Carlyle Group Burned by "Jihadi Chic" Iced Coffee Ad

The Carlyle Group suffered its latest management gaffe when affiliate Dunkin Brands pulled its Rachael Ray ad. They did so after conservative bloggers complained about her scarf resembling those worn by Palestinian resisters. While not on the order of the collapse of Carlyle Capital on the Amsterdam exchange or Boeing's jettisoning of a joint venture due to poor performance, one might expect the owner of Nielsen Media to test all angles of a production promotion. That Carlyle owns numerous internet media companies only ads to the conundrum. Invincible? It seems they have at least three chinks in their armor.

Carlyle Fattening Up on Defense Contractors

After lightening its defense portfolio the last few years, The Carlyle Group seems ready for another round of gorging on military contractors. They announced their interest in Filtronic, a British manufacturer of military microwave technology. Carlyle made a killing from two privatized government companies, U.S.I.S. and QinetiQ. They sold their interest in United Defense Industries for major gains. BAE purchased UDI in March 2005.

But recently the infamous private equity underwriter (PEU) dipped its proverbial toe back into bloody waters with its announced acquisition of giant government contractor Booz, Allen & Hamilton. The firm does billions in work for the Defense and intelligence arms of the federal government. Now the PEU is sniffing around Filtronic. Expect more as Carlyle aims to be a one stop shop for the government industrial monstrosity. Booz consultants can subtly steer Uncle Sam toward Carlyle sister company's products. Influence selling, it's a thing of beauty...

Dow CEO Suggests Republicans Failed in 2005

The Chief Executive Officer of Dow Chemical lambasted Washington, D. C. for its failure to develop a comprehensive energy policy. Funny, I distinctly heard President Bush brag about such a thing August 2005 when he said:

"This bill launches an energy strategy for the 21st century....This bill is not going to solve our energy challenges overnight. Most of the serious problems, such as high gasoline costs, or the rising dependence on foreign oil, have developed over decades. It's going to take years of focused effort to alleviate those problems. But in about two minutes, we're going to have a strategy that will help us do that."

That was nearly three years ago. Today as a result of soaring petroleum prices, Dow announced price increases up to 20%. They begin working their way through the economic chain on June 1. So far in 2008 crude oil is up 98% and natural gas 58%. Stagflation anyone?

Bush Crosses Paths with a New Silverado

In his fundraising visit for Senator John McCain, a chatty President George W. Bush visited Silverado Cable Company. It takes cohones to show up at a firm with the same name as the savings & loan that caused father George H.W. and brother Neil so much trouble. Senator McCain's difficulties came from his ties with another S & L, Lincoln. Lincoln alone cost U.S. taxpayers $2 billion.

In the last few days, brash President Bush had much to say. He compared the rebuilding of Iraq & Afghanistan to that of Germany and Japan post World War II. The U.S. sent a young Dr. W. Edwards Deming to Japan to raise their economy from the ashes. Dr. Deming's management teachings transformed Japan and for a brief time, he had an audience with top leaders in the United States. They tried his teachings until the siren song of cheap Chinese and Indian labor enticed a labor substitution bonanza. The American people are well aware of the precipitous drop in quality. Management theorists know George W. defecates on Dr. Deming's teachings with his heavy handed, unreality based, petulant bleedership style.

While at Silverado Cable, President Bush stated his economic theories. Hear his words, "the fact that they purchased the machine meant somebody had to make the machine. And when somebody makes a machine, it means there's jobs at the machine-making place -- plus their employees are more productive, they're more competitive. It makes it more likely they're going to keep their business and expand their business."

Bush's aim, grow more machine making places. What if those machines kill people? George W. has just the plan to use those, at least the Asia Times reported as much.

Demand Down, Gas Prices Still Rising

The U.S. Transportation Department released statistics showing American drivers cut back their mileage in March. CNN reported:

Americans drove an estimated 4.3 percent less -- that's 11 billion fewer miles, the DOT's Federal Highway Administration said Monday, calling it "the sharpest yearly drop for any month in FHWA history." Records have been kept since 1942. According to AAA, for the first time since 2002, Americans said they were planning to drive less over the Memorial Day weekend than they did the year before.

According to AAA, the national average price for a gallon of regular gas rose to a record $3.936. That compares with an average price per gallon of $3.23 last Memorial Day. The Energy Information Administration says gas consumption for the first three months of 2008 is estimated to be down about 0.6 percent from the same time period in 2007.

What happened between March and Memorial Day? Surely big oil and OPEC are monitoring the data. How did they react? They celebrated record profitability. Middle East sovereign wealth funds kept raking in the billions, searching for ways to spend "your gas money."

What happened the last few months to drive oil prices skyward, especially if U.S. drivers parked their vehicles more frequently? The saber rattling against Iran grew in supply. The Jerusalem Post and Haaretz offered more inflammatory rhetoric from both sides. The JP even has a special section titled the "Iranian Threat."

So don't let President Bush's exhortations of free market solutions, supply and demand fool you. Producers are making hay while the sun shines. Consumers with no ability to pay could be the encroaching shadow. We've already seen it in health care with over 47 million uninsured, housing with rising foreclosures from the credit crisis, and retirement with fixed income seniors taking it on the chin over rising food and energy prices. It looks like the auto and mobility could be next.

In January 2007, I paid $1.769 a gallon for gas. While gas consumption in America went down 0.6%, the price roughly doubled in first quarter 2008. That it keeps rising, as driving demand falls, indicates something else is happening. A 120% increase in 15 months time? It's time to toss some tea in the harbor.

Continued Pentagon MisManagement Remains Bill Clinton's Fault

After a Pentagon study revealed virtually all of $8.2 billion in Iraq contracts failed to meet U.S. rules intended to prevent fraud, Anthony Cordesman blamed the five year problem on the 1990's peace dividend, a time when President Bill Clinton farmed out large chunks of military operations to private companies. The think tank head said:

“This report is further documentation of the fact that the United States had absolutely no preparation to use contracting on the scale that it needed either at the military or aid level in going to war in Iraq,” said Anthony H. Cordesman of the Center for Strategic and International Studies in Washington.

“We had really allowed ourselves to become more and more dependent on contractors in peacetime,” said Mr. Cordesman, who spoke in a telephone interview on Thursday. “We were unprepared to use contractors in wartime, and all of this had an immense impact.”

So the ramp up in Afghanistan from 2001 to 2003 didn't prepare the Pentagon for what was coming in Iraq? What about the first year in Iraq, did the Defense Department get a clue then? Apparently not as the problem was marked throughout the study period which ended in 2006. So America sits in 2008 with a political hack blaming the problem on a President out of office for over seven years? I don't buy it. Another news report on the breakup of KBR's Iraq work amongst three companies shows this administration clearly bears responsibility. The NYT reported:

Critics also say they doubt that the new contract will result in significant cost savings or better services for soldiers in Iraq. The Army has built into the deal the potential for larger profits for the contractors than existed under the prior contract, and it plans to outsource much of the management and oversight of the contractors to yet another company, Serco Inc., for $59 million.

“This new contract sounds good, they are splitting it up, but there are serious flaws, including what looks like outsourcing oversight,” said Dina Rasor, an investigator and co-author of a book about contracting in Iraq.

Outsourcing oversight, there lies the problem and after nearly eight years in office, it's all Bill Clinton's fault. Bull Hockey! But the line does open the door for Dov Zakheim, the CFO of the Defense Department from 2001-2004, to join the Commission on Wartime Contracting in Iraq and Afghanistan and not look like the fox guarding the Bush chicken ranch.

George Bush's Bold Action, Appoint Insiders Yet Again!

BBC News reported that of $8 billion in defense spending in Iraq from 2001 to 2006, almost every payment failed to comply with U.S. laws preventing fraud. The articles stated:

The review by the defence department's inspector general estimates that the US Army made more than 180,000 commercial payments from bases in Iraq, Egypt and Kuwait from 2001 to 2006.

The $8bn spending of US taxpayers' money involved purchases of goods and services ranging from bottled water, mattresses and food to trucks and phones.

In some cases, contracts worth millions of dollars were paid for in cash with little or no documentation to show what was delivered.

The White House acted boldly this past week by appointing two members to the Commission on Wartime Contracting in Iraq and Afghanistan, one of which served as Chief Financial Officer for the Defense Department during the period in question. Dov Zakheim's bio states this about his service:

From 2001 to April 2004 he served as the Under Secretary of Defense (Comptroller) and Chief Financial Officer for the Department of Defense, acting as the Secretary of Defense’s principal advisor on financial and budgetary matters, developing and managing the world’s largest budgets, overseeing all aspects of the Department’s accounting and auditing systems, and negotiating five major defense agreements with US allies and partners.

Accounts payable and documentation of delivery sits squarely in the accounting function. For over half the period of widespread noncompliance, Dov served as the Pentagon's CFO. So this is the guy who will restore voter confidence in the Bush administration's purchasing practices? Not if the public is paying attention to Dov's current job as Vice President of Booz, Allen & Hamilton, where he specializes in getting clients defense contracts as head of global defense consulting.

Grant S. Green,Bush's other appointment to the Commission on Wartime Contracting, comes from the State Department, which groomed L. Paul Bremer for his Coalition Provisional Authority role. Mr. Green joined the Bush administration early on as Under Secretary of State for Management. He left in early 2005, after nearly five years of service. He rejoined GMD Solutions, a consulting firm specializing in government contracts. Their press release highlighted his work for the State Department:

As Under Secretary Grant S. Green was the principal adviser to the Secretary Powell on all management issues effecting Department operations. Reporting to him were the Bureaus of Administration, Consular Affairs, Diplomatic Security, Human Resources, Information Resource Management, Overseas Buildings Operations, the Director of Diplomatic Reception Rooms, the Director of Medical Services, the Foreign Service Institute, the Office of Management Policy and Rightsizing, and the Office of White House Liaison. In addition, he was the State Department’s representative on the President’s Management Council, and was the Department official responsible for implementing the President’s Management Agenda (PMA).

How much of that $8.2 billion in noncompliant spending came via the State Department vs. the Defense Department? Either way, Grant Green and Dov Zakheim were both in charge of major operations during the lapses. This is the crew George W. Bush wants to clean up? It harkens back to Fran Townsend doing the White House Lessons Learned report. The promised robust analysis became simply a bust. I expect similar things from the President's latest appointments. Should they need to add Iran to the Commission on Wartime Contracting, Dov will be ready.