The Committee to Destroy the World

CHAPTER 6 From Innovators to Undertakers

The financialization of the U.S. economy was characterized by an enormous increase in indebtedness among corporations and consumers. Among the leading contributors to the rise in debt in the years leading to the financial crisis was the leveraged buyout boom, which represented an attempt to monetize all aspects of the business corporation. At the peak of the debt bubble that led to the 2008 crisis, private equity was the motivating force behind the leveraging of Corporate America. From 2003 through 2007, annual leveraged buyout debt issuance skyrocketed from $71 billion to $669 billion.¹ In 1980, $5 billion of capital was committed to private equity funds; by 2004, this figure had increased to $300 billion.² And by 2008, this number was approaching $1 trillion.³ As with all things on Wall Street, investors and promoters took a decent idea and replicated it into oblivion.

Promoters of private equity make two primary arguments. First, they argue that private ownership obviates the so-called “agency problem,” which refers to the issues that arise when the management of a public company has only a small ownership stake in the business. Harvard Business School Professor Michael C. Jensen sounded this cry in his 1989 apologia for leveraged buyouts, “Eclipse of the Public Corporation.” In that article, Professor Jensen wrote: “By resolving the central weakness of the public corporation—the conflict between owners and managers over the control ...