My friend and former co-blogger Antonino D’Ambrossio has a great article up at SleptOn about how Wall Street firms are seeking to rake American taxpayers over the coals after taking all they could from the economy for years. Here’s a snippet:

In Martin Scorsese’s now classic film Goodfellas, there is a scene where wiseguys Henry Hill (Ray Liotta) and Tommy DeVito (Joe Peschi) burn down the Bamboo Lounge, a nightclub the gangsters had been using as a way station to house cases of liquor, food, and expensive clothes that they then “flipped” (to turn a huge profit on) on the street. Watching as the U-Hauls pull up and unload the merchandise, Henry Hill sets up the scene with the following voice-over:

As soon as the deliveries are made in the front door, you move the stuff out the back and sell it at a discount. You take a two hundred dollar case of booze and sell it for a hundred. It doesn’t matter. It’s all profit.

Sonny, the club’s owner, is unable to make the payments and soon the debt is insurmountable. The gangsters have been profiting and now they will score one last huge gain by burning the place down and leave Sonny, the owner, with a huge load of debt impossible to repay. Liotta as Hill once again in voice-over:

And, finally, when there’s nothing left, when you can’t borrow another buck from the bank or buy another case of booze, you bust the joint out.

When I read the endless stories of private equity’s record breaking billionaire buyouts in today’s news, this scene in Goodfellas plays like a constant loop in my mind. In essence, private equity companies like KKR, Blackstone, and the Carlyle Group (these names should ring a bell for most folks reading this because they are key players in the sub-prime mortgage catastrophe and the debt crunch that threatens to plow this country deep into recession) have perfected the art of the legal “bust out.” I’m sure the gangster in Goodfella wish they had thought of this greatly profitable scheme. What these firms do is use risky debt-laden business models to earn hundreds of millions a year while allowing their partners to pay a lower tax rate on their huge investment income than nurses have to pay on a $50,000 salary (15% for the billionaire and 35% for the nurse). These companies make exorbitant profits the old fashioned way — they don’t earn it. Instead they make money by loading debt onto the companies they buy, cutting out as much cost as they can (which can mean laying off employees), and then selling the companies for a profit.
…
Clearly, the private equity “bust-out” business model is threatening an already tenuous 21st-century American democracy. For workers, the buyout and subsequent “bust out” of scores of American companies has helped to stagnate wages, roll back hard-fought labor protections, undermine unionization, inflate the already astronomical price of healthcare, and make it nearly impossible for many to save and build towards retirement or the semblance of a secure future.

Antonino’s whole piece is worth a read. There’s been a lot of talk about how big investment firms and banks holding mortgages are going to benefit from a big bailout. But there hasn’t been much attention on how private equity firms will benefit, let alone how their actions have contributed to the current mess.