Private Equity Firms: The Sharks of the Financial Aquarium

It has always been a challenge for proverbial watchdog to assume that all financial dealings in the markets are adhering to the same standards set by the government. With private equity playing an integral part in a financial credit cycle crisis, its trigger happy ways of using cut-rate financing to buy out companies, overloading the businesses with so much that they eventually go under, leaves the industry in humiliation, yet private equity returns year after year, yearning for more.

In today’s financial downpour, private equity assumes it is the right answer. Buy-out firms select from an array of companies eager for investment. Private equity’s strategy reveals that they are hunting for funds before they strike two-faced double deals amid the financial wreck yard of dilapidated balance sheets. In fact, you observe such firms including Carlyle and Texas Pacific Group, with close to $450 billion in war chests to invest; hiring people to run the banks they wish to take over, specializing in deceitful management picking off the weak establishments.


These buy-out firms come to the rescue with fixed aspirations of wanting a better deal than the last. With soaring fixed costs, private equity firms sink themselves into the top ranks of the company with a dictum of whatever it takes, will be done quota.

For the sharks of private equity, thinking that they are appealing to the more sophisticated investors, these vigilantes need to be put to serious review. Regulation needs to level the playing field that will not offer leverage as incentive without assessing a risk that society has to bear. These firms need to pay for both the upside and the downside of their financial buy-outs. If more regulation were put into place then it would allow for a fresh start to private firm buy-outs, truly putting these firms to the test, instead of watching them tote the thought of being “masters of the financial universe”. Let the private equity firms expose the ingenious ways of making corporations to roll over and drain them dry.

There needs to be a guarantee that when it boils down to it, private equity abides to a set standards of buyout practice so that it won’t come down to a complete disaster. The way it should be seen is that American needs this ownership regulation to prevent all the private equity firms rising to the top of the credit cycle. The companies bought out are left burnt badly by such an overturn. They have no means but to rely on private equity to act as the lone ranger and come to the rescue since they cannot increase equity in their market. In my mind, this is not remotely and idea of speculation where any leeway for interpretation could exist. Rules are necessary to ease and prevent crisis that are generated by such firms already. Until the federal government realizes this gray area needs regulation, the only barrier between these two thresholds is a holding act that cannot play big brother and watch over every company vicariously.

"Loan Rangers." The Economist. 28 Aug. 2008. www.economist.com/finance/displaystory.cfm?story_id=12007269>