But if the business is privately held (because the borrower used the loan to buy the business), then what market is the lender going long/short against in this hypothetical conspiracy? Other (public) businesses in the market? Potential investors when the PE firm sells and takes the business public?
That. Or, you have been shorting the company for some time, because you know it has been targeted for demolition. A PE takeover is the signal that you no longer need to hedge those shorts; the company, loaded with the debt used to purchase it, will soon go bankrupt, and you will be absolved of closing your short positions, for all practical purposes.
This may not apply to the subject of the article (PE firms buying medical establishments), but it may speak to the character of their new strategy. Perhaps they won't kill this goose because they payer has endlessly deep pockets.
I think it's just the opposite: you'll be forced to close your short position when the PE company buys. When PE firms "take over" a public firm, they generally take it private, and the takeover involves buying all outstanding shares, typically at a premium over current share prices.
>2. When PE loads up a firm with supposedly unsustainable billions of debt, someone is on the other side of that transaction, lending the billions. Who does that and why? Are they perpetual suckers, unaware of the decades of experience we have doing this?
Ready for a fun conspiracy theory? Guess where most PE guys start (i.e., where their base professional network is developed, where their expertise is, etc.). If you correctly guessed "Ivy League undergrad and business schools" and "investment banking", you can probably tell where I'm going with this. The gameplan is simple: lend your buddy the money to buy the business. Now you have a line to the person who has the most access to data about, if not control over, the direction of the business. Wherever it happens to go, you can be ahead of the market. He's happy because the decision to be lenient or aggressive about repayment lies with his own contact - you.
How do you get businesses to agree to your terms? Well, they hired consultants at some point. Oh, those guys are your buddies, too. You have acquaintances on the BoD, too.
Why go through all the trouble? Besides the fact that you're becoming filthy rich, you also have the opportunity to remove rivals and consolidate markets under an n-opoly. More money. More control.
>"Unpleasant things are happening, we need some sort of regulation" doesn't seem like a sufficient basis for socially beneficial action.
How about fraud and insider trading?