My morning LinkedIn feed usually features the same cast of characters ranting about their signature issues. Yesterday, however, the platform’s algorithm served up a story that jolted me even before I took my first sip of coffee because it made damning claims about the fragility of the U.S. banking system. Encouragingly, LinkedIn didn’t throttle or bury the piece, as it often does with articles that run counter to prevailing corporate media narratives.
The article was published by a nonprofit outlet called DCReport and carried a blockbuster headline: Big Banks Enjoy Stealth Bailouts – A DCReport Exclusive. And unlike many alarmist-sounding financial stories, this one came with receipts.
Here’s an excerpt:
Ominous signs that at least one of America’s “Too Big to Fail” banks is yet again seriously short of cash emerged this weekend in documents examined by James Henry, DCReport’s economics correspondent.
For the past two months the Federal Reserve has been silently injecting tens of billions of dollars of cash into banks. No one announced this. Henry found the evidence in public records that few, if any, Wall Street journalists consult.
Acting like a financial Santa Claus to recklessly naughty bankers, the New York Federal Reserve delivered $17 billion in cash to an unknown bank or banks at 8 a.m. the morning after Christmas.
That, according to DCReport, was only the latest unreported infusion.
Reluctant to Amplify
Normally, I’d be reluctant to amplify something this explosive. A story suggesting the Federal Reserve is quietly bailing out U.S. banks is the economic equivalent of shouting fire in a crowded theater. It also cuts directly against President Trump’s insistence that the economy is humming and that with him back in the White House, only good times lie ahead. To be clear, whatever conditions may be driving today’s liquidity stress were years in the making and accelerated during the Biden administration.
DCReport is not some fly-by-night operation trafficking in conspiracy theories. The nonprofit was co-founded by David Cay Johnston, a Pulitzer Prize–winning former New York Times reporter whose work exposing loopholes and inequities in the U.S. tax code helped drive major reforms. Johnston, now 77, also cut his teeth at the Detroit Free Press in the mid-1970s — back when it ranked among the best newspapers in America — a detail that stood out given my recent post on Detroit’s once-formidable media ecosystem. He also studied economics at the University of Chicago, a rigorously academic institution renowned for its economics department — a place where Milton Friedman once taught and where skepticism of official narratives and sloppy economic thinking is practically a prerequisite.
Throughout the day, I kept checking to see whether the corporate media would touch Johnston’s scoop. Only Reuters did, albeit cautiously.
Tentative Validation
Reuters reported that the Fed lent $25.95 billion on Monday to eligible financial institutions through its standing repo facility, the third-highest usage since the program was launched in 2021. The news service framed the move as routine, describing the repo tool as a benign “shock absorber” designed to keep markets functioning smoothly.
Buried deeper in the story, however, was a detail that deserved far more attention: earlier this month, the Fed quietly removed a $500 billion daily cap on the facility to encourage freer use by banks “when economically sensible,” according to Fed Chair Jerome Powell.
Reuters didn’t pause to unpack what that meant. Johnston did.
“The vaguely worded announcement seems to tell bankers they can now get up to $240 billion in cash each day to cover shortfalls,” Johnston reported. “Even read narrowly, the policy would allow cash infusions twice per day — up to $80 billion per bank — with no overall industry limit.”
Johnston noted that the six largest U.S. banks earned about $152 billion in profits last year — less than what two of them could theoretically access in a single day under this new arrangement.
Some additional perspective: while U.S. banks are feasting at what amounts to an all-you-can-eat liquidity buffet at the Fed’s window, the largest banks have announced more than $100 billion in stock buybacks this year, including JPMorganChase’s authorized $50 billion repurchase program. It’s yet another example of how taxpayers quietly support banks that then use the savings not to strengthen balance sheets or expand lending, but to goose their own stock prices.
That’s not a conspiracy theory. That’s simple arithmetic.
Platinum Equity’s Portable Toilets
Apologies for wading into the arcane world of high finance, but the big picture to appreciate is where this financial stress warning has surfaced. Not in Fed press conferences or soothing earnings calls, but in overleveraged, workaday companies that were never supposed to matter to the global financial system.
And that, of course, brings us to private equity — more specifically, to Platinum Equity’s spectacularly ill-timed bet on America’s largest portable toilet company.
Operational Wizards?
Private equity firms like to sell themselves as operational wizards: buy a company, “improve” it, and sell it for a profit. During the era of cheap money, the formula was almost a no-brainer. Load a company with low-cost debt, extract management fees and, in some cases, dividends for the private equity partners, and assume interest rates would remain forever pinned at historic lows.
That operating assumption broke in 2022, when interest rates surged and the easy-money music stopped. Platinum Equity’s handling of United Site Services, the nation’s dominant provider of portable sanitation services — including the widely recognized Porta Potty brand — and other temporary services for the construction industry, is a textbook example of how the industry tried to dance around that reality.
Beverly Hills–based Platinum Equity, founded in 1995 by former Michigan native Tom Gores — who owns the Detroit Pistons and still maintains ties to the region — acquired Massachusetts-based United Site Services eight years ago from another private equity firm for an undisclosed amount.
In 2021, rather than sell USS to an outside buyer at a market price, Platinum sold it to itself, transferring the company into another entity it controlled. The firm pitched the deal as a win-win. Investors were told they could cash out or roll their stakes into the new fund. Platinum booked a gain. Fees kept flowing.
On paper, it looked like a win for everyone — at least in the short term.
Continuation Vehicles
If you and I arranged self-dealing transactions to inflate the value of our holdings, less charitable observers might make damning accusations. In the Masters of the Universe world of private equity, this is presented as sophisticated portfolio management. The entities used to buy a firm’s own holdings are known as continuation vehicles.
The private equity soft-shoe shuffle is no different than selling your home to another entity you created, at a higher price, giving the appearance that your house had suddenly appreciated in value.
Crucially, the debt doesn’t disappear in continuation vehicle transactions. In fact, it often increases. The company remains highly leveraged, interest costs climb, and the private equity sponsor buys itself time — not value. When rates rise and cash flow tightens, there’s no graceful exit left, just lenders waiting in the wings.
That’s exactly what happened. United Site Services didn’t suddenly become irrelevant. Construction workers didn’t stop using portable toilets. What changed was the capital structure. The debt became unmanageable and refinancing options dried up.
USS filed for bankruptcy on Monday, according to Reuters, with a plan to eliminate $2.4 billion in debt and hand control of the company to its lenders.
Platinum Equity gets to keep the fees it extracted along the way. Even a deal gone bad can still be a win-win for private equity.
United Site Services’ bankruptcy wasn’t an isolated private equity flameout — a bad deal, some bad timing, a few pension funds licking their wounds. Financial hocus-pocus using continuation vehicles has become pervasive in private equity, and with near-perfect timing, the New York Times highlighted the practice this week.
“Continuation vehicles are indicative of rot in private equity,” Marcus Frampton, chief investment officer of the Alaska Permanent Fund Corporation, told the publication.
If your head isn’t spinning yet, it should be.
The U.S. banking industry’s exposure doesn’t stop with direct lending to private equity firms. After the Great Recession of 2008, banks were subjected to tighter capital and so-called “safe lending” restrictions meant to prevent a repeat of that disaster. Traditional corporate lending became more constrained.
So banks found a workaround.
Rather than lending directly to risky, highly leveraged companies, banks increasingly lent to non-bank lenders — private credit funds and other financial intermediaries. Those entities then made loans to the same kinds of companies banks were no longer supposed to touch. The risk didn’t disappear. It just took a scenic route.
In an October special report, Moody’s estimated that U.S. banks now have roughly $1.2 trillion in loans outstanding to non-depository financial institutions, including about $300 billion in direct exposure to private credit providers, with hundreds of billions more in unused commitments waiting in reserve. Banks, in effect, are financing the financiers.
This workaround has two convenient features. First, banks can claim diversification — they’re lending to funds, not companies. Second, transparency deteriorates. Private credit assets are illiquid, valuations are internally managed, and problems tend to surface slowly, then all at once.
When a private equity portfolio company like United Site Services runs into trouble, the stress doesn’t stop there. It flows upstream — from the operating company, to the private credit fund, to the banks that finance the fund. Assets don’t have to implode for liquidity to tighten. They just need to become awkward: hard to value, hard to sell, and suddenly uncomfortable to hold.
Moody’s put it diplomatically. Rapid growth in this kind of lending, the firm noted, has historically preceded asset-quality deterioration.
For readers looking to better understand how these pieces fit together, Ramin Nakisa offers a clear and restrained explanation of the banking system’s structural risks in a video he posted last month. David Cay Johnston’s reporting on the Fed’s stealth liquidity support makes clear that Nakisa isn’t a modern-day Chicken Little; he’s describing stress points that experienced observers are already watching closely.