Rubenstein & Chanos to Reveal Secrets to London Students?

The Alternative Investments Conference is the world's largest student organized conference on private equity and hedge funds. The 2010 session will be held in London. Headline speakers include David Reubenstein (Private equity day) and Jim Chanos (Hedge fund day).

Both men broke major stories related to the financial crisis. Jim Chanos informed the G-8 of the looming financial crisis in April 2007. The audience, which included Gordon Brown and Tim Geithner, offered annoyance and paper shuffling.

The Carlyle Group's David Rubenstein predicted the "Mother of All Stimulus Packages." He did so from Anchorage, Alaska in October 2008. Rubenstein advised attendees to line up for their share of billions in stimulus funding.

What news will Chanos or Rubenstein break in late January 2010? Stay tuned.

Carlyle Owns Two of FinTech100, Complete with Fed Links

The Carlyle Group has two portfolio companies ready to help global financial firms. Belgium based FRSGlobal and OpenLink Financial are listed in the FinTech 100, an annual listing of the top financial technology vendors around the world.

FRSGlobal provides risk and regulatory solutions, a sweet spot as G-20 nations pursue financial regulatory reform.

OpenLink Financial provides cross-asset trading, risk management, and related portfolio management software solutions for the commodity, energy, and financial services markets globally. The BostonGlobe reported:

OpenLink’s blue chip client base of more than 150 customers worldwide includes 12 of the top 25 largest commodity and energy companies by market capitalization, eight of the largest financial institutions and 11 of the largest central banks, as well as major hedge funds and public utilities.

Does that mean a Carlyle affiliate could tap the databases of 11 of the largest central banks? The giant private equity underwriter (PEU) has more than one link to central banks, as Carlyle owns Talaris. It's cash automation equipment can send checks directly to the Federal Reserve.

The Carlyle Group also has affiliate Dunkin' Donuts and Hertz, which lobbied the Federal Reserve. Dunkin' lender CIT looked increasingly shaky. Hertz wanted relaxed terms for refinancing rental car fleets. Rather than tap their PEU owner for capital, Dunkin' & Hertz lobbied for public assistance. CIT imploded in a prepackaged bankruptcy. Watch Dunkin', Hertz and Carlyle closely. They didn't invest in lobbyists for naught.

Carlyle Group co-founder William Conway hates a level playing field. How can FRS Global, OpenLink Financial, Talaris, Hertz and Dunkin' tip the Fed board in his firm's financial favor? That would be some serious risk management.

Carlyle Group: Just a PEU, Doing Government's Work

The Carlyle Group did $4 billion in work for Uncle Sam in 2008. The breakdown is (numbers are rounded):

Department of Defense--$2.9 billion

ARMY--$1.5 billion
AIR FORCE--$927 million
NAVY--$432 million

Department of Homeland Security--$256 million (#9)

General Services Administration--$147 million (#11)

Department of Health & Human Services--$112 million (#17)
(DHHS would've been $132 million if Carlyle hadn't exited InteliStaf in 2007)

Department of Treasury--$89 million (#10)

Department of Interior--$70 million (#3)

Department of Transportation-$57 million (#11)

Department of Justice--$48 million (#20)

NASA-$20 million (#70)

Department of Agriculture--$16 million (#50)

Department of Commerce--$7 million (#48)

Department of State--$6 million (#108)
(DOS would've been $28 million had Carlyle held on to USIS)

Department of Energy--$5 million (#90)

Recall the concern over conflicts of interests between government consulting and sales. Northrop Grumman's will sell its TASC consulting unit to KKR and General Atlantic as a result of the new law. The Deal reported:

Northrop chairman and CEO Ronald Sugar, who plans to retire, said in a press release that the sale of Chantilly, Va.-based Tasc "reflects Northrop Grumman's desire to align quickly with the government's new organizational conflict of interest standards." As noted in The Deal Pipeline, defense companies have been under fire for situations in which their consulting arms might be advising on procurement deals on which their weapons side is bidding.

The Carlyle Group has a huge government consulting firm in Booz, Allen, Hamilton. It also has nearly a thousand affiliates ready to support Uncle Sam.

Goldman Sachs Blankfein: "Just a Banker, Doing God's Work"

God's work is never done. If Jesus came back today, he'd need money changers in the Temple. He'd run across a universally hated tax collector, inviting him to dinner. He'd require a prisoner to visit in jail. Goldman Sachs cast of characters stands ready to fill these roles.

Lloyd Blankfein-recipient of billions in taxpayer money through TARP & AIG, indirect tax collector

Stephen Friedman-potential prisoner for trading on insider information as head of NY Fed

Goldman Sachs-infected hallowed halls of government with its corporate spawn, modern day money changers

God's investment banking work is never finished. I envision God's wry smile as Lloyd and company approach the pearly gates.

Lessons from TASC Sale

Northrup Grumman will sell its TASC government consulting unit for $1.65 billion to private equity firms KKR and General Atlantic. NYT reported:

Northrop began talking about selling TASC, which provides technology consulting services, several months ago to satisfy stricter requirements on the conflicts of interest facing military contractors, according to a person briefed on the matter. These companies now cannot provide consulting services to the government while also trying to sell it products.

This is second big sale of a consulting firm to a PEU, private equity underwriter. The Carlyle Group purchased Booz, Allen, Hamilton for $2.5 billion in June 2008. It flirted with Northrop Grumman over TASC.

Northrop’s options included arranging an initial public offering of the unit, selling it to a strategic buyer or striking a deal with private equity firms. Northrop’s chairman and chief executive, said in a statement. “It reflects Northrop Grumman’s desire to align quickly with the government’s new organizational conflict of interest standards, while preserving TASC’s unique organizational culture and its status as the advisory services employer of choice.”

Why is it OK for conflicted PEU's to own huge government consulting companies? The Carlyle Group provided Uncle Sam consulting services and products, to the tune of $4 billion in 2008. A conflicted owner is a conflicted owner.

British Wall Street, known as London's Square Mile, recovered enough to provide financing for the deal.

K.K.R. and General Atlantic will receive financing from Barclays Capital, Deutsche Bank and RBC Capital Markets and the Canadian Pension Plan Investment Board.

Oddly, the Canadian Pension Plan is PEU like in its aggressive pursuit of returns.

The lessons? What individual companies can't do, PEU's can. Malodorous greed and conflicts remain. The bubble machine is back on as shadow bankers double down. Their goal? Grow "too big to fail."

The Carlyle Group's Distressed PEU Deals

Tyler Durden of ZeroHedge summed a Moody's report on flagging private equity underwriting (PEU) deals. He posted the detailed analysis. The Carlyle Group's distressed affiliates include:

ARINC
Allison Transmissions
Freescale Semiconductor
Frontier Drilling
Harrah's-(not credited to Carlyle in the report)
Hawaiian Telecom-bankruptcy
HD Supply
LifeCare Holdings
Oriental Trading
PQ Corporation
Sequa Corporation
SemGroup-bankruptcy
Stallion Oilfield Services-bankruptcy
Synagro Technologies
TSI Acquisitions (Titan Specialties)
UCI Holdco (United Components)
Veyance Technologies

LifeCare, Synagro and SemGroup have interesting subplots. LifeCare lost 24 patients in their New Orleans facility in the aftermath of Hurricane Katrina. The White House omitted this important fact in their Lessons Learned report. The political connections are disturbing.

Synagro bribed the wife of Rep. John Conyers in a Detroit sewage sludge processing deal. SemGroup imploded from bad energy hedging. It's SEC filings never mentioned hedging as a key business function.

Other Carlyle implosions not in the Moody's report:

American Achievement- severely distressed
BlueWave Partners-bankruptcy
Carlyle Capital Corporation-bankruptcy
Edscha-bankruptcy
IMO Carwash-bankruptcy

Tyler is concerned about the massive amount of rollover debt coming due before 2015. He's sure Uncle Sam will fill the void. If the feds can't aid the subsidiary directly with billions in contracts, they'll find a way to help out the PEU boys. Consider the benefits to date for Carlyle and company:

BankUnited-$4.9 billion in FDIC subsidies
Boston Private Financial Holdings-$153 million in TARP funds

The Obama Stimulus included a $25 billion tax break for firms buying back debt for pennies on the dollar. LifeCare Holdings repurchased 4.5% of outstanding debt for 39% of face value, 39 cents on the dollar. Would you like to do that with your mortgage, complete with a stimulating tax break?

Under the coming financial reform, taxpayers will back shadow bankers like the Carlyle Group and its PEU brethren. Feeling distressed?

Health Reform to Spend $160 million on LTC Background Checks

Section 1909 of the House health reform bill includes money for background checks on direct patient access employees of long term care providers. Uncle Sam will pick up the tab for such checks, up to $160 million between 2010 and 2012.

Oddly, President Bill Clinton spun off USIS, the security checking arm of the federal government. The Carlyle Group, a private equity underwriter (PEU), later flipped USIS for big profits. The politically connected PEU stands to benefit from the House of Representative's largess. Carlyle owns ManorCare, a long term care company, and LifeCare, a long term acute hospital firm. Both qualify for employee background checks under the new bill.

An online search showed background checks vary in price and thoroughness. The cheapie runs $20, while the premium package reaches $200. The bill speaks to costs borne by state and federal governments. It makes no mention of payments by long term care employers for background checks.

The bill requires fingerprint ID checks. It states:

including a fingerprint check using the Integrated Automated Fingerprint Identification System of the Federal Bureau of Investigation.

That will require a mechanism to obtain and submit fingerprints for evaluation. Might Carlyle Group affiliate AuthenTec have that covered?

Of course it is important to have a good system for background checks. However, users should pay. Uncle Sam's providing start up capital, financing, money for worker training, funds for R & D, and targeted tax breaks for private firms is disturbing enough. How long before this new long term care background check system is spun off like USIS? It seems PEU's win, no matter what.