Cory Doctorow argues that private equity firms are terrible and should be abolished and points to 1982 as the year they took off, thanks to former treasury secretary William Simon.

This was the starter pistol for future leveraged buyouts, through which companies like Bain Capital and the Carlyle Group buy multiple companies in the same sector and transmit “winning strategies” between them: new ways to dodge taxes, raise prices, and avoid regulation. PE owners suck any financial cushion out of companies — funds that firms set aside for downturns or R&D — and replace it with “brutal debt schedules.” The PE owners benefit massively when this drives up share prices, but take no downsides when the companies fail.

Under PE, companies have emphasized firing workers and replacing them with overseas subcontractors, and amassing “brands, patents and tax loopholes” as their primary assets. PE firms specialize in self-dealing, cutting in the banks and brokers who set up the deals for a share of the upside. A company bought by a private equity firm is ten times more likely to go bankrupt than one with a traditional capital/management structure.

He endorses Elizabeth Warren’s proposals for reforming this rapacious sector of the economy.

Elizabeth Warren has proposed some commonsense reforms to private equity: making PE investors liable for the debts they load their companies up with (including an obligation to fund workers’ pensions); ending special fees and dividends; and reforming bankruptcy and tax laws to force PE companies to operate on the same terms as other businesses. Stoller calls this “reunifying ownership and responsibility”: making the people who assume ownership of these productive companies take responsibility for their liabilities, not just their profits.

As Stoller points out, critics of Warren’s plan say that this would end private equity investing as we know it (“Unfortunately, Warren’s fixes for these problems… would pretty much guarantee that nobody invests in or lends to private equity firms” — Steven Pearlstein, Washington Post), but of course, that’s the whole point.

But centrist Democrats love private equity, as the firms are major political donors, and many’s the politician who cycled out of public office and into a cushy job with a PE firm.

The time is coming soon when the Democratic party establishment will have to choose between cozying up to the financial sector of the economy that is feeding off the misery of people or to side with those who are getting ripped off by them.