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![mattyglesias Avatar](https://lunarcrush.com/gi/w:24/cr:twitter::15446531.png) Matthew Yglesias [@mattyglesias](/creator/twitter/mattyglesias) on x 546.7K followers
Created: 2025-07-25 00:03:16 UTC

Let me steelman a little: 

X. Most small business owners are risk averse with their capital structure because they are undiversified. 

X. PE funds improve returns by buying many businesses with leverage, creating a diverse portfolio of businesses each of which is now at greater risk of failure than before. 

X. This is perfectly rational business behavior and in some sense makes the overall capital structure of the USA more efficient.

X. But business failure poses a lot of downside risk to non-equity stakeholders — employees, local governments, etc — who lose out due to this risk transformation.


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