That may have happened in some specific cases, but companies susceptible to a leveraged buyout are not in a liquidity crisis. Look at say Toys r Us just before PE showed up and they had access to plenty of capital, they just didn’t have anything to spend it on.

If anything the reverse is true as PE tends to burden companies with so much debt they can’t innovate or downsize to fit changing markets.

No. What you described is liquidation.

PE is all about maintaining the pretense of a turnaround so that liquidation proceeds can go to management (the PE firm) rather than to outstanding obligations or investors/shareholders.

It's the white-collar equivalent of walking out with the coffee machine and an aeron chair -- so, naturally, 100x worse and 100x less illegal.

Yes, they also use leverage to magnify their outcomes. Since they are equity, their downside is capped (it is a call option essentially, which means they should maximize volatility to increase the option's value). You maximize volatility with financial leverage (debt). This is more profitable when rates are near-zero.

Engaging in risky bets is not "unique" to private equity - this is true of any equityholder (take a look at VC). It is also typically why bondholders include covenants restricting particularly high-risk actions voted upon by equityholders. However creditors have no leverage nowadays because they need to stick their money somewhere (hello high-yield debt) and Treasuries do not provide a reasonable return.

Using debt is not unique to private equity. When rates are low - arguably artificially - it makes sense to binge on debt and volatility.

This is laughably false. Different PE firms (and funds within them) have different strategies, some firms may indeed by the aggressive kind that you specify, but a lot of them also help the firms growth by providing capital and management guidance. There are different stages in a company's lifecycle at which a PE firm can enter and different outcomes. A lot of PE is in doing the complete opposite of what you suggest; the focus is on improving the business and increasing cash flow while removing any obvious inefficiencies.

The PE funds you describe are only a portion of the many PE strategies. Some take over well managed family owned companies where the family wants out; other acquire parts of larger groups that are being sold off because the current owner needs cash to invest somewhere else; in many cases PE funds come in to provide the cash needed for massive international expansion etc etc. The vulture/turnaround funds you describe certainly exist, and give the acquired company some hope of survival (usually, at least initially, with massive cost cutting). The fact that all these are leveraged investments (some less than others) means that a negative turn in the economy can have a massive negative impact in the ability of the company to cover their debt obligation, hence the bankruptcy.

What's the value again?

They plump up the turkey, borrow against it, and spread the losses across the market.

The original lenders benefit as they offload poorly underwritten debt. The owners of the distressed asset benefit because they get something. The people orchestrating the turnaround win via fees, etc.

As long term GDP growth rates decline due to demographics, an economy becomes less able to service debt. In order to keep systemic risk constant, use of leverage should decrease, not increase. Something doesn't add up.

No in fact it is precisely the opposite. As GDP growth declines, there is more accumulated investment savings (supply glut of capital) chasing fewer high-returning investments. The savings has to go somewhere, and often it goes into high-yield debt (exactly the type private equity issues). Low growth translates into the increased use of credit.

That would seem to increase risk of loss system-wide though.

I'm not arguing what you're saying is untrue as that appears to be what is happening. I'm arguing this behavior is irrational. If investment opportunities decline, investment should decline and sitting on savings should increase.

Unless you literally put your cash under a mattress, savings _is_ investment (e.g. bank deposit being lent out, money market funds invested in corporate paper, Treasury holdings, etc.). The savings is always "held" (invested) in some form of an asset, not cash under the mattress.