's happening in the Middle East. Yeah.
Speaker 2 (04:15):
Absolutely, the conflict between Israel and Iran, which began on
Friday of last week. We are recording as of right
now it is Wednesday, and it has just been escalating.
Israel has been intensifying their bombings and Donald Trump has
started posting on social media a lot of threats that
even suggest the US might join the conflict.
Speaker 1 (04:36):
Yeah, this is a bit outside of what we usually
talk about. Neither Stacy nor I is an expert in
grand strategy, even though it might seem that way sometimes.
But this conflict has economic implications and really important economic implications,
both for the people who are in the Middle East
who are affected by what is happening, but also the markets,
(04:58):
of course, And that's why we want to bring in
John Authors. He's a Bloomberg Opinion columnist, markets editor, and
he's been writing about this in his newsletter Points of Return.
He is here with us right now, joining us from Madrid.
Speaker 5 (05:10):
I believe, hey, John, Yes, I am indeed in Madrid.
Speaker 3 (05:13):
Let's be with you, so John, on Tuesday morning.
Speaker 1 (05:17):
This was before President Trump had put out a series
of increasingly aggressive truths posts on truth social saying unconditional
surrender all caps or we know exactly where the so
called supreme leader that's in scare quotes is hiding. He's
an easy target. He's safe there. We're not going to
take him out kill, at least not for now. You
(05:38):
basically said at that point that the markets hadn't reacted
very much to what was actually like a kinetic conflict.
There were bombs flying in both directions, and yet the
markets were barely moving. Can you talk us through your
sort of thinking? There is that observation still true?
Speaker 5 (05:56):
That observation is still more or less true. Basically a
fairly dramatic response to the news which broke Friday morning,
American time, all of which was corrected back on Monday,
with the exception of the oil price, which is still
somewhat higher than it was. And that makes sense because
the risk of a Middle Eastern conflagration is that it
(06:19):
affects the supply of oil, that it affects the ability
of Western companies to access the product, and also obviously
its price.
Speaker 1 (06:26):
Like a regional war between two potentially nuclear powers, could
have a bad effect on the global economy.
Speaker 3 (06:33):
Is what you're saying?
Speaker 5 (06:34):
Nuclear war would be bad for the stock market? Yes,
I will stand firm on that position.
Speaker 2 (06:39):
Yes, I do have a question about the impact on
specifically oil markets, because Iran has a huge amount of oil.
It's one of the biggest producers in the world, but
they've also been under sanctioned that was actually put in
place by Donald Trump in twenty eighteen. There aren't very
many places they can even sell their oil right now.
It's mostly to China. So I was one wring why
(07:01):
you were expecting to see a bigger global impact given
how restricted things are.
Speaker 5 (07:06):
Okay, I was expecting that question. So twelve month moving
average of Iranian oil exports to China, that's increased tenfold
since twenty twenty two, and it's currently higher than it
has been. The Bloomberg data I'm looking at goes back
to twenty fifteen. It's comfortably higher exports to China than
(07:27):
there have ever been at that point. You know, I
think I'm right in saying still the world's biggest consumer
of oil. That's quite a big problem. That does potentially
mean that one of the most alarming possibilities facing us
is much less likely to happen, which is that Iran
could close the Straits of Hormos, which would basically mean
(07:47):
that most of Saudi Arabian oil and most of Iranian
oil couldn't get out of the Gulf. But as substantially
all of the oil they sent to China goes through
the Straits of Hormos, that would be a very dangerous
thing for them to do that China really does not
want them to do that.
Speaker 2 (08:03):
Yes, and the Strait of Hormus is a strait between
the Persian Gulf and the Gulf of Oman. It is
the only cea passage from the Persian Gulf out into
the open ocean, and so much of the world's oil
goes through.
Speaker 1 (08:16):
There very small band of water that Iran effectively controls. Stacy,
Can we just talk a little bit about what the
economy of Iran is like apart from the question of
oil exports, and like what the sanctions have meant for
people who live there and for the country as a whole.
Speaker 2 (08:33):
Yeah, I mean this really got started in twenty eighteen
when President Trump pulled US out of the we had
an Iranian nuclear deal and put in the highest level
of sanctions against Iran and also threatened sanctions against anybody
who did business with them. At the time, it was
just really devastating because Iran was doing a lot of
business with Japan, It was doing a lot of business
(08:54):
with Italy. We had I mean, ge Boeing had like
multi billion dollar contracts there. All of those things to
appeared overnight. People lost their jobs. Right now, fifty percent
of Iranians live below the poverty line. I mean, is
this a very highly educated population. Iran has everything to
have a real powerhouse economy. It really hamstrung them for
(09:14):
the lives of people there. Inflation forty percent, like price
is going up. I mean, it decimated the economy.
Speaker 1 (09:21):
It is fascinated weird paradox here, which is that you
can at once be cut off from large aspects of
the global economy and still be a global actor. So
like Iran is basically a pariah state as far as
like the US is concerned. You know, we're not selling
them consumer goods. US companies aren't doing business here and
yet John, like you're saying, there are a lot of interdependencies,
(09:41):
starting with the oil exports to China, you know, the
strait of horror moves like there are ways in which
if something bad happens in Iran, it will affect all
of us.
Speaker 5 (09:51):
Yes, Iran has more than ninety million people in it.
It's actually quite an advanced economy. You cannot remove it
completely from the global picture. It will have a very
significant influence, and it has ways of exerting that influence.
Speaker 1 (10:08):
One of the things you brought up in this newsletter
that I mentioned from a couple of days ago was
that basically markets never go down, and when there's a
global conflict like that, it really has to be bad
on like historic proportions. I think in this piece you said,
you know Hitler invading France, that was one where there
was like a protracted decline the nineteen seventy three Young
(10:29):
Kapor War when Israel's neighbors attacked it, you know, a
surprise attack. I mean, on one hand, it's kind of comforting,
like wow, stock market traders are just like very chill.
It also just it strikes me as a somewhat dark observation,
and it feels like what you've been kind of writing
about and pushing towards. Is this idea that this confidence
that everything's fine may be misplaced.
Speaker 5 (10:51):
Well, I certainly feel that it is. I'm paid to
try to find where people might be getting things wrong.
It is unquestionably true that for the most part, markets
can deal with geopolitical shocks in the short term. Many
geopolitical shocks aren't that clear at the time and take
(11:11):
a long time to take an effect, so there is
in the jargon there's a tail risk. But on average,
when you have a shock that creates a big sell off,
it's over inside a month, and because traders know this,
it's widely known. There then becomes an assumption this is
(11:32):
what I believe, This is what they are assuming without
realizing that all geopolitical shocks can be ignored. Because most
geopolitical shocks can be ignored, you are making an assumption
if you don't think that this is going to be
more like the Yong Kippur War than like the Six
Day War, which had almost no impact on the markets
(11:53):
when it happened.
Speaker 2 (11:54):
I was wondering if you wouldn't mind kind of playing
out some of these tail risks that you're seeing, some
of the potential fallout from a conflict, short obviously of
nuclear armageddon, but between Iran's oil exports and the Straits
of Hormones, Like, what are some risks that you're seeing
looking at this.
Speaker 5 (12:12):
One interesting way to look at this is that Iran
wants the US to restrain Israel rather than to each
it on and very counterintuitively, the way to do that
might be to start attacking oil infrastructure to start expanding
the war. And that I think is one of the
(12:35):
great concerns is that Iran is weaker than it was before,
but it could close off the Straits of Hormus if
it's genuinely has reason to believe that the US is
thinking of assassinating their supreme leader. Things are getting very serious.
Maybe they do play that desperate card of closing the
Straits of Hormos.
Speaker 2 (12:56):
And that cuts a lot of the world off from
a lot of the world's oil.
Speaker 5 (13:00):
That cuts off most Saudi production and Kuwait and Iraq
and Iran, which is a lot. So that is the
single racist concern out there. Also the idea of whether
you get attacks on other countries, whether they try to
limit production in other countries, given that the degree of
(13:20):
hostility there is between Iran and the other countries in
the region, that's a Machiavelian response that makes it very
hard for the US to continue to push on. And
then the other big tail risk that I think is
what scared people on Tuesday after you had those Donald
Trump tweets, was oh, lord, he's really thinking he's going
(13:44):
to change the regime here. This fear that it will
create a new fiscal drag on the US, that all
of a sudden there will be this massive new overseas
commitment requiring money, feeding into all the worries about fiscal policy.
That it's possible that the US is about to be
dragged into an extremely expensive mistake.
Speaker 1 (14:05):
John, you brought up Trump's statements in your newsletter this morning.
You wrote a really interesting sentence. These gyrations you're talking about,
the market gyrations, oil going up, oil going down, have
happened with no obvious, concrete new developments, driven instead largely
by the news flow produced by the president on social media.
Isn't that all we have?
Speaker 3 (14:25):
Though?
Speaker 1 (14:26):
Like when you say the news flow produced by the
president of social media that you're just talking about the news, right,
I mean, it's all just Trump's tweets.
Speaker 5 (14:34):
Okay, this is turning into rather an enjoyable meta conversation
at this point. You don't need to be as old
as I am to remember a time when there was
more to news than what one seventy nine year old
man had on social media.
Speaker 2 (14:50):
Not just any seventy nine year old man.
Speaker 5 (14:52):
I mean, he is, unfortunately, it's the most powerful. I
think what you play into here, though, is that under
the old rule of doing politics, that's not the kind
of brinkmanship behavior that happened in general. If you're thinking
of intervening militarily, you do not talk about it. You
certainly don't broadcast it to however, and a million followers.
(15:14):
Donald Trump has one of the things from the tariff situation,
the number of different tariffs that have been announced and
I guess their news because he said he's going to
do them, and they never happen. I remember one weekend,
it's about four months ago. Do you remember there was
going to be a fifty percent tariff on Columbia. Yes,
And it lasted about five or six hours. I was
(15:36):
sort of desperately swatting up on the Colombian economy, just
like I've been swatting up on the Iranian economy. But
it's like if a tree falls in the wood with
nobody to see it. If a tree doesn't fall in
the woods, but somebody tweets about it, does it mean
that the tree has in fact fallen?
Speaker 4 (15:52):
You know?
Speaker 5 (15:53):
I mean trying to sort of invert it. But if
we're living in a reality where the news is every
time the resident vocalizes something on his mind, that's not
normally how leaders communicate and markets don't normally have to
deal with this huge dilemma of do I take this
(16:13):
seriously or don't ty.
Speaker 2 (16:20):
We're really excited to have Megan Greenwell with us. She
is a Bloomberg BusinessWeek contributor and author of the new
book Bad Company, Private Equity and the Death of the
American Dream. Welcome Megan, Thank you.
Speaker 1 (16:31):
For having me Yeah. I was super excited about this conversation,
not only because Meghan's book is great. You are investigating
how private equity affects people's lives or communities the economy,
but also because this topic is super noosy. Right now,
we're at this moment where private equity, after being this
ridiculously successful asset class from an investor perspective, is facing
(16:54):
all these challenges. Places like Yale are trying to get
out of their investments in private equity, trying to their
holdings in private equity, and meanwhile, the private equity industry
is desperately trying to bring the rest of us regular
people into the asset class via their four one K
is trying to get these businesses into your retirement plans,
(17:16):
into my retirement plans, and I thought we could talk
about that as well.
Speaker 2 (17:19):
Yes, definitely a lot to discuss, Megan, before we get started,
Would you mind defining private equity for us? What is
private equity and how does it work?
Speaker 7 (17:27):
Private equity bundles money from various types of investors, so
university endowments, public pension funds, ultra wealthy individuals, investment firms, whatever.
But then they combine that money together with huge bank
loans to take over companies and what they call leveraged buyouts.
So often people confuse private equity and venture capital. Venture
(17:50):
capital is investing in startups and taking a piece of
that company. Private equity, for the most part, is executing
these leveraged buyouts to take over companies.
Speaker 2 (18:01):
Wholesale, they want to take them over in order to.
Speaker 7 (18:04):
I mean ideally they'd like to take them public.
Speaker 1 (18:07):
I mean they need to sell them basically, either selling
them to the public via an ito.
Speaker 2 (18:11):
Saving houses where you're like, we're going to buy this house,
We're going to install a new kitchen, fix, shine it up,
and then sell it for triple what we paid to.
Speaker 1 (18:18):
Yeah, except a lot of the time these are kind
of either declining businesses or businesses that are healthy but
in shrinking industries, or businesses.
Speaker 3 (18:27):
That are troubled in one way or another.
Speaker 1 (18:29):
Right, And the whole point of the private equity firm
is they're going to very quickly, and you said it
in your answer, like turn things around, cut costs, and
then it'll be worth more and that and they will
get paid along the way, and then also, hopefully if
everything works out, sell for a higher price than they
bought for.
Speaker 2 (18:44):
And what kinds of businesses are they in right now?
Speaker 7 (18:49):
One of the interesting things about reporting this book was
seeing the evolution of which businesses they used to be
in versus which ones they're in now. So I write
in the book a bunch about toys r US which
which was acquired by two private equity firms or ip Yes,
two private equity firms and a real estate trust in
two thousand and five. And at that time retail was
(19:10):
huge for private equity. They really wanted in on big
retail chains because they were under threat from Amazon, but
there was some thinking that a bunch of them could
still be saved. What ended up happening was a bunch
of them were saved, but not the ones owned by
private equity. But now, for the most part, private equity
is largely out on retail. Now you see a ton
(19:31):
of private equity in hospitals, veterinarians, dentists, preschools, all of
these kind of like recession proof industries because like your
kid has to go to preschool and your grandma needs
to go to a nursing home regardless of how the
economy is doing. So you can really like trace that
(19:52):
evolution over time and also see how they use the
same playbook in retail businesses like toys r US and
now are using it in businesses like hospitals.
Speaker 1 (20:02):
I mean, the whole argument of this book is that
private equity and the way it does business is bad.
It's bad for the economy, it's bad for these businesses.
Can you just lay that out for us, Like, why
you think that's the case that the subtitles private equity
and the death of the American Dream.
Speaker 2 (20:17):
That doesn't sound bad.
Speaker 7 (20:20):
So I think private equity is really good for private
equity firms and pretty good most of the time for
their investors. Though it's complicated and it turns out to
be very bad for the companies they acquire and their
workers and the communities that rely on them. And one
of the biggest reasons for that is when they take
out these loans to acquire a company, the debt for
(20:42):
those loans is assigned not to the private equity firm
that made the decision to take them out, but actually
to the company it's acquiring. So if I come in
and buy Toys r Us. In this case, what happened
was Toys r US was purchased for something like six
billion dollars and five five point two billion dollars of
that was loans, and only Toys Rs itself was responsible
(21:06):
for paying that debt back. And Toys RS had always
been a very fiscally conservative company. They did not have
a lot of debt. Ever, now all of a sudden,
they were just buried under interest payments and their private
equity owners were not helping them repay that money. And
so the reason toys Rs went out of business was
not Amazon. It was the fact that they didn't have
(21:28):
any money to compete with Amazon or anybody else because
they were so buried under interest payments.
Speaker 1 (21:34):
Well, it's kind of like how if you're an investor
flipping houses, you might borrow against the property that you're flipping, right, Yeah,
it's exactly like that.
Speaker 3 (21:41):
I guess.
Speaker 1 (21:41):
The difference is that a lot of these businesses have
an importance to the community that maybe viewed from the
thirty thousand or fifty thousand whatever, far away view of
a bunch of Wall Street investors, it just looks like
an asset and an asset that you can maybe try
to optimize if it if it fails, you know, who
cares or whatever.
Speaker 3 (22:00):
But up close, there's like a real human cost.
Speaker 1 (22:03):
Yeah.
Speaker 7 (22:04):
So in the case of toys Rs, I focus on
this woman who was supporting her family of five single
handedly on a toys Rs salary, and when she and
thirty three thousand toys Rs workers lost their jobs, their
contracts guaranteed severance but because it was a bankruptcy brought
on by these huge loans, they didn't get any severance.
(22:25):
And so now all of a sudden you have this
situation where all of these people are out of jobs
and cannot feed their families. Meanwhile, you know Toys Rs.
Speaker 2 (22:34):
Yes it's a big.
Speaker 7 (22:34):
Box store, but it was an important part of a
lot of communities tax revenue wise, also like seemingly dumb
little things like sponsoring the local Little League team.
Speaker 1 (22:45):
You said that private equity has been good at making
money for private equity investors. I'm curious the Trump administration
and in particular the people running the sec for Donald Trump,
are very interested in basically getting rid of the barrier
that prevented normal people. Do you think that that actually
makes sense for a normal investor?
Speaker 2 (23:06):
Well, and we should say that right now from what
I understand, for one case, can't invest in private.
Speaker 3 (23:11):
Actually four to one CA's.
Speaker 1 (23:12):
But like regular piece regular people, you have to be
what's called an accredited investor, meaning you have to like
show that you either have like a decent amount of
sophistication or wealth or both.
Speaker 2 (23:22):
And there's a push now to kind of get rid
of some of those barriers let people in in private
equities go again, Oh totally.
Speaker 7 (23:29):
Private equity has to disclose very little about how it operates,
where it's money it is going, or even how it's performing.
So if you are not a very, very highly trained,
very obsessively observant investor, I would be very nervous about
getting involved in private equity.
Speaker 2 (23:51):
So do you think that, for one, CAS will start
getting into private equity?
Speaker 7 (23:56):
So, I mean private equity is very exciting about this
possibility because it would give them literally trillions of more
dollars at their disposal. And so if you're looking to
fund other private equity acquisitions, you know you're a bank
or something that starts to look pretty good too. It
would give private equity so much more power in our economy,
(24:21):
and it is already so powerful in our economy. So yes,
I think it is very likely to happen.
Speaker 1 (24:27):
What's your sense of why private equity firms are suddenly, like,
really excited about getting retirees money instead of just having
pension funds and university endowments and the sort of you know,
quote unquote institutional investors who in the past have been
their main source of capital.
Speaker 7 (24:44):
Part of it is the private equity industry is just
worried right now their rates of return have gone down.
Yale is now pulling a bunch of its money out
of private equity.
Speaker 2 (24:53):
They have a big endowment, they're huge investors. Correct, why
are they pulling out?
Speaker 7 (24:57):
They are pulling out because they are concerned about, you know,
having their money in their long term, whether it's going
to pay off well enough for them long term. The
Pennsylvania State Public Employees' pension Fund recently did something similar
where they downscaled the amount of money they have in
private equity because even if they're getting good returns year
(25:20):
to year, they're just worried that ay, they're not getting
enough information to really know, and b they're not performing
at the level that private equity is promising over the
long term. You know, they just want to make sure
they're proactive in finding new sources of capital. And part
of it is this requires a regulation change. And I
(25:42):
think Donald Trump has really stacked his inner circle with
private equity people, and it is a good time to
sort of say, hey, buddy, you know all that money
we gave to you during the campaign cycle, like give
us this little favor in return.
Speaker 2 (25:59):
What is the danger here? Like, what is the real
danger that you see of the trajectory we're on of
private equity getting involved in kind of new industries and
growing and potentially getting four one K money? Like where
does this end or why is this potentially a problem.
Speaker 7 (26:16):
I think as private equity swallows more and more of
our lives, we see the effects of that in more
and more ways. Right, So, you know, classically, when private
equity comes in, prices go up and quality of care
goes down. That is one thing when it's like toys
r us. That is a much bigger problem when it
(26:37):
is a hospital. So I write about this doctor in
rural Wyoming who I followed for two years. The hospital
he worked at got taken over by private equity and
all of a sudden, you couldn't deliver a baby at
that hospital. And it's rural Wyoming, so that means you
can't deliver a baby within thirty miles, and that's thirty
miles through windswept canyon in a Wyoming winter. So I
(27:02):
do think that in very real ways, people's quality of
life and actually people's real lives, you know, people's life
or death is determined by this in ways that private
equity firms don't seem particularly invested in and as that
continues to grow and grow and grow unchecked, we need
(27:26):
to have a reckoning about the real world effects of
this industry that doesn't really care about the rest of
us having that kind.
Speaker 2 (27:36):
Of power and is getting into sort of more personal
and sensitive parts of our lives.
Speaker 7 (27:43):
If they're in your hospital and your grandma's nursing home
and your kid's preschool, they're in public utilities. Now they
own a lot of landlords.
Speaker 2 (27:52):
They can really run.
Speaker 7 (27:54):
Your entire life in a lot of cases without you
even knowing it, and so then you don't even have
the information much less the ability to sort of push
back and say no, no, I want to live my
life under some different model of capitalism.
Speaker 2 (28:10):
Megan, thank you so much for talking private equity with us.
The book is called Bad Company. It is really it's
such a great read. Check it out.
Speaker 1 (28:19):
And Stacy, it's time to talk about our underrated story
of the week. I think the story we need to
talk about this week is the Trump mobile, a new
mobile trump phone that Trump is using my new mobile carrier.
Speaker 3 (28:36):
I can only assume.
Speaker 1 (28:38):
But right as we were getting in the studio, yeah,
you called an audio.
Speaker 2 (28:41):
Okay, so, Max, you wrote a feature piece this week
which I have not been able to stop thinking about,
and it is about someone very similar to Donald Trump
in a lot of ways. Very famous entrepreneur, hit television show,
someone kind of known for straight talk, who's very much
connected to our day to day lives, Mark Cuban.
Speaker 3 (29:02):
Yeah.
Speaker 1 (29:03):
The funny thing is your tea's worked whether or not
we were talking about Cuban or Donald Trump. But yeah,
we just BusinessWeek published a story about Mark Cuban, and
it's a profile of his latest thing, which is a
attempt to make healthcare prices lower.
Speaker 3 (29:19):
But it's also a look at this.
Speaker 1 (29:21):
Very unlikely political figure. People probably remember that Cuban was
sort of involved tangentially in the twenty twenty four election
as a as a surrogate for Kamala Harris, although.
Speaker 2 (29:31):
Not a very when not judging Shark Tank. Yeah, when
most famous for.
Speaker 1 (29:36):
It, right, he's famous for previously owning the Dallas Mavericks,
being a star of Shark Tank, being this kind of
just like Donald Trump, like a kind of professional billionaire,
a guy who plays a billionaire in the media. And
you might think, first of all, he's not that he's
not that liberal. He's basically a centrist. He's a fan
of Ein Ran And in any case, he is not a
(29:59):
conventional Democratic politician, and that is kind of why actually
a lot of Democrats are excited about him.
Speaker 2 (30:04):
Has he talked about running for president or has his
name been floated?
Speaker 1 (30:08):
His name has been floated, because at various times over
the last ten years he has said he might run
for president. He told me in our interview that he
is not interested in running for president.
Speaker 3 (30:20):
This is always the lie, which is a little bit.
Speaker 1 (30:23):
Different from saying like, you're definitely not going to do it.
It wasn't what I think is called a Shermanesque denial.
It was a denial, but one that, of course you
could imagine changing. And when you look at kind of
what he's doing, he is acting like someone who is
at least exploring the possibility. And that's what I heard
when I talked to political consultants on both sides of
(30:43):
the aisle.
Speaker 2 (30:44):
Well, the thing that really struck me is the idea
of the power of being a public businessman. That was
a lot of white people like Trump too. He's just
known to be a businessman. He's a successful businessman. He
plays one on TV. And Mark Cuban also has that
where you look at me like, oh, that guy knows
what he's doing. He can take care of the economy,
(31:04):
even this election when immigration was a huge issue, Economy
is always the top issue for voters, And that was
really interesting to me that that was kind of Trump's superpower.
People kind of de facto trusted him, and that Mark
Cuban might have that quality too.
Speaker 1 (31:18):
Yeah. I mean, the other interesting thing about Cuban is
that he's able to simultaneously be moderate. He said things
like he wants to cut the deficit things like that,
while also sounding like a populist and like that has
been one of Donald Trump's like secret secrets success. Yeah,
so Cuban is simultaneously sounding like a moderate while also
(31:40):
railing against the insurance industry, sounding basically not that different
from like Bernie Sanders on an issue like healthcare, although
advocating very different policy positions. And there's something like inherently
funny about the idea of like a Mark Cuban who's
sort of famous for, like you said, playing a billionaire
on TV, and also of like shouting at the Dallas
(32:00):
Mavericks from the sidelines and getting in trouble for shouting.
Speaker 2 (32:03):
But also giving people like the little guy a shot
at their dreams, funding these tiny companies. Like, what's more
American dream than that? I love shark Tank. It's so emotional.
It's all about business, which of course I spend all
my time thinking about, and I love small businesses. I'm
just thinking, if Mark Cuban did become president, he could
do like a shark tank for like bills, right, like
(32:24):
people bring their proposals, they could shark tank the bills.
Speaker 1 (32:28):
I would not hate that Mark Cuban. Stacey Vannick Smith
is available. Just email the chief of staff everybody dot
net if you're interested, absolutely, Stacy. We've had a lot
of reviews come in. Yes, we shot.
Speaker 2 (32:42):
Thank you everybody who's left reviews.
Speaker 1 (32:44):
You promised and I agreed that I was going to
write a haikup.
Speaker 2 (32:48):
I promised that you would write haikus every reviewer.
Speaker 1 (32:51):
Yes, and I am behind. But luckily you have stepped
in and written one for us. You want to tell
us about it and then perform it.
Speaker 2 (32:57):
Yes, well, I've based mine on the economic principle of
negativity bias, which means that if your salary goes up
by five percent, you're like kind of happy, but if
it goes down by five percent, you are furious. And
so this happens with ratings too, right, Like, most of
our ratings have been very, very positive and it's been
lovely to see and we've been really excited.
Speaker 1 (33:17):
But we didn't want to leave out the hen because he.
Speaker 3 (33:22):
Is still still a Listen.
Speaker 2 (33:24):
We did get one star review from Guy InChI and
he said that there was a liberal bias. So here
is my hikup for him. This is for you Guy.
To the Guy InChI who says we are too liberal,
my dad thinks so too. He does shout out, shout
(33:46):
out to.
Speaker 1 (33:46):
Shout out to you dad. Listen, you keep leaving the reviews,
and we are grateful. There are actually a bunch of
positive reviews here. Bring us and trumpets, nors Zeig, Sean,
Michael Man. We appreciate you too, and we will have
more high Who's in the days that come. As people
leave more reviews, please do and we will hit you up.
We will Stacy will write you another poems.
Speaker 2 (34:07):
No is it supposed to be you?
Speaker 3 (34:08):
Okay or me?
Speaker 1 (34:09):
Okay, I'll do it, And thank you again for leaving
those reviews.
Speaker 3 (34:12):
Keep them coming.
Speaker 1 (34:19):
The show is produced by Stacey Wong. Magnus Hendrickson is
our supervising producer, Amy Keen our editor, and Brendan Francis
Newham is our executive producer. We get engineering help from
Blake Maples and Dave Purcell fact checks.
Speaker 6 (34:31):
Big thank you to Laura Milian Rodrigo, Arriuela, Clara Ernans,
Lita Raga, and of course our good friend Jeff Muscus
Sage Bauman heads Bloomberg Podcasts.
Speaker 1 (34:43):
And we got to say thank you to the parents who.
Speaker 3 (34:45):
Helped us collect that audio.
Speaker 1 (34:46):
You are awesome and your kids are so cute. I'm
not talking about my kids, by the way, And if
you have a story that we should be talking about,
email us at everybody's at Bloomberg dot net. That's everybody
with an s at Bloomberg dot net. Thanks for listening
and we'll see you next week.
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