Saturday, June 28, 2008

McIntire Goes Carlyle

Reading the Spring 2008 edition of CommerceUVA sent me deeper into the rabbit hole. My undergraduate business school magazine highlighted planned course offerings to deal “with the less than straightforward world of alternative investments.”

The piece noted two characteristics of the alternative investment world, populated by private equity, hedge funds and venture capital firms. First, this segment is “one of the most attractive areas of finance” for many Comm School graduates. Second, the article noted “research on alternative investments is scarce.”

Of course a McIntire alum works for The Carlyle Group, the most politically connected private equity underwriter (PEU). Industry heavyweight, Greg Ledford, is a managing director of the infamous PEU. He graduated in the all star UVA class of 1979 that included Katie Couric and Tom Scully. I got my McIntire degree a year later.

While Greg will help the good Comm School professors with case writing and course development, I offer a few suggested studies based on my research on Carlyle the last few years.

Access to liquidity

This study highlights Carlyle affiliate, Vought Aircraft Industries, and its innovative South Carolina joint venture building key frame assemblies for Boeing’s 787 Dreamliner. For failing to deliver on time, Boeing edged out Vought’s interest in the JV. Vought’s CEO cited liquidity problems in ramping up production. Isn’t that Carlyle’s expertise, mobilizing funds? Study how Carlyle covers up this and other blunders while successfully maintaining its good name.

Risk Management

This case involves Carlyle affiliate, LifeCare Holdings, a long term acute care hospital company with 21 sites. Carlyle closed the deal in August 2005. Within weeks Hurricane Katrina slammed the U.S. Gulf Coast. LifeCare of New Orleans lost 24 patients during the storm and in its toxic, sweltering aftermath. Carlyle took a multi-pronged approach to managing this disaster.

First, it kept their good name out of the news articles on the patient deaths. Second, it managed to keep that same good name out of the White House Lessons Learned report on Hurricane Katrina. Despite news footage of President Bush asking FEMA Chief Mike Brown about hospital patients, the facility with the largest patient death toll warranted not one mention in the Bush report. Third, it blamed rogue clinicians for the deaths. When a grand jury failed to indict the physician and nurses, Carlyle’s attorneys offered a truly innovative defense. They say LifeCare patients became wards of the federal government as soon as FEMA evacuation teams set up in New Orleans.

Managing the Media

This becomes a little easier when the private equity firm controls numerous media companies and marshals advertising budgets for over 600 firms. What ad selling media company wants to be banned from that book of business? The case involves the sale of two Carlyle affiliates to Dubai Aerospace, a government controlled investment company in the Middle East.

Over a year prior to the sale of Landmark Aviation and Standard Aero, America erupted in protest over the sale of port operations to Dubai Ports World. Yet, the airport deal involved operations at over 50 U.S. airports. Landmark Aviation has been rumored as a provider of rendition flights which take terror suspects to other countries for detention and interrogation. While the deal included selling off portions of the two companies for national security reasons, the media stayed away from the story.

Shortly after the "no news" airport deal with Dubai, America pulsed again in concern over the sale of the NASDAQ to the Bourse Dubai. Carlyle achieved a virtual media blackout on a hot story, a tribute to their media management skills.

Getting Congress in Their Pocket

Carlyle wrote the strategy for buying political influence. It varies from straight up donations to influential elected officials like Senator Evan Bayh, to hiring ex-high up government insiders (too many to mention), to consulting with government regulators on changes more friendly to PEU’s. In return their affiliates get earmarks, indefinite quantity/indefinite delivery contracts, legislation giving their particular industry favored payment or legal status, and so much more.

This case could go several different ways. If it focused on Senator Bayh, his recent support for sovereign wealth funds ties directly back to his benefactor. Mumbai Development Company, another United Arab Emirates government owned investment company, purchased 7.5% of Carlyle in September 2007. Evan saw no problems with such ownership as long as proper disclosure exists. Carlyle’s most recent effort in the disclosure arena came up short.

It could spotlight Congress in action, say the committee that reviewed Carlyle’s purchase of giant nursing home company, ManorCare. One might expect Carlyle’s past failure to 24 patients during a disaster to come to light during the proceedings, but it did not happen. Congress gave the PEU a Christmas present, allowing the deal to close December 21, 2007. Shortly thereafter, Carlyle created a quality committee to address acquistion concerns.

Another angle would find Carlyle gobbling up the huge government services division of Booz, Allen, & Hamilton. The firm provides consulting and intelligence services to the federal government. As Carlyle aims to provide one stop shopping for the government industrial monstrosity, having their new consulting arm recommend affiliate company solutions seems like a “no brainer.” That includes two of their newer areas of focus, healthcare and infrastructure.


I’m sure Greg has a different perspective on these situations. However, as a McIntire graduate with over twenty years in health care leadership, I offer this information as the University develops its alternative investment curriculum. Hopefully, it's not too straightforward.

Update 1-23-12:  McIntire Professor David Smith produced a research paper comparing private equity's performance in times of distress.   It's a resounding defense of private equity, which McIntire imitated with its obtuse "differential tuition."  That's no price break for struggling youth, but McIntire's semester driven management fee/dividend bleeding of students..  
Update 7-9-21:  UVA's Darden graduate business school is adding special scholarships to draw minorities to private equity.  "Last year, 18% of the graduating MBA class at Harvard went into private equity, 15% of Stanford MBAs, and 12% of Wharton MBA grads."  Private equity destroys corporate resilience by levering predictable cash flows.  It will be interesting to see how the greed and leverage boys respond to Darden's PEU trained minorities.

Friday, June 27, 2008

Fed Looks to Carlyle Group for Ways to Save Banks

Regulated banks got in trouble for loading up on securitized mortgages, a virtually unregulated industry. As they write down the value of their investments, the basic integrity of some banks is at stake. The answer is not to go back and regulate the problem industry, selling packaged real estate loans. Instead the government wants to deregulate banks.

Ready to help avoid oversight and scrutiny is the shadowy Carlyle Group, a politically connected private equity underwriter (PEU). The Federal Reserve Bank doesn't have far to go as Carlyle's corporate offices sit on Pennsylvania Avenue. Of course, Carlyle has an ex-Treasury high up to serve as a go between. Randall Quarles, Carlyle Managing Director and former Undersecretary of the Treasury for Domestic Finance, met with Fed representatives a month ago. PEU's are reluctant to give into oversight, so the Fed is looking to loosen regulations to allow new types of deals.

Banks got into trouble from investing in unregulated products, thus the answer is to deregulate banks so they can be owned by groups with lots of cash but who like to stay in the shadows. And the best way to set these new regulations is to meet with a man who oversaw domestic finance during the height of abusive lending practices. Yes, that should do the trick...(maxed out on sarcasm meter). Rather than save banks, the Bush administration is known for giving out goodies to its corporate buddies. Get ready for another Carlyle Christmas present from the feds, as ManorCare in 2007 wasn't the first, and surely won't be the last.

Wednesday, June 25, 2008

Exxon Gets "Craps" for Valdez Oil Spill

When the jury issued a $5 billion punitive damage award against Exxon for its role in fouling 1,200 miles of Alaskan coastline with 11 million gallons of oil, the oil company rolled the legal appeals dice. The first toss occurred at federal appeals court and Exxon won, slashing the award in half to $2.5 billion. The firm knew lady luck, as in a Bush appointed Supreme Court, was on its side and doubled down. Craps again! The U.S. Supreme Court reduced an original $5 billion award to a paltry $500 million.

Exxon made over $40 billion in 2007 and expects another gusher year. That equates to $110 million per day. The Supreme Court's fine amounts to less than five days of profit. Bloomberg reported it equals 12 hours of Exxon's sales. How punitive is one work week's profits or a half day of revenue? Not very, so expect another bad case of caveat emptor, otherwise known as buyer beware. From big oil to pharmaceuticals to financial markets, there's little to no penalty for bad acts, especially under a 90% corporate oriented Supreme Court. Only 10% of the people's will got enacted. Now that sounds familiar!

Tuesday, June 24, 2008

Carlyle Affiliate Hires Government Insider for Burgeoning Business

It turns out the Bush administration's incompetence in spending money wisely is another company's market opportunity. The Carlyle Group, a politically connected private equity underwriter (PEU), announced the hiring of Deidre A. Lee. She will be the Director for Defense and Intelligence Markets for their affiliate, Compusearch. Diedre's most recent stint involved purchasing for FEMA, but she also has Defense Department acquisition experience.

Apparently Ms. Lee wasn't involved in or unable to make up for bad systems that produced quantifiably poor purchasing results after Hurricane Katrina and during America's war effort in Iraq. Consider the glowing words Charles Rossotti, another Carlyle ex-government insider, had to say:

"Dee is one of the most respected leaders in the federal government acquisition community,” said Carlyle Senior Advisor, former IRS Commissioner, and Compusearch Board member Charles Rossotti. “Her track record of improving federal procurement operations is impeccable. She has helped government procurement become more efficient, visible, transparent, and accountable to the American people. Dee’s skills, experience, and passion are perfectly matched to build on Compusearch's 25 years of procurement expertise to tackle the unique acquisition challenges facing our nation’s defense and intelligence communities.”

Funny, Carlyle will close later this year on one of the government's largest intelligence providers, Booz, Allen, & Hamilton. How will this move fit into the Carlyle chess board?

Carlyle co-founder, William Conway, hates a level playing field. It seems the board tilts further to his PEU's advantage with the latest political hire. Execution is the key to the government industrial monstrosity.

Carlyle Short on Transparency is No Surprise

The Carlyle Group fell short relative to its British peers on transparent reporting. Dow Jones reported, "the firm does not give a breakdown of its own accounts, and -except for a handful of case studies- fails to provide details on turnover, profits, employees and management of its portfolio companies."

That sounds eerily familiar to another opaque report involving the politically connected private equity underwriter (PEU), the Bush White House Lessons Learned report on Hurricane Katrina. Frances Townsend crafted a similarly incomplete analysis. Except for a few hero stories, her tome failed to delineate responsibility for hospital patient evacuations from dead facilities. Nor did it assess how first responders performed.

This enabled the hospital with the largest number of patient deaths to get not one mention in the Bush analysis. LifeCare Hospital lost 24 patients from Katrina's sideswipe of New Orleans. The Carlyle Group closed on its purchase of LifeCare just weeks before landfall.

That's ancient history, however nonpublic. But reporting is on the front burner for foreign corporations listed on the New York Stock Exchange and for sovereign wealth funds (SWFs), foreign government owned investment corporations flush with your gas money profits.

Guess who's part owned by the largest sovereign wealth firm in the world? An Abu Dhabi investment company purchased 7.5% of Carlyle last fall.

That same PEU recently sent a representative to testify before Congress on SWF's. I imagine they said some nice things about their new part owner.

The federal government already proved it can be as opaque as the groups it purports to monitor. Layers of opaqueness grow when stacked upon each other. Trying to see through Abu Dhabi, Carlyle, and LifeCare produces little light. Why am I not surprised?

Monday, June 23, 2008

Bush's New Man in Dubai

The White House announced the nomination of Richard G. Olsen, Jr. for Ambassador to the United Arab Emirates. Richard is familiar with the region having served the State Department as Director of the Office of Iraq and Director of Office of Israel and Palestinian Affairs. Olsen volunteered to work with the Coalition Provisional Authority (CPA) as Governorate Coordinator for the Province of Najaf.

One could smell a cash theme in Richard's past and future assignment. The CPA acted very unlike their initials by handing out $12 billion in cash with virtually no record as to where it went. How much of that passed through Najaf during Olsen's time as Governorate Coordinator? However, that $12 billion looks like chump change to the Abu Dhabi Investment Authority, holding $875 billion in assets. Those greasy oil profits continue gushing in UAE government corporate accounts.

In a six degrees of Kevin Bacon connection, the Abu Dhabi Investment Authority purchased 7.5% of a politically connected private equity underwriter (PEU) with a Pennsylvania Avenue address. The Carlyle Group might sell another chunk to the richest SWF in the world.

Congress recently held hearings on foreign government owned corporations using your gas money to buy American companies and U.S. infrastructure. Carlyle hired enough Clinton White House staffers for this do nothing Congress to remain inert on the issue.

What's a citizen to do? Just be happy your gas money is making already insanely rich people even wealthier. Pretty soon they could take your toll money as well.

Tuesday, June 17, 2008

Access to Life Improving Scarce Resources

America's leaders face both an energy and health care crisis. Presidential hopeful John McCain wants to improve access to oil by allowing offshore drilling but has no plans to cover 47 million uninsured and 16 million underinsureds. A bipartisan group in Congress knows the pressure businesses face with that pesky health insurance benefit and is greasing the skids for employers to jettison their traditional responsibility.

Ron Wyden, D-Oregon, joined with his conservative friends across the aisle to shift health insurance responsibility to the employee. Unions would become relevant as the new group purchaser of health insurance. Andy Stern, President of the largest healthcare union, called emplyer sponsored health insurance "dead and not coming back." Businesses shifted retirement risk to employees over the last two decades and clearly wish to do the same with healthcare coverage.

My question to McCain, Wyden, and Stern is this: Now that we're responsible for our retirement and health care bills, when do we pick up the shovel and dig for fossil fuels in the back yard? Will that reduce or increase our risk of a heart attack?

I suggest citizens vote every incumbent out of office. It's the only chance to get the blues and reds out of oily corporate pockets. Do you trust Sen. Max Baucus, D-Montana, to reform healthcare to your advantage when he took campaign donations from eight for-profit healthcare companies with no facilities in his state? A pox on all their houses...

Monday, June 16, 2008

Italian Suited PEU Boys to Print Money?

The Carlyle Group, a Pennsylvania Avenue private equity underwriter (PEU), announced its purchase of the cash printing arm of De La Rue while remaining mum on any offers for Roberto Cavalli, an Italian fashion company.

Andrew Burgess, Carlyle Group Managing Director, noted "the circulation of cash is projected to increase significantly." Well said, pre-election Mr. Burgess. How is the circulation of cash between the federal government and the thousand or so Carlyle affiliates? How about the passing of green to elected officials in support of their campaigns. One has to get elected to toss in earmarks, pass preferred legislation, or decrease those pesky and expensive regulations.

Carlyle, TPG, Lion Capital and Candover all declined to comment on their second round bids for the Italian fashion house. If Carlyle wins, will the PEU boys wear Italian suits as they pass record amounts of cash up and down Pennsylvania Avenue? Stay tuned...

Saturday, June 14, 2008

Quarterly Update on NRCC Accounting Scandal

What a difference three months makes in the investigation of Chris Ward's fast fingers as the National Republican Congressional Committee's chief money man. Consider the scenario in March:

A potential $1.74 million is missing. uncovered by Rep. Mike Conaway, an accountant representing west Texas. He noted, "This is as sophisticated as anything I've dealt with," adding "the financial statements looked very good." On the fraud Mike said, "this guy was covering his tracks."

RealClearPolitics gave an update on June 12. It showed Chris Ward stole from numerous other Republican fundraising accounts, those that traditionally feed the NRCC. It also provided some contrast to the earlier "assessment".

The amount quoted as missing is at least $725,000. The number dropped by over $1 million since the last update. This happened despite revelations Ward stole from two other major sources.

The fraud wasn't "particularly clever" noted investigative attorney Rob Kelner. Let's see, a CPA called it sophisticated while the attorney noted its simplicity and one man nature.

The heroes changed from Rep. Mike Conaway to NRCC Executive Director Pete Kirkham and Conaway's Chief of Staff, Jeff Burton. This pair confronted Chris Ward in early January, according to Kelner. Rob referred to Kirkham and Burton as the "unsung heroes" of the story.

I'm afraid Congressional Republicans sense blood in the water during an election year and have skittered to the safety of the beach. They did leave Kirkham in the chum stained water to save the Republican brand. Recall the failure of governance, elected Republican officials, in this scandal. They don't want you to remember the last update, much less offer an accurate assessment of how a Lone Ripoff Ranger fooled America's best leaders, because they were asleep at the wheel.

That's how we get a number $1 million less, how it went from "sophisticated" to "simple", and how the scapegoat brand got squarely seared at levels below Congressmen running for re-election. The facts are Republican leaders couldn't live up to the governance standards of a local nonprofit. No wonder they're fleeing it like a Baby Ruth floating in a swimming pool. Only this really was a governance "doodee." Funny, the investigation never touched on the NRCC Board or Executive Committee's role in the scandal. This is odd given their fiduciary responsibilities to donors.

Thursday, June 12, 2008

Carlyle Group Flushes Tubes

Last year Carlyle affiliate Adesso Systems announced its revolutionary file sharing system called Tubes. It purported to revolutionize the way information is stored and shared. They even retooled it last fall, giving it a new look and improved features. But what a difference a year makes.

Carlyle pulled the plug on Tubes and secretly sold Adesso's intellectual property to Terraine, Inc. I say secretly as there is no mention of Carlyle ownership in the May 8th press release. The huge private equity firm's website still shows a current investment in Adesso.

It's not a mix up of similar sounding corporate names. Clicking on the Adesso logo on the Carlyle site, one gets a new window that says "DigitalFormz parent company, Terraine, acquired Adesso Systems intellectual properties on May 6th."

This came shortly after Boeing booted another Carlyle affiliate, Vought Aircraft Industries, from a joint venture for holding up production of its 787 Dreamliner. I guess some news isn't worth sharing. Who can forget Carlyle's claiming responsibility for 24 patient deaths in their LifeCare hospital post Hurricane Katrina? That story got stuffed as well. All to keep a good name...

Wednesday, June 11, 2008

Obama's VP Vetter a PEU

James A. Johnson, the chair (former) of Barack Obama's VP selection committee, did much more than take $7 million in below market loans from subprime lender Countrywide Financial. Johnson participated in egregious pay schemes as the top man at FannieMae, the huge mortgage lender. He lavished outrageous compensation on his CEO peers as a board member of five firms, frequently as chair of the compensation committee.

A corporate governance firm noted of the five companies directed by Johnson, two were involved in backdating stock options, while four paid executives extravagantly. The practice of dating option awards at the stock's lowest price of the quarter is considered cheating at best and in most cases is illegal under SEC regulations. The Bush administration's failure to hold corporate chiefs accountable for widespread illegal and unethical behavior is well known. That's how UnitedHealth Group CEO, William McGuire, ended up with a hand slap. He still took home much of his lavish pay, some $800 million garnered with the aid of compensation Committee Chair James A. Johnson.

The news finally left the political blogs, achieving feature article status in the New York Times. Here's my guess as to why. People are sick of political insiders making outrageous amounts of hay on our tax money. President Bill Clinton helped privatize portions of government, where CEO's and board members could be paid handsomely for their "public service". They include USIS, Fannie Mae, Sallie Mae, & Freddie Mac.

People are tired of CEO's and board members making huge money, while they worry about the next reduction in force or how much their health insurance will soon go up, if they have any at all. James A. Johnson made annually from the following:

Consulting arrangement with Fannie Mae, $375,000. While his protege replacement cooked the books to stabilize income (thus executive compensation), James wormed a long term consulting deal complete with staff and a car. Now that's public service!

His 2007 board fee for UnitedHealth Group totalled $334,413. He owns 383,080 shares of stock, either directly or beneficially. Should James want advice on flipping stock options for huge gains, he might touch base with VP candidate Evan Bayh. Evan's wife, Susan, sits on the board of another giant health insurer, WellPoint. The Bayh family grossed over $1.5 million the last few years from flipping options. Susan shared a chair with Al Hubbard, Bush's economic adviser, and William H.T. Bush, also known as Uncle Bucky to George W. And don't forget Gail Wilensky, Bush I's Medicare/Medicaid Chief. She just made bucket loads of money from The Carlyle Group's purchase of ManorCare and sits next to Jim on the UnitedHealth board.

Board compensation from Gannett Company $119,779. Before James stepped down on 9-27-06, he shared the board table with Donna Shalala, another ex-Clinton staffer. Donna took home $200,000 in pay from Gannett in 2007.

Oh, the alphabet soup of past political names and acronyms, it's so confusing! Pay attention to these names as they likely will consult on health care reform. And yes, they do have a dog in the fight. Or should I say a seat on the privatization train! But there's more to James A. Johnson's financial foundation than healthcare and media.

Temple Inland paid him $349,587 in compensation for his director services in 2007. It spun off Forestar Real Estate Group the end of 2007 and Mr. Johnson landed a spot on that board as well. He already beneficially owns 56,051 shares of the new company. Jame's board retainer is $125,000 a year in cash and stock option grants, plus $5,000 for chairing Forestar's compensation committee.

At Target Corporation Jim chairs the Compensation Committee in addition to serving on the board. For that he received $332,925 last year.

Huge Wall Street investment house Goldman Sachs paid Jim $695,569 in compensation for Board services in 2007.

KB Homes gave Mr. Johnson $85,422 in cash and other nonstock compensation. As the company's stock fell through the floor, his stock option grants had a negative value. With total holdings of 198,000 shares, James took the housing market fall squarely on the chin.

While this covers much of the Democratic VP selection chair's Board compensation, a full record of Mr. Johnson's transactions as an insider can be found on the Edgar website. Recall Jim has a full time job at Perseus, LLC, a private equity underwriter (PEU). It likely makes his $1.8 million in current annual board compensation look like chump change. (I didn't include his FannieMae consulting income or the Gannet fees in that total).

So how did the Barack respond? He offered, "“I am not vetting my V.P. search committee for their mortgages.” No, but your search chair is a serial executive compensation abuser.

The Obama campaign shifted to bait and switch. "Hey guys, rather than focus on my buddy James, look at all these cool VP candidates."

Sorry Barack, I'm not buying "change" that smells alot like the same old PEU. SOD off.

Monday, June 9, 2008

Where's Economic Al?

What happens to ex-Bush economic advisers, like Al Hubbard? Last fall, Al read the housing crisis handwriting and slithered out of public service. He did so with the stain of 7 million more uninsured Americans on his health care resume.

Economic expert Al didn't hide in shame in the shadows as gasoline averaged $4 a gallon in America. He didn't even slink far from the hallowed halls of government. From June 5-8, Mr. Hubbard joined the world's power brokers in Chantilly, Virginia for the annual Bilderberg meeting. Sitting near Al stood a spate of influential blue and red power brokers.

Blue: Tom Daschle, Vernon Jordan, Richard Holbrooke, James Johnson (the man charged with finding Barack Obama's VP), Kathleen Sebelius, and Harold Ford, Jr. It's rumored that Hillary Clinton and Barack himself "dropped by".

Red: Allan Hubbard, Hank Paulson, Ben Bernake, Condi Rice, Robert Zoelilick, Mark Sanford (rumored to be a McCain VP candidate), Henry Kissinger, George Shultz, neocon's Richard Perle and Paul Wolfowitz.

The big money boys were out in full, Henry Kravis of KKR may be the most notable. Lots of CEO's and private equity underwriters (PEU's) attended the international strategic thinking event. Only a few media folks made the invite list, the CEO's of The Washington Post and French TV/radio world service, an editor with The Wall Street Journal, the publisher of an Austrian paper, a Greek journalist, the founder of a Turkish media company, and the head of a Swiss media empire. For "rapporteurs", the invite list showed two names from The Economist magazine.

How many will share the results of the meeting? If history is a guide, none will. An intrepid reporter from the nearby Fairfax Times tried to cover the event. Did he get a chance to interview Allan Hubbard? Might these have been his questions?

"It looks like over 9 million people will lose health insurance under George W. Bush's term in office? Is this personally embarrassing for you as his economic adviser for much of his second term in office?"

"The subprime credit crisis cranked up as you turned tail and yelped from office? How do you feel about the record number of home foreclosures as the faulty, even predatory credit practices occurred mostly on your shift?"

"How do you feel about the comprehensive energy policy passed by Congress and touted by the President in 2005, especially now that gasoline hit $4 a gallon?"

So far, the Fairfax Times only reported on a global dance performance. But, if I close my eyes and think hard, I can picture Al's canned response. Hubbard would respond dismissively to the obviously offensive questions, "Without my hard work and George W. Bush's stellar leadership, things would be a whole lot worse."

As Richard Clarke suggested, it's time to stop inviting people like this to polite society. And it's time for polite society to be much less secretive. I know where America's intelligence capabilities should be aimed. It's not at the local group of grandmothers pursuing peace. It needs to be aimed at our hallowed halls of government and their Faustian bargain with corporate interests, domestic and international.

The government industrial monstrosity has little capacity for self observation. It's addicted to money and power. GIM will act violently, if necessary, to ensure its needs are met. Right now, it's lathered up in greasy oil cash, baking casually in the sun by the Marriott pool. But, I think I hear its stomach rumbling. What will it feed on next? Maybe a Bilderburger? Ask Al, next time you see him...

Thursday, June 5, 2008

Carlyle to Manufacture Cash in More Ways than One

The London Telegraph noted The Carlyle Group to be the leading bidder for De La Rue's cash systems business, the largest printer of banknotes in the world. As the leading private equity underwriter, Carlyle already had a reputation for printing cash for its investors given those 25-30% annual returns. They could soon be paid by governments for the honor of printing more. That's your tax money at work. Uncle Sam sure enjoys spending it on Carlyle's wide array of products and services. Each affiliate has its unique imprint.

Wednesday, June 4, 2008

Carlyle Group Attorneys: Dewey, Cheatham, & Howe

Given the thousands of corporations now under the Carlyle Group's corporate umbrella, one might expect to find a few unusual legal cases. But who'd expect to find their Dunkin' Brands affiliate suing hundreds of franchisees for nitpicky noncompliance or LifeCare Hospitals claiming expired patients in their dead facility post Hurricane Katrina were actually "wards of the federal government"?

After acquiring Dunkin' Brands in March 2006, Carlyle Group attorneys went on a suing spree, bringing cases against 154 of its two thousand franchises. Other large franchises kept their lawyers sheathed as McDonald's sued only five times during the same period and Subway twelve. Dunkin' Franchisee Cindy Gluck wrote of her trials under Carlyle's thumb in a New York Daily News op ed.

Ironically, about the same time the nefarious private equity underwriter (PEU) acquired Dunkin', I noted the complete absence of LifeCare's 24 patient deaths in Fran Townsend's White House Lessons Learned Report. I pondered the odds of such a gaping omission. Who could write a credible investigation and leave out the hospital with the highest number of patient deaths post landfall? Well, the White House shares a Pennsylvania Avenue address with LifeCare's owners, The Carlyle Group. But corporate stooges, Dewey, Cheatham, & Howe, were yet to rear their ugly legal face.

NOLA reported on Carlyle's unique legal defense for those 24 patient deaths in the summer of 2007. They claim LifeCare patients became "wards of the federal government" as soon as FEMA evacuation teams set up in the area. That means care from clinicians and staff, just feet away from agonized patients, had been eclipsed by nonclinical bureaucrats stumbling to find buses or bumbling to pass out water miles away. But FEMA had plenty of hair gel and could give a killer interview. In effect, Carlyle's attorneys claim Michael Brown's coiffure offed their patients.

A fiction writer couldn't make this stuff up. Yet, this is the win at any cost management and greed inspired leadership that has ready insider access to our hallowed halls of government. Carlyle also aims to be the "one stop government shop" for privatization. Does that mean health insurer MultiPlan will soon be involved in a lawsuit with their physicians? Will Vought Aircraft Industries blame someone else for significantly delaying Boeing DreamLiner 787 production? Ooops, they already did that.

With their new infrastructure division, get ready for some of that highly profitable Carlyle water and sewage treatment. Get ready to pay the toll, maybe on a Northern Virginia rail line. But can you really pay the freight? If you don't, Dewey, Cheatham, and Howe could be in your future...

Tuesday, June 3, 2008

Wheels Wobble on Nuclear Lab Privatization Train

The Associated Press ran a story on fired American nuclear workers and the risk of their gaining employment from other nations, even those unfriendly to the U.S. The last line of the piece stated:

Congress cut $100 million from Lawrence Livermore's budget in the fiscal 2008 budget, and the lab has been hit with an additional $180 million in unexpected costs from its transfer last year to a new management company.

Translation, jobs have been eliminated as a result of privatization. A new management company, Lawrence Livermore National Security, LLC, began operating the lab October 1, 2007. The new management team includes Bechtel National, University of California, BWX Technologies (BWXT), Washington Group International, and Battelle. The team also includes Texas A&M University. So, these six organizations combined to miss that additional $180 million in costs? Or did the polymanagement arrangement contribute to the unexpected costs?

The crew already knew fewer jobs and less benefits were on the way. George Miller and his team have been preparing for months to assume this tremendous responsibility and provide as smooth a transition as possible for the employees, their families and the community.” Hash is chairman and president of Bechtel Systems and Infrastructure, Inc., Bechtel Corporation’s government services unit. No one says "provide as smooth a transition as possible" unless cuts are in the works.

It looks like they targeted the pension benefit first. Next LLNS set up a separate salary and benefit scale for old vs. new employees. The operating entity went after low cost student labor at Texas A & M. Finally, they eliminated 440 employees.

Now our nation faces concerns as to how highly intelligent professionals will respond to the prospect of not having steady employment. This is the face of privatization, so roundly cheered by Democrats and Republicans. But they did donate to charity, promising to take the money out of their management fee! That should make everyone feel better. Right?

Carlyle Group Raised $3.4 billion for Castles

The Carlyle Group set another record, this time for the largest private equity fund focused on European real estate. The Guardian reported Carlyle hoped to raise 1.5 billion euros but the firm catapulted the target with a 2.2 billion haul. This affords the private equity underwriter (PEU) some 9 billion euros, including debt, for takeovers. That's alot of real estate.

Britain and Spain are enticing targets due to blistering real estate corrections. It seems hot oil isn't the defense it used to be. At least most Europeans burned by the market have access to healthcare. Why that happens to be another strategic investment area for Carlyle as it aims to be a one stop government shop! But that's another story...

Sunday, June 1, 2008

Stormy Gas Prices this Summer

Gasoline traders suggest a Gulf Coast hurricane could drive gasoline to $6 a gallon. CNN Money reported:

Like any disruption to supply, when a hurricane takes out drilling platforms and refineries, supply and demand principles lead to a jump in crude oil gasoline prices.

But even before the start to hurricane season, speculative traders have started to send oil and gas prices higher in anticipation of a hit to supplies.

"We're already seeing a hurricane premium on gas of about five to 10 cents per gallon," said Alaron Trading energy analyst Phil Flynn. "Especially since Katrina, we've seen traders build that into prices."

Hmmm, everyone is talking about supply and demand. The Transportation Department recently shared data that U.S. drivers cut back their mileage by 4.3% or 11 billion miles. Prices have soared since then, so did consumers respond by driving even less? It would seem a nearly 5% reduction in demand would help bring down prices, not cause traders to foreshadow $6 a gallon gasoline. That is if supply is relative to years past.

It turns out our friends, the Saudi Monarchy, have cut back their oil pumping, even as they continue promising to add capacity. They could send another 1.5 to 2 million gallons a day our way, but choose not to do so. They could be holding it to calm supply fears should that perfect storm arrive along the Gulf Coast or the Strait of Hormuz. Will it be Hurricane George or Tropical Storm Olmert that sends gas prices through the roof?