Private equity’s desperation for new markets is why it pushed Trump (largely, it appears, through Blackstone chief executive Steve Schwartzman, who gave Republicans $40 million in 2024) to give ordinary investors greater access to private equity in the name of “democratizing” it. But there’s some question whether these ordinary investors even want it. When The Wall Street Journal surveyed investors last fall via a Harris poll, only 10 percent said they were dissatisfied with their current retirement-fund options. But the same survey found that these ordinary investors were persuadable; informed that most companies with revenue exceeding $100 million were privately held, 59 percent said sure, okay, they’d like to invest in these behemoths. Who’s going to tell them they only got invited in because the party was already over?
You’ve probably heard the term “lemon socialism” to describe government investment in a failing enterprise that, in the event of recovery, gets to keep the profits. (Many of us used that term during the 2008 financial crisis to describe the Bush administration’s bank bailout.) The Trump administration’s attempted rescue of the private equity industry is a related phenomenon, lemon deregulation. (I believe I am the first person to use this term.) Lemon deregulation works like this: Take a failing industry. Throw it a lifeline by removing prohibitions that prevent it from operating in a manner that endangers the public. Then do the best you can to ignore the damage.
Can lemon deregulation revive private equity? That’s an open question. But even if it does, the cost will be unacceptably high to people who can’t afford to risk big losses to their nest egg. And quite apart from the substance, Trump is throwing his arms around an industry that even many Republican candidates right now are turning into a political bogeyman. Politically, he can’t afford that. Maybe this last part should be our little secret.