Forbes Richests: Carlyle Group's Founders at $2.7 billion

The three founders of The Carlyle Group landed at #155 on the latest Forbes Richest 400 list. David Rubenstein, William Conway and Daniel D'Aniello founded the firm in the 1980's, but their growth under the Bush administration has been spectacular. When the public voted for George W., Carlyle managed $5.8 billion in assets. They now manage $90 billion across 64 funds.

While the last year has been tough for most Americans, the three private equity underwriters saw their holdings grow by $200 million. Of course, Congress' keeping preferred taxation on carried interest had to help the PEU boys.

Bush's "Publicization" Efforts on Wall Street Produces SWF

President George W. Bush just opened a sovereign wealth fund, using the beleaguered American taxpayer's money. His first four investments involved loans and equity stakes in four storied firms.

1. Bear, Sterns $29 billion
2/3. Fannie Mae & Freddie Mac as much as $200 billion
4. A.I.G $85 billion

George W. raised over $310 billion in a matter of weeks. It can take private equity firms months to assemble an offering.

Let's consider the history of three of the firms, George pocketed on behalf of the taxpayer. Here’s the pattern with Fannie Mae, Freddie Mac, and A.I.G.

1. Accounting scandal
2. CEO change
3. Financial practices supposedly cleaned up
4. Mortgage crisis causes huge losses
5. Taxpayer funded government rescue
6. New CEO’s

These firms have a history of fudging financially, followed by leadership changes and intensive cleanup efforts. That the pattern repeats itself, the root cause might be hiding in plain sight.

Could it be incentive executive compensation that causes CEO's to swing for the cheap seats, undertaking high risk strategies? If so, the new owners, American taxpayers, need to demand more changes.

It's a PEU Economy!

Guess who's making out like bandits while the average American struggles? Private equity underwriters (PEU's). First, Congress let them keep their preferred taxation on "carried interest". Now, the PEU boys are lined up to buy corporations on the cheap. But more opportunities abound, as they get to purchase their affiliates' debt at a significant dollar discount.

The Carlyle Group's distressed company fund is frothing at the mouth at opportunities. Their leaders believe things will get worse in our economy, before they get better. One manager said, "We are well positioned to make great investments."

Not long ago. Carlyle co-founder David Rubenstein bragged about buying back their debt on the cheap.

"The flavor of the day is buying your own debt at below face value. I'm buying bank debt in my deal with leverage from the bank that made me that deal"--David Rubenstein in Forbes, May 2008

It seems Kohlberg, Kravis, Roberts will get that same opportunity, given the fall of Lehman Brothers. Bloomberg reported:

Lehman Brothers Holdings Inc. is trying to sell $852 million of high-yield, high-risk loans, signaling it's dumping some assets after filing for bankruptcy, according to people familiar with the sale. Bids for the loans, some of which helped finance leveraged buyouts for First Data Corp. and TXU Corp., are due by 2 p.m. tomorrow in New York.

KKR owns all or part of both firms. How cheap can Henry Kravis buy back his own debt? Watch closely Jeb Bush, an advisor to Lehman's private equity division. You can see how the pro's work.

Now, how can the PEU's get those investment banks to lower their fees when they launch new IPO's?

Carlyle Group's Distressed Fund Vultures Circle

While the rest of the world frets over the failure of Lehman Brothers and the fire sale of Merrill Lynch, corporate vultures at The Carlyle Group's $1.5 billion distressed fund circle for prospects.

Today, President Bush and candidate John McCain talked about the strong fundamentals of the U.S. economy. Carlyle executives aren't so sure.

The group believes the current economic slowdown is still in its early days, even if the financial system recovers quite quickly. "It creates a lot of opportunity for us," says Mr Raymond Whiteman, co-head of Carlyle Strategic Partners fund. "When corporate slowdown collides with corporate profit pressure it creates defaults, corporate bankruptcies and restructuring."

"We are deep value investors, we are patient and we think it is going to get worse before it gets better," says Mr Whiteman. "We are well positioned to make great investments."

Say Goodbye to Lehman Brothers and Merrill Lynch

Two Wall Street giants will be no more in the near future. Lehman Brothers will declare bankruptcy and Bank of America plans on buying Merrill Lynch. Will those anticipated runs on financial institutions happen with a big investment bank failure? Ask Peter Wallison of the American Enterprise Institute. He defended the government's bailout of Bear Sterns for such a reason on CSPAN. (Wallison panned the private business practices of Fannie Mae & Freddie Mac. Maybe, that will put a chink in the bi-partisan armor of privatizing all government functions.)

Also, conservative host Sean Hannity said claims the U.S. has seen a “dire” economy is “all based on a lie.” Will he change his tune after the demise of Lehman and the sale of Merrill?

Slacker Bush Highlights Old Facts on HSA's

President George W. Bush continued his half hearted, cherry picking administration with a round table visit on health insurance in Oklahoma City. His fact sheet omits the fact that 42% of people with high deductible health plan have no health savings account, thus 5.2 million are under-insured. But he does offer a few facts:

1. Today more than 6.1 million people are covered by HSA plans, up 35 percent since 2007. Low- and moderate-income Americans and those previously uninsured are enrolling in HSA plans. In 2005, the most recently available data, more than one-third of HSA policyholders in 2005 had incomes under $50,000 per year, and one-third of individual HSA policyholders in 2005 were previously uninsured.

New data is available, it just doesn't support the Bush fiction. The 2007 Employee Benefits Research Institute/Commonwealth Fund Consumerism in Health Survey showed:

1. Enrollment remains low
2. Income is higher
3. Health status is better
4. Little impact on the uninsured
5. Lower satisfaction
6. More missed care
7. More cost conscious behavior
8. Limited consumer information available

The new information on income Bush left out? Here it is:

In 2007, 31 percent were in households with incomes of $100,000 or more, up from 22 percent in 2005. Just 19 percent of adults with CDHPs were in households with incomes under $50,000, down from 33 percent in 2005. Among HDHP enrollees, 23 percent were in higher income households in 2007, up from 15 percent in 2005.

And how many markets flip behavior for 2% of potential customers? In the 1990's managed care penetration had to reach 40-50% to impact provider behavior. Bush's signature solution for the ills of America's health care system is a placebo at best, a con at worst.

Greed Kills

The American and Chinese management mantra is "substitute cheaper inputs, regardless of quality, to maximize profits and executive incentive compensation." The latest manifestation is tainted baby formula. It killed and sickened thousands of Chinese infants.

The melamine tainted formula caused kidney stones and renal failure in babies. How would you feel if your "one baby" allowed by law was poisoned its formula, by the very thing intended to nourish life?

China, thus the world, has a major quality crisis. Solutions will not come from authoritarian reactions, but from true leadership, from profound knowledge. Dr. Deming is gone, but his followers know the way. How many more will die from greed?