Enhancing Carlyle's Image

Bloomberg's Cristina Alesci stayed within Rubenstein's recent themes and avoided Carlyle's low interest "debt for dividend" strategy employed in 2012.

The closest thing to a barbed question arose on Rubenstein's ownership position in Carlyle.  The PEU co-founder shifted gears to his annual compensation, outside his carried interest stakes and equity holdings in various Carlyle investments.

There is little business journalism relative to Carlyle.  Reporters line up for interviews that enhance Carlyle's public face.  Corporate narcissists would have it no other way. 

Update 3-10-13:  Also, it does help PEU sales efforts. 

Rubenstein's Valentine

Who knew Fed Chairman Ben Bernanke was the target of Carlyle co-founder David Rubenstein's adoration?  Bloomberg ran the love tape.

Carlyle Co-founder to Enlarge Mount Vernon

WaPo reported on Carlyle Group co-founder David Rubenstein's latest act of philanthropy:

Carlyle Group co-founder Rubeinstein donates $10 million for Mount Vernon library

His gift is part of what he calls “patriotic philanthropy.” “[I try] to give back to things that remind people of American history,” Rubenstein said. The largest meeting space in the library will be named for Rubenstein, and $4 million will be used to establish a rare book and manuscripts endowment.

Patriotic philanthropy is the frame used to justify preferred tax status for PEU's (private equity underwriters).  Rubenstein's Carlyle Group is a virtual nonprofit, much like a community's safety net hospital.  Ooops, Carlyle wants to buy those too.

For corporate narcissists, it's all about maintaining their good name.  Rubenstein is patriotic in a Boston Tea Party kind of way.  He hates paying taxes.

Update 3-10-13:  It's WSJ's turn to fawn over Rubenstein's patriotic philanthropy.

A Truly PEU Study

CNNMoney highlighted a study about private equity underwriter (PEU) performance during a financial downturn.

Private equity deals done between 2006 and 2008 actually outperformed public equity investments over the same time period. 

The researchers studied 303 transactions made during those years, and found that the absolute return on through the end of 2011 was 5.1%

Researchers only examined portfolio companies that had been exited (via sale or public listing).

What about exits via bankruptcy?   The following list contains Carlyle Group affiliates that went bankrupt:

Carlyle Capital Corporation
BlueWave Partners
SemGroup
Hawaiian Telecom
Edscha
IMO Carwash
Stallion Oilfield Services
Verari Systems
Willcom
Oriental Trading
Church Street Health Management 
LifeCare Holdings

Leave those out and the deck becomes stacked in PEU's favor. Therefore, I offer the following addition to the article's lead premise:

Selected private equity deals done between 2006 and 2008 actually outperformed public equity investments over the same time period.  

Cheating and misrepresentation, that's the PEU way.  Don't expect anyone to hold the greed leverage boys accountable.  Politicians Red and Blue love PEU.

Health Deform: Prediction Upddate

Nearly four years ago I made five predictions for healthcare deform:  I offered the following in May 2009:

1. Undocumented residents being left out of any plans. This leaves 9 to 12 million uninsureds for the safety net to address in perpetuity.

2. Any public plan being privately administered. From our hallowed halls of government to corporate executive suites, general contracting is their forte. The question is how many layers of "profit maximizing" private sector corporations sit between the public plan and the insured?

3. Taxing employer health insurance benefits as a revenue source. This is a ruse. When coverage becomes taxable for the business and deductible for the individual, corporations will shed that pesky health insurance benefit like a used condom. The benefit savings will fuel another engorgement of CEO incentive pay.

4. Taxing nonprofit community hospitals, i.e. safety net providers. This is another revenue source idea floated by Senator Chuck Grassley and Gail Wilensky. They suggested with all Americans having coverage, this tax break would no longer be needed. Yet, huge holes will remain in the safety net from the lengthy phase in and undocumented residents. Taxing safety net providers would implode those already in financial distress. The for-profit health care sector, which grandly supports Max Baucus and the aforementioned tax proponents, could ride in and pick up distressed assets on the cheap. It's the same game plan private equity underwriters (PEU's) have for buying bad banks. Will Uncle Sam finance HCA's purchase of your nonprofit community hospital, like it does for The Carlyle Group's buying of BankUnited?

5. What won't get taxed are 527 nonprofit political organizations. Ex-Columbia/HCA CEO Rick Scott can use tax free money for ads distorting health care reform efforts. Conservatives for Patients' Rights and Swift Boat Veterans for Truth may soon have greater tax benefits than a safety net provider.

Of the above, numbers 1,2,3 and 5 came true.  There is movement on #4.  As for private equity firms buying distressed hospitals at fire sale prices, consider this Illinois experience.

Heartland was a wholly owned subsidiary of iHealthcare, and in October 2005, iHealthcare decided to sell its shares in Heartland to a third party, Wright Capital Partners, for approximately $25 million. (Id. at 13.) The sale was accomplished through what is called a "leveraged buy out." (Id.) That's a type of transaction in which a buyer borrows the funds needed to purchase an acquisition and then sells or pledges that company's assets to service the debt -- essentially, the acquired company pays its own sale price. In this case, in order to secure the necessary funds, Heartland sold its interest in a group of physician practices for $18 million, and then it leased those assets back. (Id. at 14.) This sort of arrangement, in which a company sells an asset for an up front cash payment but then leases it back to use over the long term, is called a "leaseback" or "sale-and-leaseback" transaction.

The Complaint alleges that a significant portion of the proceeds from the transaction ($7.3 million) was distributed to iHealthcare and its shareholders instead of being used to pay down Heartland's debt. (Id. at 15.) Therefore, Heartland contends that the practical effect of the deal was to "monetize" Heartland's assets and extract the resulting funds, all at a time when Heartland was insolvent or nearly so. (Id. at 20.) Heartland asserts that under the state law that it says should apply here, when a subsidiary approaches insolvency, its owner has an additional duty to protect the creditors in the financially-troubled entity. (DE 17 at 12-13.)

Many Heartland hospitals are distressed.  Will the solution make things better or worse?  My bet is private capital boys win, the public loses.

Red and Blue love PEU (private equity underwriters).

Carlyle Bled Affiliates in 4th Quarter

WSJ reported on The Carlyle Group's 4th quarter report, which came in below expectations: 

Carlyle was particularly aggressive in the debt markets, where companies it owned raised new debt to pay the firm and its investors dividends totaling $1.7 billion.

"Although people can argue whether the enormous global liquidity is a good thing or a bad thing, we would be derelict if we didn't take advantage of the present situation," said William Conway Jr., Carlyle's co-founder and co-chief executive.

Derelict?  Only for those who prize greed.  Easy debt, over 2:1 debt to equity and a $1.7 billion dividend bleeding.  This speaks to the return of halcyon PEU days.

Update 2-24-13:  Here's how the dividend bleed came across in the 4th quarter conference call:

In 2012, 78% of the realized proceeds were from sale activities versus 88% in 2011. Throughout 2012, because of the strong performance of our portfolio and the attractive capital markets, some of our younger portfolio of companies issued meaningful dividends, which improved the underlying performance of our funds that were not carry-generating events. On a related point in 2012, we had more distribution activity coming from our younger funds. And therefore, 58% of the proceeds in 2012 were produced by funds actively realizing performance fees versus 64% in 2011.

PEU Rubenstein's GCM Chuckles

Carlyle co-founder David Rubenstein is quite the joker.  He humbly refers to his time as a White House staffer under President Jimmy Carter.

“You’re very kind to mention that I worked in the White House, but not point out that I got inflation to 19 percent, which is very hard to do.”

Consider his elbow rubbing with President George H.W. Bush:

Rubenstein recalled a fishing trip to Iceland with then- President George H.W. Bush.  “It took me three days to catch one fish,” Rubenstein said. 

Ah, but Rubenstein landed Defense Secretary Frank Carlucci, who served alongside Vice President Bush in the Reagan administration.

These yucks are from Rubenstein's early years in the Government-Corporate Monstrosity (GCM).  He took Carlyle from the Bronze PEU Age to the Silver to Gold through Purgatory and into the Platinum Age, laughing all the way.

Rubbing Salt: Rattner, Sanford & Paulson

Three tarnished members of America's Government-Corporate Monstrosity (GCM) had their luster restored this week.  Steven Rattner, John Paulson and Mark Sanford presented themselves as rehabbed.

Rattner settled with federal and state authorities over allegedly participating in a kickback scheme to get public pension fund investments for his private equity firm two years ago.  He's back as a major GCM player.

The Hill reported on John Paulson's transgression:

Paulson & Co. was mentioned prominently in a fraud action the Securities and Exchange Commission filed against Goldman Sachs.

The SEC alleged that Paulson & Co. participated in a scheme in which Goldman sold subprime residential mortgage-backed securities to investors, such as foreign banks and pension funds, that were expected to lose value.

Paulson & Co. bet heavily against the value of the fund, named Abacus 2007-AC1, which included mortgage bonds it viewed as overvalued, earning millions at the expense of Goldman clients who invested in it.

Paulson proudly promotes tax reduction via offshore methods and is a keynote speaker at the upcoming SALT meeting.

"SALT will feature the world's political leaders and top investment managers to explore potential solutions to key issues," (that will enrich these GCM members).

The Government-Corporate Monstrosity has no shame, as evidenced by Mark Sanford's political return and Congressional staffers taking foreign-government funded boondoggles.  How many Switzerland trips were to Davos for the The World Economic Forum, another huge GCM event?

The Government-Corporate Monstrosity is President Eisenhower's Military-Industrial Complex on trillions in federal steroids.  GCM members lust for power, exude greed and prize clubiness.  This is the milieu that creates unethical and illegal behavior.  It's the very thing that ignores such behavior and does it best to dismiss or cover up.

Facebook's PEU

Bloomberg reported:

Facebook gets multibillion-dollar tax deduction for the cost of executive stock options and share awards.Even though Facebook (FB) reported $1.1 billion in pre-tax profits from U.S. operations in 2012, it will probably pay zero federal and state taxes—and even receive a federal tax refund of about $429 million.

Billionaires get huge stock awards and the company gets a federal tax refund?  That's PEU worthy. 

Next up, dividend recap?

Carlyle's Broadleaf IPO

Reuters reported:

CARLYLE GROUP is launching an initial public offering for automotive industry systems supplier Broadleaf of as much as 23.3 billion yen ($248.37 million), IFR reported. Carlyle-related funds will offload 16.48 million shares to raise 17.8 billion yen.

Carlyle bought Broadleaf in 2009 for 19.5 billion yen.  It looks like Carlyle and its related funds will take in 39.78 billion yen.  That's nearly a double.

Governor Perry's Gust Account

Gust is an online service that connects business start-ups with investor capital.  One investor is The Office of the Governor-State of Texas.  Investors have to accredited, i.e. have a net worth over $1 million or have made over $200,000 per year the last two years.   The Gust description for an accredited investor is below:

An "Accredited Investor" is defined in Rule 501(a) of Regulation D under Rule 144 of the Securities Act. This definition includes certain institutional investors and (a) any natural person whose individual net worth, or joint net worth with that person's spouse, exceeds $1,000,000 at the time of purchase; or (b) any natural person who had an individual income in excess of $200,000 in each of the two most recent years or joint income with that person's spouse in excess of $300,000 in each of those years and who reasonably expects reaching the same income level or greater in the current year.

Therefore the average Texas citizen can't see or review the investment proposal.

Recall that Governor Perry gave The Carlyle Group's Vought Aircraft Industries $35 million to create 3,000 jobs in six years.  Over that period Vought cut 35 positions.  That's $1 million in taxpayer money for each job lost.

Gust is but another layer in Governor Perry's unaccountable use of taxpayer money for corporate handouts. 

The Office of the Governor-State of Texas is a part of our comprehensive directory and accepts Gust applications via email only. Hereʼs how to apply:

• Complete your Gust site.

• Weʼll generate an invitation to view your site and email it to this group.

• The email will be sent from your email address (not Gust).

• You will be able to see an entry for this group in your dashboard when you log in.

San Angelo's MedHab, a fledgling medical device company, is currently raising funds on Gust. 

Has MedHab's Johnny Ross applied for funding from the Office of the Governor-State of Texas?  He finagled a robust incentive package from the City of San Angelo ($3.6 million).  How much might he hit Governor Perry up for? 

The Office of the Governor-State of Texas - Ideal Startup Investment

The Office of the Governor-State of Texas promotes and strengthens the economy of the state. The Economic Development Bank has assistance for financing small and larger businesses. The program provides incentives for expanding business and relocating other businesses to the region. There are low interest loans and debt financing available for economic development purposes. The program also helps communities build specific programs to help increase economic prosperity and the growth of business.

The Office of the Governor-State of Texas Invests In These Industries

• Biotechnology	• Lifestyle
• Business Products and Services	• Marketing / Advertising
• Clean Technology	• Media and Entertainment
• Computers and Peripherals	• Medical Devices and Equipment
• Consumer Products and Services	• Mobile
• Education	• Nanotechnology
• Electronics / Instrumentation	• Networking and Equipment
• Financial Services	• Other
• Food / Drink	• Retailing / Distribution
• Gaming	• Semiconductors
• Healthcare Services	• Software
• Industrial/Energy	• Sports
• Internet / Web Services	• Telecommunications
• IT Services	• Travel

The Office of the Governor-State of Texas Invests In Companies That Have Reached The Following Milestones

Not Available

The Office of the Governor-State of Texas Invests In Companies With These Funding Needs

Not Available

The Office of the Governor-State of Texas Expects Their Investments To Generate

Not Available

The Office of the Governor-State of Texas Investment Portfolio

Not Available

Will Rick Perry blow a gust of financial support under MedHab?  I'm sure Johnny Ross would find that MedHab-ulous.

Megadeals Return for How Long?

Street.com cited one cause of the return of the megadeal:

As a result of access to cheap financing and corporate balance sheets flush with cash, "there is an appetite in the marketplace for big deals." 

The author forgot private equity underwriters need to mobilize cash raised prior to the financial crisis.  South China Morning Post reported:

PEU firms are under growing pressure to invest the capital they already have. About 28 per cent of the money raised from 2006 to 2008 has been paid back to investors, according to Cambridge Associates, a Boston-based research and consulting firm.

More than US$100 billion, or 14 per cent, of the US$702 billion raised, is yet-to-be invested dry powder that firms must use or lose by the end of this year. That is a record for uninvested funds set to expire in a single year.

Unless PEU "policy making" billionaires can impose another crisis, deal prices should go up.  How might David Rubenstein defend his firm after the next round of "covenant lite" excesses? 

Many PEU deals done at the height of the buying frenzy need refinancing.  If banks won't refinance, PEU's will have to do it themselves.

Carlyle's Latest Government Crossover

America's Government-Corporate Monstrosity, Eisenhower's Military-Industrial Complex on trillions in federal steroids, noted the shifting of one player.  A press release stated:

The Carlyle Group (NASDAQ:CG), today announced that Barrett Karr will join the firm as a Principal in the Global External Affairs Group where she will lead the firm’s U.S. government affairs. In this position Ms. Karr will provide insights, analysis and strategy to the firm, its funds and portfolio companies. Ms. Karr comes to Carlyle from the U.S. House Committee on Education and the Workforce, where she serves as Majority Staff Director. She begins her duties in March and will be based in Washington,

Prior to becoming Staff Director in 2009, Ms. Karr was Deputy Assistant for Legislative Affairs to President George W. Bush. From 1995-2005, Ms. Karr served in the Office of Congresswoman Kay Granger, the latter four years as Chief of Staff.

Is that eighteen years of "public service" or nearly two decades of doing billionaires' bidding.  Likely the latter.  Karr is the latest in a long line of Carlyle Group-government crossovers.  This is how oligarchs do hegemony.  It's a bipartisan thing.  Red and Blue love PEU (private equity underwriters).

Carlyle Group Flashback to 2007

Carlyle Group Chief Operating Officer Glenn Youngkin took PEHub down memory lane:

Carlyle also saw the decline in the financial markets coming in 2007, Youngkin says. The global buyout shop took some steps to shore up the firm, including having the partners inject capital, and its portfolio companies.

Carlyle Group co-founder David Rubenstein spoke to BigThink in September 2007.  He weighed in on carried interest taxation.  Rubenstein visited Capital Hill regularly with his implied threats of moving capital offshore and hurting public pension fund returns.  

Oddly, Carlyle hit CalPERS up for $652 million to save its backside in Fall 2008.  That's a staggering sum.  Did it save the firm?  Youngkin didn't say.

Six years after Rubenstein lobbied to save private equity's preferred taxation, the carried interest loophole remains. 

As for Carlyle's portfolio companies, many went bankrupt in the crisis and its aftermath.  Carlyle Capital Corporation was the canary in the coal mine, perishing under a mountain of debt in Spring 2008.  Few of these stories have been told by the media, much less popular speaker Rubenstein.

Carlyle affiliates LifeCare Hospitals (Hurricane Katrina deaths), Synagro Technologies (Detroit sludge bribes), SemGroup (Bad energy bets), Vought Aircraft Industries (Fleecing Texas taxpayers)  and Landmark Aviation (Rendition flyer) all have dark chapters under Carlyle ownership.  Rubenstein loves speeches, but not on these topics. There's face to save.

World Gone Flippy Flopy

In today's nonsensical world private equity underwriters (PEU's) go public, doing so after decades of touting their model of levered, nonpublic capital.  The Carlyle Group did just that last year, going public on NASDAQ.  Fox Business News reported NASDAQ recently held talks with Carlyle about going private.

Think of the benefits for Carlyle, with thousands of affiliates.  It could have its own IPO shop.  What fee generating potential!  Pair a Duff & Phelps consultation with a new NASDAQ listing and Carlyle makes much more than annual affiliate management fees.  Sandler O'Neill could also generate fees for parent Carlyle in an IPO.

Public, private, it matters not amongst the billionaire crowd.  "Sales lines" differ from greed strategy.

Update  2-12-13:  NYPo suggests negotiations are ongoing between Carlyle and NASDAQ.  Gotta love this inspiring quote from a Carlyle insider.

Carlyle adviser and former Securities and Exchange Commission Chairman Arthur Levitt, who said he isn’t privy to any talks, said he looks back fondly on the days when the exchanges weren’t run for profit. “It is an open question as to whether changing self-regulatory bodies to profit-making ones necessarily offers investors the same protection,” he said.

Yes, it's an open question.

Which Carlyle Group Face is True?

Carlyle Group co-founder David Rubenstein was honored for his diplomacy through the arts at the New York Public Library's Stephen A. Schwarzman building.  Scharzman co-founded fellow private equity underwriter (PEU) The Blackstone Group.  While both billionaires contribute heavily to charitable causes, they can leave economic destruction in their wake.

Take this story from the Fort Worth Star Telegram:

Fort Worth businessman Louis Scoma describes Woodhaven Country Club as having been "left in a holding pattern" when he bought the 148-acre property two years ago from a Washington, D.C.-based private equity firm.

The previous owner had stopped investing in the club, closed the tennis courts and shut down the food service. There were plans to fill in the swimming pool, Scoma said.

A member for 40 years, Scoma couldn't continue to watch the club deteriorate and made an offer to The Carlyle Group, which had it on the block.

Few talk about the wreckage caused by PEU's and their ilk, whose greed manifested in two ways.  The rapid PEU rise occurred alongside the massive exporting of U.S. middle class jobs.

PEU ubiquitization contributed to America's long term tax deficit.  PEU's are happy for their affiliates to pay dramatically higher interest expenses and PEU management fees, These reduce profits, the basis for paying taxes.  PEU's have been known to cut benefits, freezing or dumping pensions,, evenstopping 401(k) contributions. Oddly, the source of profits for many PEU enterprises is Uncle Sam.

Recall the Fort Worth golf club as PEU's "solve" America's ills in education, infrastructure and health care.   Don't be surprised if Carlyle and company want to fill in your pool.

Mrs. Fields CEO Overdone After Year Under Carlyle

Nation's Restaurant News reported:

Famous Brands International chief executive Tim Casey has stepped down to “pursue the next chapter in his career,” the Broomfield, Colo.-based parent of the TCBY frozen yogurt and Mrs. Fields cookies concepts said Tuesday.

Casey also oversaw the company’s January 2012 recapitalization, after which private-equity firm Z Capital Partners LLC and global asset management firm The Carlyle Group took over as majority stakeholders.

After a year under PEU ownership, Casey is ready for the next chapter.  

Gordon Now Drives for PEUPONT

Sometimes a picture says it all.  Ubiquitous private equity underwriters (PEU's) should have race cars.  The richer the boy, the more expensive the toy.

World Economic Forum: Global Agenda 2013

Global leaders, I prefer tamperers, came to consensus on an agenda prior to gathering in Davos, Switzerland.  The top three urgent issues deal with financial instability.  The next two, income inequality and unemployment, directly impact the governed.

It seems leaders are incapable of addressing the deepest problems the people face  This hardly inspires confidence, must less followership.

The aim of the World Economic Forum purports to be:

Committed to Improving the State of the World

This is hard to believe when attendance costs over $40,000, enabling only a select few in the world attend.  Many are there to be seen, to cut deals.  That may improve oligarch's pocketbooks and ultimately benefit their preferred charities.

Secretaries of State Clinton and Kerry declared America's #1 foreign policy criteria to be a healthy U.S. economy.  That means opening up more markets to Western goods and ways.  It means selling more implements of war.  It means access to "our oil" wherever it may be on the planet.  It means America owning the global commons, seas, space and communications.

The World Economic Forum is about hegemony.  The problems we face, are in part, the problems Forum leaders created.  They freely admit they have little confidence in their ability to solve them.  Are they incapable or unwilling?

Update 1-20-24:  Oxfam chronicled a decade of failure by the World Economic Forum to impact income inequality.

Rubenstein to Speak at Credit Suisse

Equities.com reported:

Global alternative asset manager The Carlyle Group L.P. (NASDAQ: CG) today announced that its Co-Chief Executive Officer and Co-Founder David Rubenstein, is scheduled to present at the Credit Suisse Financial Services Forum in Miami on Tuesday February 12, 2013 at approximately 12:15 PM EST.

This is the price The Carlyle Group pays for being public.  Rubenstein gets to travel to investment bank meetings, especially those that helped float Carlyle's stock.  Will ex-Credit Suisse PEU Christopher Freeze,  Nadim Barakat, Michael Arpey, Alok Gaur, Jessica Hoffman Brennan, Eric Zhang, Myunghoon Chung, Alan Su, or Seok-Dun Chu  be part of Rubenstein's entourage? 

Washington Works for Exits

Interactive Session (World Economic Forum Public Agenda - on page 40 of 55)

Will Washington Work?
What major policy changes are possible in a highly partisan political climate?

The World Economic Forum posted a summary of the session.  It is below (although I corrected the spelling of panelist in the piece):

Will Washington Work?

What major policy changes are possible in a highly partisan political climate?
Key Points

• Washington has stumbled before, but each time a strong leader, and one able to bridge the gap between the Democrats and Republicans, has righted it. 
• Government mistrust and bipartisan bickering are not going away. 
• Despite government dysfunction, the US remains the best place in the world in which to invest because of its human capital, laws, the ease of exiting and its stability. 

Synopsis
In the late 1920s, Americans despaired about the quality of their government until Franklin D. Roosevelt, who won a landslide victory in the 1932 presidential election, restored American optimism and led the country through the Great Depression.

A similar spirit of pessimism shook America in the 1960s and 1970s, from President Richard Nixon’s resignation to the presidency of Jimmy Carter, until the unlikely presidency of Ronald Reagan regained the country’s faith in their government. In 2013, a majority of Americans believe their country is in decline. As one participant opined, America no longer faces the existential threat of Russia, but the threat of turning into France and entering into a period of “elegant decline”.Can Americans snap out of it a third time? Or will the epitaph for this era be, in the words of one participant, “slightly above zero”?

People felt “there would be a real change” after the election, but instead it is the same as before, said one panelist, who cited Obama’s inauguration speech. Abraham Lincoln used the phrase “malice towards none” in his second inaugural.“Obama didn’t have that,” said one participant. “Instead, he said‘this is what I want and I’m going to fight for it.’” This is especially ironic, added one participant, because Obama catapulted himself to fame with a speech at the 2004 Democratic Convention where he argued there were no red states or blue states. Today, however, Washington is marked by polarization along party lines.

Members of the US House and Senate do not stay in Washington DC over the weekend, bemoaned one panelist. “They don’t work on big issues because big issues have been taken away.” Another panelist blamed the tone of the debate, and compared political attacks ads with business ads: Soft drink competitors do not do attack each other in ads; if they did, sales would go down and then, eventually, the market would shrink, hurting both companies. Because of bipartisan mistrust, that market has shrunk and Americans are less engaged with politics. 

While the gap between Democrats and Republicans is unlikely to shrink anytime soon, the US economy will likely regain its footing. “Obama seems like he might be more appreciative of business leaders during his second term,” said one panelist. 

Markets around the world do not worry about the US government. Japan, China and Saudi Arabia are willing to invest in 10-year treasury bills with yields of under 2%, therefore,the United States can afford to handle its debt until something gives.

Disclosures
This summary was written by Isaac Stone Fish. The views expressed are those of certain participants in the discussion and do not necessarily reflect the views of all participants or of the World Economic Forum

New Rules of Global Leadership According to David & Fred

The Meridian Institute held a conference on Global Leadership.  Diplomatic Courier highlighted the aim of the session:

   to explore the importance of collaboration between businesses and governments in maintaining global competitiveness. The leaders also discussed positioning in key markets as a strategy for successfully competing in the global arena.

The Global Leadership conference closed with two iconic business leaders, Fed-Ex's Fred Smith and The Carlyle Group's David Rubenstein. Here's the host highlighting Carlyle's Rubensteiin:

Who not only has a global perspective, but has done so much for Washington, and through his leadership and philanthropy and his championing of the culture here

Culture could be viewed as the arts in Washington.  It could also be the insidious culture of money and power that D.C. represents.  Rubenstein established The Carlyle Group in 1987 with the intention of leveraging government business, power and relationships. Note that Carlyle grew from the "Great Eskimo Tax Scam."

The Meridian session started with Rubenstein acting as host, something he frequently did for the Economic Club of Washington.  Rubenstein mined Fed-Ex Chief Fred Smith early vision and struggles. The topic turned to philanthropy.  Fred highlighted Red-Ex's fire extinguisher role in assisting in major disasters. 

Disaster relief is the most important thing we do, because no one else can do it to the extent we can.

Somehow Rubenstein kept a straight face.  The Carlyle Group's LifeCare Hospitals lost 25 patients in the horrific aftermath of Hurricane Katrina.  This fact was omitted from George W. Bush's Lessons Learned report on Hurricane Katrina.

In speaking about the U.S. debt situation Rubenstein might've well been speaking about LifeCare.

"We have too much debt.  It's not sustainable."

LifeCare Hospitals declared bankruptcy in December 2012.  Rubenstein didn't suggest Uncle Sam do what Carlyle did with LifeCare. 

"Right now members of Congress won't vote for things their constituents don't want them to vote for.  I often say to members of Congress why are you so afraid if you violate what you think your constituents want you to do?"

First of all, Congressional representatives don't vote public will.  The majority of citizens disapproved of preferred carried interest taxation for private equity underwriters (PEU's).  Rubenstein visited Capital Hill numerous times to save carried interest taxation since 2007.

Rubenstein went on to implore Capital Hill incumbents:

"Life after Congress is not so bad."

That could've been a recruiting speech, given Rubenstein put many Red and Blue ex-public servants to work at Carlyle.  A "PEU principled" congressman would have incredible opportunities in D.C.'s parasitic greed and power world.  But back to Rubenstein's philanthropy.

"I give back to things in Washington because Washington was very good to me."

Washington kept preferred carried interest taxation, silently approved Carlyle's potentially contentious global deal, performed risk management on behalf of Carlyle post Hurricane Katrina and provides huge chunks of business for a number of Carlyle affiliates.

The sad state of leadership was punctuated when Fed-Ex's Fred Smith said under an early Fed-Ex failure:

"I would've become a private equity guy.  A lot more lucrative, I think."  

Even Smith picked up on PEU's outsized returns.  However, Smith and Rubenstein agreed on one critical strategy, business tax cuts.

President Obama is onboard for a cut to 28%.  The price for business cuts may be an increase in the individual tax rate.  Smith noted that 90% of businesses in America file as individuals.  Given this fact, business tax cuts are clearly for the 10%, many of them PEU owned.

This brings me back to Rubenstein's advice.  Which group does Congress not have the balls to offend?  Recent history favors PEU's..