Friday, April 30, 2010

The Lower Taxman Cometh

Carlyle Group co-founder William Conway spoke Down Under on the subject of taxes.

"But people want to know what the rules are and they don't want the rules to change."

"Like interest rates, taxes are a cost of doing business," Mr Conway said. "You take that into account when you decide how much you can afford to pay.

"To the extent that taxes are higher here than in other places in the world, capital is going to flow to where it can. It matters and it will affect the returns that are earned and that will affect whether or not you do a deal. But it doesn't mean there won't be any transactions done because certainly there will be."

Code speak applies to Australia and any countries listening. Capital is water, flowing where it can. Only H2O doesn't require 30% annual expansion.

Surely, Conway's words made it to America. Obama's deficit commission kicked off with a campaign style event from the Peter G. Peterson Foundation. Peterson made his billions in the same field as Conway, private equity underwriting (PEU). Along the way, Peterson appointed Tim Geithner head of the New York Fed. Tim helped design and push regulatory reform, where PEU's get a virtual free pass.

The same day Conway's quote hit the airwaves, Carlyle bet big on structured credit, untradeable junk in the 2008 meltdown. If Uncle Sam's PPIP played a role in bringing back CDO pricing, that's worth something in taxes.

Obama's Deficit Commission is co-chaired by a PEU. Erskine Bowles started Carousel Capital. He remains a Senior Adviser with the firm. Early code talk from the Deficit Commission favors lower corporate taxes. Remember Red and Blue deficit nominees, "people don't want the rules to change," except in their favor. I believe Red & Blue Corporacrats already have the message well internalized.

World's Largest Structured Credit Manager: The Carlyle Group

Reuters reported:

Investment firm Carlyle Group on Thursday said it will acquire $5.1 billion of credit assets from Stanfield Capital Partners, a New York-based fixed income money manager, the first of many such deals in a consolidating corner of the market.

Carlyle, one of the world's largest private equity investors, agreed to purchase management contracts on $4.2 billion in collateralized loan obligations, or CLOs, and $950 million in managed account assets.

The purchase will boost Carlyle's assets under management to $18.1 billion and broaden the firm's credit business.

Reuters stated the deal will make Carlyle "the world's largest structured credit managers and an industry consolidator." They left out the "one of".

Consider David Marchick's testimony before Congress on the credit crisis. The Carlyle Managing Director told Senators:

"Moreover, given the staggering amount of new loans that were issued in the 2005 – 2007 that will come due in 2010 – 2014, it will be essential that credit markets can facilitate refinancing of this debt."

Is Carlyle buying affiliate debt on the cheap from Stanfield Capital, with plans to effectively refinance loans coming due in 2010-2014? Are they going for back door acquisitions as debt holders, a stated corporate strategy? Will they approach affiliate debt restructurings different than non-affiliates?

Carlyle co-founder David Rubenstein said private equity underwriters (PEU's) acted reasonably during the boom. Did Rubenstein forget his 2007 comment?

"Greed has taken over."

Yes, it has. How much of the structured credit comeback is a result of Uncle Sam's PPIP?

One of the world's largest owners of structured credit, the kind that imploded in September 2008, faces zero oversight under Senator Dodd's financial regulatory reform. Did Dodd miss Carlyle Capital Corporation's blow up in March 2008? Apparently, what happens in Jersey, stays in Jersey.

Thursday, April 29, 2010

HP to Buy Palm, Bono to Profit

Bloomberg/BusinessWeek reported:

Palm Inc. (PALM US) surged 26 percent, the most since January 2009, to $5.84. The maker of the Pre smartphone agreed to be bought by Hewlett-Packard Co., the world’s biggest maker of personal computers, for $5.70 a share, or $1.2 billion, representing a 23 percent premium over Palm’s closing price yesterday.

Palm's current owners include Elevation Partners (EP), a private equity underwriter (PEU). U2's Bono is Managing Director for EP. There's no news announcement on EP's website. When it's released, will Bono sing the deal's praises?

PEU Bulls Are Back!

The Milken Institute wrapped up this week. The Milk 'Em boys, also known as private equity underwriters (PEU's), noted the fast return to good times:

The economy may have entered a slow recovery, but the market for private equity has snapped back so dramatically that buyout firms are struggling to find bargains. "There are still opportunities, but a lot of the low-hanging fruit is gone," said Leon Black of Apollo Management.

Unlike a year ago, when uncertainty was rampant, Black and other industry leaders were bullish on the U.S. and global economies: "The market is telling us things will get a lot better," said David Bonderman of TPG Capital. "Leverage is back in a significant way, at least for good companies, and the bond markets are white hot."

What's driving the good times? Underfunded pensions, themselves a victim of the meltdown. PEU's issued $2.8 billion in capital calls to CalPERS during the crisis. The Milken report states:

Public pension funds, the backbone of the private equity industry, will be compelled to invest more in the asset class to achieve the high rates of return necessary to prevent government and employee contributions from rising.

"Equity returns over the past decade were effectively zero," noted Bonderman. "But they know that if they want to hit their bogey's, they'll have to shift more funds away from fixed income. In time, it will turn out to be a good thing for private equity and other asset classes which tend to outperform, especially if you believe inflation is coming."

What if pension funds roll the dice and lose? Defaulted pensions end up in the taxpayer's pocket.

PEU legends Leon Black of Apollo Group and David Bonderman of TPG shared their wisdom. Unremorseful PEU giant David Rubenstein of The Carlyle Group spoke in Sweden. All should cheer their exclusion from Obama's financial regulatory reform.

Wednesday, April 28, 2010

Rubenstein Predicts Largest PEU Player: China

Carlyle Group co-founder David Rubenstein spoke to the Swedish Private Equity & Venture Capital Association’s congress in Stockholm, Sweden. He told the gathering of private equity underwriters (PEU's):

"China will become the single biggest investor in private equity", David Rubenstein said.
The Swedish Wire reported:

Sovereign wealth funds will also continue to increase its presence at the global financial markets, he said, and play a bigger role in private equity activities.

Guess which groups have a free pass under Dodd's financial regulatory reform? Private equity underwriters and sovereign wealth funds. Who predicted it?

Communist China rising into the greediest capitalist has an ironic ring. China's abysmal quality record should combine with PEU's to deliver horrific products and services. Exactly how deadly, remains to be seen.

Tuesday, April 27, 2010

Greek CDS's at Crisis Levels

Dow Jones reported:

Greece's five-year sovereign credit default swaps rose to 821 basis points, from 790 basis points, after S&P cut the country's rating to junk status, lowering it by three notches to BB+, according to prices from CMA DataVision.

That means it now costs $821,000 a year to insure $10 million of Greek sovereign debt for five years--the highest ever cost.

The week Lehman fell saw such levels.

Update: EPJ reports they rose to a record high 911.6 basis points, now at 945 bp.

Carlyle Group Deal Making is Heating Up

While rushing to many exits, The Carlyle Group let in cold air. It seeks heat from Gianonni France. Dow Jones reported:

Private equity firm Carlyle Group is in exclusive talks to acquire French heating company Giannoni France for around EUR450 million and is talking to banks about financing for the deal, said people familiar with the situation Tuesday.

Carlyle is talking to banks about arranging finance amounting to around EUR250 million, one of the people said. Carlyle declined to comment.

How good is Carlyle at reading weather patterns? Volcanic eruptions can lower temperatures for a multi-year period. Now, if they could just get the Gulf Stream to stop, at least between sealing the deal and flipping Gianonni France.

Monday, April 26, 2010

Carlyle Group's Hertz to buy Dollar Thrifty

Carlyle Group affiliate Hertz will buy Dollar Thrifty Automotive Group for $1.2 billion. Hertz already owns Advantage Rent-a-Car. It will own four brands commonly seen at airport rental counters, Hertz, Dollar, Thrifty & Advantage.

Will employees beg John McEnroe to yell at Carlyle? "30% annual returns, you cannot be serious!"

Watch car rental pricing. It's likely to go higher, whatever the market will bear.

Funny, that's happening with private equity IPO's. Nielsen is the latest addition to a long list of Carlyle Group exits. It should go for at least a double, more if PEU owners bled dividends over the years.

Sunday, April 25, 2010

Carlyle's $35 Million Texas Charge Card

Governor Rick Perry granted The Carlyle Group's Vought Aircraft Industries $35 million in 2004 to provide 3,000 new jobs by the end of 2009. Carlyle cut 35 positions, according to Vought's website employment numbers.

However, the 2010 Texas Enterprise Fund report indicates a more opaque situation. Vought's employment did not double, as promised.

2004-- 3,350 workers
2010 promise- 6,350 workers

2010 actual--
3,315 workers (Vought website)
2010 total jobs-- 29,377 (Governor Perry's report)

These measures indicate Vought's employment fell by 35 or grew by 26,000.  Which is right? When politicians are afraid of facts, they obfuscate. Governor Perry's number is credited to "economic impact reports from independent economists analysis." Perry's office used a job multiplier, not the employment measure Carlyle committed to in their 2004 agreement.

The Carlyle Group used Texas' $35 million to capitalize Vought's expansion in South Carolina. When it came time to settle up, Perry used Texecutive privilege. Rather than "one riot, one Ranger," Rick employed "one contract, one Governor." No stinkin' legislature was needed to help the boys at 1001 Pennsylvania Avenue.

What refund might one expect in the first year of a ten year payback, especially for such miserable performance?

Full refund = $3.5 million plus accrued interest

Vought booked a $2.1 million liability relative to the grant

Vought's financial statements say they paid back $900,000, roughly 25% of the principle at zero interest. The Governor's report says he clawed back $944,000.

Had that been a credit card vs. a taxpayer funded gift, the balance would've grown to $46 million at a 5% interest rate. To pay off Carlyle's Texas credit card in ten years, the bill is:

Interest only- $191,000 per month

Monthly payment- $487,000 per month

While politicians talk about transparency, everything about this deal is under wraps, the renegotiated contract, the basis for the $900,000 payment and projected future refunds.

Even the media has shown no interest in the refund to date. (Dallas Morning News, Austin American Statesman & San Angelo Standard Times). Isn't there a Governor's race underway? Maybe a Congressional contest or two?

Texans deserve better, all around.

Update 9-16-10 Vought is a supplier for Boeing NewGen Tanker Team. Thus, there is potential for more jobs in Texas. I imagine those would require new stimulus from the Governor.

Update 6-1-11:  HB 2457 purports to fix the problems with Perry's Texas Enterprise Fund, only Vought's agreement had all the elements required in the new legislation.  The bill is silent on Perry's ability to renegotiate deals, which he did with Vought in Spring 2010.

Update 8-11-11:  Governor Rick Perry will run for President according to Perry spokesman Mark Miner.  Will the media examine Perry's job fabrication numbers?  "Increased scrutiny" is yet to find Perry's Vought shenanigans.

Saturday, April 24, 2010

Levitt's "Decade of Transparency" Won't Apply to The Carlyle Group

Former SEC Chair Arthur Levitt spoke to Bloomberg on looming financial regulations. Levitt envisions "a decade of transparency." Only that transparency doesn't apply to private equity underwriters (PEU's).

Levitt should know that, as Senior Advisor for The Carlyle Group, a politically connected PEU with a Pennsylvania Avenue address. The Dodd bill doesn't define private equity, which has been around under various names since the 1970's. The Senate's robust regulations call for a study of private equity "self regulation." President Obama omitted many shadow bankers in his early call for reform. They remain conspicuously absent.

As for credit derivatives, naked credit defaults swaps aren't going away. They could be traded on an exchange, a house that may or may not allow the bet. Like Vegas, it comes with bouncers. However, nonstandard derivatives can still be traded in the same manner as their Wild West days i.e. non-transparently.

Funny, Levitt's decade of transparency has lots of darkness, where the shadow boys hide.

Friday, April 23, 2010

Carlyle Group to Remain at 1001 Pennsylvania Avenue

The Carlyle Group renewed its 129,724-square-foot lease on two floors under a long-term lease extension. The firm has sat in the 14-story building since 1987.

It's odd that the financial reform bill can't define private equity underwriters (PEU's), given the length of time they've been around.

Thursday, April 22, 2010

Barbarians See Sky Falling: Carlyle Group to Invest in Secured Aviation Debt

The volcanic ash outage in airline service stressed air carrier finances, with an estimated revenue loss of $1.7 billion as of April 20. The total price tag could be more than $2 billion. Banks holding airline secured debt could be nervous. Are they willing to sell out on the cheap to private equity underwriters (PEU's)?

If so, The Carlyle Group and joint venture partner RPK Capital Management are ready to buy, $1 billion worth. FT reported the portfolio:

intends to buy bank debt secured against assets such as jets and spare parts and also various aircraft and engines that will then be leased out to airlines.
IFLC, a division of AIG, traditionally financed leased planes for air carriers. FT reported IFLC is "selling assets rather than extending new financing."

How long has IFLC been for sale? Since fall 2008. Carlyle was a reported bidder in an April 2009 auction.

Apparently, Uncle Sam is depleting IFLC in chunks. PEU competitor Macquarie will pay $2 billion for 53 aircraft.

The Carlyle Group has $1 billion to invest in similar deals. Might they buy assets on the cheap from AIG? Or will frightened banks dump their exposure in the midst of a crisis? Barbarians stand ready to benefit.

Update: Carlyle's interest in the sky stretches to Australia & New Zealand. Thomson reported "Carlyle is interested in acquiring Contract Aviation Industries (CAI) from Airwork Ltd. (NZ)." CAI was planning an IPO, valued at $300 million, when Carlyle came "a courting." One news report stated CAI owns Alliance Airlines, an Australian charter operator. The skies are heating up. Even Carlyle co-founder William Conway weighed in on CAI, which used to be known as Airwork.

Wednesday, April 21, 2010

Bono: PEU Partner with Elevation

Paul Hewson, aka Bono of U2, rode the surging private equity wave during Bush's Guilded Age. Time said this of the rock star/philanthropist, when it named Bono 2005 Person of the Year:

Bono is a busy capitalist, (he’s a named partner in a $2 billion private equity firm)

That firm is Elevation Partners (EP), which lists Bono as Managing Director and co-founder. A look over Elevation's portfolio companies provides insight into Hewson's meeting with Peter Orszag. Affiliate MarketShare Partners boasts of its "econometric pedigree."

Peter Orszag loves econometrics, seeing it as a solution for clinical health care quality. Orszag's brother Jon works for economic consulting firm, Compass Lexecon. Jon is a member of the Econometric Society.

EP's MarketShare Partners boasts of Compass Agency Solutions. While the two firms aren't related, both utilize econometric models. Each Compass touts their healthcare expertise. How might the two Compasses benefit from Orszag's drive to econo-metricize health?

Expect econometric modeling to do for health care what it did for the financial world. Quants led incentivized executives to believe nothing could fail. What happens when incomplete models interact with pay for performance in health care? Likely, systemic health risk.

I have another private equity underwriter (PEU) to add to the Obama White House visitor list.

P.S. EP appears ready to monetize their investment in Palm, putting the portfolio company up for sale. Elevation also asked investors for more time to put $200 million to work.

Update 9-6-23:  Elevation Partners website states:

 In 2015, Bono (an Elevation Co-Founder and Managing Director) joined TPG Growth as a Special Partner. In 2016 Bono co-founded The Rise Fund, a global social impact fund which invests in seven sectors aligned with the UN Sustainable Development Goals.

Monday, April 19, 2010

Setting Up the Doddo Bill

The SEC's fraud lawsuit against Goldman Sachs is a civil case, i.e, it has the lowest burden of proof. The suit names the most hated firm in America and a hedge fund manager. They happen to be two major targets of Senator Dodd's "weak kneed bill.

Dodd made hay on the suit:

"Let there be no doubt, in my mind, our bill would have prevented that kind of events from happening, in my view, and that's what the public needs to know. By not enacting our legislation, by filibustering it, stopping it, we leave the American public vulnerable once again to the kind of shenanigans that have occurred in our large financial institutions across this country."

Horse hockey, the bill does not stop securitizations. Nor does it reign in many shadow bankers, private equity underwriters (PEU's) or sovereign wealth funds (SWF's).

Dodd offered to pull the $50 billion liquidation fund from the bill to "please Republicans." The move has a "public option" feel to it. Yank it and get no additional votes, which means the Blue team wanted it. I'm sure funders are pleased. Dodd received over $10 million in lifetime donations from the financial sector; securities & investment firms, insurance companies, and commercial banks.

Once again, nary a Doddly peep on PEU’s. Yet, The Carlyle Group has its own civil lawsuit. This didn't come from the SEC, but from investors. They believe Carlyle fraudulently sold stakes in Carlyle Capital Corporation, a "triple A rated" mortgage security fund levered 32 to 1. Other Carlyle actions warrant SEC investigation.

The SEC lawsuit was filed against Goldman Sachs on Friday. Democrats make political hay on Monday. President Obama will speak in New York on Thursday.

The Goldman suit reads like Rahm Emanuel/Jim Messina campaign magic. Practical politics needs a precipitating event, one that's choreographed for Q ratings.

Update: At least Canadians are willing to write about Dodd's free pass to PEU's.

PPACA Passes & PEU Hospital Deals Take Off

Before President Obama could sign health reform, two major safety net hospital systems sold out to private equity underwriters (PEU's). Here are the deals:

Detroit Medical Center and its eight hospitals agreed to sell to The Blackstone Group's Vanguard Health Systems.

Boston's Caritas Christi and its six nonprofit community hospitals will sell to Cerberus Capital Management.

CCMP Capital's Legacy Hospital Partners inked a joint venture deal regarding 215-bed Wilson N. Jones Medical Center, Sherman, Texas. The hospital will be renamed.

In each arrangement, all committed capital will be invested in the asset purchased and/or used to retire tax free bonds. This departs from past deals, which put millions into community foundations.

Vanguard paid Blackstone, Morgan Stanley Capital Partners and other owners a $300 million dividend earlier this year. That's 100% of Vanguard's EBITDA, otherwise known a parental milking. PEU owned HCA borrowed to give $1.75 in dividends to KKR and investors.

My worries about nonprofit community hospitals came just before the spate of sellouts. When barbarians crash the gate, they do so in force. I knew Nancy-Ann DeParle's reform would set the table for deals. I didn't realize how quickly they'd arrive. Prior to becoming White House health czar DeParle worked for CCMP Capital Advisers and sat on the Legacy Hospital Partners board.

The shadow banking boys plan to bleed America's health care system.

Update: Sumner Regional Health System took bids from suitors, before entering bankruptcy. After shedding undesirable costs/contracts in bankruptcy court, for-profit LifePoint Hospitals will take over Sumner's four hospitals. The FTC provided an antitrust exemption for the deal.

Update 2: HCA will acquire 357 bed Mercy Hospital in Miami from Catholic Health East.

Update 3-12-11:  Forbes ran a piece on how HCA will save America's healthcare system   Like HCA's March 2011 IPO, other PEU owned hospital chains may go public, according to Fortune.

Update 5-24-11:  HCA closed on Mercy Hospital.  Terms of the deal were not disclosed.

Update 8-20-12:  Dealbook reported investors in health care support Obama.  That's no surprise.

Update 12-10-12:  BusinessInsider ran a piece on growing pressures driving hospital consolidation.

Update 2-24-14:  PEU's buying hospitals is the first niche area mentioned by Becker Hospital Review. 

Update 4-3-22:   The average health insurance premium more than tripled for a family plan since PPACA passed in 2010.  Cost curve bent but in the wrong direction.  Concave went convex.  

Sunday, April 18, 2010

Lord John Browne Back in Texas via Riverstone Investment in Three Rivers

Riverstone Holdings made a strategic investment in Three Rivers Operating Company LLC , a private upstream oil & gas company based in Austin, Texas.

Three Rivers will concentrate its efforts in the Permian Basin.
This hearkens the return of Lord John Browne, British Petroleum CEO, now managing director at Riverstone. Consider what happened under Browne's watch:

In 2005, BP's Thunder Horse deepwater rig in the Gulf nearly capsized from a plumbing error. Also in 2005, an explosion rocked BP's Texas City refinery, killing 15 and injuring scores of other workers. In 2006, one of BP's pipelines on Alaska's North Shore began leaking, forcing the company to re-lay 16 miles of pipe.

After promising to make things right, Browne skittered off to Riverstone, a joint venture energy partner with The Carlyle Group.

Carlyle, a politically-connected private equity underwriter (PEU), has a different history of failing in a time of crisis. They've partnered with death dealers, besides Lord Browne.

The ethically challenged congregate together. Carlyle & Riverstone settled with New York for $70 million in a "pay to play" pension investment scheme, not their first. BP paid $303 million for fraud under Browne's leadership. What role will Three Rivers play in any future misdeeds?

Might the Lord's plane land at San Angelo Regional Airport? Will Governor Rick Perry be in his entourage? Perry recently used Texecutive privilege on Carlyle's behalf, drastically cutting a refund to the state for failing miserably on job promises. Time will tell, but Carlyle's interest in West Texas is growing.

Geithner Calls Himself a "Catastrophic Failure"

Treasury Secretary Tim Geithner spoke on Meet the Press. In trying to sell financial reform, Geithner impugned his reputation.

In this financial crisis you saw a range of terrible things happen. Catastrophic failures in judgment by people running these institutions.

Catastrophic failures in basic protections governments have to provide, and the consequences were devastating.

Geithner was head of the New York Fed, charged with providing basic protection. Most Wall Street firms are run by the same people who committed catastrophic failures in judgment, Goldman Sachs-Lloyd Blankfein & JP Morgan-Jamie Dimon,.

One thing Wall Street can do is sell. They packaged junk, while laughing in their vaults. Tim Geithner belonged to "the club." Surely, they can pair up to market "serious financial reform", while maintaining greed with a tad less leverage, temporarily.

The SEC lawsuit against Goldman Sachs appears to be part of the choreographed "Kabuki Dance." Expect more threats of jobs moving offshore from the big money boys and claims of "sharp toothed" regulations from Dodd & his Brothers in Blue.

As private equity underwriters (PEU's) have been around since the 80's, why does anyone need six months to "define it"? How is a study of PEU "self regulation" anything but a gumming?

At least I got a chuckle from "smirking Tim's" cocky, self deprecation. Regret is something PEU's don't disclose, at least not The Carlyle Group's David Rubenstein.

As for Geithner's promise to constrain greed, that's hard to do when PEU's have a free pass. Carlyle's 30% annual returns remain the stated target. Surely, that will drive risky behavior. I've yet to hear anyone address this gaping hole.

Saturday, April 17, 2010

Pakistanis Concerned about Carlyle Group Infrastructure Deal

Carlyle Group affiliate 4Gas received the contract to set up a LNG terminal at Port Qasim Authority (PQA) in Karachi. The deal was awarded by the Economic Coordination Committee of the Pakistani Cabinet. 4Gas has a multi-decade contract.

The Committee on Foreign Relations works to open doors for American branded multinationals in world markets. Carlyle Group co-founder David Rubenstein sits on this august body. The Carlyle Group keeps its good name through the use of political influence. When Carlyle affiliates do bad things, from bribing officials to euthanizing patients, corporate blames others. They do so, despite charging millions in management fees.

Pakistanis are concerned about Carlyle's CIA connections with its Frank Carlucci and President George H.W. Bush roots. They don't realize Carlyle's love for money outweighs everything. The private equity underwriter (PEU) will likely flip 4Gas long before the first decade is over.

However, owners of a LNG facility should be concerned about safety. How does a major LNG accident compare to a weapon of mass destruction? Carlyle's track record is spotty, especially when one considers their key partners in death.

Update 7-16-13:  The Pakistanis shuttered Carlyle's LNG deal.   OPIC President Elizabeth Littlefield attempted to intervene to save the project, but was unsuccessful.  What might President Obama do to help his frequent dining companion, Carlyle co-founder David Rubenstein?

Thursday, April 15, 2010

Orszag's Guests During Health Reform Sausage Making

Given Peter Orszag's recent talk at the Economic Club of Washington, I wondered who influenced one major architect of Obama's health reform. My research on visitors to White House Health Czar Nancy-Ann DeParle came out before the bill was passed and signed.

Carlyle Group co-founder David Rubenstein interviewed Orszag. Peter noted the government does not know how to pay for quality but will "throw things against the wall and see what sticks." My guess is Peter knew The Carlyle Group has several affiliates specializing in health care cost control, MulitPlan and Viant. The pandering went on to capital gains taxes. So far the Economic Club has not posted the video of the interview.

Orszag's list is below. It has the distinct taint of influence peddlers and industry sponsors. :

SCHWARZMAN STEPHEN Co-founder Blackstone Group, with
health care affiliates:
Apria Healthcare, Biomet, Stiefel
Labs, Catalent, Emcure, Health
Markets (health insurance),
TeamHealth, and Vanguard Health
Systems (for-profit hospital chain)

ALTMAN ROGER Founder & Chairman Evercore
Partners, a private equity firm. It
owns Diagnostic Imaging Group

CARNAHAN TOM Founder of Wind Capital Group

GARDE CATRIONA Assistant to Bono, U2

HEWSON PAUL Bono from U2, Managing Director
of Elevation Partners, a private
equity firm.

HUDSON KATHY Associate Professor at the Johns
Hopkins Berman Bioethics Institute,
Institute of Genetic Medicine and
Department of Pediatrics

IMMELT JEFFREY GE CEO, GE has huge health care
product lines from medical imaging
to consultation

IP GREG, U.S. Economics


Assistant secretary for planning,
evaluation & policy development
at the Department of Education

NIX SHEILA Joined global poverty nonprofit
ONE as U.S. executive director in
2009. Deputy governor under

Gov. Rod Blagojevich

ORSZAG JONATHAN Senior Fellow in economic policy
at Center for American Progress.
Orszag serves as a senior managing
director and a member of the Executive
Committee of Compass Lexecon,
an economic consulting firm. In 2009
Compass Lexecon received $407,019
in federal contracts.

Note: Peter Orszag wants health care

to go the route of modeling clinical
care, like econometrics.

THORNTON ERIN global policy director for ONE

TRINGE HEIDI Aide to Vermont Gov. Jim Douglas

BIXBY ROBERT Executive Director Concord Coalition
Senior Vice President, Office of Policy &
Representation, for the Blue Cross
and Blue Shield Association (BCBSA)

GELLIN BRUCE Director of the National Vaccine
Program Office

GREENSTEIN ROBERT Executive director of the Center on
Budget & Policy Priorities (CBPP)

GRUBER JONATHAN MIT Professor contracted by OMB
for $392,000 in health reform

HALTMEYER KRIS Deputy Executive Director of
Legislative & Regulatory Policy,
Blue Cross & Blue Shield Association

HALVORSON GEORGE Chairman & CEO of Kaiser
Permanente, the nation’s largest
nonprofit health plan & hospital

HOFFMAN CHRISTY Service International Employees
Served on the board of UnitedHealth
Group. Works for private equity firm
Perseus, which lists 10 healthcare
affiliates in their portfolio. Mr. Johnson
served alongside Gail Wilensky at

KIES KENNETH Lobbyist for Federal Policy Group
-clients include Aetna, Magellan
Director of Outreach and Public
Health Policy, Health & Human
President of the Committee for
a Responsible Federal Budget
Director of the American Worker
Project at American Progress

Senior Vice President and Director
of Research, Committee for
Economic Development

PETROU LAURA HHS senior adviser with Daschle ties

PODESTA JOHN Center for American Progress,
Head of Obama Transition Team,
relative of lobbying Podestas,
Tony-Universal American
President Urban Institute, ex CBO
Chief, serves on Committee for a
Responsible Federal Budget
Brookings Senior Fellow,
Georgetown Professor, ex-CBO,
Vice Chair Federal Reserve,
sits on board of NYSE Euronext

SEROTA SCOTT President & CEO of Blue Cross
Blue Shield Association of America

SMITH THOMAS Past CEO of Voluntary Hospitals
of America, sits on board of several
for-profit health care companies

WILLIAMS RONALD Chairman and Chief Executive
Officer Aetna


STERN ANDREW SEIU President, Said in 2006 at
the Brookings Institute , Employer
health insurance is "dying and not
coming back"

ex-Board member James Johnson
met with Orzag, while current board
member Gail Wilensky provided
expert testimony before the Senate
Finance Committee. I did not hear her
verbally declare her numerous conflicts
of interest in her testimony. Gail served
on 6 boards, most health care.
BusinessWeek did a piece highlighting
Stephen Helmsley's Voldemort-like
impact on the public option.

LEAMOND NANCY Executive Vice President for Social
Impact at AARP

ROTHER JOHN Group Executive Officer of Policy &
Strategy for AARP

STEVENS SIMON Executive Vice President of
UnitedHealth Group, Chairman of
UnitedHealth Center for Health Reform,
President of UnitedHealth Group's
Global Health division

WELTERS ANTHONY Executive Vice President of
UnitedHealth Group

Tuesday, April 13, 2010

Peter Orzag & Health Care Power Grab

White House OMB director Peter Orszag spoke to the Economic Club of Washington last Thursday. The video is yet to be posted on their website, but an attendee noted several of Orszag's statements. Robert Wenzel of Economic Policy Journal wrote:

During the Q & A, Orszag volunteered that right now, given the margin of error, the deficit projections five years out could be off by up to $2 trillion. Remember, he is talking about the official White House budget, one that is generally viewed as over optimistic anyway.

The whopper, though came when he discussed Obamacare and how he expected it to provide a surplus to the budget. He stated that the key was to replace paying for quantity with paying for quality. He then stated that he had no idea how to price quality but that the Obamacare legislation provided for much flexibility and that they were "going to throw stuff against the wall, and see what sticks."
At an older talk at with Mark McClennan, Senator Max Baucus and Robert Rubin, Orszag noted the need for health care to move away from double blind clinical studies to modeling, like econometrics. Such modeling brought abysmal quality to financial products. Quants can do for health care, what they did for finance. Badly distort the system, near to collapse.

A recent FT interview with Peter revealed the wisdom of delayed health reform implementation. Orszag stated the political economy of delayed implementation, bringing to mind the parable of the boiled frog. The story suggests if the pot warms slowly, the frog won't jump out.

Orszag went on to discuss the Medicare Payment Commission, claiming it could “turn out to be as consequential for health policy as the Federal Reserve is for monetary policy.” Will it be as secretive? Will it lie to the American public about its under the table activities on gold?

HuffPo noted Peter's worrisome power grab inside the White House bureaucracy. The Blues look much like the Reds. Both deliver bad management. Profound knowledge is needed, yet so little of it exists in American leadership. Orszag speaks of variation, yet knows not what it means. Clueless leaders can make things worse, much worse.

Update: Video of Orszag's talk is now on the ECW website.

Carlyle Group Closes Asia Fund Short of $3.5 Billion Target

The Carlyle Group announced the closure of Carlyle Asia Partners III at $2.55 billion, nearly $1 billion shy of the target. Many private equity underwriters (PEU's) would hold the fund open. After three years of hard sales calls, but Carlyle is ready to put those billions to work. An official stated:

“We believe that 2010 is shaping up to be a very good year to make investments in Asia as the region bounces back strongly from the global economic crises.”

Hedge fund manager Jim Chanos predicts the Chinese economic bubble, "on a treadmill to hell," will end badly. Carlyle wants to ride the expansion, magically exiting before any meltdown. That didn't happen in the U.S. in fall 2008, when Lehman Brothers imploded. PEU's made billions in capital calls against state pension funds.

It's double down time in the world's economic gambling parlor. C'mon, 30% annual returns, baby! Who cares whose back they come on?

Sunday, April 11, 2010

Carlyle Group Spreads: One Tentacle at a Time

Two local papers ran pieces on The Carlyle Group, a politically connected private equity underwriter (PEU). The Stamford Advocate story, "Fiscal Impact of Rest-Stop Contract Questioned by Lawmakers," concerned Carlyle's sweetheart deal with the State of Connecticut over 23 rest stops. The deal would help Dunkin' Donuts, a Carlyle Group affiliate, and Subway, franchised by Carlyle's joint venture partner.

The Galveston County Daily News ran "Port of Galveston Seeks Private Partners," mentioning Carlyle's proposal to the State of Virginia to run its port operations. The Galveston port previously courted private investors. It was in discussions with a Hong Kong firm when the Dubai Ports World brouhaha broke out. Those talks failed.

Oddly, while the nation stormed over ports sales, Carlyle sold two U.S. aviation firms, Landmark Aviation and Standard Aero, to Dubai Aerospace. Not a peep, as members of Congress rallied to Carlyle's defense.

Connecticut has a sordid history with The Carlyle Group. Carlyle cheated Connecticut pensioners with kickbacks. The Hartford Business Journal reported:

Carlyle a decade ago figured prominently in what was known as the “Silvester scandal,” in which it and other investment firms paid lucrative “finder’s fees” to associates of the corrupt former state Treasurer Paul Silvester to secure hundreds of millions of dollars in state pension fund investments.

Silvester, who was sent to federal prison after his conviction on federal racketeering and money laundering charges, testified that in connection with one such deal he had Carlyle pay a prominent lobbyist and major Republican fundraiser, Wayne L. Berman. Berman subsequently hired Silvester and his mistress after Silvester lost his 1998-election bid, but Berman fired them both as the FBI’s investigation of the scandal deepened.
Carlyle didn't change in cheating retirees the last decade. It and Riverstone Holdings, a joint venture energy partner, settled with the New York Attorney General for $70 million in combined compensation. But Connecticut made Carlyle promise they hadn't paid anybody off.

The Stamford article mentions "an evaluation of the deal done by Matrix Capital Markets Group (MCMG) and paid for by the state." Matrix describes the firm on their website:

Matrix has been advising private business owners and private equity-controlled companies
MCMG advises the "greed and leverage boys" in their ceaseless drive for more EBDITA. MCMG's specialty said nothing about ensuring governments get a fair deal. I'm sure Carlyle was pleased that Connecticut picked up the tab.

Texas has more exposure to Carlyle than Galveston's port. Carlyle's Vought Aircraft Industries took $35 million from Texas taxpayers in 2004, promising to deliver 3,000 new jobs by 2009. They sent those jobs to South Carolina, financing a Charleston plant with Texas money. 2010 arrived with Vought not employing company-wide, its Texas commitment of 6,300 workers. Texas gave Vought $1 million per job eliminated.

Like their Connecticut counterparts, Texas legislators were out of the loop when Governor Rick Perry rewrote the contract on Carlyle's behalf. Vought repaid a mere $900,000, 25% of the principal at zero interest. Carlyle plans to sell the final piece of Vought to Triumph. Previously, Boeing purchased two Vought divisions that had gunked up 787 Dreamliner production.

Yet, two more states warrant mention, Michigan and Louisiana. Carlyle affiliate Synagro Technologies bribed Detroit City Council woman, Monica Conyers, wife of Rep. John Conyers. The bribes happened under Carlyle Group ownership, which saddles affiliates with debt burdens, increased interest expense, high profit expectations and expensive management fees.

Carlyle's luck sank with Hurricane Katrina. Their LifeCare Hospital affiliate in New Orleans lost 25 patients in the storm's toxic aftermath. Carlyle lawyers tried to Joseph Hazelwood an ENT doctor and two non-employee nurses. Carlyle's legal defense doesn't mention LifeCare physicians and staff, those with a duty to care for patients, even in horrendous conditions.

Their innovative legal strategy claims patients became wards of the federal government when FEMA evacuation teams set up in New Orleans. This is patently laughable, like the White House Lessons Learned report.  Fran Townsend made no mention of the hospital with the highest patient death toll.

Recall the lobbyist who figured prominently in Carlyle's first pension scandal, Wayne Berman. He lobbied for LifeCare, along with Obama supporter Moses Mercado. Berman survived the Silverster taint, enough to get Carlyle Group lobbying business from 2005 to 2009.

Carlyle spent big money in 2007 on Berman and his associates. They lobbied hard on Carlyle's "quiet sale" of Standard Aero and Landmark Aviation to Dubai Aerospace. They convinced Congress to keep private equity's preferred taxation on carried interest. Wayne lobbied for Carlyle's purchase of huge nursing home provider, ManorCare. Berman kept Carlyle's LifeCare failures out of public hearings on the matter.

Wayne Berman must be tight with Senator Chuck Schumer, a frequent PEU water carrier. Schumer defended carried interest until the industry could find a workaround. He flipped on foreign ownership, calling the sale of 6 ports "outrageous," while buying over 50 U.S. airport services "not as much of a risk."

Local, state, or federal, Carlyle is interested in one thing, making lots of money. When PEU's are the answer to America's ills in healthcare, infrastructure and banking, our country is truly sick. Targeted 30% annual returns come on someone's back. Ask Dunkin' Donuts franchisees, New Orleans LifeCare hospital patients, or Texas taxpayers.

For those who believe the Blue Team is any better than the Reds, note the PEU receiving line at the Obama White House. PEU Nancy Ann Deparle reformed health care from the White House, via back room deals. Pay attention to the Virginia state health director, now #2 at the Obama's Center for Medicare/Medicaid. She changed Old Dominion health services based on a "privately funded study," one Governor Tim Kaine refused to make public. Kaine is now Chair of the DNC.

Every time you hear the flutter of a bird's wing, a PEU lands at White House or Capital Building. Red or blue backed, PEU's will get their green.

Update: Carlyle may soon ring the register on Dunkin' Donuts.

Update 3-16-11:  The Carlyle Group is one of two final bidders for Galveston's port operations.  It's a 75 year master lease deal.

Upddate 8-27-11:  Carlyle lobbyist Wayne Berman supports PEU Mitt Romney for the Republican Presidential nomination.  Backup might be Joh Huntsman, Jr., son of a PEU