Friday, October 31, 2008

David Rubenstein Speaks from Seward's Folly

Funny what the horse's mouth can deliver. David Rubenstein, co-founder of the The Carlyle Group spoke to Alaskans on October 25. His talk is available on KSKA public radio. It aired on October 30. Some of his talk is summarized below.

The Carlyle Group averaged 30% annual returns since 1987. That's quite a record.

David Rubenstein brokered Alaskan Native Corporations losses. He helped them maximize ANC losses and sold them to businesses needing tax losses.

Five transitions:

1) Deleveraging of economy. Excess borrowing has come back to haunt us. More than just subprime crisis, a true problem in regions of the country. Nervousness spread to all loans. Credit dries up, stalling the economy.

2) Recession. This one will be deeper than usual. Unemployment to go from 6% to 9-10%. Growth will decline 2-3% each quarter for next 4-5 quarters. Federal deficit $500 billion, expected to double in 2009 to $1 trillion. Slowdown worldwide.

3) Lack of leadership as to what needs to be done. Uncertainty. U.S. government moved late. Transition to a new President won't be helpful. Hopes this is done quickly. Obama's economic leadership team needs to be named quickly.

4) U.S. no longer center of economic world. One quarter of world's GDP, used to be half. Middle East and Asia can develop without America. No longer world leader in auto, textiles, and manufacturing. U.S. goes from manufacturing to service to post service economy.

5) International economic structures are crumbling. Retool global economy, with U.S. getting less say.

Engines for economy:

1) Commercial banks became behemoths in global economy. Made bad deals. Four major banks left. JP Morgan/Chase, Citi, WellsFargo, & Bank of America.

2) Investment banks, now gone. Goldman Sachs and Merrill Lynch are now commercial banks. Levered 40 to one. Unsustainable in bad times.

3) Hedge funds. Professional management adds value post investment. In return get 20% of profits from investment operation. $3 trillion invested in hedge funds. They are going down between leverage and bad, unhedged bets. Withdrawals, end of 2009 expects less than $800 million in hedge funds

4) Pension funds. public and corporate pension funds are facing trouble due to stock market exposure.

5) Sovereign wealth funds, most in Middle East. Bigger than public pension funds. Bush formed largest one with TARP. UAE has one, Abu Dhabi Investment Corporation is $850 billion. Their assets are down with the financial turmoil. Invested $150 billion in U.S. financial sector and lost 65% of their money.

6) Private equity funds. Now a major player. Worldwide there are 15,000 funds, Carlyle is at $90 billion. Some deals from last few years are levered and may be in trouble. 30% equity, 70% debt. That has shifted to more equity and less debt. In the past, private equity got deals sweeten, with no covenants, no material out provision, interest only payments and equity conversions.


Private equity does well when people are nervous. Deal pricing becomes attractive.

Look at what you can do. Get in line with the federal government, the TARP package. A huge stimulus bill is coming in January, signed by new President. It will put enormous amounts of money into job creation programs, transportation, infrastructure, & alternative energy. Get your name out in Washington, D.C. for your share.

A $1 trillion deficit is not a shocker with the federal budget relative to GDP. The dollar is the worst form of currency, other than every other one. Safety, allows them to print without devaluation for the near future.

Alaska's image is a +/-. Most people don't know much about state. Opportunity to transform state from carbon energy to alternative energy center. Alaska can be global leader in alternative energy. Spend alot of time that Alaska should get large chunk of that money.

Transportation, ships will be able to travel Northwest Channel on permanent basis. Major port operations should be set up in Alaska.

Aerospace/defense, U.S. spends enormous amount on wars. Hard to get country out of wars. Won't happen overnight. Defense budget won't go down anytime soon. Spending on high tech defense will increase. Alaska can go after that new technology, get it stationed in state.

Q & A:

How can Alaska get alternative energy to the lower 48? U.S. has to change energy grid system. Part of energy money will go to that. Pricing of oil influences desirability of alternative energy. Believes it will happen due to global warming and desire to reduce import of foreign oil.

Building of Alaska natural gas pipeline. Will it happen? The need is there, some pipeline will be built. It needs planning and financing. It likely won't happen as fast as it needs to.

Should I hunker down or invest given a 1.5 to 2 year recession? Difficult to know the bottom, hard to take risks in abyss. Once in a lifetime opportunity to buy things. Capital may be difficult to come by. People in Washington are scared to death about economy. Will print all the dollars they can. Smart people would state their case for their share. Alaska should get in line.

What are some of the regulations impacting hedge funds and private equity? How have they contributed to our current mess? Hedge funds trade investments, private equity buy companies and improve them. Hedge funds will likely be regulated in the future, they may need to publish their amount of leverage and other information. After Enron collapsed, the solution was Sarbanes-Oxley. Possibility of over-regulation. Europe will regulate hedge funds and private equity together. David doesn't like it.

U.S. economy $14 trillion annual GDP. Credit default swaps total $53 trillion. It was a great fee generating business. No one expected them to become due. Going to central exchange. It will be painful unwinding that $53 trillion on the books.

How have rating agencies contributed to crisis? Credit rating agencies, not a destination for top grads. Problems with staff quality, but also conflict of interest. People paying fees are the ones wanting rating. That system will change.

Would Carlyle be interested in owning SeaLand? Made alot of money off a shipping company (Horizon Lines). Transportation and infrastructure are highly attractive to private equity.

PEU Bonuses Up

The Grim Reaper is yet to visit private equity underwriters (PEUs). He made Wall Street investment houses pay for their greed and leverage. Since things remain "bright" in PEU land, bonuses are up. Dealbook reported:

Senior associates, a.k.a. first year M.B.A.s, are earning an average $435,000, including bonuses, a 4 percent increase over their 2007 levels. Principals at large buyout firms are also walking off with a salary increase of 4 percent, on average $885,000, not including bonus.Their bonuses, meanwhile, spiked 6 percent, to an average of $607,000.

Do investors in Carlyle Capital Corporation or Blue Wave Partners feel as bright about private equity, given those firm's failures? The Carlyle Group also lost SemGroup to bankruptcy. Billions of losses from energy hedging, bets on the directional price of natural gas and oil, sent the company under.

PEU Principals will take home $1.5 million between salary and bonus. How much is classified as "carried interest", requiring only a 15% capital gains tax rate? Chuck Shumer, Evan Bayh and other CorporaDemocrats joined investor class Republicans in keeping this tax loophole open for the PEU boys.

Corporafornication happens, sometimes in bi-partisan fashion.

Thursday, October 30, 2008

Exxon Corporafornicates on U.S. Consumer, Already Soiled by Big Oil

Big oil claimed record summer gas prices were caused by "supply & demand." ExxonMobil's third quarter profit was $14.83 billion, shattering the prior quarter's record of $11.68 billion. Netting out one time charges, Exxon's profit grew $1.7 billion from the 2nd to 3rd quarter.

What happened with demand during this period? It raced downhill. Exxon produced less oil than the third quarter last year, but profits were $4 billion higher. They sold less oil and made 40% more? Bang, another hole in big oil's supply and demand theory.

Sinking the theory altogether is the relationship between consumer driving and gas prices:

The first week of October saw demand for gas 9.5% lower than last year.

September demand for oil dropped 7%
--gas up .91 a gallon

August citizens drove 5.7% less
--gasoline rose $1.00

July consumers drove 3.6% fewer miles
--fuel up by $1.13

June miles driven were 4.7% lower
--gas higher by .30

May auto use fell 3.8%
--fuel up .32

April miles driven dropped 1.8%
---gas up .18

March miles dropped 4.3%
--gasoline up .65 per gallon

Supply and demand would suggest falling gasoline prices over the period, not record high prices and yet another profit bursting quarter from ExxonMobil and BP. Yes Virginia, BP made $8 billion in profits, nearly double their year ago results. Chevron announces next in the oily Corporafornication profit explosion.

Wednesday, October 29, 2008

UnGodly Bonuses for Egos Too Big to Fail

Taxpayer equity injections into banks and ex-Wall Street firms total $125 billion. The firms set aside bonuses for the first nine months? Their "precious" totals $108 billion. Have they no shame?

The list of firms too big to fail grows with each merger. Rumor on the street is GM & Chrysler will combine with private and government money. Private equity underwriter Cerberus Capital Management will end up with the combined entity. Cerberus Chairman John Snow is the ex-Treasury Secretary.

If the deal passes, America will have a new "too big to fail" auto company. Does that apply to the combined Delta Airlines and Northwest, now the world's biggest airline?

Ungodly bonuses and ginormous firms? Incentive compensation fueled greed and highly levered combinations got America into our current pickle. The "hair of the dog" solution seems to guarantee future problems.

Cerberus & Big Auto: PEU Memories

Cerberus Capital Management purchased a stake in General Motors financing arm GMAC in April 2006. A year later it bought 80% of Chrysler from Daimler, the owner of Mercedes Benz. The move reduced Chyrsler's debt, making it a leaner and meaner company.

John Snow, Chairman of Cerberus told the Financial Times his view of private equity:

The way we approach private equity, it’s to buy companies that are under-performing, fix them, hold them. We’re patient, we can take the long view. We’re interested in the real metrics of the business, not financial engineering, so deals that don’t depend on 50 basis points, that are solid, that are real, that have the chance to create fundamental improvements on the way an enterprise operates, they’re still going to get done, and there are lots of under performing businesses, they’re all over the place.

So private equity still has a big role to play, and that role is important to keep the economies of the United States, Europe and other places strong because, as private equity steps in, improves the fundamental performance of these businesses, it’s also enhancing the fundamental efficiency of the economy and allowing resources to recreate larger outputs, raising standards of living. That process is very positive, and will continue.

The financial implosion happened mid-September. Uncertainty shut down consumer's wallets and they postponed big ticket purchases, like automobiles. So what did stable Cerberus do with its auto companies?

First, it took total control of GMAC in early October. Then it discussed combining GMAC with Chrysler's financing arm. Finally, it approached the Treasury for designation as a commercial bank, enabling it to get relief in the $700 billion Treasury's bailout program.

Did it help to have an ex-Treasury Chief as Chairman? John Snow served in that role for President Bush for three years. Private equity underwriters (PEU's), line up at Hank Paulson's bailout window. Why am I continually surprised at the Bush administration's creativity in fostering Corporafornication?

John Snow's Cerberus wants GMAC to be Bank Holding Company

Private equity stands to benefit on numerous fronts. Cerberus Capital Management, the private equity underwriter (PEU) majority owner of General Motors and Chrysler, seeks to make GMAC a bank holding company. Under that designation, GMAC could access Hank Paulson's Treasury bailout plan.

The Wall Street Journal reported:

As a bank holding company, GMAC could receive equity injections from the Treasury Department's capital purchase program and have its debt temporarily guaranteed by the Federal Deposit Insurance Corp.

In addition, GMAC could gain some flexibility in funding its operations. Its borrowing costs have soared due to battered credit ratings.

As a federally chartered bank, it could access the Fed's discount window for inexpensive, short-term emergency loans.

Cerberus chairman John Snow is a former Bush Secretary of the Treasury. PEU's have a long history of leveraging high level political connections to their advantage. Repeatedly, the taxpayer pays for Bush sponsored Corporafornication.

Taxpayers May Pay Tony Blair's Consulting & Speaking Fees

Britain's ex-Prime Minister Tony Blair is well paid on the speaking circuit, such that he's now the highest paid public speaker in the world.

Mr. Blair's customers include rescued bank JP Morgan and The Carlyle Group, the huge private equity firm whose affiliates' tentacles writhe inside the vault of our Federal Treasury.

Tony's role with JP Morgan made him 2 million pounds. At current exchange rates that equates to $3.1 million. The Treasury loaned $30 billion to JP Morgan to take over troubled Bear Stearns. Hank Paulson just injected another $25 billion in the huge bank.

JP Morgan's CEO told employees in a conference call of his plans to use the money to buy other banks and as a backstop in a declining economy. Might he use it to pay Mr. Blair's consulting fee in an insulting round of Bush Corporafornication?

The TelegraphUK reported on Tony's relationship with America's most politically connected private equity underwriter (PEU):

Mr Blair has become a particular favourite with the Washington-based Carlyle Group. Next month he will address a conference of its European investors in Paris about "geopolitics". He addressed a similar conference for Carlyle in Dubai in February.

Carlyle Group is a leading private equity investor in the military. Its board has been graced by both Presidents Bush and its former European chairman was Sir John Major.

The story failed to mention Carlyle's role supplying the federal government on far more than the military front. How does Tony's speaking fee get passed on to the various Carlyle subs? The title of the speech could fit in new subsidiary Booz, Allen, Hamilton's niche. Does it work it's way through their cost accounting systems, such that the taxpayer foots the bill?

Tuesday, October 28, 2008

Credit Seizing Up Again

Two indicators show the credit system remains gunked up, despite the Bush administration's trillions in financial interventions. Bank holdings at the Federal Reserve were $167 billion on October 1 vs. $14 billion on July 2. Ben Bernake announced an increase in interest paid by the Fed on excess reserves. How might that impact bank's willingness to lend?

Ex=Wall Street investment houses, Goldman Sachs and Morgan Stanley, are again under pressure. This is after fleeing to commercial banks status and billions of capital injections from new investors and the Treasury. Both firms' stock continue to tank, while the price of credit coverage approaches September 15 levels. Goldman CDS's rose to $335,000 and Morgan Stanley's to $448,000 for a years coverage on $10 million in debt. Will they soar in a redux of September 18?

The big money boys still don't trust each other to make good on their debts. Famous economist Anna Schwatrz predicts the bailout plan won't solve the credit problem. Evidence to date supports her concerns.

Oily Corporafornication

The second quarter saw big oil companies making money tank over barrel. ConocoPhillips made $5 billion, Shell $7 billion, and BP netted $10 billion. Only BP had a record quarter. Shell's profit is $1 billion higher than last year, while Conoco's is up 41%, $1.5 billion higher.

Chevron and ExxonMobil report later this week. Forbes reported:

Like ConocoPhillips, most are expected to post huge profits, given the unprecedented cost of oil.

What are they doing with that money?

In 1993, the five biggest publicly traded oil companies -- Exxon Mobil, Royal Dutch Shell, BP, Chevron and ConocoPhillips -- spent 39% of their operating cash flow on development projects, 14% on exploration and only 1% on buying back their own stock. In 2007, they spent 34% on development, 6% on exploration and 34% on stock buybacks, according to a study.

Unprecedented profits are yet another unprecedented disaster for the average citizen. Haven't we had enough of those under President Bush? Bush's endless Corporafornication leaves an oily residue. McCain's corporate tax cut for big oil is even sleazier.

Monday, October 27, 2008

Credit Default Swaps Again Approach Danger Zone

Big money boys' credit default swaps neared the danger zone, yet again. The week of September 15, Wall Street investment bank debt became virtually uninsurable. Hank Paulson and Ben Bernake blew the crisis whistle. President Bush's economic team came up with a $700 billion bailout, which Congress passed. Since then, the federal government promised over $3 trillion in interventions.

What happened last week? Reuters reported the following prices for a year's coverage on $10 million of corporate debt:

Morgan Stanley $420,000
Goldman Sachs $280,000
Merrill Lynch $215,000

On Monday, September 15th Morgan's CDS traded at $450,000. It doubled within days, causing Hank to yell "fire." In 2007 coverage ran $100,000.

This morning Mark Haynes noted banks aren't lending, but using taxpayer billions to buy other banks. Last week's CDS prices indicate the big money boys still don't trust each other to make good on their debts.

Where's ex-White House economic adviser Al Hubbard? He guaranteed a good outcome from the bailout bill. Apparently his counsel on the financial sector is as flawed as his health care analysis.

Platinum Days for PEU's

Private equity underwriters can see good times ahead. Co-founder of The Carlyle Group, David Rubenstein said, "The greatest period is probably ahead of us, you will see the industry coming back into the Platinum Age--better than it has ever been."

And how many of Carlyle's deals will be funded with taxpayer, bank bailout money? How much of their new affiliates' revenues come from Uncle Sam, via the citizen's dime? Carlyle plays in the following sectors: defense, telecommunications, intelligence, government consulting, health care, technology, transportation, energy, retail and public infrastructure.

The Government-Industrial Monstrosity (Eisenhowers MIC on steroids) enters a period of hyper-spending on behalf of corporations. Carlyle stands ready to benefit. The opportunities are so vast, they can set up a captive investment bank. Wall Street has none left.

Saturday, October 25, 2008

The Carlyle Group's Latest Free Pass

The U.S. State Department slapped sanctions on a round of companies and countries over the sale of Russian helicopters. The Russian manufacturer had dealings with Iran and needed punishment.

But one American owned company, ARINC got a free pass for its role in buying and reselling 22 Russian made troop transporters. ARINC is owned by The Carlyle Group, a private equity underwriter (PEU) known for its strong political and media connections.

Without the waiver, the lucrative sole-sourced deal was potentially in violation of the law. "This was a screw-up," one U.S. official said.

Carlyle previously used one "get out of jail free" card over 24 patient deaths in their LifeCare facility in New Orleans after Hurricane Katrina. That fact never made the White House Lessons Learned Report, nor did it come up as Carlyle sought to buy huge nursing home provider, ManorCare.

They kept their sale of Standard Aero and Landmark Aviation to Dubai Aerospace super quiet, despite its falling between the Dubai Ports World brouha and the NASDAQ/Dubai Borse uproar.

Carlyle knows how to keep their good name. Priceless insider connections can gloss over what might be a chargeable offense.
"There is a price to be paid for illegally trading with outlaw regimes," Assistant Attorney General Kenneth Wainstein (now White House Homeland Security Adviser) said in a statement.
Carlyle rarely suffers for their transgressions.

Update 8-4-11:  ARINC delivered all 22 premium priced helicopters to Iraq.

Friday, October 24, 2008

Insurance Companies Next in Line for Bush Corporafornication

The Treasury put giant insurance companies in its bailout sights. It remains to be seen how Hank Paulson will aid those firms. Will he buy their junk assets or enroll them in Bush's sovereign wealth fund?

Who's up after life and bond insurers, maybe mutual funds or hedge funds? Stay tuned to see who is next in line for Bush sponsored Corporafornication.

The Race for the CorporaWhorehouse remains hot. Will it remain red or turn blue? Investors know both colors well, symbolic of anger and depression over the loss of $3 trillion in market capitalization.

PEU Boys Stunk Up Davos

The World Economic Forum, held annually in Davos, Switzerland, confessed their role in the global financial meltdown. Bloomberg reported:

Davos organizers also say they failed to play tough with the financial-industry bosses, opting to accept their funding and let them turn Davos into a rave-up for Wall Street excesses.

"The partying crept in,'' says Klaus Schwab, the 70-year- old WEF founder and executive chairman. ``We let it get out of control, and attention was taken away from the speed and complexity of how the world's challenges built up.''

The fallout has left the WEF riddled in buyer's remorse, with officials throughout the organization asking what they have wrought and, like Wall Street, whether they offered too much of a good thing.

Schwab says the delegates treated him like ``Cassandra'' whenever he questioned the logic of their wisdom on asset-price bubbles in housing, stocks and other financial instruments.

But the warnings did come. Concerns over leverage began in 2003. Bubbles and excessive risk taking were also topics.

In 2007, former U.S. Treasury Secretary Lawrence Summers warned of complacency. He returned to the village in 2008 to say "a cascading loss of confidence'' threatened to paralyze the global economy, comparing the market mood with the economic sentiment that prevailed just before World War I.

Such advice was swatted away by American confidence salesmen such as Michael Klein, co- president of Citigroup Inc.'s investment-banking unit, and David Rubenstein, managing director at the Carlyle Group buyout firm.

"I warned them all about global risk and the abusive nature of their actions, but they had no incentive to change,'' says Kaufmann, recalling his seven years as a global leader at Davos.

The Bush administration's plans reduce leverage. Markets are risk averse at the moment. However, the "too big to fail" problem grows with mergers and combinations.

Greed remains, fueled by executive incentive compensation plans. And the con men mentioned above are posited as major players in saving the financial sector. David Rubenstein believes private equity underwriters (PEU's) are entering their "finest hour." One Davos veteran said:
"An exercise in moderation is something the private sector doesn't do very well."

Thursday, October 23, 2008

The World According to TARP

Treasury's toxic asset recovery program went through its first $250 billion and requested Congress provide the next $100 billion. Hank Paulson has more financial institutions to save. With Wall Street and commercial banks on better footing, next up are hedge funds and insurance companies.

Hank did say the TARP would buy credit default swaps in his Congressional testimony. Did Treasury take on any covered risk for failed Lehman debt? They rolled up at a lower than expected $5.2 billion. Washington Mutual priced their debt today. The next step is for CDS holders to make good on their obligations. Will Hank be there with some of that new $100 billion?

One prognosticator suggests numerous hedge fund failures, which will trigger a spate of liquidations. Will this be the next unraveling of leveraged risk? Will it cause a stampede out of equities?

Hank's Hollow Excuse on Lehman

Hank Paulson said that Lehman had “no good assets” on which the Fed could justify borrowing. What about that $2.5 billion in set aside bonus money? If creditors in bankruptcy court can’t touch it, those assets qualify as good collateral.

The Bush administration didn’t want to save Lehman. It would look bad to have George W. bailing out his close relations right before a key election. Brother Jeb and cousin George Herbert Walker work for Lehman's private equity underwriting (PEU) division.

Those Bush boys stand to gain in two ways. First, they get their $250,000 slice of bonus money. Second, they’re given an equity stake in the deal with Bain Capital.

But the Bain deal is up in the air as Carlyle Group, Goldman Sachs and others put together bids for Lehman’ PEU business.

Should Carlyle win, they’d hold a hand of four Bushes, Poppy, George W. (CaterAir board), Jeb and George Herbert Walker. One could double down with a hand like that.

Lehman's PEU Gets Makeover, Bush Boys Have Many Potential Dates

Bidders for bankrupt Lehman Brother's Private Equity division and other investment assets could be growing. Bloomberg reported on potential buyers for the firm employing Jeb Bush and cousin George Herbert Walker. They include:

Bain Capital
Hellman & Friedman
The Carlyle Group
Goldman Sachs
Collier Capital
Lexington Partners

Where will the Bush Boys end up after they net that $250,000 Lehman bonus for "work well done"? Which private equity underwriter (PEU) will land their talents?

Wednesday, October 22, 2008

Lehman's Credit Default Swaps Roll Up

The story on settling Lehman Brother's credit default swaps changed from yesterday to today. The contracts pay the holder face value for the underlying securities or the cash equivalent should a company fail to repay its debt. Purchasers of "insurance" on Lehman's debt were owed $365 billion based on the final price of the Wall Street firm's bonds.

Tuesday's story said "the liquidation of forward open commitments involving Lehman Brothers had completed, with no loss allocations imposed on its mortgage-backed securities division member firms."

Today's news release from the Depository Trust & Clearing Corporation (DTCC) offered a different story:

At the time of the bankruptcy of Lehman Brothers Inc., approximately $72 billion in credit default swaps written on Lehman Brothers were registered in the Warehouse.

For Lehman Brothers Holdings Inc. the calculated amounts netted in the Warehouse on a bilateral basis amounted to approximately $21 billion. The $5.2 billion net funds transfer represents the net of these nets.

How did $365 billion in credit bets settle out to a mere $5.2 billion? Swap holders were supposed to make up 91 cents on the dollar of bad bonds. How did they end up paying only a penny and half? Did Uncle Sam jump in and cover a large chunk of the obligation? Or did holders walk away from their jackpot to avoid Andrew Cuomo driven criminal prosecution?

Banks Beneficiary of Latest Bush Corporafornication

The CorporaWhorehouse at 1600 Pennsylvania Avenue keeps doling out the goodies. The latest surprise came from a bump in the interest paid to banks by the Federal Reserve Bank. Before the Wall Street bailout bill, banks got no, as in zero, interest on excess reserve balances held by the Fed.

Starting October 9, the Fed began paying interest on excess balances using a formula. Two weeks later they improved the formula, netting banks and additional .4% return, courtesy of Uncle Sam.

Did your bank call and raise your savings rate or interest checking account by a corresponding amount? I didn't think so. Many plan to use the recent cash infusion to buy other banks, instead of loaning it out (the intent of the injection). More Bush driven Corporafornication!

Does The Carlyle Group Want SemGroup Back?

Carlyle Group co-founder William Conway noted his dislike for a level playing field. Somehow, Carlyle lost affiliate SemGroup to bankruptcy. The energy pipeline firm wagered on energy prices, but bet the wrong way. They owed their bookie over $2 billion. France's Intelligence Online reported:

Freeh Group Wins Major Probe Contract

Freeh Group International firm headed by former FBI director Louis Freeh has been picked by the directors of the American trading concern SemGroup LP to conduct a sweeping inquiry into the bankruptcy of the company.

Ex-FBI Chief Louis Freeh leveraged his experience and contacts through his consulting firm. The Carlyle Group leverage political contacts to grow the federal book of its affiliates' business. That they've paired up wouldn't be a surprise. The question is which directors did the hiring? Is it the pre-bankruptcy group, loaded with Carlyle bigwigs? Or is the post declaration group, dominated by bond holders?

My guess is the former. Carlyle wants their company back, or to identify the villains who robbed them of their investment. They could get the answer for free, by looking in the mirror...

Dog Food Meet Dog Food #2: Karl Rove & Mortgage Bankers

Negative campaigner extraordinaire Karl Rove spoke at the Mortgage Bankers Association meeting in San Francisco. Mortgage bankers helped create the mortgage meltdown which led to the wider financial crisis.

Karl blamed all of America's ills on Democrats. Somehow, the party out of power incentivized CEO's to optimize their executive incentive compensation by swinging for the strategic fences. When enough struck out, Wall Street collapsed. The foundation turned out to be financial vaporware.

Where's a turd throwing monkey when you need him? He must be tossing feces at Jeb Bush during a Tenet Healthcare board meeting. Book him for San Fran, and STAT. Karl needs customer feedback.

Tuesday, October 21, 2008

Disaster Capitalism's Next Target: Pensions and Health Care

The acidic financial meltdown continues to eat away at the average American's finances. Not only do they get to bail out Wall Street for colossal failures in complex financial instruments, citizens risk loss of their employer retirement benefits and health insurance. At least, the talking heads on CNBC implied as much.

Auto manufacturers need dramatic cost restructuring to stave off bankruptcy. In a move reminiscent of airlines, big auto will likely request more salary and benefit givebacks from unions. Health insurance could be a feature of the past.

The stock market fall impacted most corporate pension fund investments. With declining portfolio values, many employer pension funds are underfunded. Freezing existing pension funds has been a common strategy to boost corporate balance sheets and executive incentive compensation.

Large unfunded liabilities are a no-no for corporations. That's the reason for the accounting change, requiring state and local governments to show their future liability for retirement and health care costs.

The plan is to dismantle the New Deal and replace it with Corporafornication. It's well on the way.

Ecomonic Stimulation Could Include Infrastructure

Congress is wrestling with the best way to stimulate America's flagging economy. Spending on public infrastructure has been mentioned. Infrastructure includes roads, bridges, water, and sewer systems.

Private equity underwriters (PEU's) targeted infrastructure as a safe place to earn 15% annual returns. They're looking to put billions in cash to work. How will they choose between beaten down financial institutions hungry for investment cash and struggling municipalities short of capital resources?

The Carlyle Group has a long history of taking taxpayer's lunch money. In 2004 the State of Texas gave Carlyle's Vought Aircraft Industries $35 million to add 3,000 jobs. Within a year, Vought reneged on their planned restructuring. Rather than add thousands of new positions, the firm laid off 600. Vought promised to reach 6,350 jobs by the end of 2009. Their website indicates nearly 2,800 positions need to be added in the Dallas area in just 14 months.

Chances are Texas Governor Rick Perry will let Carlyle keep the money, despite not living up to their promises. They'll need it to fund other projects. It's a PEU economy!

Sunday, October 19, 2008

Bush Offers U.S. Chamber More Corporafornication

Fresh from a promised $3 trillion in federal bailout money for the flagging financial sector, President Bush visited the U.S. Chamber of Commerce. The group brainstormed the next industries where losses could be socialized and profits privatized.

Nonprofit health care

The Bush-McCain plan is a prescription for financial difficulty for local community hospitals. Disaster capitalism means tough years for nonprofit facilities, as they crater under legions of America's uninsured. Some will be forced to sell out to their for-profit peers at fire sale prices. Former community assets will end up in proprietary hands. Jeb Bush serves on the board of one potential beneficiary, Tenet Healthcare, an owner of for-profit hospitals. In just over a year's time Jeb amassed 15,000 of Tenet stock and 93,000 stock units, a potential $430,000 at the stock's current price of $4 a share.

Health Insurance

Medicare, Medicaid and Children's Health Insurance will continue their march toward privatization, where the government contacts with private insurance companies for services. As employers shed that pesky health insurance benefit, government sponsored coverage is the major growth sector. President Bush's Uncle Bucky, William H.T. Bush sits on the board of WellPoint, a huge health insurer. He earned $360,000 for his wise governance last year and holds 97,000 shares of stock, currently trading at $40 a share. That grosses $3.9 million.


Water, sewer, roads and bridges across America are badly in need of repair or replacement. Government penny pinching contributed to lack of maintenance. Ready to fill the gap are huge private equity underwriters (PEU's) and foreign owned sovereign wealth funds (SWF's). In return for their private investment, PEU's get contracts guaranteeing a 15% annual return. Congress cites infrastructure projects as a way to stimulate our flagging economy. PEU's win!

Auto manufacturing

Ford, GM, and Chrysler were targeted for the next great benefit jettisoning. Airlines achieved much success in cutting wages, benefits, even dropping pension funds altogether. Automakers want to follow their lead. The jury is out on the role unions will play in the dismantling. One large union President called employer sponsored health insurance dead and not coming back. Maybe he wants it to be union sponsored?

The President finished his talk by inviting key Chamber leaders to walk across H Street and Lafayette Park to the CorporaWhorehouse at 1600 Pennsylvania Avenue, N.W. A good time was had by all...

Saturday, October 18, 2008

Carlyle Group's Russian Sale Nixed, Lawsuit Filed

The Wall Street Journal reported on the failure of a Russian steel firm to execute the $3.5 billion purchase of a Carlyle Group affiliate. The acquisition was announced days after Russia's army stormed over parts of neighboring Georgia.

While Vice President Cheney talked tough about an appropriate response, no one expected the buyout to tank. The Treasury did its part with CFIUS approval. Carlyle's employing their past Policy Chair couldn't have hurt. And how did Hank Paulson find the time to explore the deal with the credit crisis exploding in mid September? SuperHank approved, but the new Russian owner got cold feet. The closing date moved from September 29 to October 15.

The buyer didn't show to execute the paperwork, so Carlyle prepared some of their own, in the form of a lawsuit. Since the credit meltdown, over $10 billion in mergers failed. Watch to see if Cheney ratchets up that promised retaliation.

Dog Food Meet Dog Food, Jeb Bush Joins Tenet Health

Two years after Tenet Healthcare settled three causes of action with the State of Florida for $7 million, ex-Florida Governor John Ellis "Jeb" Bush joined the hospital company's Board of Directors. The spot, created specifically for Jeb, will pay $474,500 for his first year's service.

The Bush family's dog food status is reflected in President George W. Bush's dismal approval ratings. How did Tenet achieve their sordid reputation? Tenet's 10-K legal updates go on for pages. Here are a few highlights, along with news additions:

1. The company paid $395 million in settlements related to Redding Medical Center, a cardiac surgery mill in California. (4th quarter 2004)

2. They settled a securities lawsuit for $215 million. Their Directors & Officers Liability insurance picked up only $75 million, meaning most of the liability fell outside insurable, i.e, ethical behavior. (January 2006)

3. Tenet paid the government $900 million for alleged unlawful billing practices in Medicare and Medicaid. (July 2006)

4. The Securities and Exchange Commission has an open investigation into Tenet's accounting and financial statement representation.

5. Memorial Medical Center and lessee LifeCare Hospitals had the largest patient death toll post Hurricane Katrina. (August 2005) Their annual report mentions three medical malpractice lawsuits. Tenet is challenging the class action nature of these suits.

6. Tenet settled its liability with LifeCare in an undisclosed agreement. Contrast Tenet's action with HCA, who chartered 20 medical evacuation helicopters to transfer patients from its powerless facilities. Staff and patients suffered for four days in a dead Memorial facility. (2006)

7. The White House Lessons Learned report made no, as in zero, mention of the 34 patient deaths at Memorial Medical Center of LifeCare Hospital of New Orleans. LifeCare had 24 of the total, Tenet 10. (January 2006)

8. LifeCare Hospitals was purchased by The Carlyle Group weeks before Katrina struck. (August 2005) Carlyle, a huge private equity underwriter (PEU), has its deep connections to the Bush brand.

Bush Chow, Tenet Chunks, or PEU Bits? You choose, but they're all the same flavor...

Friday, October 17, 2008

Lehman's Fall Highlights Dysfunctional Derivatives

CNBC's Jim Cramer reported that Wall Street sold $365 billion in credit default swaps on Lehman's $190 billion in liabilities, of which $104 billion is in short and long term debt. Investors were able to buy coverage for more than twice the amount of debt and they didn't need to hold it. An analogy is buying homeowner's insurance for a neighbor's house at twice it's appraised value. If an arsonist came along, you'd get a fat check, but your neighbor would be hosed.

Compounding the problem, Lehman purchased derivatives of all types, 1.5 million of them. Ex-SEC Chair and Carlyle Group Senior Adviser Arthur Levitt called derivatives "leverage on leverage." These bets need to be unwound. The bankruptcy court is now the House, trying to settle up. Hank Paulson said the Treasury would purchase derivatives. What if investors owing on failed Lehman credit don't make good on October 21? How much credit junk will pass through Hank's bank window, and will any of it be associated with Lehman?

Thursday, October 16, 2008

Bush Declares National Character Counts Week

President Bush issued a proclamation on National Character Counts week. It stated:

The strength of our Nation is found in the character of our citizens. During National Character Counts Week, we recommit ourselves to instilling strong values in our youth and encourage all Americans to develop good character.

Like that of super rich Americans, cheating on their taxes? Some 19,000 wealthy Americans stuffed money in offshore UBS Swiss bank accounts, an estimated $20 billion in assets. In August the face of Swiss cheating was released from jail and permitted to return to Geneva.

September saw the financial meltdown, driven by Wall Street greed and leverage. The Bush administration mobilized $3 trillion to help bailout distressed Wall Street firms and unfreeze lending. The jury is out on its success. Today, the U.S. Federal Reserve provided $54 billion to save that same tax cheating UBS.

Apparently, American taxpayers should develop the character to bail out big money boys, and smile doing so. Nevermind our political leaders...

Hey Phil Gramm, I'm Whining!

American taxpayers are providing Swiss bank giant UBS with $54 billion to buy their junk investments. Earlier this week the U.S. Federal Reserve Bank announced it would provide dollars on an unlimited basis to a consortium of foreign banks.

This is the same UBS that helped 19,000 wealthy Americans avoid taxes in an illegal offshore scheme, one hiding $20 billion in assets. A low level whistle blower and high level turncoat are the only reason, this greed came to light. None of the names have surfaced yet. It's remains to be seen how many of Phil Gramm's friends stiffed Uncle Sam, the same guy buying their toxic holdings for real dollars.

Prescient Phil, how did he know I would whine? Grrrrrrrr.....oundhog day! Every morning the alarm goes off, the stock market drops, and our government gives away hundreds of billions to our financial sector. Seeing Pugnacious Phil as the beneficiary rubs salt in the whining taxpayer wound. If I could only find the slug and apply some sodium chloride.

PEU Peter Pace Partakes at Paisano Presidential Party

Days ago President George W. Bush hosted a dinner for Italian Prime Minister Silvio Berlusconi. On the guest list was General Peter Pace, recently appointed to the Senior Defense Advisory Committee of Finmeccanica.

Finmeccanica is Italy's leading high-tech company, operating in the design and manufacture of helicopters, defence electronics, civil and military aircraft, aerostructures, satellites, space infrastructures, missiles.

Peter's new boss also attended the dinner. The guest list included Mr. Pier Francesco Guarguaglini, President and CEO, Finmeccanica. I bet they sat together. The question is how close they were to Admiral Michael G. Mullen, USN, Chairman, Joint Chiefs of Staff or The Honorable Rudolph W. Giuliani, Chairman and CEO, Giuliani Partners. There are weapons to buy and consultants to employ! It's a PEU party...

Wednesday, October 15, 2008

Paulson Guarantees Interbank Lending

Treasury Secretary Hank Paulson noted his latest round of interventions includes federal guarantees on new interbank lending for thirty days. CNBC's commenters seemed unaware of this feature. The Financial Times highlighted Paulson's generosity to American banks and their shareholders, at least relative to the British plan. What gifts will Hank bear next? Stay tuned.

America: Still Hostage to Financial Sector

Those fifty big money men aren't happy, thus credit may not be flowing yet. Their demands keep coming. Wayne Angell, ex-Federal Reserve Governor, suggested Hank Paulson go back and provide some value for shareholders of Fannie Mae and Freddie Mac. He believes taking equity owners down to zero caused the current disinterest in owning financial stock.

Mr. Angell also advised cutting the Fed Funds rate. Whether it goes to 1%, 0.5%, or 0,1% doesn't matter to Wayne. He wants it cut to make dividend paying stocks attractive for purchase. Equity needs to become a place for investor value. Today's record drop of 9.1% of the Dow shows people are concerned about equities.

Carl Icahn offered a few cutting observations. He derided American corporate governance, saying it was virtually nonexistent. He said his money would stay on the sidelines, while the clowns who got us into this mess are around. This provided Carl a pivot, offering the private equity solution to the financial crisis.

New owners need to be able to acquire enough of these firms to control board makeup and provide new, competent management. Mr. Icahn wants restrictions on bank ownership gutted.

Taxpayers are clearing the decks for new owners of financial institutions. Private equity underwriters, from David Rubenstein to Carl Icahn, are ready to ride in and save the day. Sovereign wealth funds may join them on Arabian horses. Only their saddlebags are labelled greed and leverage. Sound familiar?

Carlyle's Rubenstein Weighs in from Dubai's SuperReturn Conference

Private equity underwriters and sovereign wealth funds gathered in the United Arab Emirates at the annual SuperReturn conference. Both groups, PEU's and SWF's, are flush with billions in cash and trillions in total assets. David Rubenstein, co-founder of The Carlyle Group, spoke at the meeting. According to Reuters, he said:

"Right now there's an enormous opportunity for private equity to get into the financial service industry and invest in banks, insurance companies, other organizations that are heavily hit ... by the credit crunch."

The article clarified the role Mr. Rubenstein expects PEU's to play in recapitalizing banks and financial institutions, once taxpayers shoulder their toxic assets.

He said private equity has longer-term capital and can strengthen the balance sheets of firms or recapitalize them.

Carlyle has previously argued that regulations on private equity investments in financial services companies should be eased to make more money available to the business.

The U.S. Federal Reserve recently relaxed bank ownership rules, allowing investors to buy up to 33 percent total equity interest, including voting and non-voting shares, instead of the 25 percent prior limit.

Rubenstein also said that credit-related investments, such as buying debt, remains very attractive.

Carlyle can win two ways. They can recapitalize firms, becoming new owners while squeezing out the old. And the PEU can buy back their affiliate's debt on the cheap. They financed past acquisitions with leveraged debt, some of which will end up in Hank's junk sale. Carlyle can buy back their mortgage related debt for ManorCare at a deep discount. It's a PEU economy, entering its finest hour!

Tuesday, October 14, 2008

Carlyle Group's Arthur Levitt to Testify on Credit Meltdown

The Senate Banking Committee announced a hearing to examine the turmoil in the credit markets. The hearing will take place on Thursday, October 16th. Witnesses include Arthur Levitt, Senior Advisor for the Carlyle Group, among other financial experts.

Will ex-SEC chair Levitt mention greed or leverage as causes? Carlyle prides itself on both. They cite their historic 20-25% annual returns for investors. They leveraged Carlyle Capital Corporation 39 parts borrowing to 1 part equity. It imploded this past Spring.

Ex-IRS Chief Charles Rossotti also works for Carlyle. His prior testimony in front of the Senate Finance Committee recommended a 25% corporate income tax and 8.25% capital gains rate. John McCain's campaign promises mirror that request nicely, only John lowers capital gains taxes to 7.5%.

Will the private equity boys indict their selfish management practices? When America optimizes part of the system, it suboptimizes the whole. Private equity's greed is insatiable. Like all extrinsic motivators, it cannot be fulfilled. But they will use their insider political influence to get their way....

PEU Vultures Circling

Private equity firms search for distressed companies to put their billions to work. One private equity underwriter spoke to Maria Bartiromo on CNBC. He indicated his firm would look at banks, now that the government support structure is clear, i.e. good for investors.

Treasury didn't hammer existing share or debt holders with their preferred, non-voting shares. That leaves room for private equity to put their money to work, to gain control of management and governance. But first, they need a little more distress to bring down acquisition prices. I bet it's on the way...

McCain Proposes Carlyle Group's Tax Wish List

Republican Presidential candidate John McCain delivered a tax plan that mirrors one requested in September 2006. The Senate Finance Committee conducted hearings on taxation. Charles Rossotti, Senior Adviser for the Carlyle Group, asked for capital gains taxes at 8.25% and corporate taxes of 25%. McCain proposes 7.5% for capital gains and Charles' 25% for business income.

While tesitifying as an ex-IRS Commissioner, Charles made no mention of his private equity employment. Mr. Rossotti has been with The Carlyle Group since 2003. At the time of his testimony, Charles had 3 1/2 years in Carlyle tenure.

This morning John McCain's economic advisers rolled out something close to Carlyle's wish list. It's a private equity underwriter's dream. Flush with billions in cash and ready to put it to work in the financial/insurance sector, McCain's tax cuts could help guarantee their string of SuperReturns.

It's a PEU economy, sponsored by the government industrial monstrosity, Eisenhower's military industrial complex on steroids.

The Fall of Lehman Conspiracy Quiz

Did Lehman Brothers fall in order to:

1) Keep the Bush brand from direct government bailout taint. Jeb and cousin George Herbert Walker worked for Lehman. The move preserves their potential bonuses.

2) Knock down the house of cards known as America's financial system, so private equity and foreign sovereign wealth funds could pick through their carcasses.

3) Inspire the latest Jewish conspiracy theory, that $400 billion of Lehman's funds were sent to Israel the night before the investment bank declared bankruptcy.

4) Turn CEO Dick Fuld into the evil Mr. Henry F. Potter from It's a Wonderful Life

5) All of the above

6) None of the above

There is no correct answer! That's the problem with conspiracy theories. They're terribly difficult to investigate.

Take #3. Dealbook reported:

Lehman Brothers is opposing its creditors’ request for documents related to the investment bank’s operations before its bankruptcy filing, saying that the demands are inappropriate and oppressive, according to court documents.

Creditors, including Harbinger Capital Master Fund and Wells Fargo, had sought permission from the U.S. Bankruptcy Court in the Southern District of New York to conduct depositions and access documents saying there had been no disclosure of how cash was distributed before the bankruptcy filing, among other complaints.

But in court documents filed on Sunday, Lehman Brothers Holdings said that the demands were “inappropriate” and would unduly burden the company.

Lehman asked the court to deny the motion.


Paulson's $250 Billion Bank Investment

Nine of America's largest banks have a new shareholder, Uncle Sam. Treasury announced a plan to buy $250 billion of senior preferred, nonvoting shares. It will also take warrants amounting to 15% of the preferred investment. Highlights include:

1. Dividends will continue to be paid to existing preferred and common shareholders
2. New senior secured debt issued by bank will be guaranteed by Uncle Sam for three years
3. Extend FDIC deposit coverage to all small business accounts, i.e. no limit
4. Banks must deploy capital via lending

It looks like credit can move again. Morgan Stanley's credit default swaps fell to 3.75% this morning. A year's coverage soared to 26% last Thursday. Hank Paulson hit the panic button when it hit 9% the week of September 15.

The toxic asset repurchase plan continues forward. Large non banks, like GMAC and GE Capital, hold nonperforming assets. So do insurance companies. How much equity will Uncle Sam eventually own?

Monday, October 13, 2008

Mike Conaway Blames Individual Depositor Scared by Cornyn

The Senate passed the Wall Street bailout bill, after the House initially nixed it. Rep. Mike Conaway ignored the will of his West Texas constituents by voting for the Senate version of the bill. Senator John Cornyn (R-TX) explained his vote in an October 1 press release. It stated:

A widespread financial collapse will have a domino effect throughout our State. It might begin on Wall Street but it will ultimately hit Texas families and small businesses the hardest. This is not a theory or hyperbole or a scare tactic. It is a fact.

Rep. Mike Conaway accused those individual bank depositors of compounding the credit crisis. He said the following about those Nervous Nellies to America's Business Radio:

"I lobbied along with a lot of my friends to increase the FDIC (Federal Deposit Insurance Corporation) insurance limit for banks and savings and loans and credit unions from $100,000 a borrower to $250,000 a borrower. That's a confidence builder. And what we're talking about is confidence in these bank officials to continue to do what they do on every single day. And if we calm down the individual depositors, help calm down some of the small businesses who might have more than $100,000 in the bank and quit moving that money around unnecessarily because they are trying to avoid being in an uninsured position, then that's kind of a little oil on the water itself."

People weren't moving money around when Hank Paulson rang the alarm bell the week of September 18th. The big money boys quit lending to each other at reasonable rates. Credit default coverage rose dramatically. Wall Street didn't trust their peers to make good on their debt. Loan rates reached "pay day loan" level for investment houses.

Representative Conaway voted against the bailout bill, before he voted for it. He angered many of his constituents and is in the midst of a "Forgive Mike" tour. His district rounding is actually called "Ask Mike Anything." But that doesn't mean he'll answer your question. At a San Angelo Open House last year, Mike took my question, pivoted and "answered the question he wished I'd asked." Yes, those were his actual words! But Mike did talk to Bloomberg about his vote. They reported:

"Credit is the lubricant that oils the engine of the economy'' and if it dries up, "then the engine seizes up,'' said Republican Representative Michael Conaway of Texas, who switched his vote last week to support the financial rescue. The inability of a major corporation to renew its short-term loans would have "a devastating impact on the economy.''

Note no mention of individual depositors on October 5th. It's big companies and their short term loans. What happened since Mike switched his vote to free up lending?

Credit froze up more. Morgan Stanley credit default swaps his $2.5 million for a year's coverage on $10 million in debt. That's nearly 3 times the $900,000 on September 18, the day Hank Paulson hit the panic button.

The demands from big money boys kept coming. Will they stop if they get guaranteed interbank lending? A financial expert on CNBC said 50 of the right people in a room could unfreeze credit overnight. The big money men don't trust each other to pay on their debts. Uncle Sam's promise to pick up the tab (to the tune of $3 trillion) made no difference to date.

While stock exchanges are up today, credit markets are closed. Bankrupt Lehman Brother's credit default swaps settle up next week. That will say boatloads. Will the big money boys stand behind their risky financial bets? Or will they slough it off on taxpayers via a just ramped up toxic assets buyback program?

Whatever the answer, I don't expect to hear it from certified public accountant, Rep. Mike Conaway.

"My job as I see it is to form the best opinion I can, the most informed, intelligent,” Conaway says.

It's a shame Mike isn't passing that information on to voters. Does he think we can't handle the truth?

If only he'd host a session titled "Mike Will Answer Everything." That, I'd attend.

Sunday, October 12, 2008

Mike Conaway's Albertine Earmark

Disguising earmarks is a skill, apparently one held by my Congressman. Rep. Mike Conaway denoted his $1.6 million earmark for "Office of Naval Research." The Seattle Times reported on the true recipient:

Other co-sponsors tagged the money for Global Delta, a young company created by two longtime lobbyists.

John Albertine and his brother James, past president of the American League of Lobbyists, have knocked on lawmakers' doors seeking earmarks on behalf of clients. In 2003, they formed Global Delta and decided to get an earmark for themselves. Several months later, they succeeded. With no background in engineering, the two lobbyists landed a $4.1 million contract with the Office of Naval Research to study and develop advanced, cost-effective radars.

Soon after getting the contract in June 2004, John Albertine hired a couple of engineers to do research. Meanwhile, he and his brother continued to operate Albertine Enterprises, their lobbying firm.

Over the past five years, Global Delta officials have donated $35,000 to Conaway and others who sponsored its earmarks. Conaway's office said he was unavailable for comment.

Wow, it turns out Mike is silent on more than the causes of our current credit crisis. Rep. Conaway received $7,300 from Albertine Enterprises for his virtually unopposed 2008 campaign. Information on one of the two Albertine Brothers came from John M.'s appointment to the Intersection Inc's Board of Directors:

Dr. Albertine, 64, has been the chairman and chief executive officer of Albertine Enterprises, Inc., a consulting and merchant-banking firm, since 1990. He also has served since 2005 as a principal of JJ&B, LLC, an investment bank he founded that provides finance, public policy and legal assistance to clients; and since 2004 as the executive chairman of Global Delta, LLC, a Washington, D.C.-based government contractor specializing in advanced sensor radio frequency and electro-optical technologies. Dr. Albertine served as president of the American Business Conference, founded by Arthur Levitt, Jr.

Several things pop out in the above paragraph. The description of Albertine Enterprises omits their function as a lobbying firm. Also, Global Delta's mission implies a high tech firm with significant capabilities.

The company snagged a defense earmark in 2006 for $3 million and another in 2007 for $1 million. John Albertine said he asked for $4 million in 2008 but landed only $1.6 million.

Global Delta turned down the earmark because it wasn't enough funding, he said. They opted to search for private funding so they could own the intellectual property rights to some of the research, he said.

Their concept was to build a low-cost radar system to track ships. A prototype was never built, Albertine said.

Why weren't intellectual property rights an issue with the 2006 and 2007 earmarks? After spending $4 million, it never went beyond the concept stage? Why didn't "engineers" build a test model?

The Albertine brothers are ardent supporters of Mike Conaway. James and Anne of Bethesda, Maryland gave $4,700. John and Mona of Fredericksburg, Virginia contributed $5,500.

The first burst of donations, totalling $5,000, came in Spring 2007. The next round of $4,500 fell between the end of September and Thanksgiving that same year. The remaining $700 arrived in February 2008.

Refunds reduced total donations to $3,500 for the Bethesda Albertine's and $3,800 for the Virginia family.

When did the Defense bill with Mike's co-sponsored Albertine earmark pass the House? The bill was introduced to the House on March 20, 2007. Mike's first burst of checks arrived that same month. A $2,300 check from John Albertine arrived a week before the bill's initial presentation.

Fall saw the greatest House action and another $5,000 from the East Coast Albertine's. After George W. Bush approved the bill January 28, 2008, the final $700 arrived in Mike's office.

It turns out Dr. John Albertine and I share an alma mater, the University of Virginia. The historic Lawn has Jeffersonian gardens, hidden behind serpentine walls. Federal earmarks lie behind similarly twisted structures. Kudos to the Seattle Times for knocking a few bricks out. Let the light shine through.