Bush Says No Bare Planes

In another astonishing move, President George W. Bush ordered the Transportation Department to insure airlines. He did so by executive order on December 23rd. The pertinent portion said:

2. Approve provision by the Secretary of Transportation (Secretary) of insurance or reinsurance to U.S.-flag air carriers against loss or damage arising out of any risk from the operation of an aircraft in the manner and to the extent provided in chapter 443 of 49 U.S.C.:
(a) Until March 31, 2009;
(b) After March 31, 2009, but no later than August 31, 2009, when the Secretary determines that such insurance or reinsurance cannot be obtained on reasonable terms and conditions from any company authorized to conduct an insurance business in a State of the United States.

Meanwhile, 47.5 million have no health insurance. The number is likely closer to 50 million with our dire economic situation. George served eight years, twiddling his thumbs while the number grew from 40 to nearly 50 million. On that risk, he did nothing.

George W. Bush corporafornicates to the very end. At least with airlines he offered protection.

Slackened Bank Buyer Regulations Inaugurated

America's shadow banking system will soon own a real bank. IndyMac will be sold to a consortium of private equity firms and hedge funds. They will own 100% of the bank and not have to declare themselves bank holding companies.

When John Paulson's hedge fund runs into trouble, will he call on his captive bank for a loan? How about JC Flowers or Dune Capital Management? When they see an asset on the cheap, will they ring affiliate IndyMac for levered debt?

Yet more "hair of the dog medicine" from BushCo as he slinks toward the exit. There are no regulations on who can own a bank, not when the shadow system qualifies. Too big to fail morphed into too huge to lose. How long before the taxpayer bails out the PEU boys for bad IndyMac loans? Stay tuned...

The Bush Discount

The Yellow Rose in Crawford, Texas marked down George W. Bush merchandise up to 30%. Cousin George Hebert Walker bought Neuberger Investment Management for a whopping 58% off, with no money down. Neuberger management saved $1.2 billion relative to a competing offer. Brother Jeb may get a stake in Lehman's PE, pricing is not yet clear. Which will be the better deal?

Pay for Performance in Health Care, HCA's Stock Options

President elect Barack Obama wants pay for performance to solve the ills of health care. The most pure form of executive incentive compensation is stock options. Set aside the fact that almost 30% of executive teams cheated by backdating over a ten year period. How did stock options improve HCA's performance?

Four top executives exercised stock options for $12.75 a share. They flipped a portion of their incentive compensation for $55.86. That's a 338% profit. The options were exercisable in 2003 and expired in 2009. Spread the return over five years and it equates to 67.6% annual uncompounded return. That's double what The Carlyle Group earned on its investments.

How much will patients have to pay for HCA's stock options? The four executives bought 310,260 shares at $12.75. Had they flipped the whole enchilada at $55.86, their profit would be almost $13.4 million. That compensation is passed on through higher hospital bills.

HCA's quarterly report sheds light on executive performance. Interest expense is way up from 2003, provision for doubtful accounts rose, and net income fell precipitously from 2007. Don't forget their investing $626 million in level 3 (junk) assets. If they get the Fed to buy it, parent KKR might give the boys a bonus!

When the most pure form of executive incentive compensation makes no sense, why would our new President impose pay for performance on physicians? Surely, they can game the system as well as CEO's.

Those Who Have More, Go Offshore

Lawyers encouraged private equity underwriters (PEU's) to set up offshore entities before Baby New Year arrived. The offshore corporations needed a 2008 start date to legally meet their aim, avoiding fair taxation on income.

Such structures allow PEU's to turn "carried interest" into low cost loans, achieving the same 15% tax rate. It also shields income from any Medicare tax increases. So much for those who have more, having a greater obligation...

The Carlyle Group's Hawaiian Telecom Implosion Softened by Credit Bets?

Carlyle Group Senior Adviser and ex-SEC Chair Arthur Levitt argued for more transparency for investors. How might that apply to affiliate Hawaiian Telecom's recent bankruptcy? What are the possible ways Carlyle could secretly profit?

Carlyle's distressed debt fund can pick up HT bonds on the super cheap. Bloomberg reported they trade for 0.5 cents on the dollar, down 102.75 cents due to the bankruptcy declaration. If you could buy your $100,000 mortgage for $500, would that be a good deal?

What if another Carlyle division purchased credit coverage on Hawaiian Telecom bonds? Recall, there is no legal requirement to own the debt to buy such "insurance". It could be an instant jackpot.

As private equity firms and credit derivatives have no regulation, these questions remain academic, until an investigatory body acts.

Co-founder William Conway hates a level playing field. The big money boys know how to profit from failure. Carlyle should have it down by now given their prior implosions at Carlyle Capital, BlueWave Partners, and SemGroup. How did they turn a Hawaiian Telecom sinking into a champagne toasting event? I'm afraid the public will never know.

Public Radio Gives Arthur Levitt Free Pass

Driving back from a Virginia Christmas with family, I heard a public radio interview with ex-SEC chair Arthur Levitt. Mr. Levitt now works for The Carlyle Group, a huge private equity underwriter (PEU). Themes included the fall financial implosion and Bernie Madoff's $50 billion Ponzi scheme.

If contrite Arthur sported a Pinocchio nose, it must've been an elephant's trunk by the time his interview ended. First, he talked about secrecy and greed. Secrecy applied to unregulated financial products like credit derivatives. America's shadow banking system suffers from a lack of transparency, including hedge funds who didn't perform due diligence regarding Bernie Madoff.

What Arthur didn't mention is his firm's greed and secrecy. The Carlyle Group expects a 30% annual return on investments and has fought efforts to improve private equity firm reporting. It's partly owned by a foreign sovereign wealth fund, even more secretive in their financial dealings.

What did the public radio reporter miss? Arthur's PEU got $153 million in TARP funding for affiliate Boston Private Financial Holdings. BPFH says it already had a strong capital position, implying it didn't need the money. The investment firm targets the high net worth marketplace. Currently, The Carlyle Group has $40 billion in cash.

Here's a possible public radio question for Arthur: Why should taxpayers invest money in BPFH when Carlyle is flush with cash? Why does the high net worth marketplace need access to loans subsidized by taxpayers? I'd like answers.

Arthur said more that stewed me. He spoke of the 1999 letter asking the SEC to investigate Bernie Madoff. I requested an investigation in early 2006. It lingers deep in a stack of unreplied letters in numerous bureaucratic arms of our federal government.

Why did the White House Lessons Learned report on Hurricane Katrina fail to mention the hospital with the highest death toll? Memorial Hospital lost 34 patients. Not mentioned were 24 deaths from LifeCare Hospitals' unit within Memorial or the 10 patients lost by Memorial's parent, Tenet Health.

The Carlyle Group purchased LifeCare just weeks before landfall. The PEU with the Pennsylvania Avenue address and deep list of insider political connections got a free pass in Frances Townsend's "robust" investigative report. A year after his brother failed to mention Tenet Health's Hospital of Death, Jeb Bush was appointed to the Tenet Board of Directors.

No questions, no answers, no responses. I'm beginning to detect a pattern.