Trump and Musk are trying to take America private

New York (CNN) — Over the past six weeks, federal workers have watched in horror as software engineers, many with no experience in government, have sauntered into their offices with a mission to sniff out corruption and cut costs.

The strategy, while still opaque, is hardly surprising coming from two businessmen accustomed to the world of private enterprise, where CEOs tend to rule like kings and face little outside scrutiny.

President Donald Trump and Elon Musk believe they have a mandate to run the country like a business. But so far, they appear to be tapping into muscle memory, running a corporate playbook that maximizes returns for investors while burying companies in debt and cutting their costs down to the bone.

It’s familiar territory for both men.

Of the five companies Musk owns or manages, only Tesla has to adhere to the strict rules that ensure public companies are transparent with investors. Musk owes the bulk of his wealth to Tesla’s shareholders, but he still seems annoyed with the trappings of public CEO life, having regularly butted heads with regulators and shareholders.

Musk, speaking at a tech conference Wednesday, went as far as to say that “we should privatize anything that can reasonably be privatized,” citing the US Postal Service and Amtrak as examples.

Trump’s brief encounters with public markets have been debacles for just about everyone involved but himself. He listed Trump Hotels and Casino Resorts as a publicly traded company in 1995, but the operation never turned a profit and ended up in bankruptcy in 2004, wiping out shareholders. His Trump Media & Technology Group, which went public last year, hemorrhages cash and trades like a memestock — which is to say, it’s a highly risky rollercoaster of an asset.

The private equity playbook

While neither Trump nor Musk come from the world of private equity, both have used tactics closely associated with the industry.

The private equity playbook tends to go like this:

• A bunch of wealthy people get together and buy a company that’s supposedly struggling, take it private and mercilessly slash costs.
• Like flipping a house, the goal is to clean it up, fix the broken stuff and give the facade a glow-up to attract buyers.

That last part is where the promise of private equity often falls apart.

• The investors, who may or may not understand the industry they’re wading into, saddle the target company with debt to finance its own turnaround, all while cutting costs.
• What’s left, in some cases, is an anemic staff that can’t produce enough revenue to pay even the interest on the company’s debt. Research shows that the bankruptcy rate of target firms acquired by private equity is 10 times the rate of comparable non-targeted companies.
• That’s not the investors’ problem, though — they’re getting rich anyway off sales of the company’s assets.

When Musk bought X, then known as Twitter, in 2022, he did so using a leveraged buyout — standard operating procedure for private equity investors — leaving the company on the hook to pay back about a third of the $44 billion acquisition.

Since then, X has floundered. The company lost almost 80% of its value in less than two years, according to estimates by Fidelity. Users and advertisers have fled the social media platform, partly in response to Musk’s promotion of conspiracy theories and neo-Nazi accounts.

A year after taking his hotel and casino company public, Trump used that company to buy one of his other casinos, the debt-burdened Taj Mahal in Atlantic City, New Jersey, according to Forbes senior editor Dan Alexander, author of the book “White House, Inc.: How Donald Trump Turned the Presidency Into a Business.”

The deal was a huge windfall for Trump, but it loaded up the public company with — what else? — a mountain of debt.

“Atlantic City fueled a lot of growth for me,” Trump told the New York Times in 2016. “The money I took out of there was incredible.”

Asset-stripping DC?

Once private equity takes over a company, it’s slash and burn time.

Layoffs are often the first step. Then comes a tactic known as asset-stripping — essentially forcing the company to sell off assets while the private equity folks pocket the proceeds.

For example, in 2014, when Golden Gate Capital purchased Red Lobster, the investors sold $1.5 billion worth of the restaurant’s real estate assets. The chain then had to pay rent on the stores it previously owned. That’s a common private equity tactic known as a sale-leaseback, and it became a major reason Red Lobster filed for bankruptcy last year.

Right now, across the federal government, tens of thousands of workers have either been laid off or are facing imminent staff reductions under Musk’s Department of Government Efficiency. On Wednesday, my colleague Natasha Bertrand reported that the Trump administration plans to cut more than 70,000 jobs at the Department of Veterans Affairs — roughly 15% of the department.

Meanwhile, valuable government-owned real estate assets may soon be for sale. The Trump administration said Tuesday that it’s considering selling off 440 “non-core” properties, claiming that it could save “more than $430 million in annual operating costs.” (The General Services Administration later pulled back the list of properties for sale after what a source called a “miscommunication” about posting the list.)

In other words, the asset-stripping may soon be underway.

Where will the cost savings and proceeds go? That’s less clear.

Trump said last month that some of the money would go to paying down the national debt and some could be doled out in checks to citizens. The White House didn’t respond to a request for comment.

But if the private equity playbook is any guide, the spoils are more likely to end up in the pockets of the already wealthy.

CNN’s Rene Marsh contributed to this report.

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