Over the past decade, private equity has leveraged insurance companies’ balance sheets, increasing financial risk for all of us. Read An Open Letter to Speaker Johnson. The essay goes into specific numbers. Here are some of the big picture implications:
When a PE firm raises a fund, the capital has a defined life. Ten years, maybe twelve. Insurance liabilities are different. When a 62-year-old retired teacher buys a fixed annuity, that money sits on the balance sheet for decades. It cannot be recalled. Pension buyout contracts last until the last beneficiary dies. McKinsey called it “an enticing form of permanent capital.” By 2024, PE-backed insurers controlled 25% of all U.S. individual annuity liabilities.
I want to be precise about what this means for the teacher. Her $200,000 — saved over thirty years — lands on a balance sheet levered 69 to 1. Invested in a portfolio that is 72% privately placed. Managed by Apollo, which earns fees on both sides. She was sold safety. She got leverage. She will never know unless somebody tells her.
That is what “permanent capital” means. Her money is permanent. The safety is not. Because the permanence is not conditional on a crisis. It is conditional on ignorance.
There is a concept in engineering called a margin of safety. A bridge designed to hold ten tons is built to hold thirty. The extra twenty tons is the acknowledgment that the engineers do not know everything. Finance has no margin of safety. It has a margin of extraction. Every dollar of surplus capital is a dollar that could be earning fees. And so the systems we build are bridges designed to hold exactly their load, with the surplus steel sold for scrap, and a sign at the entrance that says: Capacity: 419%.
The sign is not lying. It is measuring the right thing in the wrong unit.
“It is difficult to get a man to understand something when his salary depends upon his not understanding it.” — Upton Sinclair
Speaker Johnson, you do not need to understand every number in what follows. You need to recognize the imperative of acting on it. There will be significant pushback — from industry lawyers, from lobbyists, from actuaries with spreadsheets designed to obscure rather than illuminate.
The pushback will come on the technicals. It will not come on the ideas. Because the ideas strongly favor alarm. John Maynard Keynes said it best:
“It is better to be roughly right than precisely wrong.”
I am an ardent capitalist. This letter does not come from hostility to markets. It comes from the same place a ship’s engineer sounds the alarm — not because he wants to sink the vessel, but because he can hear the hull groaning below the waterline while the crew dances on the deck.
The rot I am describing does not threaten capitalism from the outside. It threatens it from within. And when the hull finally gives, the architects of the structure will not be treading water. They will be in the lifeboats — with the silverware. The fees are already collected. What remains on the ship are the retirees. And they will be fearful, but they will not pay for this.
My generation inherits the wreckage. My children will inherit the debt written to clean it up. I am asking you to decide whether that is acceptable before the ship goes under, not after.
