Private equity firms just don't care about the success of the companies they take over, according to Matt Taibbi.
"What people have to understand is that private equity companies do not exist to turn around companies. That is not their function," Taibbi, contributing editor for Rolling Stone, told HuffPost Live on Thursday. "Their function is to make a profit for their investors and for the private equity firm, and these things are at cross-purposes."
Taibbi said though private equity firms have spawned some success stories, the industry's fundamental business model promotes layoffs and even company failure. The industry's proponents argue that private equity firms make companies more efficient.
"When you take over these companies, you have all these tools at your disposal that allow you to extract value from the company without the company succeeding," Taibbi said, expanding on his recent Rolling Stone article bashing Republican presidential nominee Mitt Romney and his roots in private equity. "You can force them to take out a bank loan and pay you a dividend. There's all these different things you can do. You can succeed in a private equity deal without turning a company around."
Taibbi said that private equity deals saddle companies with crippling debt and management fees, which buy only "the privilege" of having "Mitt Romney tell you where the costs have to be cut and whom you have to fire."
Taibbi said that Mitt Romney's fundamental pitch to voters is misleading. "He's pitched himself as a guy who is going to turn around America because that's what he does, is turn around companies. But that's not really true," Taibbi said.
Ultimately, Taibbi said, Romney's latest takeover bid will fail. "I think people are going to have a hard time getting around someone who fires people for a living and wants to get rid of Medicare," Taibbi said. "I don't think it's going to carry them to victory."
Watch the full segment below:
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