Friday, January 30, 2009

Tom Daschle PEU


President Obama's nominee for Health & Human Services has a checkered past. Tom Daschle failed to pay more than $128,000 in taxes. The back taxes related to his compensation and benefits working for InterMedia Advisers, a private equity underwriter (PEU). Daschle received over $2.2 million in compensation for chairing InterMedia's advisory board. Nearly $200,000 related to a car and driver provided to Mr. Daschle.

Tom paid over $140,000 in taxes and interest. Did he get the same no penalty treatment as Treasury Chief Tim Geithner?

Tom served briefly on the board of another PEU, the Apollo Group. He resigned mere months after his appointment. Daschle served on InterMedia's board from 2005-2007.

Some members of the Senate Finance Committee share my concern about Tom's stint at Alston & Bird. The New York Times reported:


Mr. Daschle said he had received $2.1 million in “wages and bonuses” from Alston & Bird and more than $390,000 for speeches to groups like America’s Health Insurance Plans. He also said he had received more than $5,000 for giving “policy advice” to UnitedHealth, one of the nation’s largest insurers.

Alston & Bird's Tom Scully registered as a lobbyist, Daschle did not. If Geithner and the Raytheon lobbyist can be approved, Tom's a shoe-in.

Conaway Should Drop His CPA


Representative Mike Conaway (R-TX) is a certified public accountant. He's in a unique position to help his constituents understand delicate financial matters. Yet, he consistently fails to deliver. When Wall Street imploded last September, Mike stayed silent. He voted against the big money boy bailout, before he voted for it.

Conaway's latest accounting malpractice was reported in the Dallas Morning News. He commented on the economic stimulus package.


"On the base of 150 million jobs, we are going to spend $275,000 per job to create or keep 1 million jobs?" said Rep. Mike Conaway, R-Midland. "That is a bad investment."

He didn't break the spending down by capital vs. operating costs. Within operating expenses, wages and benefits comprise only a portion of any project. Mike should be embarrassed by his ridiculous statement. This is the same CPA who took a year to find out the National Republican Congressional Committee had inflatable dolls as auditors. West Texas has a political hack for its representative, continued abysmal leadership.

Carlyle's David Rubenstein: The Buck Stops with 5 Billion


David Rubenstein, co-founder of The Carlyle Group, chairs the World Economic Forum committee redesigning global financial markets. Did he join the list of CEO's, like JP Morgan's Jamie Dimon, in claiming responsibility for the global financial implosion? Nope. Bloomberg reported:


David Rubenstein said he thinks a key issue at this year’s gathering is “who is at fault.” Yet Rubenstein, who was saying at Davos two years ago that the outlook for leveraged buyouts was “very robust,” says responsibility shouldn’t be tied only to him or his industry.

“There are six billion people on the face of the earth, and probably about five billion participated in what went on,” Rubenstein said in an interview. “Everybody participated in some way or shape or form.”

How George W. Bushy of Mr. Rubenstein, blame the workers. Quality begins in the boardroom. That cuts the list down considerably. Top executives designed distorting incentive systems that extrinsically motivated employees to package investment pigs with triple A rated lipstick. Greed systems were designed at the top.

The big money men wanted accounting changes, like mark to market, to keep the leverage engine chugging in an up market. That turned into reverse razor blades when Wall Street imploded last September. Priming the leverage pump occurred in executive suites and board rooms.

Five billion people weren't responsible. They're the financial system's Lindy England. Bush & Cheney ordered harsh interrogation techniques, but she became the face of injustice. David Rubenstein plays a similar game. Which secretary will he trot out as the cause?

Thursday, January 29, 2009

Financial Implosion Caused by Lack of "Adult Supervision"


It turns out Wall Street was run by teens with raging hormones. Who knew executive incentive compensation was a fountain of youth elixir? Greed and leverage brought down the world financial system, killing investing for years to come. Causes include the lack of adult supervision. Bloomberg reported:


“We are most assuredly going to see the hand of government play a much greater role in markets,” Morgan Stanley Asia Chairman Stephen Roach said in an interview. “The question that needs to be answered is what impact that will have on allocating capital and how capital is used in the economy. Letting the system go on without adult supervision led us to where we are today.”

Who's leading the effort to reform the global financial system in Davos, Switzerland? Chair of World Economic Forum effort is David Rubenstein, co-founder of The Carlyle Group. What are the odds that private equity comes out on top? Who knew the golden age of private equity involved teenage hormones? Welcome to the Curious Case of Penultimate Profits.

Wednesday, January 28, 2009

Dirty Max Comes to PEU's Aid


Senator Max Baucus D-Montana included a provision in the stimulus package allowing companies to defer income taxes triggered when they repurchase their own troubled debt at a discount.

What's the big strategy of private equity underwriters (PEU's)? Buying affiliate distressed debt on the cheap. Manor Care, owned by Carlyle Group, is attempting to purchase a portion of its debt for cash. Not only do companies lighten debt loads for pennies on the dollar, Max offered a tax break for doing so, $26 billion worth. No wonder Blackstone's Steve Schwarzman was so enthusiastic about CMBS repurchasing in today's CNBC interview with Maria Bartiromo. Pfftttt!

I shouldn't be surprised. Dirty Max accepts donations from eight for-profit health care companies with no, zero, zippo, nada facilities in his state. Yet, he doesn't accept e-mail from citizens outside Montana. Who knew a corporate check had more rights? Welcome to American corporatocracy!

Tuesday, January 27, 2009

SchoolNet Gets Additional Carlyle Group Funding




The Carlyle Group invested $13 million in SchoolNet, alongside three other entities. Carlyle invested in the company in 2006. The corporate press release stated:


SchoolNet offers modules for assessment, reporting, curriculum deployment, professional development management, advanced analytics, parent portals, and enterprise dashboards. SchoolNet's products and services are used by many of the nation's largest school districts including Chicago Public Schools and the School District of Philadelphia.

The Carlyle Group uses political connections to increase affiliate business. President Obama's new Secretary of Education Arne Duncan came from Chicago Public Schools. Will Carlyle drag SchoolNet through the Federal Treasury, scooping up stimulus package profits?

It will be their second pass. Affiliate Boston Private Financial Holdings netted $153 million in TARP money. Corporafornication may be alive and well as private equity underwriters (PEU's) enter their finest hour.

Update 5-23-11:  Carlyle will cash in on SchoolNet, given Pearson's $230 million acquisition of the company. Carlyle's interest in schools is both personal and business according to WaPo.

Monday, January 26, 2009

Rubenstein Now Sole Chair of Global Financial System Remake at Davos


World leaders gather this week at Davos, Switzerland for the World Economic Forum's annual soiree. The event theme is reshaping the global financial system. Political leaders are the new rock stars, as they've used public money to rescue the ever imploding financial sector.

The WEF commissioned a study on the crisis, outlining the danger and projecting opportunities. Carlyle Group founder David Rubenstein co-chaired the study group alongside Merrill Lynch CEO John Thain. However, Thain dropped out after last week's career implosion. Rubenstein assumes the chair. What are the odds the new system will favor private equity?

Sunday, January 25, 2009

The State of Global PEU's


Emirates Business reported the private equity sector will enter a "survival of the fittest" phase. Money flowed to the already wealthy Gulf States for private investment. The article stated:


The Carlyle Group was one of the first to set office in the region and is actively looking at investment avenues in many of the regions own companies.

It happens a Carlyle co-founder chairs the World Economic Council effort to redesign the global financial system. Private equity underwriters (PEU's) stand to come out on top, i.e. stay off the regulatory radar. Why might they warrant some oversight? An expert said:


"Plus all those bankers from Lehman, Merrill and others being laid off will end up starting hedge funds or private equity funds, so expect to see further increases in the number of private equity funds"
Greed and leverage imploded Wall Street. Shifting that talent to unmonitored private equity or hedge funds is not assuring.

The Carlyle Group lost four investment vehicles, Carlyle Capital Corporation, Blue Wave Partners, SemGroup, and Hawaiian Telecom. Investors lost billions.


"An investor who puts money into a private equity fund commits to having that capital stay invested for the life of the fund, typically seven to 10 years. As such, private equity funds are not directly under financial pressure in times of financial turmoil. I would expect private equity funds to continue to stay and operate independently."

With or without oversight? Stay tuned.

Friday, January 23, 2009

Senate Finance Committee Continues Bush Corporafornication


CNBC reported the Senate Finance Committee will vote on a stimulus package including tax benefits for corporations repurchasing their debt. It truly is the golden age for private equity underwriters (PEU's)! Not only can PEU affiliates buy back debt for pennies on the dollar, they get a tax break to boot. This gift comes on top of bonus depreciation and the five year loss carryback, expected to save businesses $23.5 billion in taxes.

Watch global financial system reform. The World Economic Forum study was co-chaired by David Rubenstein of The Carlyle Group. His partner? John Thain of the $1.2 million taxpayer funded office refurbishment, complete with a legged commode at over $30,000. Watch where Mr. Thain lands.

Note the blue team's ability to corporafornicate. It didn't end with Bush's chopper depositing him in Midland, Texas. Dirty Max Baucus hold the Senate reigns for health care reform. Expect private for-profit health care companies to win mightily. By the way, Max accepts donations from 8 for-profit firms with no facilities in his state. What are they buying?

Thursday, January 22, 2009

John Thain to Land at Carlyle Group?


What would happen if two private equity underwriters (PEU's) oversaw the reformation of our global financial system? Private equity could steer reform in their favor. Should John Thain take the retired Lou Gertsner's spot, that nightmare could be reality.

The World Economic Forum's committee tackling the future of global finance is chaired by John Thain and David Rubenstein, co-founder of The Carlyle Group.

Wednesday, January 21, 2009

Transparency of PEU Profits from Public-Private Infrastructure


The big money boys have hundreds of billions to invest in America's infrastructure, primed by President Obama's economic stimulus package. The Wall Street Journal reported:


In a report due out Wednesday, a group including Morgan Stanley, Credit Suisse and the Carlyle Group says $180 billion of private capital is available for investment in highways, airports and other transportation infrastructure. The report says this money could help create millions of jobs, boost economic growth, reduce travel congestion and free up government dollars for other priorities.

Such deals offer the prospect of steady, predictable profits for investors.

Business lobbyists also note that Mr. Obama supports the creation of a National Infrastructure Bank, which could leverage federal funds by pairing them with private investments.

How big are those steady, predictable profits? Carlyle Group co-founder David Rubenstein bragged of their historical 30% annual return. The private equity underwriter (PEU) indicated a willingness to take less, but how much?

Citizens will give up long term government revenue streams. Frequently, deals include legal guarantees minimizing any competition. I don't want Carlyle & Co. to garner a 25% annual infrastructure return on my back.

Greed and leverage imploded Wall Street. The big money boys haven't changed. They're looking for new suckers. The taxpayer is it. How bad can and will it get? A clue may come when the President's transparent government makes projected infrastructure profits public.

Tuesday, January 20, 2009

Obama's Inauguration Speech Missed Mark


President Barack Obama noted "our collective failure to make hard choices" in his inauguration speech. He used the line in reference to our economy. I respectfully disagree.

America's elected representatives and corporate executives failed to lead. Our corporatocracy is at fault. There is no collective failure, but abysmal leadership.

Pay for performance imploded Wall Street. Year after year CEO's were accountable for results, incentivized by executive compensation. They produced junk, selling innovative products as solid investments, however complex. Greed and leverage killed investing.

President Barack Obama wants "pay for performance" to improve education and health care. Teachers and doctors will game the system to optimize pay. Thirty percent of CEO's broke the law by backdating stock options, stealing from shareholders. Educators and healers are as smart as corporate executives.

Obama plans to change government by focusing on accountability, efficiency and transparency. Such practices were insufficient to save America's financial sector. Why will they work now?

Leadership is needed. Government's hallowed halls and plush corporate board rooms need profound knowledge. Quality leadership must be substituted. President Barack Obama missed this mark.

Monday, January 19, 2009

Carlyle's Hertz to Cut 4,000 Jobs


The Carlyle Group purchased Hertz Corporation in 2005. Times are tougher. The private equity underwriter (PEU) announced it eliminated 100 corporate jobs a month ago. Today, affiliate Hertz achieved a number 40 times that size, a cut of 4,000 jobs. The BBC stated:

Hertz has already cut its workforce by 22% in the last two years. The new cuts mean the firm has trimmed its staff numbers by 32% since August 2006.

Last month, the Carlyle Group praised the impact of private equity on employee relations. They used a European study and did their best to polish their penny pinching on jobs, pay and benefits. Next time, let's hope the study includes Hertz and Carlyle's laid off workers.

Obama's Missing Management Theory


Dr. W. Edwards Deming taught management theory to Japanese business leaders after World War II. Near the end of his career, the leadership guru distilled his teachings into "profound knowledge." It covered systems, variation, psychology, knowledge and their interactions.

President Barack Obama's management knowledge comes from the legal/political sphere, yet he will be Chief Executive of America's huge federal arm. His political appointees are a combination of basketball buddies, friends, and Clintonites. However, he did hire a Chief Performance Officer, Nancy Killefer, an executive with McKinsey & Co., a giant consulting firm.

They plan to revamp the federal government with efficiency, transparency, and accountability. Without means, those are hollow platitudes. By what method?


Barack Obama and Joe Biden will create a focused team within the White House that will work with agency leaders and the White House Office of Management and Budget (OMB) to improve results and outcomes for federal government programs while eliminating waste and inefficiency. This unit, a SWAT team, will be composed of top-performing and highly-trained government professionals and be headed by a new Chief Performance Officer (CPO) who will report directly to the president.

The CPO will work with federal agencies to set tough performance targets and hold managers responsible for progress. The president will meet regularly with cabinet officers to review the progress their agencies are making toward meeting performance improvement targets."

Wall Street leaders applied the very management practices cited above. What did that bring America? Greed, abysmal quality and an imploded financial sector.

Leaders throughout government need theory and methods to improve. Efficiency, transparency and accountability are insufficient. Pay for performance is a proven distorter. The White House joins corporate America in the race to the bottom, ignoring profound knowledge at our nation's peril.

Sunday, January 18, 2009

September Implosion Redux?


In mid September 2008, America's big money boys no longer trusted each other to make good on their debts. Credit coverage soared to pay day loan rates. Rich men don't pay such rates, thus the government needed to bail them out. What happened after injecting over $350 billion in capital? Not much, Last week credit coverage soared for banks seen as "at risk". Reuters reported:


Since Tuesday, the CDS premium for Citi bonds rose 55% -- the annual cost of protecting $10 million of Citi debt against default for five years rose to $410,000 on Wednesday from $265,000 on Tuesday.

That's roughly half the CDS levels reached the week of September 15. However, the uptick is concerning. It portends another round of taxpayer sponsored corporafornication.

Banking on Obama


Banks, the ones not lending their new billions in taxpayer money, want President Barack Obama to save them again. The New York Times reported:


A growing chorus of officials and Wall Street executives have urged President-elect Barack Obama to move immediately to shore up the banking industry as its crisis deepens.

Deepening crisis? What happened, didn't the Wall Street, big money boy bailout work? Ex-White House economic adviser Al Hubbard guaranteed a positive outcome. What more do they want?


Ben S. Bernanke, the chairman of the Federal Reserve, raised three proposals that Obama transition officials are said to have been considering to cleanse the largest banks of their biggest problems.

CitiGroup and Bank of America have hundreds of billions in taxpayer cash and loan guarantees. Other large banks need access to citizen funded largess? I hoped Bush's massive corporafornication would end on January 20th, but that seems unlikely.

Saturday, January 17, 2009

David Rubenstein: Master of the Universe & Sky?


Carlyle Group co-founder David Rubenstein is a busy man. Last week he issued a report on reorganizing the global financial system and bid for for American International Group Inc.’s plane-leasing business.

Tiltiing the global deck in favor of private equity underwriters becomes easier when you're the World Economic Forum study group co-chair. I'm not sure how Carlyle gains advantage vs. its PEU competitors for International Lease Finance Corp. But all clearly want to pay distressed, fire sale prices for the now public asset.


“You have a situation where there’s a distressed seller and these are the times when private-equity funds get their best returns,” said Steven Kaplan, a professor at the University of Chicago Booth School of Business.

And that stressed global financial system? It likely will be restructed to favor private equity. The shadow banking system wins again with plum assets on the cheap, continued tax advantages, and lack of regulation. That's what money and influence can buy.

"Good Guy" George W. Bush tripped into the curtain, exposing all as he bumbled about. I'm not sure Barack, even with his lofty rhetoric and disarming smile, can yank it back quick enough.

Friday, January 16, 2009

Cerberus' Chrysler Gets More Taxpayer Money




America's sovereign IOU fund doled out $1.5 billion to Chrysler Financial, an affiliate of Cerberus Capital. The private equity underwriter (PEU) already received a $4 billion capital injection for Chrysler.

Hank Paulson's TARP ponied up $153 million for Carlyle Group affiliate Boston Private Financial Holdings, an investment company catering to the high net worth marketplace.

Welfare to billionaires, courtesy of beleaguered taxpayers. Oh, the PEU boys are revamping our global financial system. I bet they structure changes in their favor.

PEU Boys Look to Reform Global Finance


Private equity underwriters (PEU's) deployed the same greed and leverage as America's recently imploded Wall Street. The Carlyle Group lost Carlyle Capital Corporation, Blue Wave Partners, SemGroup, and Hawaiian Telecom to bankruptcy. Yet, Carlyle leaders sit in positions shaping the future of U.S. and global financial systems.

Dow Jones will hold a Private Equity Analyst Outlook 2009 Conference on January 27-28, at the Grand Hyatt in New York. High finance will be the major topic.

"Technology, globalization, convergence and consolidation are transforming the financial services industry," said Mr. Bernstein, Partner, Financial Services, Grant Thornton LLP. "Successful investing, especially in these tough economic times, requires a thorough understanding of the complex and changing world of financial services."

And who's redesigning this global financial system? Carlyle Group co-founder David Rubenstein sits atop the World Economic Forum panel offering its wisdom. How might private equity come out, given its PEU co-chair? Will Paul Volker's Group of Thirty report offer anything different? That's the topic of a panel at the Dow Jones gathering.


"Bank On It: What PE Firms Must do to Successfully Invest in Financial Services Companies and Financial Assets"

The panel will discuss the recent role of private equity firms as prominent investors in financial services companies, and what is required of them to do so successfully. Panelists will go into detail on how to identify and manage inherent risks in these businesses, and will outline what opportunities may exist in the year ahead. Shasha Dai, Reporter, Dow Jones LBO Wire, will serve as the panel moderator. The panel will include Randal K. Quarles, Managing Director, Global Financial Services, The Carlyle Group.

Mr. Quarles was Hank Paulson's number 2 until Carlyle squirrelled him away. Private equity and hedge funds purchased failed IndyMac Bank from Uncle Sam. The shadow banking system morphs into the real banking system. Rather than return banks to the basics of investing, the greed/leverage PEU boys are offered as the answer. Strange days, indeed.

Thursday, January 15, 2009

Taxpayer on Hook for United Airline's Ditching in Hudson River?


US Airways Flight 1549 lost power to both engines after striking a flock of geese. The pilot saved the day by gliding the craft into the Hudson River. All 155 passengers and crew have been rescued. Now who makes US Airways whole?

President George W. Bush put the taxpayer at risk with his December 23 memo to Mary Peters. He ordered the Transportation Department to insure U.S. flagged air carriers. Did Uncle Sam insure US Airways?

David Rubenstein Helps Design Future Global Financial System


The World Economic Forum released today "The Future of the Global Financial System; A Near-Term Outlook and Long-Term Scenarios." Carlyle Group co-founder David Rubenstein co-chaired the study alongside John Thain of Bank of America/Merrill Lynch. WEC's press release stated:


The report explores a near-term industry outlook characterized by an expanded scope for regulatory oversight, back to basics in the banking sector, some restructuring by alternative investment firms and the emergence of a new set of winners and losers.

“The World Economic Forum’s upcoming Annual Meeting 2009 will provide leaders from industry, government and civil society with a unique and timely opportunity to actively shape the post-crisis world. This report serves as a critical input into these multi-stakeholder discussions to stimulate the development of practical and responsible recommendations for promoting long-term financial stability,” said Professor Klaus Schwab, Founder and Executive Chairman of the World Economic Forum.

Heads of state, finance ministers and central bankers from over 60 countries, as well as chairmen and CEOs from over 200 of the world’s leading financial institutions will be in Davos-Klosters, Switzerland to engage in these discussions.

Actively shape the post crisis world? That's a pretty sweet spot for Mr. Rubensteins and Thain. How will secretive private equity fare in the reorganization? A Carlyle Group captain stands at the helm of this reorganization. They symbolize the greed and leverage that imploded Wall Street. It makes me feel all warm and fuzzy, or is it hot and bothered? (Paul Volker and his Group of Thirty submitted their position paper on the same topic. What timing!)

Wednesday, January 14, 2009

The Curious Case of John Ellis Bush


John Ellis Bush, nicknamed Jeb, holds a number of corporate board slots, Tenet Health, Rayonier, and CNL Bancshares. Business Week indicates Jeb served on the board of Lehman Brothers Inc., a private firm that's part of Lehman's corporate family. Lehman Brothers Holdings is the public company that imploded in September.

CNBC's Jim Cramer believes the failure of Lehman a colossal mistake and Hank Paulson's excuses lame in light of actions it took on AIG. So why did the government let Lehman implode?

My theory is George W. Bush did not want to be seen as rescuing his near relations. Besides Jeb's work as a consultant to Lehman's private equity, cousin George Herbert Walker ran Neuberger Investment Management, Lehman's investment division. September found Republicans in a close race. The Palin boost hadn't dissipated with her vacuous statements or McCain's campaign suspension. John blew off David Letterman for a leisurely rush to Washington. There John attended a meeting where he said not a word.

George H. Walker and Neuberger management bought NIM for half price and no money down relative to a competing Bain Capital offer. Will Jeb get a piece of Lehman's private equity division, currently on the auction block? The rumored major investor, Johann Rupert, served alongside Jeb on the Lehman Brothers Inc. board.

Vought Aircraft's Texas Promises, Will Carlyle Group Deliver?



The Carlyle Group's Vought Aircraft milked state and federal officials for $75 million in grants/earmarks. They pocketed $65 million in a land deal, which also reduced their state tax bite. Vought made various commitments in return for the money. BizJournals reported in 2005:

Rick Perry gave Vought $35 million from the state's Texas Enterprise Fund in return for the promise of adding 3,000 jobs to its existing work force of 3,350. Vought says it's added 811 employees so far.

The Texas target is 6,350 jobs by 2009. How are they doing? Today BizJournals reported on a Nashville strike. (Ironically, Vought promised it would shutter the Tennessee operation but reneged.)

Vought has about 5,900 employees in nine U.S. locations and is 90 percent owned by Carlyle Group, a private equity firm based in Washington, D.C.

Vought could have all their employees in Dallas and fall short of their promise. What happens to $35 million in Gov. Rick Perry's corporate welfare? Stay tuned...

Sunday, January 11, 2009

David Rubenstein: Snake Oil Salesman?


CSPAN broadcast Hank Paulson's talk at the Washington Economic Forum. Hank's final question from Q & A moderator David Rubenstein was "Now that you're a private citizen, where will you be investing your money, other than private equity?"

Emirates Business showed Rubenstein to be the perpetual salesman. Despite the bankruptcies of Carlyle Capital Corporation, Blue Wave Partners, Semgroup, and Hawaiian Telecom, David Rubenstein said:



"This is a good time for private equity underwriters (PEU's) if the industry moves carefully and skillfully with corporate partners and sovereign wealth funds. Low prices can yield attractive returns for the PEU industry – perhaps the best ever," said David Rubenstein, Co-founder and Managing Director of The Carlyle Group, one of the world's largest private equity firms. He described this as "perhaps one of the finest hours for private equity markets".


"An enormous number of companies need capital and the private equity industry has the necessary money. The US Government can't do everything. Private equity players can play an important role by re-capitalising many institutions."


Funny, Hank Paulson provided $153 million in capital for Carlyle affiliate Boston Private Financial Holdings, while David held tens of billions in dry powder. Senators Hutchison and Cornyn are yet to explain how this is a good use of taxpayer's money. But back to that ammunition, itching to be used:


Rubenstein believes that there are huge opportunities for PEU's. "They [PEU's] can invest in financial services businesses, an industry that hasn't previously seen a great deal of PEU involvement. With $1 trillion of dry powder, the PEU industry is in a stronger position than anyone else to help in economic recovery by providing capital and management expertise to financial services businesses. PEU can re-tool itself by coming in and offering longer-term capital to these institutions and helping them turn around," he said.

Distressed PEU has never seen so many opportunities, with one expert describing the current situation as a "once in a lifetime" opportunity. Most analysts favour investments in the US in this particular area – buy cheap and reap the benefits, they believe.

According to experts, infrastructure is another hot area, with lots of opportunities expected to continue. Likewise, mezzanine funds are expected to see huge growth and opportunities
.

"Huge opportunities, once in a lifetime, best ever, finest hour"? That's why Carlyle laid off 100 employees and lost numerous affiliates to bankruptcy. Step right up, the PEU boys have something to sell! How about the Brookly Bridge, anyone?

As author of this commentary, I took the liberty of adding a U to Mr. Rubenstein's designation of PE. For an accurate interpretation of his remarks omit the U.

Saturday, January 10, 2009

Another Prescient Carlyle Group Big Wig?


Carlyle Group co-founder David Rubenstein wowed Seward's Folly with the coming "mother of all stimulus packages", before the media had an inkling. David Marchick, the firm's chief lobbyist, spoke on Obama's priorities for modernizing the regulatory structure.

Modernizing under President Bush meant contracting to the private sector. It remains to be seen if Barack is using the same definition. Here's what David Marchick, managing director of global government and regulatory affairs at the Carlyle Group, had to say:

Priority #1 is economic rescue, i.e. stopping the bleeding. He sees a huge stimulus package in early 2009. After that Priority #2 is modernizing regulation, getting it caught up with changes made during October economic rescue.. He sees a broad rewrite & reorganization of the regulatory structure.


1. Modernizing and strengthening the regulatory system with a strong systemic regulator, probably the Fed. Broader oversight of some of the unregulated parts of the system.

2. Minimizing systemic risk

3. Enhancing transparency

4. Reform of credit rating agencies

5. Regulating derivative products

David Marchick is an ex-Clinton White House staffer. He spoke confidently on behalf of the Obama team just one week after the election. If it came from insider knowledge, Carlyle has incredible blue connections. The PEU's red connections are legendary.

Let me hazard a guess. Private equity underwriters will remain outside the modernized regulatory structure. Enhanced transparency requirements will not impact the PEU boys. Stay tuned.

Carlyle Group to Bid on ILFC?




As insurance giant AIG sheds assets, International Lease Finance Corporation may be for sale. The Carlyle Group may be interested in bidding. America's sovereign IOU fund owns a huge chunk of AIG. Will they pick up another asset on the cheap?

Who provides insurance on leased planes? Is it the lessee or the lessor? If ILFC is on the hook for insuring leased planes, George W. Bush came to the rescue December 23. He ordered Mary Peters and the Transportation Department to insure/reinsure airlines.

Carlyle could get into the taxpayers wallet twice on such a deal. Once on a discounted deal price and a second time with taxpayer sponsored insurance. Time may show how much Carlyle corporafornicates on the public's dime, but then again, it may not.

Japan May Cut PEU Capital Gains to Zero


The race to the lowest global common denominator continues. Instead of worker pay and benefits, this race involves capital gains taxes. Japan may go from last to first with the swipe of a pen. Currently, Japan has a 40% capital gains tax rate. It may cut that to zero for foreign investors, sovereign wealth funds and private equity underwriters (PEU's). Bloomberg reported:


Japan may axe a 40 percent capital gains tax for most foreign investors, a move the government expects could spur Middle Eastern sovereign funds and private equity firms such as Carlyle Group to pump 10 trillion yen ($110 billion) into its sagging markets.

The trade ministry plans talks over the coming months with buyout firms and state funds from Saudi Arabia, the United Arab Emirates, Qatar and Kuwait to outline proposed changes to its tax regime, said a senior ministry official working on the matter, who declined to be named because details haven’t been finalized.

How might that impact America, especially in light of the coming stimulus package with its 40% tax cut makeup? Using PEU logic, if capital gains goes to zero, then "carried interest" should as well.

Watch out, the days of Bush corporafornication may turn into the nights of Obama waffling on his campaign promises to make the wealthy pay more. How many governments will cater to the Carlyle Group?

Thursday, January 8, 2009

Why Bush Insured Airlines December 23rd


Insurance for air carriers rose rapidly in November of 2008. Canadian Underwriter reported premiums increased 16% in an environment that normally would have seen price decreases. The line has not seen any significant losses. Rate increases came despite benign loss levels and overcapacity.

A continuing hardening of rates could mean that gross premium for 2008 will exceed US$2 billion, driven by major renewal activity in December.

Either renewal prices came in too high or insurers wouldn't write airlines at all. Thus, President Bush ordered the Department of Transportation to insure/reinsure U.S. flagged air carriers on December 23rd.

A conspiracy theorist might predict an airline based terror attack prior to March 31, 2009. If so, Uncle Sam would shoulder the risk. But that's foolishness. Surely, America wouldn't sacrifice citizens for geopolitical means? Ask soldiers on the U.S.S. Liberty, as they suffered under brutal attack by the Israeli military. They know our nations colors.

Wednesday, January 7, 2009

Carlyle's David Rubenstein Introduces Hank Paulson at WEC


With two weeks left as Treasury Secretary, Hank Paulson received a generous introduction by Carlyle Group co-founder David Rubenstein at the Washington Economic Club. $153 million in TARP money for Carlyle affiliate Boston Private Financial Holdings helped David be so gracious.

Hank spoke on government sponsored enterprises, but extended his remarks to TARP. He believes taxpayers should continue investing in financial firms, despite the complete failure of $8.5 trillion in federal interventions to improve lending, as Hank promised. BPFH targets the high net worth marketplace and its CEO believed the firm had a strong capital position prior to TARP injection.

To be clear, Hank Paulson wants to continue an expensive program with no discernible impact to date. America's sovereign IOU fund props up financial firms, while private equity has $200 billion on the sidelines. The Carlyle Group claimed to have $40 billion in dry powder when Paulson pumped $153 million in Boston Private. Why should the taxpayer invest anything in BPFH? Taxpayers gave Carlyle cheap capital. I'm sure David thanked Hank backstage.

Porn Industry Wants in on Bush's Corporafornication


It was a matter of time before the porn boys went after the big skins being tossed around in Washington, D.C.'s air chamber. With $8.5 trillion swirling around in the federal tube, Larry Flynt and company made a case for inclusion. Apparently, one needs to remove their clothing to fit into the chamber.

They face an uphill battle for their requested $5 billion. Bush didn't want airlines to go bare and ordered Mary Peter's Transportation Department to provide insurance. One must corporafornicate with protection. Good luck, porn boys. It might help to hire Trent Lott. He finished his year sabbatical and can now legally lobby. My guess is Lott is enough of a whore to take Flynt's money.

Privatize PEU Profits, Socialize the Losses


The same day a news report stated private equity underwriters (PEU's) have $200 billion in hot cash to invest, another story highlighted how those same firms need yet another tax break. Bloomberg reported:


Commercial real estate companies, the U.S. Chamber of Commerce and companies partly owned by private- equity firms are pushing Congress for a temporary tax break on forgiven debt similar to relief given in 2007 to homeowners facing foreclosure.

The provision would let solvent businesses negotiate new terms with lenders, lowering the amounts they owe, without being required to pay taxes on the forgiven portions of the loans. The proposal may emerge as a priority among Republicans for inclusion in a stimulus package that President-elect Barack Obama seeks to pass with bipartisan support.

The tax break for canceled debt is being promoted on Capitol Hill by lobbyists from Oriental Trading Co., an Omaha, Nebraska, party-supply and novelty marketer partly owned by the Carlyle Group, and Las Vegas-based Harrah’s Entertainment Inc., which is partly owned by Apollo Management LP, congressional aides and lawmakers say.

What the heck? I thought $153 million in TARP money for Carlyle's Boston Private Financial Holdings was bad enough. The article went on to say:


About $270 billion of mortgages on shopping malls, apartment complexes and office buildings must be refinanced in 2009, according to Barclays Plc estimates. Commercial loan defaults will accelerate as banks and insurance companies rein in lending to manage their balance sheets and as the market for commercial mortgage-backed securities stays shut, Fitch Ratings Ltd. said in a Nov. 17 report.

Funny, that's about the amount the PEU boys have to invest. If the government caves here, corporafornication will not have ended with George Bush's exit.

PEU's Have $200 Billion to Invest


The Wall Street Journal reported the top ten private equity underwriters (PEU's) have a combined $200 billion to put to work. Some of that is targeted for infrastructure, distressed debt and our flagging financial sector. The article stated:


The private-equity firms -- led by Goldman Sachs Group Inc. with $31.15 billion, TPG with $24.7 billion and Carlyle Group with $23.4 billion -- have $197.1 billion of undrawn capital, according to data provider Preqin.
How much did the taxpayer pump into Goldman recently? $10 billion. Why should the taxpayer invest in Goldman when their private equity division has over $31 billion in cash? As an aside, TARP investments did nothing to increase bank lending.

The Carlyle Group total should increase by $13.7 billion, as they closed their fifth U.S. buyout fund.

Recall as President elect Obama talks about $1 trillion deficits as far as the eye can see. It's time for those with more to pay more. We did it during WWII, during a time of crisis.

Tuesday, January 6, 2009

AP Lands Donation Minnow, Misses Dover Sole


I don't understand reporting today. The Associated Press had a lead piece on a business donation to Barack Obama and the Democratic Party. It came from the firm under investigation for New Mexico pay to play. What's odd about the story?

First, the Republican Party turned pay to play into an art over Bush's eight years. Second, the Justice Department investigation targeted New Mexico donations and purchase decisions made in 2003-2004. New Mexico is half a country away from Illinois.

The AP caught a minnow, after missing a much larger, tastier fish. In one meal President Bush crushed Clinton's Lincoln Bedroom record. He invited 37 high dollar Republican donors to dine with the Queen. They ate Dover Sole. And five members of the media attended, including new Meet the Press host David Gregory.

Monday, January 5, 2009

Fed to Buy Securitized Mortgages


Wall Street produced tainted Tylenol financial products, only they didn’t completely clear the shelves.

Which investor wants to purchase securitized debt? None, that’s why the Fed is doing it, $500 billion worth.

Which insurance companies want to insure/reinsure airlines? None, that’s why the Transportation Department is doing so under George W.’s December 23rd order.

The Wall Street hooker looks old and ragged. She’s showing more skin than usual trying to get customers back in the market. Some things are a very hard sell.

Sunday, January 4, 2009

Bush Insures Airlines with Taxpayer Money


President Bush issued an executive order providing insurance or reinsurance for air carriers. He did so with taxpayers money. Did he require airlines to drop fuel surcharges or baggage handling fees? Nope.

Once again, George W. helps corporations with public money with no strings attached. What's the bill, President Bush? How much will this largess cost taxpayers?

Saturday, January 3, 2009

Another White Millionaire Lawyer to Join Senate


Colorado's new Senator Michael Bennet looks like his peers. He's white, a law school grad, and made millions working for an investment firm. Check, check, check, welcome to the august body.

Michael Bennet took a detour as the head of Denver Public Schools. There he pushed an improved version of pay for performance, only the major improvement was a big bump in base salary.

Wall Street CEO's used leverage and risky financial innovation to maximize incentive compensation. It imploded our financial system. This came after a decade of widespread cheating on the most pure form of pay for performance, stock options. The boys learned to backdate and few paid a legal price for stealing millions from shareholders.

However, President elect Obama and Congress want to spread the poison of bribes to education and health care. Sorry leadership brought Wall Street to its knees. Our elected officials won't give up failed manipulative strategies. Obama's Education Secretary Arne Duncan likes pay for performance as much as Michael.

Eight years of No Child Left Behind's competition and extrinsic motivators are destroying education. How long will it take for Michael Bennet and company to finish it off or to ruin health care? Substitute leadership, please.

Bush Says No Bare Planes


In another astonishing move, President George W. Bush ordered the Transportation Department to insure airlines. He did so by executive order on December 23rd. The pertinent portion said:


2. Approve provision by the Secretary of Transportation (Secretary) of insurance or reinsurance to U.S.-flag air carriers against loss or damage arising out of any risk from the operation of an aircraft in the manner and to the extent provided in chapter 443 of 49 U.S.C.:
(a) Until March 31, 2009;
(b) After March 31, 2009, but no later than August 31, 2009, when the Secretary determines that such insurance or reinsurance cannot be obtained on reasonable terms and conditions from any company authorized to conduct an insurance business in a State of the United States.

Meanwhile, 47.5 million have no health insurance. The number is likely closer to 50 million with our dire economic situation. George served eight years, twiddling his thumbs while the number grew from 40 to nearly 50 million. On that risk, he did nothing.

George W. Bush corporafornicates to the very end. At least with airlines he offered protection.

Friday, January 2, 2009

Slackened Bank Buyer Regulations Inaugurated


America's shadow banking system will soon own a real bank. IndyMac will be sold to a consortium of private equity firms and hedge funds. They will own 100% of the bank and not have to declare themselves bank holding companies.

When John Paulson's hedge fund runs into trouble, will he call on his captive bank for a loan? How about JC Flowers or Dune Capital Management? When they see an asset on the cheap, will they ring affiliate IndyMac for levered debt?

Yet more "hair of the dog medicine" from BushCo as he slinks toward the exit. There are no regulations on who can own a bank, not when the shadow system qualifies. Too big to fail morphed into too huge to lose. How long before the taxpayer bails out the PEU boys for bad IndyMac loans? Stay tuned...

The Bush Discount


The Yellow Rose in Crawford, Texas marked down George W. Bush merchandise up to 30%. Cousin George Hebert Walker bought Neuberger Investment Management for a whopping 58% off, with no money down. Neuberger management saved $1.2 billion relative to a competing offer. Brother Jeb may get a stake in Lehman's PE, pricing is not yet clear. Which will be the better deal?

Thursday, January 1, 2009

Pay for Performance in Health Care, HCA's Stock Options


President elect Barack Obama wants pay for performance to solve the ills of health care. The most pure form of executive incentive compensation is stock options. Set aside the fact that almost 30% of executive teams cheated by backdating over a ten year period. How did stock options improve HCA's performance?

Four top executives exercised stock options for $12.75 a share. They flipped a portion of their incentive compensation for $55.86. That's a 338% profit. The options were exercisable in 2003 and expired in 2009. Spread the return over five years and it equates to 67.6% annual uncompounded return. That's double what The Carlyle Group earned on its investments.

How much will patients have to pay for HCA's stock options? The four executives bought 310,260 shares at $12.75. Had they flipped the whole enchilada at $55.86, their profit would be almost $13.4 million. That compensation is passed on through higher hospital bills.

HCA's quarterly report sheds light on executive performance. Interest expense is way up from 2003, provision for doubtful accounts rose, and net income fell precipitously from 2007. Don't forget their investing $626 million in level 3 (junk) assets. If they get the Fed to buy it, parent KKR might give the boys a bonus!

When the most pure form of executive incentive compensation makes no sense, why would our new President impose pay for performance on physicians? Surely, they can game the system as well as CEO's.

Those Who Have More, Go Offshore


Lawyers encouraged private equity underwriters (PEU's) to set up offshore entities before Baby New Year arrived. The offshore corporations needed a 2008 start date to legally meet their aim, avoiding fair taxation on income.

Such structures allow PEU's to turn "carried interest" into low cost loans, achieving the same 15% tax rate. It also shields income from any Medicare tax increases. So much for those who have more, having a greater obligation...

The Carlyle Group's Hawaiian Telecom Implosion Softened by Credit Bets?


Carlyle Group Senior Adviser and ex-SEC Chair Arthur Levitt argued for more transparency for investors. How might that apply to affiliate Hawaiian Telecom's recent bankruptcy? What are the possible ways Carlyle could secretly profit?

Carlyle's distressed debt fund can pick up HT bonds on the super cheap. Bloomberg reported they trade for 0.5 cents on the dollar, down 102.75 cents due to the bankruptcy declaration. If you could buy your $100,000 mortgage for $500, would that be a good deal?

What if another Carlyle division purchased credit coverage on Hawaiian Telecom bonds? Recall, there is no legal requirement to own the debt to buy such "insurance". It could be an instant jackpot.

As private equity firms and credit derivatives have no regulation, these questions remain academic, until an investigatory body acts.

Co-founder William Conway hates a level playing field. The big money boys know how to profit from failure. Carlyle should have it down by now given their prior implosions at Carlyle Capital, BlueWave Partners, and SemGroup. How did they turn a Hawaiian Telecom sinking into a champagne toasting event? I'm afraid the public will never know.

Public Radio Gives Arthur Levitt Free Pass


Driving back from a Virginia Christmas with family, I heard a public radio interview with ex-SEC chair Arthur Levitt. Mr. Levitt now works for The Carlyle Group, a huge private equity underwriter (PEU). Themes included the fall financial implosion and Bernie Madoff's $50 billion Ponzi scheme.

If contrite Arthur sported a Pinocchio nose, it must've been an elephant's trunk by the time his interview ended. First, he talked about secrecy and greed. Secrecy applied to unregulated financial products like credit derivatives. America's shadow banking system suffers from a lack of transparency, including hedge funds who didn't perform due diligence regarding Bernie Madoff.

What Arthur didn't mention is his firm's greed and secrecy. The Carlyle Group expects a 30% annual return on investments and has fought efforts to improve private equity firm reporting. It's partly owned by a foreign sovereign wealth fund, even more secretive in their financial dealings.

What did the public radio reporter miss? Arthur's PEU got $153 million in TARP funding for affiliate Boston Private Financial Holdings. BPFH says it already had a strong capital position, implying it didn't need the money. The investment firm targets the high net worth marketplace. Currently, The Carlyle Group has $40 billion in cash.

Here's a possible public radio question for Arthur: Why should taxpayers invest money in BPFH when Carlyle is flush with cash? Why does the high net worth marketplace need access to loans subsidized by taxpayers? I'd like answers.

Arthur said more that stewed me. He spoke of the 1999 letter asking the SEC to investigate Bernie Madoff. I requested an investigation in early 2006. It lingers deep in a stack of unreplied letters in numerous bureaucratic arms of our federal government.

Why did the White House Lessons Learned report on Hurricane Katrina fail to mention the hospital with the highest death toll? Memorial Hospital lost 34 patients. Not mentioned were 24 deaths from LifeCare Hospitals' unit within Memorial or the 10 patients lost by Memorial's parent, Tenet Health.

The Carlyle Group purchased LifeCare just weeks before landfall. The PEU with the Pennsylvania Avenue address and deep list of insider political connections got a free pass in Frances Townsend's "robust" investigative report. A year after his brother failed to mention Tenet Health's Hospital of Death, Jeb Bush was appointed to the Tenet Board of Directors.

No questions, no answers, no responses. I'm beginning to detect a pattern.