One of the great questions about the 2020 Covid-19 lockdown is whether hidden financial interests planned it in advance or merely took advantage of the situation when it was underway. Many people have been oblivious to the economic devastation that has been caused, so they don’t even ask this simple question. However, ever since it started critics of the lockdown have been pointing out that the economic devastation will be far more deadly than the virus itself. This fact about pandemics was plainly understood by governments until this year, which is the reason previous viral pandemics never led to policies that would cause massive social and economic disruption.

It is obvious that a massive disaster now exists for the lowly worker and renter class, but the damage also goes much higher up the food chain. Small, medium and large sized business are getting wiped out, which leads back to the question above. This all seems to have been planned, but who would plan such a thing, and how could they carry it out? How could they influence governments and society at large to go along with such an unprecedented experiment?

Photo by Guillaume Dargaud

The answer may be that private equity firms have trillions of dollars to play with and a lot to gain from buying up the distressed assets that will be produced by the prolonged stress on the economy. Furthermore, the $trillions of assets they have under management and hundreds of $billions they have in assets buy a lot of politicians and media influence through the same sorts of PR firms and NGOs that sold humanitarian wars of intervention in recent decades.[1] It is very hard for people to imagine how large these private equity firms are. Even large corporations like national retail chains are small fish in this food chain. Does anyone remember the evil mega-bookstore chains that bought up small bookstores? They in turn got eaten by Amazon.    

One shining example of how this is all working out came in a minor news story from Canada in September 2020. The famously successful member-owned cooperative, Mountain Equipment Co-operative (MEC) (est. 1971), with 22 branches nation-wide, announced on September 19th that the pandemic had pushed the struggling co-op over the edge. It filed for bankruptcy and no longer had any option other than to let Kingswood Capital Management take it over. The email to members from the chair of the board of directors is excerpted here:

… The sale of MEC’s business, and the decision to move the business away from the co-operative model was, after all, a very difficult decision—but it was the right one. Facing a stark choice, we chose to preserve employment opportunities, a larger store presence, and a commitment to MEC’s ethos rather than fold up the MEC tent for good…

… our Board of Directors announced unanimous support for an agreement with Kingswood Capital Management, LP. The agreement with Kingswood will ensure that MEC has a brighter future.

MEC has experienced increasing performance issues since 2016. In July 2019, new leadership was brought in to develop a plan to turn MEC around. We were making significant progress but then the global pandemic hit and exacerbated MEC’s financial challenges…

… As part of the review, the Special Committee, in concert with expert advisors, sought refinancing from over 65 potential lenders, proactively explored and leveraged applicable government support programs, and examined funding MEC through voluntary member assessments. [emphasis added]

Ultimately, a sale was the only option that would save MEC from bankruptcy or liquidation…

… Our persistent financial challenges combined with the pandemic created a situation in which MEC became insolvent, and this necessitated a filing under CCAA. In CCAA, the court oversees the restructuring process to ensure fairness. A member vote (or in the case of corporations, a shareholder vote) is not required…

… Kingswood’s commitment to honouring the MEC ethos through their Canadian affiliate and the solid financial footing from this transaction gives us tremendous confidence in the future. The Kingswood team, and the incoming CEO, Canadian and longtime MEC member Eric Claus, are very optimistic about MEC’s future. That optimism was at the heart of the board’s decision to enter into this agreement.

I emphasized the text that indicates that recovery was on track until the pandemic hit and that there was a lack of access to financing after that. For some reason, no financial institution had faith that MEC had potential and could be revived with a loan, but the same enterprise somehow does have great potential if it is taken over by a private investment firm. Despite “Kingswood’s commitment to honouring the MEC ethos,” it is obvious that the only way this contradiction can be resolved is by acknowledging that Kingswood will restructure and cut in a way that would have been unacceptable to Co-op members. How many stores will close, how much of the staff will be laid off, what benefits will be slashed? As of now, the MEC website says that Kingswood has committed to retaining 17 of the 22 stores. The degree of restructuring will depend on how well the market for outdoor gear recovers in the post-pandemic world and with the less affluent post-boomer generations. In any case, fees and profits will be made as the assets are traded on the equity market. We can expect to see this scenario repeated with thousands of other distressed enterprises of all types and sizes. Perhaps the lockdowns won’t end until the feeding frenzy is over.  

[1] See, for example, the data for the world’s largest asset manager, BlackRock Inc. (from Wikipedia, 2020/09/27): Total assets under management: 7.4 trillion, total assets‎: ‎US$159.573 billion (2018), net income‎: ‎US$4.484 billion (2019), total equity‎: ‎US$32.433 billion (2018), number of employees‎: ‎16,200 (2019).