Carlyle's Rubenstein Conducts Seminar on How to Grow Inequality

The IMF held a panel discussion on global inequality and Carlyle Group co-founder David Rubenstein occupied the chair furthest from the moderator.  Rubenstein shared his worries that businessmen will be blamed for income inequality and elected officials may try to solve the complex problem with simplistic short term solutions.  He remarked, "It will take a long time to make modest progress."

He defended the people who go to Davos, the 1%, and said they don't intersect with people who aren't doing as well.  The lowly people "we don't really deal with on a daily basis." We have to figure out how to communicate better, the elites and the non-elites.  Many people who are voting are not happy with the elites."  In his assessment they are disconnected.

Rubenstein also worries about social unrest.  "You're going to have a lot of frustrated people who do things we don't really want."  

The IMF piece on the event offered:

“Many people in the United States are not satisfied with the income inequality gap, and also the social mobility gap,” said David Rubenstein, a financier and founder of The Carlyle Group, a private equity investment company based in Washington, D.C. “Increasingly, people in our society feel they can’t get to the top, and that may be a bigger problem than income inequality.” 

Global inequality:  Brought to you by The Carlyle Group and its:

1.  Global portfolio of more than 275 companies and more than 250 active real estate investments as of June 30, 216
2.  More than 675 investment professionals on six continents with local knowledge and relationships.
3.  More than 1,650 professionals operating in 35 offices in North America, South America, Europe, the Middle East, Africa, Asia and Australia.
4.  More than 1,750 investors from 81 countries rely on Carlyle to achieve premium returns on their invested capital.

Carlyle is a global alternative asset manager with $176 billion of assets under management across 128 funds and 170 fund of funds vehicles.  Founded in 1987 in Washington, DC, Carlyle has grown into one of the world’s largest and most successful investment firms. 

In the latter part of the panel discussion Rubenstein encouraged leaders, most of whom believe in globalization to do a better job of describing and supporting it. At 55:35 Rubenstein dubbed himself moderator and offered the "Private Equity Answer" for investors seeking out-sized returns in a low interest rate environment.  The Carlyle infomercial lasted three minutes and virtually closed the session on inequality.  Frankly, it couldn't have ended on a worse note. 

The rise of private equity corresponds with the rise in income inequality and the decline in social mobility, which is in effect multi-generational income inequality.

Third Way Has PEU Odor

Centrist think tank Third Way has a PEU Board Chair, John L. Vogelstein.  Vogelstein served as President of Warburg Pincus for 34 years.  He's now Chairman of  New Providence Asset Management, LLC and Senior Advisor to Warburg Pincus, LLC.

Also on Third Way's board is David A. Coulter Managing Director and Senior Advisor at Warburg Pincus. 

Third Way's Vice Chair is David B. Heller an ex-Goldman Sachs executive, who started as an equity derivatives trader.  Before he left in 2012 Heller was mentioned as a possible successor to Goldman chief Lloyd Blankfein.

Since then Heller put his money to work by investing in the Philadelphia 76'ers.  The team received an $82 million public subsidy from New Jersey Governor Chris Christie for a practice facility in Camden, New Jersey.   This gift came after Christie cut funding for policing in crime ridden Camden.

Heller also invested in Standard International, a hotel chain which just paid $1.2 million per room for a NYC hotel.  He sits on the board of Acumen which combines philanthropy with equity/debt investing.  Not only do they teach a man to fish, they loan money to buy the fishing pole and bait. 

Other Third Way board members have these names in their employment, current or past:

Apollo Global Management
Arrowgrass Capital Partners 
BlueCrest Capital Management
BlueMountain Capital Management
Bingham Consulting Group (which helps hedge funds assess political risk)
Bohemian Companies (a group of family-owned real estate and private equity holdings)
Chiron Investment Management LLC
Citadel (a giant hedge fund)
Dyson-Kissner-Moran Corp (a privately owned, diversified investment holding company)
Former partner of Apax Partners & Co. Ventures and Warburg Pincus
Fortress Investment Group LLC
Goldman Sachs
GPS Investment Partners LLC  
J.P. Morgan
Mesirow Financial Holdings Inc
Mesirow Advanced Strategies, Inc. (one of the largest fund of hedge funds in the world)
Millbrook Capital Management
Morgan Stanley
MSD Capital, L.P. (the private investment firm founded by Michael Dell)
Pritzker Innovation Fund

One Third Way board member conducted the first ever leveraged buyout in 1964.  LBO's got rebranded private equity to take away the stain from Michael Milken's junk bond conviction.  Another board member is "one of the country's leading private equity law practitioner."

There's a clear theme running through Third Way.  It's the PEU Way.  The greed and leverage boys have had their way long enough.  

PPACA "Crazy" According to Bill Clinton

When PPACA passed data showed employers covering 176 million Americans.  According to HHS Secretary Sylvia Burwell employer coverage number is now 150 million.  That's a drop of 26 million people.

“There are 150 million people in America using employer sponsored insurance versus the 11 million in the Market Place. Last year, those 150 million only had 4 percent growth in their premiums and that is up against the 8 percent growth that occurred ten years before the Affordable Health Care Act.”

According to H.H.S. data, premiums for the 150 million Americans with employer-sponsored insurance have grown at some of the slowest rates on record.

Many say that premiums have gone up since the Act was made into law health care prices have risen at the lowest rate in 50 years.

“I think when people are talking about premiums, it’s important for them to have the facts,” Burwell said. 

Here are my facts, Mrs. Burwell.  My workplace premiums have gone up "slowly" because coverage has declined markedly, as deductibles and co-pays soared.  The best plan I could get from my employer for 2016 had no physician coverage outside meeting the monstrous deductible.  After that I'd get 80% coverage and be responsible for the other 20%.  Visits to my two specialists are totally on my dime this year.  I visit both for preventive purposes, screening for cancers which if caught early are cheaper to eradicate. 

Ex-President Bill Clinton called PPACA "crazy" while stumping for his wife Hillary's White House run.

"So you've got this crazy system where all of a sudden 25 million more people have health care and then the people who are out there busting it, sometimes 60 hours a week, wind up with their premiums doubled and their coverage cut in half. It's the craziest thing in the world," Clinton said.

It's not a bizarre outcome.  It was the plan to shift responsibility away from employers and onto individuals and a tapped out Uncle Sam.   America may have more people with healthcare coverage, but it likely has a record number of people who can't afford their out-sized deductibles and copays. 

Almost two in three Americans don't have enough savings to pay for a $500 car repair or a $1,000 emergency room bill, according to a new Bankrate.com report.

HHS Secretary Burwell is excited because she sees us "on a path to put the consumer at the center of their care."  And that consumer will foot much of the bill as they attempt to navigate the complex and bizarre PPACA landscape, populated by predatory providers looking to maximize their incentive pay. 

Burwell talks honey but pushes snake oil.

Update 4-3-22:   The average health insurance premium more than tripled for a family plan since PPACA passed in 2010.  Cost curve bent but in the wrong direction.  Concave went convex.  

Update 7-16-22:  Burwell is now President of American University and just hired former Carlyle Group Managing Director David Marchick as Dean of AU's business school.  

Serial Ethics Abuser Tenet Healthcare Settles for $368 million

Modern Healthcare reported:

Two of Tenet Healthcare Corp.'s former subsidiaries (sold in March 2016) admitted to conspiring to defraud Medicaid by using referral contracts for translation services to funnel pregnant patients through their doors.

Atlanta Medical Center and North Fulton Hospital in Georgia each pled guilty to one count of conspiracy to violate federal anti-kickback laws and defraud the United States, Tenet said on Monday, as it finalized a $514 million settlement over its involvement in the scheme.

How does a hospital plead guilty to criminal activity?  Who set up the deal and approved payments for over 20,000 Medicaid patients?  An internet search revealed the last time a Tenet executive was criminally charged for illegal kickbacks was 2003.

Back to the case just settled:

In 2014, the U.S. Justice Department joined a whistleblower lawsuit accusing Tenet and four of its hospitals of allegedly making illegal payments to clinics operated by Clinica de la Mama and Hispanic Medical Management in exchange for Medicaid patient referrals, a violation of the federal anti-kickback statute and Stark law.

So Tenet knew two years ago about the scheme and dumped the hospitals prior to announcing the settlement.  It's the game of image management, especially as criminal activity occurred while Tenet was under a 2006 Compliance Integrity Agreement.

Former Florida Governor Jeb Bush served on the Tenet Board of Directors while the fraud was perpetrated.  I'm sure the company did not want to tarnish the image of a Presidential hopeful.  Ironically, Jeb dropped out of the race as Tenet sold its offending facilities..

A Tenet Southern Region CEO was arrested and charged with a crime in 2014.  It wasn't for fraud or kickbacks.  Atlanta Business Chronicle reported:

Hartford, Ala., police arrested Tenet Healthcare Corp.’s Southern region CEO Michael Lee Graue after he allegedly traveled across state lines to have sex with what he thought was a 14-year-old girl, according to Dothan First.

Tenet fired the 58-year-old metro Atlanta health-care executive, who was released Monday after posting a $200,000 bond.

That arrest came courtesy of local police.  We'll see if the Justice Department goes after individuals committing actual crimes vs. negotiating mult-million settlements with subsidiaries and parent corporations. 

I find it interesting an Atlanta based Tenet Senior Vice President of Operations got six years for his child sex solicitation crime.  Contrast this with the Justice Department not charging anyone.  

Tenet HealthSystem Medical Inc. and its subsidiaries (collectively THSM) entered into a non-prosecution agreement (NPA) with the Criminal Division’s Fraud Section and the U.S. Attorney’s Office of the Northern District of Georgia related to the charges in the criminal information

The feds are happy taking Tenet's $368 million and letting perpetrators go Scott free.  Flash back to 2003, when criminals were actually charged for their fraudulent acts.

Your Tax Money Could Enrich Corporate Executives

The latest idea for government to improve the economy came from insider Larry Summers, who long ago sided with those in power vs. serving the public.  Summers floated a trial balloon for the government to buy stock on an ongoing basis.

My initial reaction was revulsion, after which I pondered how Larry's idea would help the greed and power class.

1.  Most executive compensation involves stock options which need rising share prices for the C suite to get millions more in pay.

2.  Companies engineered earnings increases by buying back stock and reducing the float.  Should they wish to re-float treasury stock they'll need buyers.

3.  Private equity underwriters (PEU) need investors to buy stock in companies they monetize via IPO.   Also, most PEUs sell but a portion of their holdings in the initial offering.  Rising stock prices enable them to make the maximum in their final profitgasm exit.

I'm sure there are more reasons for the government to buy company stock to enrich corporate chiefs and their PEU sponsors.  That's the insider group Larry Summers serves.  The call for government to buy equities grows louder.  

PEU Cerberus Selling Caritas Christi Hospital Facilities: Will Hold Free Shares

Cerberus Capital Management's Steward Health Care will monetize it's buyout of Caritas Christi Health System by selling the hospital facilities to a healthcare real estate investment trust for $1.25 billion.  Private equity underwriter (PEU) Cerberus purchased the Catholic healthcare system nearly six years ago in a $895 million transaction.  Part of the $895 million was a promise to invest in facilities, provide catch up funding for the employee pension plan and repay existing debt.

This isn't the first asset sale/leaseback deal for Steward.  In 2012:

"... it got a cash infusion by selling 13 medical buildings to Healthcare Trust of America, an Arizona real estate investment trust, for about $100 million, agreeing to lease back space." 

It's not clear what Steward did with the $100 million.  Did it stay in the system for capital expenditures or did Cerberus get a fat dividend?

Steward's current value is $2.2 billion, $1.2 billion for hospital facilities it plans to sell/leaseback and $1 billion for the revenue stream and assets left after the facility sale.  The $1 billion valuation for the system without actual buildings came from the 5% equity stake Cerberus sold Medical Properties Trust for $50 million.  That equates to a 100% valuation of $1 billion for Steward without walls.

Steward CEO Ralph de la Torre and other senior leaders can benefit from the facility sale:

The deal, which is expected to close during the next quarter, is also designed to allow top Steward leaders to have a “substantially larger stake” in the company.

This looks and smells like reward from Cerberus as it will own Steward with free money.

The entire initial investment to Cerberus will be paid back, but the amount is proprietary, de la Torre said. The deal will also pay down all of the company’s $400 million in debt, he said. 

No one shared how much Cerberus made in deal fees or annual management fees since November 2011.

All this occurred under PPACA, widely known as ObamaCare.  PEU hellhound Cerberus/Steward will pocket $1.3 billion from its asset sale-leaseback trickery, $1.2 billion for hospitals and $100 million for medical office buildings.

The question is how this washes through Steward's Medicare cost reports and impacts money paid the system by Medicare and Medicaid.  Outside Medicare's byzantine "pay for performance" schedules is there a legacy facility component? Surely a revenue cycle number cruncher has modeled the financial benefits of the deal on Medicare reimbursement.  Is that the reason some facilities are leased and others are mortgaged? 

Only 20% of Steward employees on GlassDoor approve of CEO Ralph de la Torre.  The other 80% know they're there to follow orders, meet financial hard targets and enrich executives and their PEU sponsor.

Cerberus ownership of Caritas Christi is a window into today's healthcare world, where prices soar courtesy of greedy leaders.

Cerberus will eventually sell the mostly asset-less Steward Health and executives will get their final cash reward.  Let's hope Catholic leaders, who sold them Caritas Christi, inform them they cannot take their millions or billions with them.  The bills and their dollar signs stay here.  Their deeds however go with them.

PEU Report posts on Cerberus-Caritas Christi

State of the Division posts on Cerberus-Caritas Christi

Update 2-18-17:  Steward needs more hospitals to bleed.  Debt bloated Community Health Systems will sell eight hospitals in three states to Steward.  So far there's no purchase price but CHS is a public company and their shareholders have a right to know.  CHS employees should know only 18% of Steward's employees approve of their CEO on Glassdoor.

Update 1-26-24:  American Prospect summarized the damage Cerberus and Steward Healthcare did to Massachusetts hospitals.  Steward hired a restructuring advisor and may be headed to bankruptcy.

Rubenstein Interviewed at WIF

The Atlantic interviewed Carlyle Croup co-founder David Rubenstein on Wednesday.  Here are a few points made during the softball interview at the Washington Ideas Forum:

1.  Rubenstein met with House Speaker Paul Ryan this morning via an interview at the Economic Club of Washington.

Rubenstein is the Club's President and if famous for his intellect and humor displayed during guest interviews.  He's also co-founder of The Carlyle Group, a politically connected private equity underwriter (PEU)

2.  There are four issues facing the economy.  Number 1 is tax reform.  "We haven't had tax reform since 1986 and the tax code is little complicated and many people think unfair.."

The Carlyle Group was founded in 1987 and rode preferred "carried interest" taxation for nearly thirty years.  Rest assured Rubenstein will lobby for tax reform to benefit his wallet, just as he's done the last decade to preserve preferred PEU taxation

3.  The next three issues are trade, immigration and infrastructure.  He's not sure trade legislation will pass in the lame duck session after the election.  Rubenstein said it's been a long time since we've had immigration reform and believes it's time.  He referred to potholes as evidence of crumbling infrastructure all over the country.

Rubenstein did not say Carlyle has two funds targeting 15-20% annual returns on infrastructure opportunities.  Carlyle established a $1.1 billion North America infrastructure fund in 2006.  It's next infrastructure fund is global and over twice the size:

"Carlyle Group is targeting $2.5 billion for Carlyle Global Infrastructure Opportunities I, which features longer hold times for non-core infrastructure investments with a return target in the mid-teens."

4.  The interview turned to pandering over Rubenstein's patriotic philanthropy.  He encouraged Americans to give back to the their country and brought up four founding fathers, George Washington, Thomas Jefferson, James Adams and Alexander Hamilton.

He did not share how Thomas Jefferson used the value of his slaves as collateral for a loan long after writing "All Men are Created Equal."  Nor did Rubenstein, the history buff, educate the public that Jefferson had ample funding to free his slaves, courtesy of the last will and testament of a dear friend.  Yet, Jefferson did not, preferring instead to be a man over several industries run from and around Monticello.  Jefferson was a pioneering PEU.

5.  Rubenstein shared his theory that all the great people today have gone into private equity.  The interviewer laughed, then offered journalism.

Journalists are the group that offer softball questions to the Rubensteins' of the world, lest they get shunned for future stories/interviews.

6.  Rubenstein talked about his support of the African American Museum, which is part of the Smithsonian, and the Washington Monument.  He talked about the history of slavery but left out the role our Founding Fathers' played.  He referred to slavery as the "birth defect" of our country rather than our leader's privileged intent and inability to see through the eyes of others.

I would suggest today's insider class is just as focused on their power and privilege as their blind predecessors be they Jefferson, Hamilton, Vanderbilt, Mellon or Morgan.  Ever the consummate salesman Rubenstein's spin is intended to elevate his and The Carlyle Group's image.

7.  The interview closed with the Washington Monument's elevator problem.  It's 100 years old and needs some assistance.

Using the elevator symbolism for our economy, why do have few people in our country gotten to the top floors income/asset wise?  That might be the next question for Mr. Rubenstein, if it's allowed.