Tuesday, April 26, 2011

Carlyle's Rubenstein on Risk

“Political risk is as high in the United States as it is in emerging markets,” David Rubenstein, Carlyle Group co-founder, at Thomson Reuters Buyout Conference

Rubenstein cited the debate over Social Security, other entitlement problems and the large deficit. Carlyle affiliates milked the federal government at multiple turns:

Advising-Booz Allen Hamilton
TARP-Boston Private
Tax breaks for buying back debt for pennies on the dollar-LifeCare
Direct subsidies/earmarks-Vought Aircraft
FDIC recapitalization (over $2.2 billion)-BankUnited

I'm sure there are many more, especially for a man so prescient in reading tea leaves.  PEU Carlyle benefited from eight years of Bush tax cuts, which became Obama tax cuts.  Four times Congress maintained preferred carried interest taxation for PEUs, which helped Rubenstein crack Fortune's Richest list in 2007.  Carlyle off-shored many investments, DBD Cayman, and their corresponding profits, not to mention jobs-UCI.. 

Rubenstein continued at the Buyout Conference, "until those (problems) are solved, the country will not be able to resolve its high unemployment rate."  Carlyle's brand of greed helped shrivel America's middle class, not to mention cracking its financial foundation.

“The problem is that we don’t have enough financial stability in our economy.”  

That means Rubenstein must look elsewhere for 30% annual returns, China, Asia and the Middle East, i.e. centrally controlled governments with sovereign wealth firms and billions to invest in PEU's.  Rubenstein isn't ready to declare the end of Carlyle's sweet U.S. run.

The United States will still dominate the (private equity) industry for another five years or so

If he said any shorter, investors might not pony up for Carlyle's independent public offering.  Watch for puffery.  David Rubenstein and his ilk helped create the current state, much more so than the average citizen. 

I recently told my 95 year old grandmother that America started another war with Libya.  She said, "A rich man must need to make money."  That's the same reason Rubenstein will milk America, while setting up other nations to fatten his pocketbook.  By the way, Rubenstein courted Gadhafi beginning in 2006.  Is the political risk high because citizens paid attention to American leaders, their influence peddling and money flows?  That'd be my hope.