With a hat tip to digby (she is glorious, no?), we have found an episode of Bill Moyers Journal that details the result of the transfer of ownership of a nursing home to a group of investors. The set-up runs like this:
Every week we hear of another publicly traded company being bought by a private equity firm. Some of those investment firms — like Blackstone, the Carlyle Group, and Cerebrus — have become almost as well known as the brand-name companies they've been snapping up, from Chrysler to Dunkin' Donuts to Toys R Us. But private equity firms have no real interest in toys, cars, or baked goods. What they are after is big and quick returns on their capital. To get it, they buy a company and cut the wages, pensions and health benefits of the employees who work there.(emphasis added)
The highlighted section sums up the entire ethos of our current piratical form of capitalism - it's all about the Benjamins, as the young people today say.
Thousands of nursing homes have been bought up by private equity firms like Warburg Pincus and Carlyle. Profits were increased by reducing costs, then investors quickly resold the facilities for a big profit Ð leaving and I quote- "residents at those nursing homes worse off, on average, than they were under previous owners."
Now, of course, one might argue that, if it is a poorly-run facility, market logic would dictate that it would lose business, and no longer be an attractive investment. In other words, market logic would dictate that the investors would keep up the quality of care. In other words, there is a fundamental flaw at the very heart of the capitalistic enterprise. Investors operate in the exact opposite manner than that proscribed by the "logic" of capitalism. So, obviously, the "logic" is wrong.
Anyway, we continue on.
Exhibit #1: Habana Health Care Center in Tampa, Florida, purchased by a group of private equity firms in 2002. "Within months, the number of clinical registered nurses at the home was half of what it had been a year earlier...budgets for nursing supplies, resident activities and other services also fell..." "When regulators visited, they found malfunctioning fire doors, unhygienic kitchens, and a resident using a leg brace that was broken..."
Basing its report on state government data, the [New York Times] says 15 at Habana died from what their families contend was negligent care. But when families sue, they often can't find out even who owns the nursing homes because of the complex corporate structures private equity firms have created to cover their tracks.
Imagine that. Those who have a legal complaint cannot thread the maze to discover who is responsible for the deaths and/or other health disasters. Precisely because accountability and the proper maintenance of a facility under ownership is not the issue - the only issue is the return on investment, preferably the quicker the better. Don't believe me? Read on. . .
It's this kind of capitalism that drives John Bogle up the wall, as you're about to learn. John Bogle believes owners should be in charge — and accountable. He's known and respected world-wide as the father of index funds and the founder of The Vanguard Group, one of the largest mutual funds anywhere, with over a trillion dollars in assets.
You mean there's someone involved in high finance who disapproves of this kind of thing, and his name isn't George Soros? Probably a Soros plant . . .
BILL MOYERS: This story in THE NEW YORK TIMES this week. What do you think when you read a story like that?
JOHN BOGLE: Well, first, it's a national disgrace. Simply put. And there are some things that must be entrusted to government and some things that must be entrusted to private enterprise. And what we see there, at least in my judgment, is that we've taken medical care, healthcare and going from making it a profession in which the patient is the object of the game — preserving the patient "first do no harm" as Hippocrates would say or would have said and turn that into a business. And so, it's a bottom line. I've often said we're in a bottom line society. We're measuring the wrong bottom line.
BILL MOYERS:What does it say to you that the real owners of the nursing home, the private investors have created this maze of smoke and mirrors that make it virtually impossible to find out who the owners really are?
JOHN BOGLE:Well, that's so typical of much that's going on in American finance, the way we structure these financial instruments, which are stock certificates or debt instruments. But it's the same thing of the removal of your friendly, local neighborhood bank holding the mortgage and being able to work with you when you fall on hard times to some unnamed, often unknown, financial institution who couldn't care less.
BILL MOYERS:These private equity firms that own these nursing homes wouldn't even talk to THE NEW YORK TIMES. They won't talk to reporters. I mean, there's no accountability to the public.
JOHN BOGLE: There's no accountability. And it's wrong. It's fundamentally a blight on our society.
BILL MOYERS:What does it say that big private money can operate so secretly, with so little accountability, that the people who are hurt by it, the residents in the nursing home have no recourse?
JOHN BOGLE:It says something very bad about American society. And you wonder — the first question anybody would have after reading the article — how in God's name do they get away with that? Well, we have all these attorneys that are capable of devising complex instruments, and money managers who are capable of devising highly complex financial schemes. And there's kind of no one to answer to the call of duty at the end of it.
Obviously, Bogle is under the sway of some very sinister forces. Please go back and read his very first response: "[T]here are some things that must be entrusted to government and some things that must be entrusted to private enterprise." This is like turning the cross upside down or something, maybe even burning the flag. And he's an investment banker.
If you think that's something, please read on.
BILL MOYERS: What should be the dominant? What is the job of capitalism?
JOHN BOGLE: Well, ultimately, the job of capitalism is to serve the consumer. Serve the citizenry. You're allowed to make a profit for that. But, you've got to provide good products and services at fair prices. And that's the long term, that's what businesses do in the long term. The businesses that have endured in America have done that and done that successfully.
But, in the short term, there's all these financial machinations in which people can get very rich in a very short period of time by creating highly complex financial instruments, providing services that can be cut back easily as in the hospital article, not measuring up to basically their duty.
We all know that in professions, the idea has been service to the client before service to self. That's what a profession is. That's what medicine was. That's what accountancy was. That's what attorneys used to be. That's what trusteeship used to be inside the mutual fund industry. But, we've moved from that to a big capital accumulation — self interest — creating wealth for the providers of these services when the providers of these services are in fact subtracting value from society. So, it doesn't work.
BILL MOYERS:So, the private equity nursing homes have added to their wealth. But, they've subtracted from society the care for people who need it.
JOHN BOGLE: That is exactly correct. Not good.
At the heart of our current free market ideology is the idea that a return on investment should occur as soon as possible - the quarterly report is the Bible, yet one that is superseded every three months by a new one. Rather than accepting that an initial investment might take years to become profitable, instant gratification has become part of our established political economy. The investors in this nursing home didn't give a hoot nor a holler about the residents, or the quality of care; they wanted a better that %5 return as quickly as possible.
This isn't free market capitalism, really. It's piracy. Yet, there are many who not only insist this is capitalism, but that this particular form of capitalism is morally superior to other forms of political economy. They also argue that government interference in any form would have long-range, systemic effects far worse than one shoddily run nursing home.
Anyone who argues that way, in my opinion, is a moral dwarf. Of course, it is thinking like this that has given us the various bubbles - the tech bubble of the late 1990's, the recently burst housing/credit bubble (which Atrios calls in his inimitable fashion "Big Shitpile") - tort and bankruptcy "reform" which is really just a racket for insulating business even further from accountability, and on and on.
This is why this anecdote is not meaningless, but exemplary, if in a really bad way. If it were an isolated incident, it would mean nothing. It isn't isolated. This is a direct result of an ideology that insists on a public policy that insulates "profit" from any interference whatsoever. Anyone who thinks that things like this are "sad tales" that have no relationship to the way our economy really works just isn't paying attention.