Wednesday, April 8, 2009

Stop, Hey! What's that Smell?

There is something happening here. What it is, is increasingly clear. I predicted the PEU boys would avoid regulation in global financial reform efforts. Economic Policy Journal editor Robert Wenzel met with a D.C. insider who shares this belief. Hedge funds will come under scrutiny but private equiy will remain free from review.

I find this easy to believe, given the Carlyle Group's key chair positions in financial reform efforts. Carlyle co-founder David Rubenstein headed an international study group, while Senior Adviser Arthur Levitt oversaw a domestic reform group.

Recall that Carlyle Capital Corporation's failure preceded Bear Stearns. The Carlyle Group lost SemGroup to hedging or forward looking contracts. Hawaiian Telecom and Edscha are in bankruptcy. Blue Wave Partners imploded.

Something deserves watching. Has or will Carlyle buy credit protection on debt of affiliates approaching bankruptcy? They have insider knowledge, as well as other funds specializing in distressed debt.

Carlyle can stack the deck to win either way. If bond holders willingly cram down, that benefits the Carlyle affiliate. Congress gave the PEU boys a $25 billion tax break for buying back debt on the cheap. If debt holders don't cave, bankruptcy and Carlyle's credit coverage comes due.

Everybody look what's going down. What a field day for the greedy.