Ever since Congress voted to hand out $2 trillion in taxpayer money to those hardest hit by the coronavirus pandemic, American businesses have been scrambling for a piece of the action. Airlines, hotels, and restaurants—all of whose revenues have cratered in the wake of sweeping stay-home orders—have engaged in Hunger Games–like lobbying to cash in on the CARES Act, making their case for a share of the disaster relief. But among those angling for a federal handout is one of the wealthiest sectors of the American economy: private equity. These firms not only have a record $1.5 trillion in cash on the sidelines, waiting to be invested, but their CEOs are among America’s richest executives. So why should they be permitted to raid the federal Treasury in a time of crisis?

The reason is as simple as it is galling: while great private fortunes, such as that of Blackstone’s Stephen Schwarzman (net worth: $17.5 billion and Apollo’s Leon Black ($7.5 billion), have been made from private equity’s march through the world, its losses, to a remarkable degree, will belong to all of us. That’s because some of the major investors in private-equity funds are public pension plans; at Blackstone, roughly one-third of the firm’s money comes from retirement plans set up to provide for over 30 million working-class Americans, according to someone with knowledge of its portfolio. So if Blackstone’s investments crater, the teachers, firefighters, and health care workers who are counting on those investments to generate the returns necessary to pay their pensions will suffer. Think of private-equity firms as the banks of the corona crisis: They are, for better or worse, too big to fail.

Private equity, of course, came of age in the 1980s, when greed was good and private-equity titans like KKR’s Henry Kravis first burst into the limelight by taking over famed American manufacturers like RJR Nabisco. Unlike venture capitalists, who provide start-up funds to new companies, private-equity firms generally take over existing businesses, usually by borrowing large sums of money. According to Dan Rasmussen, the founder of Verdad Advisers, private-equity firms typically double the amount of debt relative to profits on a company’s balance sheet. One of the key principles behind private equity is that increased leverage—aka more debt—can make a business function more efficiently.

So the era of low interest rates, which began with former Federal Reserve chairman Alan Greenspan and continues to this day, has been a huge boon to private-equity firms. Infuriatingly enough, the financial crisis in 2008 might even have saved private-equity firms from their sins. Never mind that they often overpaid for the companies they acquired, and loaded them up with so much debt that “even a mild economic downturn could make it nearly impossible for those companies to repay their loans,” as Fortune put it. Thanks to all the cheap money made available by the Fed, companies owned by private-equity firms could simply refinance their debts at lower rates, thereby getting a fresh lease on life.

Even before the COVID crisis, there were questions about how well private-equity investments were actually performing. But that didn’t seem to matter, because low interest rates facilitated private equity in another way. Beleaguered pension funds, which suffered big losses in the financial crisis, could no longer count on decent returns from fixed investments, given how low interest rates have been kept by the Fed. Increasingly desperate to boost the portfolios of retiring workers, they too turned to private equity as their savior—urged on by private equity’s promises that it alone could deliver the necessary returns. In 2019, the American Investment Council (AIC), a lobbying group which represents private-equity giants like Blackstone, the Carlyle Group, Apollo Global Management, and KKR, declared that “in order to continue to provide the benefits they guarantee, pensions must continue to invest in private equity.”

In 2018, according to analytics firm eVestment, pension funds in the U.S. and the U.K. pumped 27% of their fresh allocations of money into private-equity funds, up from 25% the year before. America’s largest public pension plan, the California Public Employees’ Retirement System, or CalPERS, put almost $7 billion into private equity during the 2018-2019 fiscal year, according to Institutional Investor. “We need private equity, we need more of it, and we need it now,” chief investment officer Ben Meng said in early 2019—right before CalPERS hired a former private-equity guy, who began his career at Goldman Sachs, to head its private-equity efforts.

Driven partly by public pensions, the private-equity industry has mushroomed. In each of the past four years, according to data-provider Preqin, private-capital managers raised over $500 billion of new money to invest. The industry’s total assets under management have hit a record $4.1 trillion. The industry’s $1.5 trillion in cash on hand is also the highest on record—and more than double what it was five years ago, according to Preqin. The half decade from 2013 to 2018 saw the most private-equity deals over any five-year period in American history.

“Private-equity managers won the financial crisis,” as Bloomberg put it last fall. “Almost everything that’s happened since 2008 has tilted in their favor.” As a result, private equity is now wound into the very fabric of our economy. According to the Institutional Limited Partners Association (ILPA), a lobbying group which represents CalPERs and other public investors, businesses backed by private equity employ more than 8.8 million Americans at over 35,000 companies, accounting for a staggering 5% of the United States’ GDP. What’s more, the Milken Institute reported, even by mid-2018, private equity owned more companies than the number of businesses listed on all of the U.S. stock exchanges combined, and have accounted for a more significant source of financing than initial public offerings in many recent years. If private equity suffers, the blow will reverberate throughout the entire economy.

Which explains why ILPA wrote to Treasury Secretary Steven Mnuchin and Fed Chairman Jerome Powell last week, arguing that companies backed by private equity should be allowed to access the relief funds provided in the CARES Act. Otherwise, the ILPA warned in a previous letter, there would be “significant harm not only to employees that see their hours reduced or jobs eliminated, but also significantly reduced returns to the institutions providing retirement security through pensions, insurance policies and other investments that serve hundreds of thousands of Americans.” To make matters worse, ILPA added, provisions in many private-equity investments allow private-equity firms to make additional capital calls when times are tough. That means public pensions might be forced to dump their holdings in public-backed investments to provide private-equity firms with emergency cash—a move that could depress the stock market even further.

There are several pots of federal money that the private-equity industry is lobbying to access. (And not all private-equity firms care equally about all of the programs.) One is the so-called Paycheck Protection Program (PPP), set up to make $349 billion in government-guaranteed loans available to businesses with fewer than 500 employees. The problem is, existing rules at the Small Business Administration, which is overseeing the program, have been widely interpreted as excluding loaning money to most mom-and-pop businesses that are controlled by large parent companies—including private-equity firms. So private equity is pushing to waive those rules, arguing that small firms should not be penalized for having been bought out by big investors. (Many of the companies owned by mammoth private-equity firms like Blackstone are too big on their own to qualify for this bucket of money.)

The private-equity industry also wants the companies they have invested in to have access to the $454 billion being doled out through the Treasury, an amount that the Fed said could be leveraged into over $2 trillion. Because rules for access to this money weren’t specified in the CARES Act, as ILPA notes, the executive branch will have a fair amount of discretion over who gets access to the money—and private-equity firms want to take full advantage of that opening. “We’ll continue to work with the administration and Congress to request that federal programs support all businesses, regardless of ownership structure, and their workers,” says the AIC’s CEO, Drew Maloney.

The politics dictating whether the private-equity industry will get its wishes are surprising. Mnuchin is a former Goldman Sachs executive and hedge fund guy; Blackstone’s Schwarzman has ties to Trump; Jared Kushner’s family business has gotten loans from Apollo, according to the Washington Post. Yet an exemption for the private-equity industry did not make its way into the CARES Act; according to Bloomberg, Senate Majority Leader Mitch McConnell is trying to pass a $250 billion boost to the PPP—without provisions opening it to private-equity-backed companies. On the other hand, Democrats, including House Speaker Nancy Pelosi and powerful Representative Maxine Waters, have weighed in loudly—on the industry’s behalf. “It is absolutely imperative,” Waters recently wrote in support of private equity, “that the relief…be extended to protect all workers, irrespective of the affiliations of their employers.” Translation: Workers shouldn’t suffer just because their bosses sold a controlling stake in their businesses to a bunch of greedy fat cats. As for Pelosi, she doesn’t want to see companies backed by venture capital excluded from federal relief, given her Silicon Valley constituents.

Restaurants and hotels owned by big chains have already received exemptions granting them access to the relief funds, regardless of how many people their parent companies employ. The allies of private equity hope that similar exemptions will soon be forthcoming for their firms.“We are in a wait-and-see mode,” Chris Hayes, the ILPA’s senior policy counsel, told me.

The fear, of course, is that private equity will do what private equity does best, which is pocket the money themselves rather than devoting it to the businesses they’ve invested in. The typical fee structure in private equity is the so-called 2 and 20, which means that a fund collects a fee of 2% of the total assets it manages, as well as 20% of any gains on its investments after a certain return is achieved. The industry also quietly helps itself to yet more money by having portfolio companies pay fees for consulting and financing services provided by, of course, their private-equity backers. If private equity is handed billions in taxpayer money, it could use some of it to pay themselves hefty fees today, then pocket even more of it down the road, when they sell their portfolio companies and collect their 20% of the taxpayer-enabled gains. The taxpayer handouts will also help private equity continue its relentless march through the global economy, snapping up troubled companies at bargain prices or extending high-priced credit as other investors, including hedge funds, are forced to sell off their holdings in the post-corona landscape.

Unfortunately, there isn’t really an alternative to providing private equity with federal funds. Like the big banks in 2008, private equity is holding us all hostage. But there are ways to make it work better. According to the CARES Act, companies can only receive loans from the Small Business Administration if they commit to preserving jobs. Waters, in her letter, argues for placing even more strings on the money taken by private-equity-backed companies. Not only should taxpayer funds not be used to pay management or consulting firms, she says, but companies that take the money should also, for instance, be required to include workers on their corporate boards and gradually increase their minimum wage to at least $15 an hour.

We could go even further. A loophole in the tax code currently allows private-equity financiers to pay taxes on their returns at the lower rate for capital gains, rather than the higher rate for personal income. We could close that, once and for all. We could also limit the deductibility of interest payments for tax purposes even more than President Donald Trump’s new tax law already did, so companies aren’t encouraged to load up on debt. Rasmussen points out that after the financial crisis in 2008, the Federal Reserve set a limit on the amount of debt it considered prudent. Even so, he told me, a “large number of private-equity firms ignored that guidance and decided to put very high levels of leverage on their portfolio companies.” Maybe those firms should now be required to contribute more equity from their cash stockpiles, he suggests.

The big banks emerged from the financial crisis victorious, but also subject to a host of new regulations designed to reduce leverage and stabilize the economy. It’s essential that we do the same today. Given how much of the economy will rise and fall on the investments that private-equity funds manage, we may be forced to let them share the federal handout. But it doesn’t have to be a blank check.

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