Tuesday, November 23, 2021

Powell's Renomination Good for PEU Boys

reported how Fed Chair Jerome Powell's policies boosted his former private equity employers.  The article stated:

Powell spent years as a private equity dealmaker, creating and selling the kinds of debt instruments that he later bailed out as Fed chairman. Powell’s radical actions to pump more money into markets, credited by many with keeping the economy afloat throughout the pandemic, have also greatly benefited his former peers in the private equity business. To be clear, there is no indication that Powell has taken any actions at the Fed to directly enrich himself or his former employers. But Powell’s career illuminates the deeper realities about the Federal Reserve and the American economy. The Fed’s policies are not just the realm of technocrat PhD economists who are solving math equations. The Fed is enacting programs that create winners and losers. And the winners, time and again, are people like Jay Powell and the investment firms that made him rich.

It's hard to throw a rock in political circles and not hit a private equity underwriter (PEU).  The greed and leverage boys have infected America's citadels of power and steer policy/budgets that profits their own.

In the early 2000s, Powell was a partner at the Carlyle Group, a private equity firm that specialized in hiring former government officials and cashing in on their connections. At Carlyle, Powell learned firsthand about the debt-driven business model of the private equity business, which delivered hundreds of millions of dollars of profit to senior partners while saddling the companies they bought and sold with debt and downsizing. As it happened, this is exactly the kind of economic activity that the Fed has been relentlessly encouraging over the past decade. Many years of easy money policies have been rocket fuel for private equity firms like Carlyle Group because cheap debt is their lifeblood. It funds their ambitious takeover plans and even funds their paychecks directly.

The article highlighted Jay Powell's role in flipping Carlyle affiliate Rexnord for a king's ransom.

Under Carlyle’s investment rules, 80% of the profits would have gone to the limited partner investors who put up money for the buyouts and 20% to Carlyle, according to one person familiar with Carlyle’s operations. Of the Carlyle money, 45% went to the corporate “mothership,” as they called it, and 55% would go to Jay Powell’s team. Government disclosure forms from 2018 indicate that Powell’s personal wealth was worth between $20 million and $55 million by 2018.

Powell left Carlyle after his huge payday.  Rexnard would be crippled by the massive debt loaded onto its balance sheet.  Powell started Severn Capital Partners and worked for PEU Global Environment Fund.

Dallas Fed Chair Richard Fisher called out Powell's subsidies to his PEU peers.

Quantitative easing “has, I believe, had a wealth effect, but principally for the rich and the quick—the Buffetts, the KKRs, the Carlyles, the Goldman Sachses, the Powells, maybe the Fishers—those who can borrow money for nothing and drive bonds and stocks and property higher in price, and profit goes to their pocket,” Fisher said during one meeting. He argued that this would not create jobs, or boost wages, to nearly the degree the Fed hoped it would.

Virginians just elected a governor who exported jobs to China.  Rexnord did likewise under PEU ownership"

All this corporate debt didn’t benefit Rexnord employees like John Feltner who worked at the company’s ball-bearing plant in Indianapolis. As it labored under so much debt, Rexnord looked for ways to cut costs. In 2016, Rexnord announced that it was shuttering the plant where Feltner worked and sending the production to a new facility in Mexico, cutting 350 jobs in the United States.

The Fed instituted numerous new programs during the 2020 pandemic shutdown, saving countless private equity affiliates.

This bailout didn’t just save the corporate debt market. It fueled it. By the end of 2020, companies issued more than $1.9 trillion in new corporate debt, beating the previous record that was set in 2017. The cheap debt has helped deliver record profits to private equity firms like Carlyle Group. In late October, Carlyle reported a record $14 billion in asset sales for the third quarter of the year, helping it pay $730.6 million in earnings to its shareholders, also a record. Carlyle’s stock price has jumped about 86% since the beginning of the year.

The greed and leverage boys know Powell has their back.  

It remains to be seen how stable corporate debt markets once the Fed eases the pressure to search for yield. But private equity firms, hedge funds and Wall Street speculators can take one lesson from the past few years: Jay Powell will be there for them.  

PEU Powell is worthy of a Biden cabinet position or renomination as Fed Chair.

Update 6-10-22:  Insider Larry Summers said “The Fed’s forecasts from March, saying that inflation would be coming down to the 2s by the end of the year was, frankly, delusional when issued, and looks even more ridiculous today.”  Inflation was a hot 8.6% for May.  Summers urged the Fed to investigate why officials’ forecasts were “so dramatically” and repeatedly wrong.