Thursday, November 1, 2018

Rubenstein Rehabs Founder Milk 'em on Bloomberg

Carlyle Group co-founder David Rubenstein hosted convicted junk bond king Michael Milk 'em, the founder of "modern capital markets."

In April 1990, after four years of investigation and prosecution, Milken agreed to plead guilty to six charges of criminal violation of securities laws — technical violations, as opposed to the original 98-count indictment that charged him with conspiracy and insider trading — and to pay a $600 million fine. He paid an additional $500 million to Drexel's private investors who lost money when the firm was shuttered and then liquidated, also in 1990, in part as a result of Milken's wrongdoing. 

"You were willing to commit only crimes that were unlikely to be detected," U.S. District Judge Kimba Wood told him in November 1990 at his sentencing hearing. "When a man of your power in the financial world . . . repeatedly conspires to violate, and violates, securities and tax business in order to achieve more power and wealth for himself . . . a significant prison term is required." 
His ten year prison sentence was reduced to two years.  That was when financial criminals actually went to jail for short periods of time. 

On the Rubenstein show Milk 'em offered large doses of horse excrement.

"When things started coming from Japan in the 60's and 70's everyone said they were junk.  It's junk.  And all of a sudden we felt by the 80's the quality of their products and cars was better.  Everything coming out of China was junk.  The American public did not understand they were talking about themselves."  
Notice the "junk" frame which he used to distract from his junk bond crimes.  He then employed the classic move of blaming the victim, the self hating American people who might dare stand up to unethical billionaires like Rubenstein and himself.

Since the American people considered themselves junk, who came to the rescue?  Milk 'em could've cited the American hero who helped the Japanese manage for quality, Dr. W. Edwards Deming.  Nope.  Dr. Deming lambasted the corporate flippers of the world who used other people's money.  Corporate America turned to Dr. Deming in the 80's for lessons on quality.

The world's quality guru, Dr. W. Edwards Deming, spoke in 1984 about an economy without takeovers, without leveraged buyouts (LBO firms).  LBO morphed into private equity before exploding the last decade.  Greed is their constancy of purpose.
The Carlyle Group was established in 1984.  However, Milk 'em offered a different balm for the American people who rated themselves as junk.  It turns out he was their hero.

"60 million jobs have been created by non-investment grade companies  in the latter third of the twentieth century minus jobs being created by investment grade companies.
Why doesn't Milk 'em cite huge job creation for the first fifteen years of the twenty first century?  Because modern capital structure prioritized massive interest costs over worker pay/benefit increases in company income statements.  It also drove down company tax burdens.  The LBO/PEU boys are happy to pay interest but not raises or taxes.  

To restore hope to America Milk 'em is creating the Center for the American Dream.  This is but the latest move in the Milk 'em Pardon Game.  Greed is good and billionaire President Donald Trump is just the man to remove any lingering stench from Michael Milk 'em.  

Both the Red and Blue political teams sold their souls to the greed/leverage boys in the 1990's.  Members of both political squads endorse the rehabbing of Micheal Milk 'em.  It's one thing our horrific leaders can do on a bi-partisan basis.

I think the American Dream, which is so unique, is a chance to succeed based on your ability, your willing to work hard, your knowledge, your insight - which is one of the most valuable qualities. Now I can't tell you how depressed I am that 26% of Americans under 30 think they will live a better life than their parents.   A long time ago it was 90% of Americans.  Why do they feel that way?
Milk 'em is back to blaming the victims of an economy rigged to reward the rich and politically connected.  The twenty first century rewarded the Rubensteins and Milkens, not the average American worker.

LBO-PEU killed the American dream and loaded the U.S. economy with trillions in junk debt.  A downturn will bankrupt many highly leveraged firms.  Micheal Milken could look in the mirror and see what his creation wrought.  That's not part of the PEU plan.

Update 11-2-18:  Republican Senator Ben Sasse cited loneliness as the problem for Americans, a slight variation on Milken's junking of the average citizen.  Sasse once worked for consultant McKinsey.  Did McKinsey come up with the junk and loneliness frames for use against the average citizen?

Saturday, October 13, 2018

PEU Boys Going to Riyadh Ritz (Crown Prince's Contracted Prison)

The greed and leverage boys will join Saudi Crown Prince Mohammed bin Salman (MBS) for his Vision 2030 meeting the end of October.  Vision 2030 will be held at the Riyadh Ritz Carlton, the site where numerous members of the Royal family were imprisoned in a "corruption investigation."

The Vision 2030 meeting has been called "Davos in the Desert."  The real 2018 Davos ended with a Vision 2030 luncheon sponsored by Saudi Arabia.  It coincided with the release of Saudi Prince Alwaleed bin Talal, widely known in the West for his investment acumen.

Who's November 2017 jail cell will TPG's David Bonderman occupy?  Will Blackstone's Stephen Schwarzman commit as much as more as the Saudi Prince Alwaleed bin Talal's settlement with MBS?  Will Peter Thiel's Palantir protect the power hungry players willing to use violence to shutter critics?  Did Palantir protect the Turkish Saudi Embassy, the site of Washington Post journalist Jamal Khashoggi's disappearance and likely murder? 

How much U. S. taxpayer money can Treasury Secretary Steven Mnuchin send the Prince's way?  Mnuchin knows how to torment and torture mortgage holders.   Will he and the Crown Prince coach each other on ways to inflict physical and emotional torture?

KKR's David Petraeus knows how to harm and spy on masses of people.  Surely, KKR can profit from Saudi Arabia's oppression of their people and neighbors.

The greed and leverage boys expect one thing, outsized returns and this requires outsized influence.  I don't think PEUs care about optics from going to the event.  In the PEU world the more distressed the investment,  the better the returns.

Update 10-19-18:  Many PEU boys dropped plans to attend the Saudi event.

Update 10-21-18:  U.S. Intelligence has evidence of Crown Prince's involvement in Saudi journalist's execution.

Thursday, October 4, 2018

Middle East Forgives Rubenstein for Carlyle Capital Corporation

PRNewswire ran a piece on Carlyle Co-founder David Rubenstein:

ABANA, the preeminent US organization for finance professionals and institutions with interest in the Middle East and North Africa, honored David M. Rubenstein, Co-Founder and Co-Executive Chairman of The Carlyle Group,

Khaldoon Khalifa Al Mubarak, Group Chief Executive Officer and Managing Director of Abu Dhabi's Mubadala Investment Company, said: "It was my pleasure to introduce David Rubenstein as he received the 2018 ABANA Achievement Award. David's work, spanning several decades, has helped develop the investment and asset management industry across the MENA region, with Carlyle as one of the most established investment partners for many regional institutions."
Mubadala purchased a $1.35 billion chunk of Carlyle in 2007 adding another $500 million in 2010.   Past winners of the award included Kuwait's Bader al Sa'ad and Saudi Prince Alaweed bin Talal. 

FT reported in November 2009 of Kuwait investor anger over the collapse of Carlyle Capital Corporation.

A prominent Kuwaiti conglomerate is suing the Carlyle Group in a local court, alleging that the US private equity firm misrepresented the safety of its affiliate, Carlyle Capital Corp, a public debt fund that collapsed in March 2008.

CCC became one of the first casualties of the financial crisis, because of its high leverage, which made it highly sensitive to small moves in prices. Its investors lost all their money.  

The implosion of CCC has damaged Carlyle’s reputation in the Middle East, where the affiliate raised most of its funding, according to people familiar with the matter. It is a personal setback for Carlyle’s co-founder and chief fundraiser, David Rubenstein, a frequent visitor to the Gulf. “Arab money made Carlyle what it is,” said the head of the investment bank of one major financial institution in Dubai. 
All is forgiven.  David Rubenstein is once again legend in the Middle East.  His silence over the detention of Saudi Prince Alaweed bin Talal likely helped.   Truly inspiring.

Monday, October 1, 2018

CHS Settles HMA Kickback Case with Feds for $262 million

The Justice Department settled a fraudulent billing case with Community Health System's HMA for $262 million. 

Between 2009 and 2012, two former HMA hospitals, Lancaster Regional Medical Center and Heart of Lancaster Medical Center in Pennsylvania, billed federal health care programs for services referred to the hospitals by individual physicians and physician groups.  According to the government, HMA compensated these physicians and physician groups through complex kickback arrangements in exchange for a patient referral stream. In one instance, HMA bought two businesses from a physician group for grossly inflated amounts.  HMA also paid that same physician group under a contract that was styled as payment for services that were never performed or that neither party ever had any intention of performing. In another instance, HMA paid a local surgeon exorbitantly more than the fair market value of his services.  According to the government, these arrangements were intentionally structured to disguise payments which were, in actuality, payments for patient referrals, not for legitimate services
President Obama appointed White House Health Reformer Nancy Ann Deparle in March 2009.  Her for-profit health care credentials included serving on the board of Legacy Hospital Parnters, which is incestuously related to Community Health Systems (CHS) through Chairman Denny Shelton.  Community Health Systems bought HMA in 2014 after buying Shelton's Triad Hospitals in 2008.

Greed drives unethical behavior, in healthcare as in finance.   Australians have awakened to this fact.

A royal commission this year, the country's highest form of public inquiry, has exposed widespread wrongdoing in the industry.  It released an interim report on Friday, condemning an industry which it said valued profit over people.  The Australian government called the report a "scathing" assessment.  "[The report] shines a very bright light on the poor behaviour of our financial sector," Treasurer Josh Frydenberg said.  "Australians expect and deserve better."
Former Medicare Chiefs consistently arise from the for-profit healthcare industry and return to their swampy roots afterwards.    Former Medicare Chief Gail Wilensky sold nursing home giant Manorcare to The Carlyle Group as a board member.  Wilensky set up a structure that would prevent patients being harmed by Manorcare's PEU ownership.  It did not prevent Carlyle from bleeding the company for well over $6 billion in cash before completely bankrupting it. 

Nancy Ann Deparle returned to her PEU roots with Consonance Capital after designing greed focused PPACA.  Just days ago Bloomberg reported:

A new federal watchdog report warns that privately run Medicare health plans used by millions of older Americans may be improperly denying patients medical care.

Federal auditors have found “widespread and persistent problems related to denials of care and payment in Medicare Advantage,” the privately administered plans that insure more than 20 million people, according to the report from the Health and Human Services Office of Inspector General.
For-profit healthcare companies have internal incentive programs which distort behavior, as in the case of HMA.

According to the Justice Department, HMA, beginning in 2008, defrauded government healthcare programs like Medicare and Medicaid by illegally pressuring and inducing doctors into increasing the number of emergency department patient admissions.  Those admissions were made without regard to whether the they were medically necessary, prosecutors said.
PPACA instituted a complex series of pay for performance initiatives, HAC, HRRP, VBP, VM, MIPS, APM, MACRA, which drive similar bad behavior.  Reward/punishment systems distort behavior to achieve the reward and/or avoid the negative.

Roughly 30% of corporate executives cheated by backdating stock options to maximize their executive compensation.  President Obama once said "if pay for performance works," without sharing vast research that it causes major distortions by causing people to focus on the reward, not the quality of their work.  Many like executives at HMA will cheat to garner the prize.

The government settlement absolves CHS of any criminal charges:

Health Management Associates, which Community Health acquired in 2014, agreed to pay the sum to resolve criminal and civil claims as part of a deal in which a subsidiary also agreed to plead guilty to conspiring to commit healthcare fraud.
White collar criminals have their company's pay fines for unethical and illegal behavior.  Jail time is reserved for street urchins, not the landed gentry. 

Update 10-1-18:  Davita settled with the Justice Department for $270 million for overcharging Medicare via Medicare Advantage plans.  Health reformer Deparle was on the Davita board when President Obama tapped her.

Saturday, September 22, 2018

Popeulism Bono Style

Columnist Fareed Zakaria wrote:

I wanted to understand Europe’s populism. So I talked to Bono. 
Economist Andy Xie wrote:

The world needs a new generation of policymakers who don’t hobnob with billionaire speculators and who understand workers’ concerns. Unfortunately, the change will not come smoothly. Political turmoil in the West is very much about this. A heavy price has to be paid to bring about the change
In 2008, Beijing and Washington pumped in massive amounts of money to bail out speculators in the name of saving the economy and helping workers. The reality is that they used workers’ money to enrich parasites. 
Parasites include private equity underwriters (PEU) who buy companies, load them with debt, milk them for cash and flip them for huge returns.  Bono is a PEU with Elevation Partners, co-founding the firm in 2005.  Bono hobnobs with fellow rich speculators at the World Economic Forum in Davos, Switzerland.

Private equity underwrites get preferred carried interest taxation.  Loading up affiliates with debt reduces their tax burden as do various tax avoidance schemes.

Irish Bono may be familiar with this one.

The double Irish with a Dutch sandwich is a tax avoidance technique employed by certain large corporations, involving the use of a combination of Irish and Dutch subsidiary companies to shift profits to low or no tax jurisdictions. The scheme involves sending profits first through one Irish company, then to a Dutch company, and finally to a second Irish company headquartered in a tax haven. This technique has made it possible for certain corporations to reduce their overall corporate tax rates dramatically.

The double Irish with a Dutch sandwich is generally considered to be a very aggressive tax planning strategy. It is, however, famously used by some of the world's largest corporations, such as Google, Apple and Microsoft. In 2014, it came under heavy scrutiny, especially from the United States and the European Union, when it was discovered that this technique facilitated the transfer of several billion dollars annually tax-free to tax havens.
Workers with stagnant wages are tired of executives and boards getting outsized compensation off their backs.  How do workers at Elevation Partners affiliates feel about their PEU owners?

Elevation made huge returns on its Facebook stake when the company went public in 2012.  April 2015 found Bono with a new private equity appointment:

U2 frontman Bono has accepted the role of special adviser to a new $3 billion growth fund currently raised by equity fund investor David Bonderman's TPG Capital.
Fareed Zacharia lobbed softball questions at Carlyle Group co-founder David Rubenstein.  Fareed is part of system that maintains the current political and power structure.   He should talk to real Europeans/Americans and ask why seven times to get at root causes of citizen dismay.  He might arrive in the same place as Andy Xie.

Update 9-24-18:  Elevation narrowly missed out on Pandora which announced a $3.5 billion sale to Sirius-XM.

Update 9-24-18:  Christopher Hedges wrote "economic elites and organized groups representing business interests have substantial independent impacts on U.S. government policy, while mass-based interest groups and average citizens have little or no independent influence.  Irish born Bono has far more influence on U.S. government policy than American citizens.  "Elites, who sacrifice nothing for society and are not held accountable for their criminal behavior, live in a “stateless archipelago.” They are empowered to pillage the nation, amass obscene wealth and wield unchecked political and legal control.  Bono is an elite and Zacharia an enabler.

Update 9-26-18:   The Guardian noted the outsized influence of the super rich, i.e. the greed and leverage boys.  Some researchers have concluded that wealthy people and business interests have 15 times the political efficacy of the rest of the population. Most people are unhappy with the status quo, and do not think it’s fair that wealthier people have disproportionate political influence.

Update 9-28-18:  Billionaire David Rubenstein recently lobbed softball questions to Jeff Bezos, the world's richest man.

Friday, September 21, 2018

Carlyle Group Sniffing Airplane Parts Maker Esterline

Dealreporter stated The Carlyle Group is one potential buyer for Esterline.  Esterline supplies airline parts.  It's 2017 Annual Report noted:

Our products are used on the majority of active and in-production U.S. military aircraft and on every Boeing commercial aircraft platform manufactured in the past 75 years.
Do Carlyle's politically connected founders know war is in our future?  If so, Esterline could be a wise investment.

Boeing may not be thrilled about Carlyle buying a key supplier after affiliate Vought Aircraft Industries' South Carolina operation gunked up 787 Dreamliner production as Conde Nast reported in 2009.

But Boeing didn’t realize that the Carlyle Group, which had acquired Vought in 2000, was starving it of resources while making a few cosmetic improvements to attract potential buyers—a once-common private equity tactic. By early 2006, Vought was facing a severe “liquidity crisis” and nearly went bankrupt, chief executive Elmer Doty told analysts. It couldn’t afford the new plants, employee training, and fuselage design and assembly and had to “reconstitute” its engineering department. “We are among the riskiest, if not the riskiest” of the Dreamliner suppliers, Doty acknowledged.
Mr. Elmer L. Doty remains with Carlyle and could advise Esterline on how much cash Carlyle plans to bleed from the company if it is the successful bidder.

Wednesday, September 12, 2018

Greedy Carlyle to Buy Compassionate Sedgwick

The Carlyle Group will buy Sedgwick for $6.7 billion from fellow private equity underwriter KKR,  KKR bought Sedgwick for $2.4 billion in 2014.  The deal will close later this year.  Sedgwick's website lists the following claims management services:

workers’ compensation, liability, property, disability and absence management
KKR referred to Sedgwick's "delivering high quality technology-driven insurance solutions to clients and consumers around the globe."  I'm pretty sure high quality technology-driven claims management service is not compassionate, especially under the ownership of Carlyle.

Update 9-16-18:  Moody's indicated in December 2017 Sedgwick was highly levered, almost 8x debt to EBITDA, under KKR.  Carlyle has hundreds of companies that can send new business to Sedgwick.