Saturday, October 31, 2009

BP Fined $87 million by OSHA


BP had two reviews of its 2005 Texas City refinery explosion that killed 15 workers. James A. Baker, III headed up the outside study, while OSHA conducted an internal review. The Baker study blamed a misplaced "culture of safety," while giving BP CEO Lord John Browne a free pass.

Browne landed a job with Carlyle Group joint venture, Riverstone Holdings shortly after Baker released his conclusions. James A. Baker, III has a well established relationship with Carlyle.

BP has a clear track record of postponing maintenance and avoiding safety commitments in the pursuit of profitability. For its Texas City failures, OSHA will fine BP $87 million. BP plans to challenge the citations/fines.

Because BP only made $5 billion this last quarter, it plans to cut 5,000 more jobs in a $1 billion cost savings effort. One expert said:

"Downstream refining margins are still poor but operational improvements and cost take-out have softened the blow."

What prior year cost take-outs led to the Texas City refinery explosion? If current refining margins are poor, did BP do anything to set up the next horrific workplace incident?

Friday, October 30, 2009

CIT: Another Sunday Bankruptcy and Goldman Profitpalooza?


CNBC reported small business lender CIT will enter prepackaged bankruptcy this Sunday. CIT's stock is down 15%. Will Goldman Sachs get their $1 billion payment when CIT officially implodes? Will it come out of the $4.5 billion recently raised? Will Goldman Sachs own a big chunk of the reorganized CIT, having beaten Carl Icahn in the Battle of the Bondholders?

The market knew the risk of failure:

According to CMA datavision, CIT credit default swaps widened 4.7 percentage points to 38.7% upfront since late September.

Who made credit bets on CIT's failure? FT reported:

In the case of CIT, the market has bought more insurance than the company's $30bn in debt.

That list, especially those not holding underlying debt instruments, is worth perusing. One firm clearly made it, Goldman Sachs.

However, today markets have stabilised and Goldman is over-collateralised on rescue financing. And thanks to the position in CDS, Goldman will actually profit in the event that CIT files for Chapter 11 bankruptcy protection in what one regulator describes as a "double bonanza".

People familiar with the matter say Goldman has no desire to see its client file for Chapter 11. It is in fact trying to renegotiate the rescue financing. But regardless of Goldman's intention, the bank would profit handsomely if CIT were to file for bankruptcy protection.


The high stakes Wall Street boys are at it again.

Thursday, October 29, 2009

What Uncle Sam is Buying


Former Homeland Security Secretary Micheal Chertoff advised D.C. area business people.

He says the most valuable products these days focus on collecting and analyzing data, and identity management.

This points to two memes. One, the U.S. is an endemic spying society. Two, the government does very little production anymore. It's a huge general contractor. This leads to another article on the BisNow webpage:

Carlyle Group co-founder Ed Mathias, right, said the Washington region will eventually be “buried in money” over the period of the stimulus.

That's why the Carlyle Group, with hundreds of affiliate companies, has offices on Pennsylvania Avenue. It makes it convenient for David Rubenstein to dine with Rahm Emanuel at the Blue Duck Tavern. What public policy did they discuss?

The latest windfall came when Carlyle and company garned $4.9 billion in FDIC subsidy for BankUnited. Will greenback downpours bury D.C. headquartered Carlyle with taxpayer money? Given their past extravagant borrowing, it seems they may need it.

Wednesday, October 28, 2009

Resolution Authority Cost Taxpayers an Extra $13 Billion


The New York Fed's handling of AIG derivative contracts screams against expanding the net of "too big to fail" financial institutions. WaPo reported:

New York Fed officials explained that the main reason creditors were willing for a time to accept less than full reimbursement was their fear of an AIG bankruptcy. The government's rescue of the company removed that threat and left the company with virtually no way to wrestle concessions from the banks.

Uncle Sam made AIG's counter parties whole.

Lawmakers and financial analysts critical of the payouts say it amounted to a back-door bailout for big banks. AIG, the recipient of a $180 billion federal rescue package, ended up paying $14 billion to Goldman Sachs over months and $8.5 billion to Deutsche Bank, among others. Before the New York Fed intervened, AIG had been trying to persuade the firms to take discounts.

The government not only saved the company, it backed AIG's skanky financial products to the tune of 100%. Bankruptcy and breaking up "too big to fail" are the answers.

Expanding Uncle Sam's implicit guarantee for shadow bankers is a bad idea. It shows just how sick and intertwined the Government-Industrial Monstrosity has become. How much extra will citizens pay in the future for "nonbankruptcy" wind downs?

Be sure to thank the silent on this issue Tim Geithner, should you run into him. Does he know who underwrote credit coverage on AIG? Those firms are the beneficiary of one great gift.

Note: China said it would renege on its derivative commitments.

PEU Forum 2009 Targets Bank Buying


The Carlyle Group and company received up to $4.9 billion in FDIC subsidy for taking over BankUnited. Shareholders were wiped out.

Who knew the crisis would expand taxpayer subsidies for private equity underwriters (PEU's)? Who knew it would provide PEU's a captive bank? That knowledge must be shared.

Private Equity Leaders Forum 2009, "Buying a Failed Bank: Opportunities and Pitfalls" will be held on December 10th in New York City. The press release states:

Private Equity Leaders Forum 2009 will examine the dynamic opportunities and potential pitfalls for private equity firms exploring buying a failed bank under FDIC's new regulations.

It seems the floodgates have opened with the loosening of regulation on private equity firms buying stakes in banks and the "piles" of uninvested capital.

The problem is more than PEU taint in America's banking system. Shadow bankers and their skanky financial products will soon be covered under Uncle Sam's "too big to fail" umbrella. More bizarre contortions for Wall Street. Patty Hearst syndrome?

Sunday, October 25, 2009

Starbucks Gives Dunkin' a Taste of Its Own Brew


Starbucks sued an ex-Senior Vice President over his employment with Dunkin' Brands. MarketWatch reported on the case:

Terms of the accord with Paul Twohig, a former Southeast-region senior vice president at Starbucks, call for him to complete his initial training but not to begin work at his new employer, Dunkin' Donuts, until Jan. 15.

Twohig "reconfirmed his commitments not to share Starbucks trade secrets and other confidential information with Dunkin' at any time."

In a statement Saturday, Starbucks also said it would be paid $500,000; it did not say whether the executive or Dunkin' would pay the funds.

Is turnabout fair play? Since the Carlyle Group took an ownership chunk of Dunkin', the franchiser kept liberated lawyers busy with lawsuits.

Between Jan. 1, 2006, and Aug. 21, 2009, Dunkin' was involved in 356 cases against its franchisees, the vast majority of which were filed by the company. At the end of 2008, the company had 2,250 US franchisees.

A CSPAN author noted Cornelius Vanderbilt's propensity to sue, to use courts to his advantage. His first known lawsuit came at the age of 22. Did modern day Robber Barons learn from Mr. Vanderbilt? Who will win, the big money boys or their opponents, little franchisees or doctors with a message?

Lawsuits are but one strategy in a "win at all costs" brew, the modus operandi of PEU's (private equity underwriters). It might come back to haunt them.

Saturday, October 24, 2009

Government-Industrial Monstrosity Looks in the Mirror


The money changers will gather next week. Topics will be stimulating, with corporafornication the lead discussion. Both Red & Blue political parties will be represented. The Green boys, including The Carlyle Group, will speak on the finer points of corporafornicating. That's after they preen themselves.

Friday, October 23, 2009

Carlyle Woos Women to PEU World


Reuters reported on The Carlyle Group's efforts to recruit and retain women private equity underwriters (PEU's).

Carlyle –at one time famous for having former presidents and prime ministers on its payroll– is taking a step to attract more women and minorities into the male-dominated world of private equity.

“I’d say that private equity firms have been behind investment banks and law firms (in such hiring),” David Rubenstein, co-founder of Carlyle told Reuters.

“The industry… probably has fewer women partners and probably fewer minority partners than we probably should have.”

D.C.-based Carlyle is now looking to encourage women and minorities to break the glass ceiling to gain high positions in the firm.

How did women and minorities make out in Carlyle's recent downsizing? A Lana Axelrod worked for Carlyle last fall. She disappeared while William Harrison Frist, Jr. stayed.

Did Carlyle shift from hiring Presidents and Prime Ministers to employing advisers' offspring? What will Carlyle and company teach America's politically connected youth? Maybe, how justice or "just us" is bought?

Wednesday, October 21, 2009

Bank of America Sells First Republic


The Bank of America sold private banker First Republic for $1 billion. Merrill Lynch purchased First Republic in 2007 for $1.7 billion. That puts BOA $700 million underwater.

Taxpayers may not get a return on their money, at least says the TARP overseer. The Carlyle Group bid on First Republic, but was unsuccessful. Maybe, they'll win Titan's Egyptian operation. Who knows, bankers may need cement shoes?

University PEU Summit 2010: Salt Lake City


Up to 8 attendees from each college can attend the 7th annual University Private Equity Underwriters Summit (U PEU'S) in Salt Lake City. The session will run from January 28-30, 2010. Registration includes a free one day ski pass (valued at $80).

Is the free pass symbolic of the free regulatory/tax passes Washington regularly gives PEU's? Is it symbolic of the taxpayer bailout money that finds it way into PEU coffers?

Chicago lost the Olympics, but Salt Lake City landed the U-PEU Summit.

Learn, Network, Ski...

TARP Report is Clear as Mud


The "straightforward accounting" of the Troubled Assets Relief Program is less than that, at least in news reports. Forbes stated that Bank of America and Citigroup made good on their dividend payments. It stated AIG didn't have to make interest payments on its $44 billion in loans.

Did it mention Uncle Sam renegotiated dividend payments from Citi and AIG in March because they couldn't pay?

Forbes also reported:

The report says the prospects of the public getting its money back from the bruised automakers Chrysler and General Motors may not be so good.
Did it state Uncle Sam wrote off $7 billion in Chrysler loans in May?

The next recipient to fail might be small business lender CIT, well behind on its TARP interest payment. Funny, that's TARP's newest target, loaning to small business. Guess who makes $1 billion if CIT implodes? Goldman Sachs.

And who did Mr. Kashkari work for, before his appointment to TARP Czar? The very same, Goldman Sachs. Watch CIT closely.

Tuesday, October 20, 2009

Carlyle Group Affiliates Step Toward Big Brotherization


If only George Orwell were alive. He read dozens of newspapers to keep track of the analog world wide web.

Two articles spotlight technology worthy of Orwell's 1984. Both firms, Canesta and Supercircuits, are affiliates of The Carlyle Group.

Canesta's camera picks up 3D images, such as a person sitting in front of a laptop or TV, and enable him or her to use facial expressions or hand gestures to control the device. That can mean changing channels, scrolling through photos, or interacting in a game like Second Life.

Supercircuits is a manufacturer and distributor of commercial and residential video surveillance solutions. It plans to invest further in law enforcement and dealer initiatives.
Combine the technologies and what Orwellian things might happen? Only Booz, Allen, Hamilton knows for sure.

Update: even the WSJ noted the Orwellian theme

Carlyle's Latest Implosion: Stallion Oilfield Services


Carlyle Group and Riverstone Holdings affiliate Stallion Oilfield Services declared Chapter 11. The company couldn't shake its heavy debt load, despite cutting jobs 40%, suspending 401(k) matches and reducing insurance costs. It's primary task in bankruptcy will be reducing $515 million in unsecured debt. That's bad news for unsecured debt and equity holders.

Which investor will sue Carlyle next?

Carlyle Group to Spread China Fertilizer


The Carlyle Group invested in China Agritech, a fertilizer company, through a $15 million private placement. Reuters reported:

The proceeds from the private placement will be used for business expansion and working capital purchases.

China Agritech is excited about Carlyle's expertise, which is "dedicated to providing global resources and expertize to support China Agritech's further expansion." Will China Agritech's products come to America?

The company develops and makes liquid and granular organic compound fertilizers and related products. The have proprietary formulas. Are they rich with melamine, like infant formula that sickened hundreds of thousands or pet food that killed countless dogs and cats?

Funny, Carlyle recently invested in a Chinese infant formula company. The degrees of separation continue to shrink, as does product safety. Unfortunately, Carlyle's track record with quality isn't blemish free. We know their fertilizer (dung, offal) is spreading.

(The picture shows bags of melamine. As I don't read Chinese, I don't know the manufacturer.)

Carlyle's Rubenstein Donates to Duke's Public Policy, Not Business School


Carlyle Group co-founder David Rubenstein knows the critical role government's play in structuring markets and contracting out programs. He moved The Carlyle Group to Washington, D.C. to mine the fertile federal vault. Uncle Sam did not disappoint and Mr. Rubenstein has booty to share:

David Rubenstein donated $5.75 million to Duke University’s Sanford School of Public Policy.

The money will be used to endow the school’s environmental and energy policy program, to fund a speaker series and to provide internship support for the school’s public policy master’s degree students.

One might expect a private equity underwriter (PEU) to fund Duke's business schools. Mr. Rubenstein knows public policy is the tax payer funded water on which billionaires walk. He made his donation appropriately.

Monday, October 19, 2009

Podesta Brothers Play Both Sides of Health Care Reform


Seeing Rick Scott, the former Columbia/HCA CEO, bandied about as the poster boy for dishonesty is nothing new. A John Podesta/Center for American Progress piece linking Scott to a known health insurance lobbyist got me thinking about Rick's day job. He's CEO of Solantic, an urgent care and occupational medicine provider.

Solantic is an affiliate of Welsh, Carson, Anderson & Stowe. WCAS General Partner Tom Scully sits on Rick's board. How might WCAS benefit from deep sixing health insurance reform?

It didn't take long to find Universal American Corporation, a health insurer. Tom Scully sits on the board of Universal American. Medicare Advantage plans provide UA with half its revenues and is by far their most profitable product line. They'll make $115 million in profit from Medicare Advantage alone in 2009. These plans are slated for a big haircut to pay for health reform. That won't do in the private equity underwriting (PEU) world.

Guess who Universal hired to lobby on its behalf? It's the Podesta Group, operated by John's brother Tony. The Podesta Group received $140,000 from Universal American through June 2009. During the six month period the firm lobbied on the following issues:

Medicare Advantage
Prescription Drugs
SCHIP
They lobbied the following groups:

U.S. HOUSE OF REPRESENTATIVES
U.S. SENATE
Office of the White House
Health & Human Services - Dept of (HHS)
I'm surprised they didn't lobby Tim Geithner's Treasury. Universal American has $45 million in unrealized losses in mortgage backed and asset backed securities, according to its latest financial report.

It's odd. One Podesta throws the spotlight on Rick Scott, while another Podesta lobbies for Rick's wider corporate family. Maybe WCAS will hire Tony to keep their preferred taxation on carried interest?

Don't forget uber health care lobbyist Tom Scully. He has plenty of Alston & Bird dogs in this fight. It's a red and blue mess, funded by lots of green. It's clear the average citizen will see very little of the green.

Friday, October 16, 2009

Goldman Boy Storch Appointed COO for SEC Enforcement Division


The day after Goldman Sachs bragged over huge profits from "high velocity" trading, the SEC announced the hiring of a Goldman Sachs staffer. The LA Times reported:

The Securities and Exchange Commission hired a 29-year-old former employee in Goldman Sachs Group Inc.'s business intelligence unit as the first chief operating officer in the agency's enforcement division, according to people familiar with the decision. The new operating chief, Adam Storch, had worked since 2004 in a Goldman unit that reviewed contracts and transactions for signs of fraud.
Storch was hired by Goldman at the age of 24. It seems Harry Markopoulos would've been a better choice. What will the ex-Goldman staffer do as COO?

His new job is to make the SEC's enforcement division more efficient.

Efficient? How about more competent? Maybe, Storch could work on the best methods for dissolving regulatory capture or cutting undue political influence.

I bet he's there to fend off investigations of Goldman's black box profit generator. What better way to keep the Goldman-Golden Goose than Storching investigations from the inside?

Will what happens in Storch, stay in Storch?

(HT-Economic Policy Journal)

Thursday, October 15, 2009

Home Insurers Drop Chinese Drywall Policies


The cost of poor Chinese quality manifested yet again in America. Homeowners with toxic Chinese drywall had their claims denied. Insurers then canceled or did not renew their policies.


The homeowners have little recourse since neither the Chinese manufacturers nor the Chinese government are likely to respond to any lawsuits or reimburse them for the defective drywall.
This is the same China that refused to honor derivative commitments. It's also the country that executes bureaucrats for poor quality. I believe that goes against one of Dr. Deming's 14 points for Quality:

Drive out fear.
Knowledge requires no visas. But neither does ignorance and the Chinese have it in spades. But don't worry, The Carlyle Group will ride to the rescue, at least in the area of Chinese infant formula, which has its own toxic, deadly history. Carlyle's press release states:

As part of the agreement, Carlyle will bring resources to further strengthen Yashili’s management expertise, enhance R&D capabilities and create a world-class quality control system. Specifically, these measures include:
  • Recruiting an experienced Chief Quality Officer (CQO) to assume supervision and oversee implementation of product quality control protocols;
  • Strengthening quality control measures under the guidance of a newly-formed Food Quality and Safety Advisory Committee (FQSAC), composed of leading international and domestic experts

Yashili may want to check Carlyle's spotty quality record. Affiliate LifeCare Hospitals lost 24 patients after Hurricane Katrina. While HCA charted medical helicopters to evacuate patients, Carlyle let patients swelter in a toxic stew for up to five days. The Bush Lessons Learned Report was inept in its failure to mention these deaths.

Vought Aircraft Industries failed to adequately capitalize a joint-venture building portions of the Boeing 787 Dreamliner. They were the major factor in the now two year delay in Dreamliner production, so much that Boeing bought out Vought's interest to keep the project from falling further behind.

SemGroup, a staid energy pipeline company, imploded from forward looking contracts. SemGroup's billions in hedges went bad, forcing Carlyle to hand the firm over to debt holders. There was no mention of derivatives in SemGroup's SEC filings.

Carlyle's "world class quality control" must be part of the race to the bottom, alongside worker pay/benefits, taxes and regulation. Exempt are executive incentive pay, PEU profits, and political donations.

Profound knowledge is sorely lacking, while greed and ignorance abounds.

Wednesday, October 14, 2009

PEU Update: Still Smells Bad


Carlyle Group co-founder David Rubenstein spoke from Dubai's SuperReturn conference. He envisions a rebranding of the PEU (private equity underwriter) label:

"Private equity will probably come up with a new name. It went from bootstrap deals in the early days to leveraged buyouts to management buyouts to private equity," he said. "Maybe it will go to change capital or value-added equity," he said.
Here's my suggestion, call it Corporafornication Capital, which of course requires a partner. Carlyle struck a deal with a Chinese infant formula maker.

Carlyle said it has acquired a 17.3% stake in Guangdong Yashili Group, through its investment fund Carlyle Asia Partners for an undisclosed sum.
Recall how hundreds of thousands were sickened with six infants dying? They were poisoned by tainted Chinese infant formula. Cheaper ingredients were substituted to increase profits. Carlyle knows very well how to play the substitution game. They also know how to get Uncle Sam to provide subsidies. Guess what made the amended Baucus health deform bill? It's a $1 billion credit/loan fund to encourage new medical therapies. The criteria include:

1. Qualifying investments would include those made during 2009 and 2010.
2. Total of $1 billion would be allotted for the program over the 2-year period.
3. Eligible companies who are unable to utilize the credits would have the option to receive such credits in the form of Treasury loans.
How many Carlyle subs will line up for this latest form of government financing? The Carlyle Group has a strong health care portfolio. Did David Rubenstein and Rahm Emanuel discuss this at their Blue Duck Tavern dinner? Did Nancy Ann DeParle deliver for her former PEU employer? How many CCMP Capital Adviser affiliates will end up with Treasury loans?