Monday, April 27, 2015

We Are Hands Again: Under Slave Drivers, Overseers

"The companies we work for, the businesses we buy from, and the political system we participate in all seem to have grown less accountable. I hear it over and over: They don’t care; our voices don’t count."--Robert Reich 
Management has devolved to where people are but "hands" again.  It can have high tech accoutrements.

Note what all the technology and bureaucracy that wonderful, noble company has invested hundreds of millions in doesn’t ask her to do. Learn. Think. Reflect. Teach. Inspire. Lead. Connect. Imagine. Create. Grow. Dream. Actually…serve customers. Heaven forbid. It just beats her over the head, over and over again, three times a minute, every twenty seconds, with how much she hasn’t sold; hasn’t made; hasn’t produced. For her shitty .0003% commission. According to the quota that’s been set for her. By her boss. For his boss. For their boss. And so on all the way up the food chain.--Umair Haque from The Asshole Factory
Yet, it's foundation is as old as written history.  Consider the Pharaoh's demands to the Hebrews: 

Pharaoh gave this order to the slave drivers and overseers in charge of the people: “You are no longer to supply the people with straw for making bricks; let them go and gather their own straw. But require them to make the same number of bricks as before; don’t reduce the quota. They are lazy.  
Here's my take on our walk back in time:

We are but hands in the workplace.  The mind is teased into believing input is wanted, but once given, the system quickly discounts, even retaliates against those speaking out.

Our hands are to do the work, under a barrage of inspections and intrusions.  The mind is not capable of checking its own work, of giving input or feedback, of offering engagement and relationship.  Management is in control and their will be done. 

Our hands must be motivated by management with their "superior minds."  Management torments via a lowly duality.  One side has threats of consequences, the other enticement via offering of bribes.  Management commands, "meet the goal/target or else."  Fear consumes people to the point that 25 to 33% lie, cheat or steal to achieve petulant management's demands.  Yet, these supposedly intelligent managers cannot see the pattern they create. Society is incapable of detecting the harms of extrinsic motivators.  As a result America sends teachers to jail and leaves financial miscreants free to commit fraud again.

Our hands must beat our co-workers hands.  Whoever sells the most, delivers the fastest, has the fewest accidents, the least days off for sickness, wears the loudest tie, tells the best joke, makes the hottest burrito, donates the most to the boss' favorite charity gets the prize.  Everything is a contest and only "winners" or "incredibly insecure, hypercompetitive people" win.  Competition is the antithesis of teamwork.  Management wants our hands to willingly compete in whatever absurd, whimsical manipulation they devise.

We are but hands to pull the voting lever every two years.  Politicians of both stripes ignore our voices until roughly eighteen months before a Presidential election, ten to twelve months before an off-year election. Both Red and Blue team politicians tap the federal wallet to enrich their friends and funders, whose opinions and wants are courted year round. 

Our hands not only make corporate executives super-wealthy, they enable investment firms who own companies to profit even more handsomely.  Our hands are not to notice executive fingers dipping into the company treasury for obscene levels of executive compensation.  Our hands are to be happy with the meager droppings that fall from above.

Our hands matter as implements of production, nothing more.  The term hands came from an agrarian society which required human labor.  Serfs were needed to produce for the landed gentry.  The family farm survived by having a large number of children to help with chores.  The industrial revolution introduced production lines which required labor.  Workers were encouraged not to think, but to use their hands as told.  

Our hands deliver whatever level of "customer non-service" management requires to enrich themselves and any invisible ownership group bilking the company for dividends and fees. 
Our hands are not to notice the horrific, surreal darkness supplied in perpetuity by our corporate and political leaders.  Our hands are to be kept limp by our side.

What these chuckle-heads don't know is our hearts.  It pumps the blood that feed our mind and hands.  It stands up to their inhumane systems daily by observing their manipulations, calling them by name and refusing to bend or break.

How does a nation live with leaders interested only in themselves or serving a select few?  Said that way, the people can easily live without them.  But since they aren't going away anytime soon, render unto management, that which is management's.

Listen to your heart.  It will enable you to speak peace to violence, to speak love to greed, to stand in the face of anger, to hold your principle when all forms of retaliation are sent your way.   Your heart is what they really want.  Enough hearts aligned together can break the heart-eaters.  It has always been this way.

Live your heart, however it calls you.

Update 5-22-15: This lamentation points to the poor quality of our business leader and their overseers.

Update 7-7-19:  Reich notes how Oligarchs control our government from the White House to Red and Blue Team corporacrats. 

Altegirty Executives Like Costa Concordia Captain

Few leaders go down with their ship anymore.  Most scamper to grab a few goodies and flee for the lifeboats.  WSJ reported:

Court records show that Altegrity Inc., a company linked to some notable U.S. security stumbles of recent years, shelled out $25.7 million to top executives the year before it filed for bankruptcy protection.
Bankruptcy is the sinking of a company.   Here's Altergrity's private equity underwriting journey:

USIS paid $125,000 to the former chairman of the Joint Chiefs of Staff, retired Adm. Michael G. Mullen, who was called on for advice around the time the unit’s government contracts began to slip away. Mr. Mullen is identified as an insider because he is a senior adviser to Providence Equity Partners, the Rhode Island buyout firm that owns USIS and Altegrity.

Providence, led by Jonathan M. Nelson, bought USIS for about $1.5 billion from the Carlyle Group in 2007. A year later, USIS combined with HireRight, and in 2010 Providence, which manages some $40 billion in assets, acquired Kroll from Marsh & McLennan Cos. for $1.1 billion.
Going back further President Bill Clinton privatized USIS, once an arm of the federal government.  The Carlyle Group first invested in USIS in 1998.

Providence Equity Partners and Altegrity Executives are like the captain of the Costa Concordia.  The poor quality of their work endangered lives.  As of now all remain free.  SkyNews reported:

A Florence court has rejected a public prosecutor's request for the immediate arrest of Francesco Schettino, the captain convicted over the Costa Concordia cruise liner disaster. The prosecutor claimed Schettino, who was found guilty of manslaughter over the deaths of 32 people killed in the 2012 sinking, was a flight risk, the Ansa news agency reported. 

 Schettino was sentenced in February to 16 years and one month in prison for his role in the shipwreck off the Italian island of Giglio. Under Schettino's command, the Concordia left its planned route and steered close to the island, where it hit rocks and partially capsized. There were 4229 people on board. 

The 54-year-old Naples native was accused of multiple counts of manslaughter and other serious charges including negligence, causing a shipwreck, mishandling emergency procedures, lying to authorities about the seriousness of the accident and abandoning ship
Increasingly people in charge abandon ship with their haul and little remorse, no matter how many little people are impacted.  It's hard to call them leaders.

Sunday, April 26, 2015

Ex-Medicare Chief to Join Board of LifePoint Hospitals

Bloomberg reported:

Marilyn Tavenner, who resigned as head of the Centers for Medicare and Medicaid Services earlier this year, is returning to the hospital industry.

Tavenner is joining the board of LifePoint Hospitals Inc., which operates more than 60 hospitals in 21 states. Before she began state government work in 2006, Tavenner had worked at the largest for-profit hospital chain, HCA Holdings Inc., for 25 years.
LifePoint's SEC filing on Tavenner's appointment failed to show LifePoint's HCA roots.  HealthTrust and LifePoint were both spun off from HCA in 1999. Later HCA sold out to KKR, a private equity underwriter (PEU)..

LifePoint paid its non-employee directors about $300,000 in cash and stock in 2013, according to the company’s 2014 proxy filing.
Board compensation for 2014 averaged $340,000 according to the company's 2015 proxy filing.  It's a pretty good first gig for an ex-public servant.

Alongside Tavenner on LifePoint's board are private equity underwriters from Gridiron Capital and Fenway Partners.  The company's proxy statement included:

The Company competes for executive talent with numerous smaller private equity-backed hospital management companies located in the Nashville area, including Iasis Healthcare Corporation, Ardent Health Services, Capella Healthcare, Inc. and RegionalCare Hospital Partners, Inc., as well as dozens of other investor-owned healthcare service providers. 
Private equity is pervasive in healthcare and behind its many distortions.  LifePoint's newest board member knows PPACA inside and out.  She will help LifePoint navigate a more prosperous route in her many roles:

She will serve on the Board’s Audit and Compliance Committee, Compensation Committee, Corporate Governance and Nominating Committee and Quality Committee. 
LifePoint expanded their board for her inclusion:

The appointment of Tavenner increases the size of LifePoint Hospitals’ Board from nine to ten members.
This harkens back to Tenet Healthcare's addition of board member Jeb Bush in 2007.  The value of politically connected board members is too great to pass up.

Saturday, April 25, 2015

Rights of the Privileged Corporate Sector Enshrined in Trade Deals

America's elected officials take an oath to uphold the U.S. Constitution.  Members of Congress must state they "do solemnly swear or affirm (as the case may be) that I will support the Constitution of the United States.”  The Presidential oath of office states:

I do solemnly swear (or affirm) that I will faithfully execute the Office of President of the United States, and will to the best of my ability, preserve, protect and defend the Constitution of the United States.
These very officials plan to subjugate the Constitution to corporate rights and privileges via international trade deals.  Language shows even the expectation of profits to be a right.

Every asset, capital, expectation of profit, assumption of risk.  It takes very little imagination to see how far this might go.

The Carlyle Group's David Rubenstein speaks frequently of his firm's ability to achieve 30% annual returns on investment.  This number is gamed by not including Carlyle's failures or by rolling them up before their annual anniversary. as Carlyle recently did with two mutual funds.  Yet, it clearly is Carlyle's marketing spiel to investors.

What happens if a government action, based on the legal framework of local citizens and their elected leaders, negatively impacts Carlyle's investment?  Can Carlyle can take that to arbitration based on an unfulfilled expectation of profit? 

America walks back in time to the Magna Carta, a treatise from forty barons.

Magna Carta was written by a group of 13th-century barons to protect their rights and property against a tyrannical king. It is concerned with many practical matters and specific grievances relevant to the feudal system under which they lived. The interests of the common man were hardly apparent in the minds of the men who brokered the agreement. 
President Obama's trade deals are on behalf of 21st century robber barons to protect their rights of commerce and profit against constitutional governments.  The interests of the common man are hardly apparent if the common man has no right to see or view the deal.

Will members of Congress and the President violate their oath of office in approving trade deals that make the U.S. Constitution irrelevant?  It appears to be a bipartisan effort, fully supported by America's two royal families, Bush and Clinton.  Even Prince Charles visited the U.S. recently to talk about a new Magna Carta for the world.  It appears we have it in Obama's secret trade agreements.

Update 4-30-15:  Corporations are people under the Supreme Court.  They're full fledged nations under Obama's trade agreements. 

Thursday, April 23, 2015

Carlyle Selling Energy Assets in Midst of "Buying Opportunity"

For months Carlyle Group co-founder David Rubenstein has spoken of the unique buying opportunity in the energy sector. Bloomberg reported:

Niska Gas Storage Partners LLC, the natural gas-storage company whose value has collapsed as energy prices slumped, is exploring a sale. 

Niska, controlled by private equity funds Riverstone Holdings and Carlyle Group LP, is working with Evercore Partners Inc. to find a buyer, according to a statement Wednesday. The sale is part of a broader restructuring effort that’s come as Niska struggles to revive its prospects amid a natural gas glut. In February, the company ceased distributions to shareholders to preserve cash. 
This is the kind of investment David Rubenstein has touted. 

Niska is one of many small companies in the energy industry, from explorers to oil-services providers, that have struggled as oil prices halved since June. Companies are slashing spending, suspending projects, and laying off workers to preserve cash while they look for investors still willing to bet on a recovery.
Why the sale during the best time to load up on energy assets?  Carlyle wants to get whatever equity it can out of Niska before it implodes and becomes the property of bondholders.  Carlyle already wrote Niska's goodwill down to zero

Amid the energy-price slump, Niska’s share price has fallen from a closing high of $16.32 last May to below $2 at the end of trading Tuesday.
Fitch Ratings reported:

Carlyle distributed approximately $30 billion of capital over the last 12 months (on an AUM basis), as the firm took advantage of strong market valuations to exit legacy positions.
Bloomberg played nice with Carlyle in its title for the article.  

An Energy Company Once Worth a Billion Dollars Is Putting Itself Up for Sale 
Niska's 54% owners, Carlyle and Riverstone, have nothing to do with it.   Not only do they have a controlling interest, they stand to garner most of the proceeds from an equity sale.  Can't make the PEU boys look bad, can we?

As for Carlyle's investments in the oil patch, it has over $10 billion in dry powder across three funds.  Apparently none of them are interested in Niska.

Update 4-25-15:  IHS Energy reported deal making activity in the oil patch is at its lowest level since 2008.  Sellers and buyers can't agree on prices.

ManorCare's Medicare Fraud Under Carlyle Ownership

Toledo Blade reported

Officials said the government has identified more than 1,200 false claims submitted by HCR ManorCare from Oct. 1, 2006, to May 31, 2012. 

Federal investigators say HCR ManorCare routinely subjected patients to unnecessary and potentially harmful treatments to increase reimbursement rates, based treatment decisions on reimbursement metrics rather than patient needs, and kept patients in skilled nursing facilities longer than was medically necessary
The Carlyle Group purchased ManorCare on December 24, 2007, roughly six months after the deal's announcement.  Their quality committee was unable to find unnecessary and potentially harmful treatments under the guidance of former Medicare Chief Gail Wilensky.  Wilensky served on the board of ManorCare and made significant sums off the sale.  She's hardly the impartial assessor given her massive remuneration from Carlyle's purchase, gross proceeds of $1.4 million.  However, Wilensky got W.'s White House and Congress to go along with the deal. 

Carlyle monetized ManorCare's physical assets for $6.1 billion in March 2011.    In June of 2011 Carlyle announced it would take ManorCare public  but never executed the deal.  Carlyle owned ManorCare for most of the period in question.  The government's press release stated:

The government’s complaint alleges that ManorCare, which is owned by The Carlyle Group, exerted pressure on SNF administrators and rehabilitation therapists to meet unrealistic financial goals that resulted in the provision of medically unreasonable and unnecessary services to Medicare and Tricare patients.  ManorCare allegedly set prospective billing goals designed to significantly increase revenues without regard to patients’ actual clinical needs and threatened to terminate SNF managers and therapists if they did not administer the additional treatments necessary to qualify for the highest Medicare payments.  ManorCare also allegedly increased its Medicare payments by keeping patients in its facilities even though they were medically ready to be discharged.
Note that healthcare quality will not be "improved" by PPACA's multiple moneychases.  Expect more cheating and fraud to optimize reimbursement, just as ManorCare continued under Carlyle Group ownership.  It's the sorry state of abysmal management and insider politics in our PEU world, where cheating equals opportunity. 

Monday, April 20, 2015

Prince & the PEUper Grace UVA During Tax Week

The week many Americans did their patriotic duty and paid the U.S. Treasury as part of their citizen obligations, two infamous men spoke at the University of Virginia.  Blackwater's Erik Prince spoke at UVA's Miller Center, while Carlyle Group co-founder David Rubenstein gave the keynote address at the Darden Graduate School of Business's 4th Annual Private Equity Conference.

Both men rely on the U.S. government for their abundant wealth.  Prince made millions from providing private security services to Uncle Sam.  Elected officials made sure the rules didn't apply to Prince's mercenary teams. 
Rubenstein relies on Uncle Sam's checkbook for many of its affiliates.  It influences legislators to stress or dislocate industries, giving private equity underwriters (PEU) a cheaper entry point.  Carlyle counts on the continuation of its preferred carried interest taxation, which enables The Carlyle Group to pay miniscule taxes, almost at the level of a community nonprofit agency.  Carlyle does well, mostly for itself and its limited partners.

The parallels between David Rubenstein and Thomas Jefferson are twofold.  Both men started with high ideals.  Jefferson crafted All Men Are Created Equal, then used his slaves for collateral on a massive loan.  Money wasn't the issue as a lifelong friend left Jefferson his estate, with more than enough money to free Monticello's slaves.  Jefferson knew his business and stuck to its key operational aspects, i.e. slavery.

Rubenstein worked in the Carter Whitehouse, before selling Alaskan Native tax dodges to corporations.  He went on to found the Carlyle Group, which is famous for purchasing politicians outright for employment.  For decades Rubenstein has been the public face of Carlyle.  He's legendary for his influence on White House and Capital, steering federal policy and funding for Carlyle's success

Prince and the PEUper spoke at UVA last week.  PEUper is the opposite of pauper.  

Sunday, April 19, 2015

Carlyle's Cayman Islands Exploits

The announced closing of The Carlyle Group's initial mutual fund offerings came before a full year had run.  It's dying from poor returns.  In exploring the fund I found several links to Cayman Islands subsidiaries.  That isn't unusual for a company where an afternoon could be consumed playing "Count the Caymans" on Carlyle's monstrous subsidiary list.

Research showed two Cayman subsidiaries in Carlyle Select.  The Cayman Islands Monetary Authority listed seven Carlyle Group affiliates under their 200 page list of Cayman based mutual funds.  Missing were the two Carlyle Select Cayman subs.  It could be a matter of timing as Carlyle's new mutual funds began August 1, 2014.

Research led back to Carlyle's IPO prospectus, which stated:

Our business has historically been owned by four holding entities: TC Group, L.L.C., TC Group Cayman, L.P., TC Group Investment Holdings, L.P. and TC Group Cayman Investment Holdings, L.P. We refer to these four holding entities collectively as the “Parent Entities.” The Parent Entities have been under the common ownership and control of our senior Carlyle professionals and two strategic investors that own minority interests in our business — entities affiliated with Mubadala Development Company, an Abu-Dhabi based strategic development and investment company (“Mubadala”), and California Public Employees’ Retirement System (“CalPERS”). 

Two of Carlyle's four holding entities are based in the Cayman Islands.  Carlyle's PEU game started in 1990, so it's run through the corporate Presidencies of Geroge H.W. Bush, Bill Clinton, George W. Bush and Barack Obama.  No President or Congress put a stop to offshore shenanigans, nor did they put a stop to private equity underwriters preferred carried interest taxation.

Saturday, April 18, 2015

Carlyle's Un-Carlyle Like Returns on Mutual Fund Offering

Reuters reported:

Next month, Carlyle will close Carlyle Global Core Allocation Fund, which has $US50 million in net assets with a mandate to invest across equities, debt, real estate, commodities and currencies using exchange-traded funds, according to a filing with the U.S. Securities and Exchange Commission.

Carlyle Enhanced Commodity Real Return Fund, which had a mandate to invest in asset classes such as energy and metals, but never took off, will also be wound down, according to a second filing.
For every $10 invested in Global Core Allocation Fund customers have $9.83 cents.  That's a -1.7%, hardly the 30% annual return on equity frequently cited by Carlyle co-founder David Rubenstein.   No wonder the funds had to go. They're harming Carlyle's super return image.  One fund couldn't make.  The other couldn't make money.  Here's Carlyle's take:


The Fund commenced operations on August 1, 2014. While the month of August was quite ordinary in terms of market behavior the remainder of the year turned out to be anything but. Geopolitical events rang in the fall and a dramatic collapse in the price of oil concluded the year. 

The third quarter of 2014 was one of the most unusual quarters in a number of years. Not only did volatility return to the marketplace, but also the quarter ended with most asset classes falling in unison for a sustained number of days. September was punctuated by a relatively large loss for the Fund (roughly 2.5%), as there was very little opportunity for positive performance. Diversification was nearly non-existent. 

The biggest factors influencing the markets were geopolitical and global in nature. The tension in Ukraine, the deteriorating situation in the Middle East, the outbreak of Ebola in Africa – along with the first confirmed case of Ebola in the US on the last day of the quarter. 

The fourth quarter of 2014 will be remembered for the nearly 50% drop in the price of oil. In concert, interest rates plunged in the US and Eurozone. For most markets participants, both of these events were largely off the radar screen at the beginning of the year. To say they were a surprise is an understatement

The net effect of the turbulence of the second half of 2014 is that the Fund lost approximately 2.7% on a net basis for the period. While disappointing, nothing indicates to us that our investment philosophy is no longer the appropriate course to follow to achieve diversification. There is no reason to believe diversification is no longer a prudent investment approach. On the contrary, we believe the highly unexpected events of the latter half of 2014 reinforce the belief that one should not “bet” on what one thinks is going to happen before the fact. 

It is sometimes said that, “Diversification is one of the few free lunches.” While we would agree with the intent of this statement (diversification is “good”), we would disagree that it is free. A diversified portfolio does not simply consist of a random amount of many different investments. Our opinion is that it takes a methodical approach to harness the “good” of diversification. This effort represents a cost and one well worth absorbing. 

We look forward to a prosperous 2015. 

Actually, they don't.  Carlyle's first mutual fund plans to roll up by May 18th.  Under Carlyle's risk-return statement for the fund a footnote stated:

Includes the operating expenses of Carlyle Cayman Core Fund I Ltd., a wholly-owned subsidiary of the Fund organized under the laws of the Cayman Islands (the "Subsidiary")
Those sneaky little PEU devils, investing 11% of the funds assets in their own Cayman Islands subsidiary.  Even the offshore arm couldn't save Carlyle's first mutual fund offering from drowning in a turbulent sea.  Funny, PEUs normally like market dislocation.  Carlyle placed the wrong bets, which brings to mind Carlyle Capital Corporation, another colossal Carlyle failure

Update 4-19-15:  Bloomberg found the story.   They reported KKR shuttered two funds last year.

Friday, April 17, 2015

Bernanke to Join Citadel

Former Fed Chair Ben Bernanke will not be teaching economics at The Citadel, a private military college in South Carolina.  He'll earn much bigger bucks advising Citadel, a $25 billion hedge fund.

He will offer his analysis of global economic and financial issues to Citadel’s investment committees. He will also meet with Citadel’s investors around the globe.
Citizen Ben is the latest to hang his hat and fatten his wallet at the feet of the greed and leverage boys.  Rather than teach our children how to avoid the errors of his generation, Ben will cash in.  That's the state of greedership in American branded global financial monstrosities.

As Citadel welcomed Ben with open arms it booted a trader who lost $1 billion in 2014.  I imagine Ben will be the balm to soothe the wounds of many Citadel investors.

Thursday, April 16, 2015

Ex-Walmart CEO Goes PEU with Carlyle Group

WSJ reported:

Carlyle Group LP has enlisted former Wal-Mart Stores Inc. Chief Executive Mike Duke to join the stable of executives the private-equity firm taps to help it find and vet deals and steer the companies it owns.

Mr. Duke, 65 years old, retired from Wal-Mart in early 2014 after five years in the top job at the world’s largest retailer. At Carlyle, he will work with a group of deal-makers at the Washington, D.C., firm that buys and invests in consumer product and retail companies
Note Duke's parallels with private equity underwriters:

1) A five year hold is relatively common for Carlyle Group investments that can't be flipped in the first year or two for monstrous profits.  Duke was with Wal-Mart for five years.   A major business reporter wrote four years ago:

I have seen so many people -- particularly those in their 50s - 70s -- taken apart by what has happened in their industry as greed has hollowed out the economy. These are people took pride in their jobs and held themselves to this invisible standard that we all just took for granted, but is being wiped out.

The Carlyle Group scares me more than anything I've ever seen on Wall Street. It seems to exist to corrupt politicians and it's hard to know who they even represent.
I watched a video interview of (David) Rubenstein and his arrogance is really beyond tolerance. He was going on about the debt ceiling problem and how there would need to be cuts in services and higher taxes. When the reporter asked him about tax on carried interest he turned really disdainful and said that this "only" amounted to $22 billion over some number of years and this was not serious money. Boy, nothing like everybody doing their small part to save the country from oblivion!

2) Wal-Mart provides low wages and less benefits, like many Carlyle Group affiliates.  One Dunkin' Donuts employee supplemented her low pay with a special menu.  Wal-Mart's current CEO did a mea culpa on the company's treatment of employees, which likely started under Duke.

I’ve seen us change a lot over the years. We’re always trying to do the right thing and build a stronger business. We frequently get it right but sometimes we don’t. When we don’t, we adjust.  In recent years we’ve had tough economic environments, a rapidly growing company, and fundamental shifts in how customers are shopping.  We also made a few changes aimed at productivity and efficiency that undermined the feeling of ownership some of you have for your business.  When we take a step back, it’s clear to me that one of our highest priorities must be to invest more in our people this year.

3)  Wal-Mart loves China like Carlyle co-founder David Rubenstein.  Carlyle sent many auto parts manufacturing jobs to China under its ownership of United Components.  I wrote in 2011:

When Carlyle purchased UCI it had no Chinese subsidiaries.  By 2010 UCI had thirteen subsidiaries in China or Hong Kong.  The number of employees fell from 6,900 to 4,350.  Carlyle pulled $35.3 million from UCI via a special dividend in 2007.   Add their $2 million annual management fee and the total rises to $47.3 million. 

4)  Both subjected consumer goods customers to dangerous Chinese products.  Carlyle's Oriental Trading sold cadmium tainted jewelry for school kids, while Wal-Mart sold toxic dog treats laced with melamine. 

Mr. Duke said his relationship with Carlyle co-founder and co-CEO David Rubenstein, whom he has served with on the advisory board of the Tsinghua University School of Economics and Management in Beijing, led to his joining the firm.
Ah, Chinese management practices which include two sets of books on quality measures, one for Western buyers, which often times is pure fiction.  Both Carlyle and many Chinese leaders have a history of bribing.

Duke and The Carlyle Group is a match made in heaven for someone, but it's not employees. 

Wednesday, April 15, 2015

Hillary's In Race: Deval Joins Bain Capital

Hillary Clinton announced her candidacy for President on Sunday.  On Monday Fortune reported former Massachusetts Governor Deval Patrick, a rising star on the Blue team, will join Bain Capital, Mitt Romney's private equity underwriting (PEU) firm.  Hillary, imitating the tough talking Obama candidate that disappeared after installation, took on billionaires.  Yes, the very same friends her and Bill join on their private jets and confab with in Davos.

Hillary is an ethics nightmare.  Her family foundation steered big money to friends, later apologizing for poor internal accounting controls.  She gave a dear friend a full time government position while that person enjoyed other well paying employment.  The latest is her e-mail debacle.  She ended that by eliminating everything.  Good thing it's stored in an NSA database, possibly in Utah.

Deval Patrick will be a partner for Bain Capital which flips companies for huge returns, management fees, debt-funded dividends and preferred taxation.  That's Bain's aim, socially conscious or unconscious.

Either member of America's royal families, Hillary or Jeb, will cater to the PEU class, just as Obama and W. have done.  Obama fooled us and Hillary's lining up to do the same.  I hope Americans gray matter is firmly engaged for the race ahead.

“It's not what she says, it's what she does.” Senator Bernie Sanders. 

Hillary will be saying alot as she shoots for her $2.5 billion fundraising goal.  It will interesting to see how congruent her words are with her record.

Update 4-18-15:  Wall Street knows Hillary's populist talk is just that and is happy to fund her campaign.  Also, Jeb Bush used the public treasury to generate fees for firms supporting his brother's Presidential campaigns.

Update 4-23-15:  Supporting the Clinton ethics nightmare assertion:  The Clinton Foundation will redo five years of tax returns.  Hillary's work as Secretary of State facilitated payments to her husband and the family's foundation.

Update 11-14-19:  PEU Deval Patrick threw his name in the hat for the Democratic Presidential nomination.  I guess he felt the need to defend the greed and leverage boys.  Boys R Us.

Tuesday, April 14, 2015

Leaders Ignore Inequality, Now at Serious Levels

A Paul Farrell column at MarketWatch expressed concern over rising inequality, now at 1929 levles:

The truth is, revolutions catch nations by surprise: “Just months before the storming of the Bastille in 1789, everything was peachy. The social order ran smooth. The poor paid their dues. The middle class kept their mouths shut. The aristocracy partied ... and the next day they were being dragged through the streets by their frilly collars like common thieves.”
How bad is it?

Credit Suisse data reveals that just 1% own 46% of the world, while two-thirds of the world’s people have less than $10,000. Forbes also reports that just 67 billionaires already own half of Planet Earth’s assets. Credit Suisse predicts a world with 11 trillionaires in a couple generations, as the rich get richer and the gap widens.
It's so bad a 22 year old man committed suicide at The Capital building in Washington, D.C.   He had a sign taped to his wrist that read "Tax the Rich."   It took a witness describing the sign for the public to become aware.  Officials would only refer to the message in couched language, social justice, "some type of protest sign".

The aristocracy, intellectuals and the rich were oblivious of the needs of the masses, much like our leaders today. As Adbusters magazine put it: “Even in the seconds before their heads were about to roll away from their bodies underneath the blade of the guillotine, it still puzzled the opulent Paris elite how this could be happening.” Yes, they were clueless till the end, in denial, not listening to the masses for many years. Like today across America.
Are authorities afraid of the public's possible resonance with the message?  Tunisia changed within weeks after one young man set himself on fire in protest over heavy handed police action and lack of economic opportunity.  America forgets our roots with its kingly wealth shared amongst a select few and widespread, intrusive surveillance.  They control the narrative and official stories told.  What doesn't fit must be marginalized.  They fear resonance and concerted action.

Monday, April 13, 2015

PEUvolution of SEC's Andrew Bowden

The gestation period for learning how to love private equity underwriters can be estimated from the conduct of the SEC's Andrew Bowden.  Consider his timeline.  Bowden rose to Director of the SEC's Office of Compliance Inspections and Examinations in May 2013.  A year later Bowden gave a tough speech to the Private Equity International (PEI), Private Fund Compliance Forum in New York.  He cited the SEC's findings on PEU fees and expense allocations to limited partners:

...we have identified what we believe are violations of law or material weaknesses in controls over 50% of the time.
He also cited the practice of charging hidden fees.  His tough talk got KKR to examine their practices and reserve $25 million for litigation expenses.  TPG took the other track of intimidating insiders with concerns about fees and expense sharing practices, potentially illegal.  Management's response to this person's concerns included:

... he would have “hunted” (the complainant) down and “gutted [him] like a carp.”…

... (the executive) exploded in anger; he told (the complainant) that he was being “foolish” and if he were in the same room with him at that moment he would “smack” (the complainant’s) head into a wall and “knock some fucking sense” into him.
I'm not which face of private equity turned Bowden into a fan.  Was it the "face our errors and make amends" side or the "expletive, gutting, knocking" side.  It's not clear but Bowden flipped, becoming a huge fan of private equity.  He stated in March at a conference at Stanford Law School:

And I reckon, it’s sort of interesting for me for private equity in terms of all we’ve seen, and what we have seen, where we have seen some misconduct and things like that, ’cause I always think like, to my simple mind, that the people in private equity, they’re the greatest, they’re actually adding value to their clients, they’re getting paid really really well, you know, if I was in that position, the one thing I would think to myself as I skipped to work was like just “Let’s not mess it up. You know, this is the greatest thing there, I’m helping people, I’m doing OK myself.” 

And so my view on the small ones is, I still think this is one of…I tell my son, I have a teenaged son, I tell him, “Cole, you want to be in private equity. That’s where to go, that’s a great business, that’s a really good business. That’ll be good for you.”
 And you won't be gutted like a carp. Remember son, compliance with the PEU boys pays well!

Taking the PEU Cruz

The big money men behind Senator Ted Cruz's presidential aspirations are private equity underwriters (PEUs).  They include:

Quantum Energy's Toby Neugebauer.  Quantum is a Houston based PEU and Neugebauer is the son of a Texas Congressman.  Toby moved to capital gains tax free Puerto Rico so his kids could learn Spanish.  

Carribbean Equity Partner's David Panton.

New York Hedge fund mogul Robert Mercer, co-head of Renaissance Technologies
Rest assured this is the class Ted Cruz will serve as President.  Then again, so will Jeb Bush, Hillary Clinton and many others.  Politicians Red and Blue love PEU.

Sunday, April 12, 2015

Conflicted Alaska Publisher Says Borrow Big and Invest

Alaska Dispatch News publisher Alice Rogoff, the wife of Carlyle Group co-founder David Rubenstein, started off today's column stating she bought the paper to offer increased economic coverage.  Her column reads more like influence economic development.

Besides oil, Alaska has another vital resource -- huge cash reserves and assets. This, in turn, provides us credit and the ability to borrow money against it. And with today’s low interest rates, it may be the perfect time for our state to borrow. We could then take those cash loans and invest them in the markets, and earn a rate of return much higher than the interest we pay. Anything we’d earn above the interest rate could be used to help fund government.

We have approximately $100 billion in our various investment accounts -- more than 15 times the amount of cash the state spends annually at current spending levels -- that includes the Permanent Fund, state savings and investment accounts, and state employee retirement funds. That could secure billions in working capital at low rates.
Borrowing money to invest in financial markets hardly seems a purpose or function of state government.  Rogoff gives the impression of guaranteed money from the spread between low borrowing rates and high investment income.  It's not.

There seems to be a move to lever up state and local governments prior to the full implementation of new pension accounting rules.  This is precisely the wrong time to borrow against state employee retirements funds, most of which are badly underfunded.

The Carlyle Group's David Rubenstein, Rogoff's husband, suggested something similar in 2011:

The state, currently flush with surplus revenue thanks to high oil prices, could use its wealth to create an "Arctic sovereign fund," attracting investors, especially if it provided incentives and favorable terms, Rubenstein said.
The bust in oil prices should be instructive for two reasons.  One, it reveals how markets don't go up in a linear fashion, as Rogoff suggests.  And two, the bust turned the Alaskan investment thesis from one funded by surplus revenues to one capitalized by debt.  The latter is significantly riskier.  Rogoff proposed:

The state of Alaska can borrow against its vast cash and investment funds, perhaps at rates of about 2 percent. If Alaska did take out a loan on such terms -- let’s say $50 billion -- that money could be prudently invested to earn at least 10 percent

Earnings of 10 percent, less the cost of 2 percent, could produce a net cash flow to the state of 8 percent on $50 billion, or $4 billion per year. That cash flow could fund crucial economic activity, from education to infrastructure to developing new value-added processing and manufacturing.
Rogoff could've performed a public service by informing citizens where they can find predictable earnings of 10% per year.  Corporate junk bonds aren't at that level.

Rogoff did not mention where Alaska would get this level of return.  Might it be private equity underwriters and hedge funds?  Besides her marriage to a Carlyle Group co-founder Alice Rogoff Rubenstein is a Senior Advisor to Pt Capital, an Arctic based private equity underwriter (PEU).  Pt Capital's website stated:

Pt Capital, LLC is a private equity firm concentrating on investment opportunities in the Arctic, including Alaska, Iceland, Greenland and northern Canada. Founded in 2013, Pt Capital team members are key to our success. Our team’s vast experience ranges from Arctic and global investing to policy and regulatory experience within the State of Alaska and the Arctic nations. The combined global investment experience coupled with the intense localized knowledge provides Pt Capital a substantial competitive advantage to a unique and emerging region of the world, The Arctic.

Investment in the Arctic may be in excess of $100B * over the next decade, largely in the development of natural resources, services and support, and infrastructure. 
The state will need someone to invest their borrowings, should they come about.   Publisher Alice Rogoff Rubenstein has two potential conflicts of interest pushing the borrow to invest public thesis.  Alaska has the best news money can buy.

Update 4-12-14   Alaska Dispatch News reported Landmark Aviation's purchase of ERA Group's FBO operations in Alaska.  Rogoff Rubenstein's paper made no mention of The Carlyle Group's two time ownership of Landmark.This isn't the first time a Landmark deal stayed beneath the radar.  Darkness is involved.

Update 8-15-19:  It turns out daughter Gabrielle Rubenstein is also a co-founder of Pt Capital in 2013.  Add another layer of conflict for when Rogoff was publisher

Public Pension Decimation Campaign

Public pension fund accounting changes from GASB 68 loom over state and local governments.

This Statement is effective for fiscal years beginning after June 15, 2014. Earlier application is encouraged. 
After June 30 a series of government fiscal years will close.  Auditors will calculate their "net pension liability."   This number will astound most governmental entities.  With crisis comes opportunity.  Government leaders will be encouraged to reduce pension benefits and swing for the fences for yield.

Hedge fund managers, private equity underwriters (PEUs) and alternative investment managers stand ready with their bats to hit public pension home runs.  They'll earn a 2% annual management fee and 20% of gross profits.  

Reuters reported an interesting development that coincides with the pension accounting change:

Former Enron trader and hedge fund billionaire John Arnold may be about to launch a national publicity campaign to convince U.S. voters of the need to reform public pensions, according to a document seen by Reuters.

According to a September report by the ratings agency Moody's, the funding shortfall for the 25 largest U.S. public pension funds is $2 trillion. Growing costs were significant factors in the recent bankruptcies of Detroit and the California cities of Stockton and San Bernardino.
Hedge fund and PEU billionaires want to invest public pension money.  They promise higher returns to make the pension more financially sound over time.  Yet, they also love highly discounted, government guaranteed income streams.  How many financially stressed municipalities will sell public assets on the cheap to PEUs?

Back to the publicity campaign:

The request for proposals seeks a firm to launch a one-year publicity campaign beginning this month.

According to the document, the campaign would involve market research, polling and focus groups to test views about public pensions, the development of a bipartisan coalition of groups and individuals seeking pension reform, and the execution of a multi-faceted national communications campaign. It gave no indication of how much money Arnold planned to spend on the campaign.

Arnold has become the dominant figure funding pension reform efforts in recent years, bankrolling ballot initiatives and groups in 25 jurisdictions that largely sought to cut pension benefits.

Arnold was a trader at Enron, the defunct energy company, before going on to make an estimated $3 billion running Centaurus, a Houston-based natural gas trading hedge fund
 His retirement is safe.  Is yours?

Update 4-14-15:  NY Fed Chief William Dudley joined the pension decimation movement saying municipal bankruptcies imply wider problems.  One key issue identified is unfunded pension liabilities.

Update 6-21-15:  Treasury Chief Jack Lew appointed Ken Feinberg to shaft retirees

Wild Wild West: Texas Stock Exchange

The Houston Chronicle reported:

Once upon a time, the Houston Stock Exchange operated in downtown and traded stocks, leases and oil not far from the Cotton Exchange. State and regional stock exchanges were common until the 1920s when modern communications led to consolidation in New York and state regulators tried to curb the abuses that led to the Great Depression

Flower Mound's Rep. Tan Parker, the Republican chairman of the House Committee on Investments and Financial Services, will hear testimony on his proposal to allow local stock exchanges to open under Texas securities laws Wednesday afternoon. Only Michigan allows state-regulated exchanges but none have opened there yet. Before 1930, 24 local stock exchanges operated across the country.
Why push for local stock exchanges now?

"Local stock exchanges; an old idea whose time has come again," Bill Hammond, CEO of Texas Association of Business, said in a statement. "Local exchanges will support local businesses, create jobs, and grow the Texas economy."
That sounds like motherhood and apple pie.  What's the real reason?

The bill comes at a time when crowdfunding websites have become a popular method of raising money for new businesses, non-profits or artistic projects. But crowdfunding is not the same as investing, which gives the person contributing capital an ownership share of the business. 

Crowdfunding as a way of attracting investors and raising capital for a business got a boost earlier this year when the Texas State Securities Board exempted some crowdfunding from state regulations as long as the amount raised is less than $1 million in a 12-month period. Federal regulations do not apply as long as the person selling the security and the person buying it both reside in Texas. A local stock exchange could allow those securities to trade within the state. 

Crowdfunding equals capital raise, which equals investing.  Back to the abuses that led to the Great Depression.  How do these local investment schemes address those? 

Gramm-Leach-Bliley dismantled Glass Steagall's provisions instituted to protect banks from the abuses that led to the great depression.  Securities regulations may be headed back in time.  Look for the wild, wild west.   

Update 1-12-23:  If JP Morgan can be fooled what chance does a crowd have?

Saturday, April 11, 2015

Platinum Equity Bankrupts ex-Carlyle Affiliate

Crain's reported the prepackaged bankruptcy of Chassix Holdings, an affiliate of Platinum Equity, a private equity underwriter (PEU).:

Chassix was born leveraged in April 2013, when Platinum Equity formed it by merging Wixom-based Diversified Machine Inc. and SMW Automotive Inc. of Troy. Gores acquired Diversified Machine through his equity firm from The Carlyle Group in December 2011
How bad is Chassix's balance sheet?

The bondholders represent about $525 million in creditor claims of its $556.7 million in total debt. Chassix has $34.3 million in assets, according to a court filing.

Here's the plan to de-bloat Chassix:

The bankruptcy petition is believed to be the first filed by a company owned by Gores, a billionaire who also owns the Detroit Pistons. The company said an agreement among Platinum, the bondholders and Chassix’s largest customers calls for “comprehensive restructuring and recapitalization” and will slash the bond debt load via a debt-for-equity swap
It would be ironic if Carlyle got back in via a back door debt for equity swap, a strategy commonly employed by the politically connected PEU.  As for other classic PEU features consider bankruptcy language:
Payments to the Debtors’ prepetition private equity sponsor, Platinum Equity Advisors LLC (“Platinum Equity”), may be comprised of balances including, but not limited to (i) management fees; (ii) travel and business-related expense reimbursements incurred by Platinum Equity; and (iii) other direct or indirect costs incurred by Platinum Equity which were paid by the Debtors during the applicable timeframe.
What's beyond those limits?  Special dividends and distributios, frequently funded by borrowings:  Carlyle added $225 million in debt on its watch, siphoning off $80 million for its coffers.  That didn't make the filing.

This next paragraph shows PEU's dicing the ownership issue:

Each of the Debtors is indirectly and ultimately owned by Platinum Equity Advisors, LLC, the Debtors’ prepetition private equity sponsor, and certain affiliated entities and investment funds. However, the response to SOFA 21(b) was limited only to each Debtor’s direct parent entity, which maintains 100% equity interest in the related Debtor, in addition to all current officers and directors.
This how Carlyle claimed it does not own Mountain Water or the imploded Carlyle Capital Corporation.  Whatever's needed to maintain their image and good name. 

Tuesday, April 7, 2015

Jeb Bush Taken by Lure of InnoVida

Consider what Florida Governor did after retiring from public service in January 2007.  He accepted a Board slot with Tenet Healthcare in March.  Late summer found him in the employ of Lehman Brothers private equity division.

August 27, 2007:  WSJ reported "Jeb Bush:  Lehman's Secret Weapon"

This hiring would lend credibility to Jeb's business acumen. 

Private-equity firms hire politicos and former corporate honchos all the time to help them open doors to deals, as well as to manage government relations and the companies in their portfolios.

WaPo reported on another Bush 2007 business venture, consulting with InnoVida before joining their board of directors.  Here's the timeline:

Nov. 16, 2007: Jeb Bush signs contract to serve as consultant to InnoVida for $15,000 a month, plus reasonable expenses, according to documents filed with the federal bankruptcy court in Florida.

August 2008: Bush receives 250,000 stock options as a “key manager,” according to evidence submitted in federal court as part of a criminal prosecution of InnoVida executives.

Latter part of 2008: Bush joins the board of InnoVida.

Sept. 12, 2009: Bush e-mails Chief Financial Officer Craig Toll and asks for cash flow statements and a copy of the company’s board of directors insurance.

Sept. 21, 2009: Toll sends him a “proforma unaudited cash flow statement” and says he will get back to him about the insurance.

July 9, 2010: Toll e-mails board to say that because of the postponement of the last board meeting, the company’s financials had not been distributed. He sends along unaudited statements.

Sept. 19, 2010: Bush resigns from InnoVida and returns his $15,000 consulting fee from the previous month.

March 1, 2011: Judge places InnoVida in receivership after company does not turn over financial records. 
March 2013: Bush agrees to return $270,000 out of $469,000 paid for consultancy services, according to documents filed in connection with the bankruptcy case..

It took businessman Jeb Bush nearly three years to realize he'd been had.  This timeline does not show the production of audited financial statements.  A consultant, key manager and board member would be expected to note this deficiency and resign from InnoVida.  Jeb did so after thirty four months. 

Bush’s Coral Gables firm, Jeb Bush and Associates, agreed to pay back $270,000 to the bankruptcy court as part of a trustee’s efforts to “claw back” money owed to creditors and others in the Chapter 7 liquidation proceedings. Unlike other settlements in the case, Bush’s agreement included a “non-disparagement” clause that limits what the bankruptcy trustee can say about the former governor.

Read more here:
Image must be managed and the Bush name remain as pristine as possible.  The PEU class demands it.

Sunday, April 5, 2015

Rahm Emanuel & Rick Perry Hold Public in Contempt

Holding the public in contempt is a bipartisan effort.  Consider the following stories.  The first involves Republican Governor Rick Perry of Texas:

Information contained in a blistering state audit shows that at least five of the recipients... which got tens of millions of dollars from the fund — never actually submitted formal applications.   At issue are at least five recipients of Texas Enterprise Fund money: Vought Aircraft...

Texas Governor Rick Perry gave Vought, a Carlyle Group affiliate, $35 million for fifteen years. Ten years later it's unclear if Vought provided even one additional new job.  Governor Perry's job number is fanciful and the recent audit gives no overall job number.  In 2010 Carlyle sold Vought for $1.44 billion but not one penny was returned to Texas taxpayers. 

Chicago's Democratic Mayor Rahm Emanuel is as free with taxpayer money for his political benefactors and purposely evasive about those relationships:

Emanuel’s administration has for weeks blocked the release of correspondence between his administration and one of the Democratic mayor’s top donors, Michael Sacks.  The administration has also refused to release details about tens of millions of dollars in shadowy no-bid city payments to some of Emanuel's largest campaign contributors.
Rahm's top donor is a private equity underwriter (PEU):

The CEO of the Chicago private equity firm Grosvenor, Sacks has been described as Emanuel’s closest ally in the private sector, and has been called Emanuel’s “go-to guy” and his “top troubleshooter.”
PEU sponsored politicians are above the law:

Illinois’ open records law mandates that communications to and from public officials like Emanuel be made available for public inspection.
 Back to how Rahm rewards his donors:

...firms that have received tens of millions of dollars' worth of shadowy “direct voucher payments” (DVPs) from the Emanuel administration have given more than $775,000 worth of campaign contributions to the mayor’s political organizations.

Chicago’s DVP process is permitted thanks to loopholes in Illinois’ procurement law that allow municipal officials to circumvent the traditional contracting process. Unlike standard government contracts, DVP payouts do not require any type of public documentation. Emanuel appointees retain substantial discretionary authority to approve DVPs. The payments are not required to go to the lowest bidder; vendors receiving the payments do not have to list their qualifications and never need to document the services they provide to the city in return for the money. The DVPs appear to have been used for everything from phone service to interest payments to financial firms, but unlike the George W. Bush administration’s no-bid contracts, DVP payments do not even require a formal contract, so it is impossible to verify what the money purchased. 

No application, no contract and no accountability.    It's our PEU world , where politicians Red and Blue love PEU.

Update 12-18-21:  Rahm Emanuel has been confirmed as U.S. Ambassador to Japan while Rick Perry surfaced at the sender of a text encouraging the Trump White House to orchestrate the stealing of the Presidency.