Sunday, May 31, 2009

GMAC's TARP Money Washes Through Carlyle Group

GMAC's Capital Markets Group will rent 24,000 square feet on Sixth Avenue in New York. The building's owner is The Carlyle Group, a huge politically connected private equity underwriter (PEU). Did Carlyle discount the rent 42% for an equity chunk of GMAC? Carlyle wants to buy distressed banks, but they'd rather the FDIC shut out equity holders first.

Saturday, May 30, 2009

PEU's and Annexation Funds

They were once known as leveraged buy out (LBO) firms. They've been rebranded "private equity" companies. I call them private equity underwriters or PEU's. The recent "LBO" hey day produced huge debt obligations. PEU's are restructuring many deals, getting lenders to write off principle and push out maturity dates. The WSJ reported:

They are issuing new debt to push back maturities on their existing loans. They are deleveraging through so-called exchange offers and debt repurchases. They are injecting more equity into deals to strengthen their balance sheets. Some are creating "annex funds" in which investors are asked to pony up more money to prop up ailing portfolio companies.

Unwinding excess leverage brings with it new words. What was a "capital call" is now an "annex fund". In either case, investors pony up new money or risk losing their prior investment. The opposite of annexation is secession. How many PEU investors would rather take their money and run?

Recall the Obama administration's $25 billion in stimulus love for private PEU's repurchasing debt. In the least, the big money boys pose a systemic risk to America's use of language. That's usually a bad sign. Ask your local con man, who can offer soaring rhetoric as he picks your pocket.

Friday, May 29, 2009

SEC Goes After Bad CMO Salesmen from Shuttered Firm

The SEC announced it "charged 10 brokers with fraud for falsely marketing investments in derivatives of mortgage-backed securities as safe and suitable for retirees and others with conservative investment goals. The independent contractor brokers worked for BrookStreet Securities, which went out of business in June 2007.

Isn't it amazing how firm's offering horrible quality products, declare bankruptcy and shutter the organization? How many beef makers close after a large E Coli recall? What about the salmonella peanut butter firm?

Now we have a long ago closed Brookstreet. They didn't act alone. Someone packaged the Collateralized Mortgage Obligations. Was it Goldman Sachs, Lehman Brothers or another former Wall Street investment banker? They were responsible for due diligence. That's for another day, if ever. It's the dirty brokers turn for justice.

Carlyle Group's IMO Car Wash in Lenders' Hands

The Carlyle Group tried to restructure the debt of IMO Car Wash. Rothschild was hired to restructure IMO's debt. Lenders didn't play Carlyle's game, thus IMO Car Wash is up for sale with Rothschild taking bids. Reuters reported:

Some lenders to IMO have bought into the company's debt over the last year, one source said, with an eye on a restructuring deal in the future.

Such a "loan to own" strategy is becoming increasingly common in Europe as distressed debt investors scoop up heavily discounted loans and bonds, expecting either high returns or a stake in the company.

Is this Carlyle's game in the U.S.? The private equity underwriter (PEU) buys distressed debt. Does the Carlyle Group have the same aim? It lost SemGroup and IMO Car Wash to lenders. Will the PEU use Trojan Horse debt to back into new Carlyle affiliates?

The Carlyle Group Wants More Taxpayer Money

The Carlyle Group cited their desire to partner with the government in the financial arena. The WSJ ran a story on Carlyle's 2008 annual report. It stated:

*The firm also said it wants to invest "with the government as a partner or counterparty in credit and liquidity-exposed situations in the belief that these partnerships can provide favourable loss-sharing arrangements, which can protect capital in a stress-case scenario."

Socialize the losses, check. Now what about privatizing the profits?

How PEU Boys Train Government Contractors

The State of Florida received no lease bids on Alligator Alley, a 78 mile toll road that's part of Interstate 75. It crosses South Florida, roughly from Naples to Ft. Lauderdale. Why did Florida get no bids, given the billions in private infrastructure money? A clue might be found here:

The state's primary objective in pursuing the lease was to maximize the asset's value to the state for reinvestment in transportation facilities while maintaining the road's safety standards, service levels and overall quality.

Private equity underwriters (PEU's) don't care about maximizing the state's assets. They want to buy or lease public infrastructure on the cheap. Just like most PEU's waited to invest in banks, they'll bide their time while state budgets implode.

When government is stressed enough and returns great enough, the PEU boys will bid. Consider this interim training for bureaucrats.

Thursday, May 28, 2009

Ex-Goldman & Obama Boys Go Bilderberging

Apparently the world financial crisis was topic #1 at the May 14-17 Bilderberg meeting. It was held on a secluded Greek isle. Reports say the group talked about a global Treasury Department, with the International Monetary Fund performing such a function.

Robert Zoellick, IMF Chief, is an ex-Goldman Sachs man as is Mario Draghi, the head of Italy's Central bank, but also the chair of the Financial Stability Board, a group remaking the global financial system. Both attended the Bilderberg soiree.

President Obama's support for Wall Street types is crystal clear. He had numerous members of his team in attendance at Bilderberg 2009. They include:

General James L. Jones
Richard Holbrooke
Dennis Ross
Henry Kissinger

Keith Sullivan

Tim Geithner
Larry Summers

Paul Volcker
James Steinberg
Paul Wolfowitz

Other American Bilderbergers include:
Robert Kagan
Richard Pearle

David Rockefeller

Henry Kravis

Roger Altman

Vernon Jordan
James Wolfensohn
Barnett Rubin
Niall Ferguson
Donald Graham-WaPo
Fareed Zakaria-Newsweek, CNN

What mischief did they get into? What plans did they make? The transparent and accountable Obama administration will say nothing on the matter. More soaring rhetoric and opaque implementation.

Now Change Means No Change from W.

Purchase Accounting Impact Points to More PEU Bank Buying

Uncle Sam provides tax advantages to companies buying distressed banks. Purchase accounting rules transform bad loans (acquired in the deal) into income.

John Kanas, the CEO of BankUnited, was on CNBC this morning. Larry Kudlow mentioned private equity investors, but not powerhouse Blackstone or The Carlyle Group, two part owners of BankUnited. Kanas bragged how $4.9 billion in FDIC subsidy was non-TARP, i.e. comes with little to no federal requirements. He expects many private equity underwriter (PEU) bank deals like Bank United.

PEU's win from credit spreads favorable to bank profits, FDIC's massive subsidy, and purchase accounting rules that turn junk into income. The FDIC's selling of distressed banks to PEU's provides a larger market for Tim Geithner's PPIP plan. Assets will be marked down enough to profit from an auction sale. The PEU boys will be on both sides of the PPIP, as owners of banks and investment buyers of junk debt.

Socialize the losses, privatize the gains. Obama sponsored corporafornication continues.

(HT-Economic Policy Journal)

Two Auto Suppliers Enter Chapter 11

Days after Michigan Governor Granholm asked for $8 billion in financing for auto suppliers, two companies went bankrupt, Visteon and Metaldyne. WaPo reported:

Both Visteon, which Ford Motor Co. spun off in 2000, and Metaldyne Corp, a unit of Japan's Asahi Tec, said on Thursday that the bankruptcy filings do not include their non-U.S. entities or operations.
Corporation structures are complex and fire-walled, supposedly reducing risk. However, it makes it easier to shed a loser. In this case, the taxpayer may shoulder the burden. While the public pays for the casket of living dead AIG and a shuttered BankUnited, corporate vultures pick at the carcass, even carrying them off whole.

Carlyle Group to Buy Assets from Bankrupt Auto Supplier

Michigan Governor Jennifer Granholm asked for $8 billion in financing for auto suppliers. One supplier, Metaldyne, declared bankruptcy. It looks pre-planned as the company has agreements to sell off segments. Detroit News reported:

Carlyle plans to purchase portions of Metaldyne's Chassis business assets in the U.S., Mexico and Spain. More details were not released.

The Carlyle Group has major automotive holdings, while Carlyle Senior Adviser Mack McLarty owns auto dealerships. Carlyle knows bankruptcy, having lost Carlyle Capital Corporation, Blue Wave Partners, SemGroup, Hawaiian Telecom, and Edscha. IMO Carwash sits on the brink of implosion.

The question is how the Obama administration will funnel money to Carlyle affiliates. President Bush farmed millions of TARP money to Carlyle's Boston Private Financial Holdings. Despite trillions in financial support, banks aren't lending, at least to America's manufacturing sector. That was the message from Carlyle's chief lobbyist David Marchick to a Senate Banking subcommittee. Carlyle Managing Director Michael Zupon echoed the refrain.

Auto's are shut out, thus another lobbyist must ride into D.C.

Neil Dekoker, with Original Equipment Suppliers Association, told Local 4 Business Editor Rod Meloni, "Suppliers have to ramp up buying materials and starting to pay employees and bringing them back again and they won't have the cash unless they can borrow the money from the banks and banks are currently not loaning money to the auto industry."

Dekoker has prepared a plan to put $8 billion dollars into supplier hands. He said he'll take that plan to Washington next week.
Mr. Dekoker goes to Washington with another plan asking taxpayers to fill the role of the financial system? How many ways will the big money boys win?

Wednesday, May 27, 2009

President Obama Wants to Farm Out Financial System Risk Regulation to Fed

The Federal Reserve Bank is a private corporation. While its mission impacts the public, it is separate and distinct from any government entity. President Obama wants the Fed to serve as the systemic risk regulator. It would serve as the super cop for too big to fail financial institutions, which includes shadow bankers like hedge funds, private equity and sovereign wealth funds.

Note the Fed is private and frequently won't release details regarding its activities. Shadow bankers are notoriously private. The Obama plan has the privates monitoring the privates. President Obama is consistent in catering to the PEU boys (private equity underwriters).

How long before President Obama tells the Fed who can serve and what they should do? Will he ask Ben Bernanke to allow PEU's to hold majority stakes in banks? He doesn't have to. That responsibility will shift to the FDIC, which indicated its strong interest in clarifying ownership rules to appeal to $1 trillion in private equity dry powder.

President Obama wants to restart greed and leverage for the big money boys. His faux regulation might do just that, using the taxpayer's dime of course.

Geithner Should Just Back Up the Cash Truck

Now that the PEU boys have a captive bank, guess who wants in on the PPIP program? Banks! Both Treasury and the FDIC plan to create "functioning markets" for toxic assets. Both offer huge government subsidies. Treasury's is $100 billion and the FDIC's pilot program is $1 billion.

Banks want to buy bad assets from themselves, with a kicker from Uncle Sam. The WSJ reported:

"Sensible restrictions should be placed on banks, especially those that have received government capital, from investing their own balance sheets in a backdoor effort to reacquire what could be their own assets with an enormous amount of federally guaranteed leverage," said Daniel Alpert, managing director at Westwood Capital LLC, an investment bank.

Recall greed and leverage imploded America's financial system. PEU boys buying banks? Greed is back. Uncle Sam subsidizing toxic asset sales and guaranteeing financing? Check off leverage. The more things change, the more they stay the same. Obama corporafornicates as well as Bush. Both love private equity underwriters (PEU's).

PEU's Win Big with BankUnited

Last Thursday, the FDIC gifted BankUnited to Blackstone and The Carlyle Group. The private equity underwriters (PEU's) own between 20 and 25% of the Florida bank. The FDIC estimates their subsidy of the deal at $4.9 billion. noted the sterling outcome for the PEU boys:

BankUnited, a smaller player in a Florida market dominated by giants like Bank of America and Wachovia, now has an advantage over competitors because it is "overcapitalized" and completely independent, with no federal government TARP money.

This is newest version of "no strings attached" corporafornication. BU will have nearly $5 billion in federal subsidy, if the projected estimate is accurate. The PEU boys have a captive bank, one shifting focus to commercial loans. What a surprise, given David Marchick's recent remarks to a Senate committee. David noted staggering amounts of deal financing that would come due between 2010 and 2015. BankUnited's new chair will shop those deals from the Northeast, not South Florida.

Uncle Sam gave shadow bankers a real bank. Shadow banker greed and leverage brought the world to its knees. Now they get to buy what should be the rock of our financial system? How sad. President Obama loves PEU's and corporafornicates as well as George W. Bush. Next time, give $5 billion to real bankers, not the shadow version.

Tuesday, May 26, 2009

Financial Crisis Anniversaries: What to Buy?

Pick a financial crisis anniversary:

On June 12, 2007 two Bear Stearns hedge funds speculating in mortgage-backed securities melted down.

Carlyle Capital Corporation, a 39-1 leveraged fund specializing in mortgage backed securities, imploded March 17, 2008.

September 14, 2008 Lehman Brothers filed for bankruptcy.

Allan Sloan of WaPo and Fortune Magazine wishes all an unhappy anniversary. What does one buy for an unhappy anniversary? Ben & Jerry's, dark chocolate, a Lotto ticket or distilled spirits? Choose your diversion.

Sunday, May 24, 2009

Obama's BankUnited Givaway?

On March 31, 2009 BankUnited had nearly $4.8 billion in advances from Federal Home Loan Bank on its balance sheet. What happened to that obligation in the sale of BankUnited to prominent private equity underwriters (PEU's)? The press release is unclear in this regard. It states:

BankUnited Financial Corporation (bank holding company for shuttered BankUnited) and the interests of equity, debt holders or other creditors of BankUnited Financial Corporation are not included in the closure or receivership of the institution. Any claims by equity holders were not acquired by the assuming institution.

BankUnited shareholders were zeroed out, helping to make the deal more attractive to Blackstone and The Carlyle Group. The FDIC expects the deal to cost it $4.9 billion. They didn't spell out a breakdown for the nearly $5 billion subsidy. How much is upfront money to the PEU boys and how much is loan loss sharing?

If shareholders and the FHLB got zeroed out, BankUnited instantly became the best capitalized bank in the U.S.

PEU owned BankUnited announced a new strategy, focusing on corporate loans. Private equity needs a captive bank with huge amounts of debt refinancing between now and 2014. Branches become disposable in such a scenario.

While it's possible the FHLB loans were transferred in the deal, some other arrangement could've been made. Debt holders can be crammed down before or during bankruptcy. The FDIC has questions to answer.

It may end up like AIG, a long process with copious amounts of Obama minion obfuscation. I can't wait for Tim Geithner to put PEU's, apple pie and Chevrolet together in one sentence.

Wave a flag, shed a tear for the patriotic PEU boys! They're saving "George Bailey" using the community chest. Behind the scenes, they plot how to grow Pottersville tenements? It's an Obama PEU Life!

Geithner Snickers While Delivering Lines

Treasury Secretary testified before the Senate Banking Committee on the TARP program. A number of Senators pressed Tim Geithner on full payment to AIG counter parties. Over $70 billion in taxpayer money went to settle half of AIG's derivative risk. The other half remains.

While being pressed by Senator Mark Warner, Tim brought in motherhood and apple pie as a defense. It went like this (at the 2:03 mark):

Senator Warner: I am very, very troubled by your comments on AIG and our obligation to maintain 100 cents on the dollar to counter parties....

Secretary Geithner: ...Everything we do on AIG going forward, we are going to try to balance what we think is the best way to reduce risk to the taxpayer over time, at the least potential damage to the financial system as a whole. It is an incredibly difficult balance. And uh, it is very hard to know if we get that balance right, but we've kind of had a good experience with what happens to people when we get that balance wrong....

Senator Warner: The taxpayer should be expected to continue to honor all of the AIG obligations at 100 cents on the dollar for as long as we're in AIG?

Secretary Geithner: I think Senator I would say it differently. What my obligation is, again, is to try to manage through this incredibly difficult problem in a the way that minimizes losses to the taxpayer and minimizes broader risk of damage to rest of the financial system, because as we saw last year the effects of getting that judgment wrong are deeply traumatic to people who were careful and responsible... My obligation is not to protect the counter parties at AIG. I would not give a penny to the counter parties at AIG. What I care about is trying to make sure that we reduce risk of loss to the taxpayer, and we reduce the risk of avoidable damage to the fabric of confidence in our financial system because of the effect it has on pension values (big smile), again on business viability, on the cost of credit, on the ability to put your kids through college, on the viability of business on Main Street, on the level of unemployment. I know that connection seems remote, is hard to appreciate, cannot be certain we get that balance right, but look what happened when reasonably careful people got that balance wrong.

Not that's a non-answer! Maybe next time Tim can get through his Rahm Emanuel supplied lines without that half sneer/snicker.

Treasury gave billions to AIG, which they in turn gave to counter parties to reduce a portion of its derivative risk. Many of those counter parties had outstanding first quarter investment returns. It looks part of a plan to increase confidence in the fabric of our financial system. Tim's words, not mine.

Cerner Stock & White Health Health Czar Appointment

Cerner Corporation's stock rose over 50% in the last few months. The health information technology firm is in the sweet spot of President Obama's health care reform plans. Not only that, Cerner has an ex-board member as White House Health Czar. Nancy-Ann DeParle held 27,000 shares of stock, according to Cerner's 2008 DEF14A. Her holdings weren't listed in the 2009 document.

Some of these are options with a specific exercise price. Over 13,000 shares, priced in the mid-teens, have a 2011 expiration date.

Cerner Corp's current price is $56.52

Nancy-Ann's 13,300 in stock options are for $15.46

If she flipped them, Ms. DeParle would make $41.06 per share, or a total of $546,000

Sweet! What happened to Cerner's stock, since Nancy-Ann was named Obama's Health Care Czar?

March 2 $35.00

May 22 $56.52

Increase $21.52

Percent Increase 61.5%

More sweetness! How did your 401(k) or IRA do the last few months? Health care reform will have winners and losers. How might private equity underwriters and for-profit health care companies fare?

Stomping Out the People's Voice at the Fed?

Political pressure can be felt, even in heady Regional Federal Reserve Bank boardrooms. Richard Fisher, President of the Dallas Fed, is concerned about montezing federal debt. I'll leave it to economic experts to wrestle with deflation, inflation, and money supply. But something struck me about the WSJ article. It stated:

Voices like Mr. Fisher's can be a problem for the politicians, which may be why recently there have been rumblings in Washington about revoking the automatic FOMC membership that comes with being a regional bank president. Does Mr. Fisher have any thoughts about that?
This is nothing new, he points out, briefly reviewing the history of the political struggle over monetary policy in the U.S. "The reason why the banks were put in the mix by [President Woodrow] Wilson in 1913, the reason it was structured the way it was structured, was so that you could offset the political power of Washington and the money center in New York with the regional banks. They represented Main Street.
"Now we have this great populist fervor and the banks are arguing for Main Street, largely. I have heard these arguments before and studied the history. I am not losing a lot of sleep over it," he says with a defiant Texas twang that I had not previously detected. "I don't think that it'd be the best signal to send to the market right now that you want to totally politicize the process."
The Obama administration is tight with the big money boys. Geithner, Summers et al cater to the financial sector. The money center is now split between New York and Washington, D.C. It now spokes throughout the world.

If any FOMC member truly supports the people's interests, they could feel severe pressure. It's interesting the fight is over framing "populism" and "politicizing the process."

Power is as power does. President Obama offers populist rhetoric and corporatist implementation. I'm not sure where Mr. Fisher stands, but he's a voice at the table.

Update 6-29-15:  Richard Fisher will serve the people's interest as board member of AT&T and senior advisor to Barclays, which acquired Lehman Brothers after the Fed loaned Lehman $138 billion.

Wall Street Looks for Treasury to Guarantee Derivatives Franchise

Wall Street's greed and leverage drove America's financial crisis. Firms fled to the safe harbor of commercial bank status. Bloomberg reported on their efforts to reshape the system in their favor. Over the counter derivatives trading reforms look to benefit Goldman Sachs, JP Morgan, Credit Suisse, and Barclays. The story stated:

The banks sent the Treasury a plan written in February titled “Outline of Potential OTC Derivatives Legislative Proposal,” saying the Federal Reserve should extend capital and margin requirements to companies and hedge funds that trade in the $592 trillion unregulated market, according to a document obtained by Bloomberg News and confirmed by the Treasury. Energy companies, corporations and hedge funds don’t face such requirements now, while banks do under central bank oversight.

“The banks appear to wish to maintain the intra-dealer market and raise barriers to new entrants to keep the OTC business as compartmentalized as possible and to protect their profitable market conditions,” said Brad Hintz, an analyst at Sanford C. Bernstein & Co. in New York. “The Street’s lobbyists appear to be asking for a ‘club’ structure in OTC trading.”

(The Geithner plan includes) “All OTC dealers and other firms who create large exposures to counterparties should be subject to a robust regime of prudential supervision and regulation,” the proposal said. These included “conservative capital requirements,” “reporting requirements,” and “initial margin requirements.”

The bank-written plan, dated Feb. 13, said the systemic regulator “shall promulgate rules” requiring “capital adequacy,” “regulatory and market transparency” and “counterparty collateral requirements.”

Tim Geithner's sketchy plan is remarkably similar to the bank suggestion. Will ex-Wall Streeters get the franchise and the systemic regulator they want?

The devil is in the details, which will be revealed, likely late Friday afternoon of a holiday weekend.

Saturday, May 23, 2009

Fed Corporafornication Grows

The Federal Reserve's Vice Chair indicated the central bank would buy larger amounts of financial instruments. Bloomberg reported:

The Fed is in the process of buying $300 billion of long- term Treasuries through September, as authorized at the March meeting of the Federal Open Market Committee. Policy makers also at the time more than doubled planned purchases of mortgage- backed securities to $1.25 trillion this year and boosted federal agency debt purchases to $200 billion from $100 billion.

That totals $1.85 trillion, most of it corporafornication. Treasuries and agency debt are new, thus they can impact the economy. How much mortgage-backed securities are new vs. legacy assets? They don't say. Here's where things get less clear.

Purchases may increase nominal gross domestic product as much as $1 trillion “over the next several years,” Kohn said in a footnote to his remarks.

GDP fell from $14.4 trillion in the third quarter of 2008 to $14.1 trillion in the first quarter of 2009. Trillions in interventions occurred during this period of GDP decline. Yet, GDP fell.

Alan Blinder, a former Fed vice chairman who is a Princeton economics professor, said Kohn’s estimate of the effect on GDP from the mortgage-bond purchases is “believable.”

“It was supposed to reduce the risk spread between mortgage rates and other rates, and I think it has,” Blinder said in an interview. “You get these multiplier effects” on the economy from spending on housing, said Blinder, a panelist with Kohn at the conference.

You get these multiplier effects? I expected a little more logic to the estimate.

Kohn reiterated his view that the U.S. economy “is only now beginning to show signs that it might be stabilizing, and the upturn, when it begins, is likely to be gradual amid the balance sheet repair of financial intermediaries and households.”
Let's say GDP grows a trillion over the next few years. How much of that is inflation? How much is hyper-inflation?

KKR Interested in Public-Private Infrastructure Deals

NPR talked about the huge amounts China's stimulus plans put into public infrastructure. The Obama stimulus plan is but a fraction of China's. Why? Obama wants to steer infrastructure to the private sector. He'll provide funding via a National Infrastructure Bank.

Who's interested? It's the usual smattering of PEU's, private equity underwriters. KKR, The Carlyle Group, Blackstone, and Goldman Sachs. Foreign versions, like Macquarie, are ready to play.

The Obama team changed rules so PEU's can majority own thrifts, savings & loans or credit unions. The FDIC will provide guidance on how PEU's can buy banks. The Fed currently restricts them to no more than 24.9% ownership without converting to bank holding company status.

President Obama rolls out the red carpet for the big money boys. Remember, not all shadow bankers are the same. There are variations of greed and leverage. Note: Hedge funds are evil, while the PEU boys are Supermen, standing ready with billions in cash to save the day. The world has gone flippy floppy.

Friday, May 22, 2009

Carlyle Group's New Bank to Focus on Commercial Loans

What a surprise! "Credit impinged" private equity underwriters (PEU's) have a brand spanking new BankUnited Federal Savings Bank. It's ready to cater to the commercial sector of the economy. The timing couldn't be better. Carlyle's David Marchick told the Senate about a staggering amount of loans that need refinancing from 2010 to 2014. BankUnited stands ready to help.

South Florida BizJournals reported:

John Kanas, BankUnited's new leader, said Florida’s largest local bank will focus on attracting commercial and small business loans.

Kanas said he will continue to live in New York, but will commute to Coral Gables and stay there several days a week. He said he will use his business contacts in the Northeast to find many investors eager to make deals in South Florida.

In addition to going after commercial, industrial and small-business loans, he said BankUnited will start seeking more business deposits, in addition to its retail deposit base.

The Carlyle Group has hundreds of affiliates. Are any candidates for BankUnited's services? What about Blackstone's corporate assets? Do they need commercial catering? The PEU boys have a captive bank. I feel a credit thaw coming. It's aided by $4.9 billion in FDIC support.

When will they implement the PEU model of shedding low performing branch offices? It took a whole day.

Update 6-15-10: BankUnited successfully made the transition to commercial lending.

Uwe, Uwe! ESHI Gotta Go!

Princeton economist Uwe Reinhardt has a piece on employer sponsored health insurance (ESHI) in the New York Times. It ends with:

"If success in this regard serves to shrink the traditional employment-based insurance system, so be it.”

It’s not the outcome, it’s the plan. The race continues to the lowest global common denominator on worker pay/benefits. Employers want to dump the employment-based insurance system. Uwe provides a nice cover in his piece.

As for Uwe, I hope he declared his conflicts of interests. He sits on a number of for-profit health care boards and owns huge chunks of stock, including options.

He just got options for 6,230 shares of AmeriGroup stock, a health insurer. They become exercisable in 2010 and last through 2016. Uwe also holds 144,558 AmeriGroup shares, 134,856 of which are options. Dr. Reinhardt has a strong incentive to see AmeriGroup's stock price grow. It would help if Obama’s "public plan" is really a public-private hybrid. AmeriGroup excels at that. Dr. Reinhardt's Board pay from AmeriGroup in 2008 was $226,531.

Uwe made $2.3 million off the sale of Triad Hospitals and has a big chunk of stock in Boston Scientific (63,625 shares of BSX). Reinhardt's 2008 Boston Scientific Board compensation was $241,740. White House Health Czar Nancy Ann DeParle sat on the Triad and BSX boards with Uwe. However, the health economist sits on other boards, even a private equity underwriter (PEU):

Dr. Reinhardt is a Trustee of the H&Q Healthcare Investors, H&Q Life Sciences Investors and Hambrecht & Quist Capital Management LLC. He is a member of the boards of directors of Amerigroup Corporation and Legacy Hospital Partners, Inc.

Nancy Ann DeParle was a PEU and sat on the Legacy Hospital Partner board, founded by ex-Triad CEO Denny Shelton. Funny, the Obama/Summers/Orzag/Emanuel lingo on health reform sounds alot like Denny circa 2007.

A little bit louder now! Hey, hey, hey hey! Uwe, Uwe! ESHI gotta go!

Carlyle-eeze for BankUnited Equity Holders

When the FDIC seized BankUnited, equity holders lost out. Bidders clearly lobbied for zeroing out shareholders. Here's what The Carlyle Group & Company offered in the way of information to former BU share "bag holders":

Question: What about my shares of stock, notes or subordinated notes that I own in BankUnited Financial Corp.?

There was no publicly owned stock in BankUnited, FSB. If you are an equity shareholder, your shares are in BankUnited Financial Corp. in Coral Gables, the holding company for BankUnited, FSB, and not the institution. BankUnited Financial and the interests of equity, debt holders or other creditors of BankUnited Financial are not included in the closure or receivership of the institution. Any claims by equity holders were not acquired by the assuming institution. Please do not file a claim with the Receiver; instead, you should contact BankUnited Financial directly for information.

Contact the FDIC and Treasury. They're the pair arranging sweet deals for private equity underwriters.

Question: Will I continue to earn interest at the same rate? Will I be charged an early withdrawal penalty?

BankUnited will be reviewing rates and will notify you.

The PEU boys win again. It's a familiar refrain.

FDIC Subsidizes BankUnited Deal According to CNBC

An investment group made up of private equity underwriters (PEU's) and individual fat cats ponied up $900 million for BankUnited. It would've been more, but the FDIC crammed down equity holders to zero. In addition, the FDIC offered $4.9 billion to sweeten the deal. CNBC reported:

"We're assuming that things will get a lot worse and that's why there was the need for the $4.9 billion from the FDIC on top of our $900 million," Ross told "Squawk Box."

BankUnited made the riskiest of loans, of which billions will come due between now and 2010. The government backstopped the junk for the PEU boys. How much of BU's toxic assets will Treasury buy or the Fed take as collateral? There has to be more than one way for the Rubenstein's and Peterson's of the world to profit handsomely. Super returns await. The Government-Industrial Monstrosity will insure it:

The FDIC said on Thursday it is close to providing more guidance for how private equity firms can invest in failing banks. The government is looking for ways to better tap the $1 trillion of total uninvested private equity capital as bank failures accelerate.

Thursday, May 21, 2009

FDIC Crams Down Shareholders, Carlyle Group's Bid Wins BankUnited

The FDIC shuttered BankUnited, zeroing out equity holders. It then sold the firm's assets to a consortium including The Carlyle Group, a private equity underwriter (PEU).

The deal will cost the FDIC $4.9 billion. How much deal financing did Uncle Sam provide? Bloomberg's piece didn't say. Washington BizJournals said Carlyle & company "invested $900 million in a new depository institution acquiring the operations of BankUnited."

Thirty three banks and five credit unions failed since January 2009. PEU's can buy a majority stake in credit unions and savings & loans, thanks to a recent Obama administration change. It's unclear if the Fed will apply the same rule to banks.

IndyMac was sold to a consortium of shadow bankers, hedge funds & PEU's. BankUnited is the second bank to land in the hands of the greed & leverage boys.

How long before corporate raiders turn to captive banks for deal financing?

Evan Almighty Comes Through for Corporate Sponsors

Senator Evan Bayh (D-IN) voted against a renewable energy requirement, the only member of his party to do so. Curious as to why, I explored public information on lobbying and corporate individual/PAC donations.

Two of Evan's top twenty donors registered to lobby on the bill

9. US Steel--supported Senator Bayh with $38,000
13. Peabody Energy--gave $33,800 in donations

The Indiana Senator has an interesting donor list. The financial sector is well represented:

1. Goldman Sachs--$123,750
14, Oaktree Capital Management--$33,400
15. The Carlyle Group--$32,750
19. AIG--$26,700

The country watched hundreds of billions flow from taxpayer wallets into the above firms. Treasury and the Fed have countless ways of getting money to financial firms. The no accountability Congress provides hapless oversight. Which brings us to health care reform.

2. Eli Lilly--$65,722
7. Blue Cross/Blue Shield--$44,500

The Bayh household benefits from huge health insurer WellPoint. Mrs. Bayh sits on the board, bringing home twice her husband's annual bacon.

What Evan Bayh did for renewable energy, he can do for health care deform. He might even get some help. Courage to greed...

Bad Kazakhstan Journalism or More Carlyle Group Writedowns?

Carlyle Group co-founder David Rubenstein met with the leader of Kazakhstan. Gazeta.KZ reported:

According to the press service, D. Rubenstein informed the President on the company plans on investment in various branches of the economy of Kazakhstan.

Carlyle Group - one of the largest investment funds, operating the assets for the sum of more than $74.9 billion and specializes in venture investments.

Is the $74.9 billion the most up to date number for Carlyle's assets under management? It was $91.1 billion in late 2008. After write downs, it fell to $85.5 billion. Carlyle's website hasn't changed from the $85 billion number. One might expect a head of state to get the most up to date information.

How did the $16.2 billion plummet happen? Did the nearly 18% fall come from asset write downs? Did any investors pull their stakes? Maybe, new energy rich countries like Kazakhstan and Libya can turn Carlyle's red tide.

Update: The European Bank for Reconstruction & Development is investing in stressed Kazakstan companies. Carlyle is yet to step up, at least publicly.

Wednesday, May 20, 2009

U.S. Pays China Over $50 Billion a Year in Interest

Cash or check? Debtor nation.

Bankruptcies, Missed Payments Trigger Credit Default Swaps

Georgia Gulf, a maker of commodity chemicals, missed an interest payment on its debt. This triggered credit default swaps, according to the International Swaps & Derivatives Association. The payment was due April 15.

Private equity underwriter bankruptcies keep coming. The Deal Magazine has a laundry list.

The Obama team believes CDS's and PEU's pose no systemic risk. Treasury and the Fed will need to backstop both with billions to trillions of dollars. The Federal Reserve Bank expanded TALF today. Treasury changed the OTS rule to allow PEU's to buy a majority interest in banks. Uncle Sam will likely finance any PEU bank deals. Pay attention, the money shuffle will happen via multiple routes.

Geithner Asks for Greater Wind Down Authority as European CLO's Implode

Treasury Secretary Tim Geithner testified before the Senate Banking Committee on greater wind down authority for systemically important financial institutions. While Geithner spoke, European collatoralized loan obligations sat on the implosion precipice. Bloomberg reported:

About 40 percent of collateralized loan obligation funds in Europe are failing tests that may trigger immediate debt repayments to senior lenders and cut off interest owed to junior investors, according to Fitch Ratings.

Failures of over-collateralization ratios could cause some CLOs to default by the end of next year, Fitch said in a separate report today.

The main losers are CLO managers, among the largest of which are The Carlyle Group, Dublin-based Harbourmaster Capital and Alcentra Group Ltd., owned by Bank of New York Mellon Corp.

Will Uncle Sam ride to the rescue yet again? Or will it be the Fed widening TALF for existing toxic commercial loans? Defaults are on the horizon.

Geithner Cleverly Dodges PEU Question

CNBC aired Treasury Chief Tim Geithner's testimony before the Senate Banking Committee. Senator Reed asked why Treasury's Office of Thrift Supervision allows private equity underwriters (PEU's) to buy a majority interest in thrifts, when the Fed bars the same firms from holding more than 24.9% of any bank. Tim dodged.

Geithner said there should be one standard, implying Treasury's OTS standard should be it. Tim and the Obama administration changed it. Someone coached him to couch his answer in bureaucrat-eeze. The PEU boys look to win again.

Another Obama PEU: Richard Holbrooke

State Department special envoys Richard Holbrooke and Dennis Ross submitted their federal financial disclosure form, according to USA Today. They revealed yet another private equity underwriter (PEU) in Obama's stable. Mr. Holbrooke worked as Vice Chairman for Perseus LLC, receiving $736,582.

While Mr. Holbrooke is busy with Afghanistan and Pakistan, PEU's look to avoid Obama regulatory scrutiny. It appears their effort will be successful. Richard's forms showed:

Service on the AIG Board from 2001 to July 2008

2 Countrywide loans from the Friends of Angelo (Mozilla) program, one at 5% & the other at 5 3/8%

Speaking fees from Bear Stearns

Stock holdings in numerous American branded multi-nationals, including big oil, major health insurers, big pharma

BOA loan to finance partial interest ($500,000-$1 million) in a Cessna 680 jet, rate is 4.236%

It's a good day to be a PEU public servant in Washington, D.C. Ask Nancy-Ann DeParle.

First PEU Failure?

Private equity underwriters (PEU's) lobby the Obama administration, saying they pose no systemic risk. Yet, the shadow bankers cranked up greed and leverage during their big deal days. A story on Springer Science indicates PEU's can fail, even cause a bank run from worried investors. It stated:

The sale comes as many in the private equity industry struggle with falling revenues in the companies they own while debt financing conditions deteriorate.

Candover is mulling a sale of all of parts of its business, having said in March it had run out of cash to invest in its own 2008 private equity fund, throwing the future of the firm into doubt.

Springer Science is facing a payments crunch on its 3.08 billion euro leveraged loan. The sale of the stake could help the company to reduce debt and give it the financial firepower to strike a deal with its banks.

Carlyle's David Marchick expressed concern to Congress over huge debt that needed refinancing from 2010-2014. The piper will need to be paid, one way or the other.

Monday, May 18, 2009

Carlyle Group's FRSGlobal to Help Hedge Funds Comply with Coming Regulations

Not only will the Carlyle Group, a huge "politically connected" private equity underwriter (PEU) avoid regulation, an affiliate stands to sell regulatory compliance software to the only shadow bankers likely to land under the Obama regulatory umbrella.

FRSGlobal plans to offer compliance solutions to hedge funds. Their press release stated:

"While the exact form of regulatory reporting is still to be finalized, it is clear from our discussions with market participants and U.S. governing bodies that there is going to be an overwhelming need for the kind of flexible risk and regulatory reporting tools developed by FRSGlobal that have helped hundreds of banks worldwide meet the their regulatory needs over the past twenty years. This experience and expertise is now going to be available to the hedge fund industry."

PEU's and sovereign wealth funds (SWF's) stand to get a free pass from Obama's regulators. Funny, Chief regulator Larry Summers spoke of the risk of SWF's when Larry was in the private sector.

Geither's Fast vs. Volker's Measured Reform

Paul Volker, Chair of President Obama's Economic Recovery Advisory Board, encouraged the administration to take a cautious approach to financial regulation. Treasury Chief Tim Geithner wants to strike while the financial reform iron is hot. Geithner said:

"You want to move at a point where people still have the memory of the trauma. If you wait for the memory to fade, then the impetus for reform will fade and you probably get less change than you need."
Funny, Tim didn't mention Treasury's allowing private equity underwriters to buy U.S. thrifts, savings & loans and credit unions. Are banks far behind? Tim did side with CEO's, suggesting no restrictions on executive pay. My memory hasn't faded on the role of greed and leverage in last fall's Wall Street implosion. CEO incentive pay played a clear role. Tim's fast in some areas and slow in others, especially those involving his Wall Street chums.

Volker's committee got the usual Obama problem engorgement. President Obama's team frequently makes problems larger as it attempts to address them. Israeli/Palestinian peace is contingent upon Iran.

The Economic Recovery Board and its subcommittees have to address jobs, energy, financial markets and regulation, housing, & retirement. As if that wasn't enough Obama charged the board with coming up with tax change proposals by December. The ERB meets quarterly, with their first official meeting this Wednesday.

Treasury Allows Private Equity to Buy Distressed Thrifts

The Fed allows private equity firms to band together to buy failed banks, as long an no firm has over 24.9% interest. The Office of Thrift Supervision (OTS) seems willing to allow private equity underwriters (PEU's) to hold a majority interest in financial firms, savings & loans, thrifts and credit unions. The OTS is part of the Treasury Department. Bloomberg reported:

H. Rodgin Cohen, chairman of Sullivan & Cromwell, the New York law firm that represented MatlinPatterson on the Flagstar deal, as well as other private-equity firms, defended the concept at a forum sponsored by Bloomberg on May 4.

“I see no reason why private equity should not be able to invest fully in banking institutions, take control of stakes,” Cohen said. “There are structures which will accomplish this, and you could put in real barriers to preserve the safeness and soundness of the institution and to prevent conflicts of interest.”

Mr. Cohen was recently Tim Geithner's nominee for Deputy Treasury Secretary. He withdrew his name. Tim's mentor at the New York Fed was the Blackstone Group's Pete Peterson.

Blackstone Group LP and Carlyle Group, the world’s two biggest LBO firms, are among those eager to snap up banks on the cheap after global losses tied to the credit crisis topped $1.4 trillion and slashed the valuations of lenders.
Tim Geithner and Larry Summers recently rubbed elbows with Carlyle co-founder David Rubenstein at the Economic Club of Washington. Olivier Sarkozy, Carlyle's co-head of financial-services investments said:

“While there are valid public-interest issues that would need to be discussed and addressed to everyone’s satisfaction, not being able to control a bank we invest in increases our risk and therefore results in our demanding a higher return,” Sarkozy said. “That in turn increases the ultimate costs to the taxpayer of the industry’s necessary recapitalization.”

Carlyle bid on BankUnited. They may soon have a captive bank. How does that impact customer service, while Carlyle pursues Super Returns? News reports show Carlyle hoping to zero out BankUnited equity holders and wanting billions in financing from Uncle Sam. Those super returns could come on shareholders' and taxpayers' backs. Shadow bankers imploded Wall Street. They'll soon be majority owners of thrifts. Disaster capitalism thrives.

Next Round of CDS's Due for R. H. Donnelley

Failure to pay interest on R.H. Donnelley's debt within a 30 day grace period triggered payment of credit default swaps. Reuters reported:

Net volumes of around $333.6 million are outstanding on R.H. Donnelley's debt, according to the Depository Trust & Clearing Corp.
The Carlyle Group once held R.H. Donnelley, but exited their investment in 2002. As of December 31, 2008 Donnelley had $9.6 billion in outstanding debt according to SEC filings. The company wrote down goodwill by $3.1 billion. How much of that Carlyle "valued added" disappeared with the swipe of a pen? Goodwill sits at zero. Intangible assets were written down by another $750 billion.

Management issued their going concern warning given credit downgrades, huge amounts of maturing debt and difficult business conditions. KPMG added to the bleak picture with its statement, "In our opinion, R.H. Donnelley has not maintained effective internal control over financial reporting as of December 31, 2008." That's got to hurt.

Pension Scandal Window into Corporafornication

Political insiders selling influence? Besides record lobby spending, the current pension "pay for play" scandal offers a view into the sordid business. Bloomberg reported:

“When you look at some of who the placement agents are, you say these are people who are really not in the financial business,” said Orin Kramer, who oversees pensions as head of New Jersey’s Investment Council. “These are politically connected intermediaries, and that’s not a way it ought to operate.”

Indictments and civil complaints filed by regulators so far depict public officials allowing such connections and financial self-interest to trump merit when deciding who will be entrusted to invest taxpayer money.

The Carlyle Group settled with New York for $20 million for its role in a pay to play scandal. President Obama sees private equity underwriters (PEU's) like Carlyle as the solution to America's economic problems. Shadow bankers will soon invest alongside Uncle Sam in distressed assets. PEU's will partner to buy banks, while avoiding any serious regulatory scrutiny. PEU affiliates will line up at Treasury's cash window to fund supplies, executive incentive compensation and their pension obligations.

Don't linger too long at the Corporafornication window. It's unseemly. But you have to wonder, how long can they keep doing it?

Flu Vaccine Contaminated with Live H5N1 Virus During Packaging?

Baxter Pharmaceuticals, the maker of flu vaccines, had a glitch. Their test flu vaccine was contaminated with live virus from the deadly H5N1 bird flu. A Baxter rep said it happened by accident, likely during packaging.

So how do live bird flu viruses present during packaging? Do they fly around the manufacturing facility, dive bombing open vials as they speed toward lid application? Did a Baxter employee have a syringe with live virus, adding droplets as they whizzed by?

An answer is needed, as the world faces an H1N1 outbreak. Baxter and Chiron will produce millions of flu vaccines for the coming fall. They don't need to be tainted with live, but deadly flu viruses.

(Baxter is the same company that brought Americans deadly heparin. Chinese labs substituted a lower cost ingredient, that turned out to be deadly. For quality, manufacturers need to know their supplier. Baxter clearly didn't.)

Sunday, May 17, 2009

CalPERS to Up Percent of Investments in PEU's?

Huge pension fund CalPERS is considering an increase from 10 to 15% of its private equity underwriting (PEU) portfolio. Their investment committee will take the issue forward next month. Is the move to accommodate what has occurred or to pave the way for new investments? Calpensions reported:

Private equity is generally regarded as being more risky than stocks. But when the stock market crashed last fall, the CalPERS private equity program apparently held up better than most stocks.

During the year ending last March 31, CalPERS says the value of its AIM private equity fell 19 percent while a stock index plunged 36 percent.

report last week said that CalPERS has invested $41.1 billion in the AIM private equity program since it began in 1990, earning a $14.3 billion profit. The current value of the program is $20 billion.

CalPERS has a commitment totaling $4 billion to 27 different Carlyle Group private equity funds. CalSTRS has a $1.2 billion commitment to three Carlyle funds.

Do the numbers take into account, capital calls PEU's made on CalPERS or the pension fund's dumping of private equity investments? Bloomberg reported:

Washington, D.C.-based Carlyle Group, the world’s second-largest private-equity firm, made $681.3 million of capital calls on the pension fund (CalPERS) in 2008.

How did it all wash out? Carlyle gave New York $20 million to wash its hands regarding a pay to play pension scandal. That's serious soap.

Obama & Carlyle Group Target MENA

On June 4 President Obama will speak to the Muslim world from Cairo, Egypt. He'll appeal to citizens in the Middle East-North Africa (MENA). Will he mention America's entrepreneurial spirit? The world knows well what greed and leverage did to their economies. President Obama wants to restart greed, with a tad less leverage and Uncle Sam as the banker.

Back to MENA, another American institution, is in the region. It's the Carlyle Group. The President recently signed a bill with the name of a Carlyle co-founder, David Rubenstein. Mr Rubenstein returned the favor by inviting the President to speak at the Economic Club of Washington.

The Carlyle Group established a $500 million MENA fund. They're currently shopping for acquisitions in oil & gas, health care, pharmaceuticals and specialist manufacturing. Carlyle's David Marchick told a Congressional Committee that Uncle Sam needed to do more to help manufacturing. It looks like the Obama administration's banking role will spread.

Will President Obama get his picture taken with Walid Musallam, Carlyle Managing Director and Head of MENA business? As Obama likes private equity underwriters (PEU's), that would be accountability and transparency. PEU shadow bankers are clearly part of White House solution.

Next stop for Walid, after posing with the President? Libya!

Saturday, May 16, 2009

David Rubenstein Invites President Obama to Speak at Economic Club of Washington

Carlyle Group co-founder David Rubenstein invited President Obama to speak at the Economic Club of Washington. David had the honor of introducing Hank Paulson, Larry Summers and Tim Geithner as President of the distinguished club. At their recent meeting Rubenstein said:

I'm David Rubenstein, the president of the Economic Club of Washington, for those who don't know. And I wanted to welcome all of you tonight to what is our eighth and, I believe, final event of the season. Unless the president wants to speak to us subsequently, we probably won't have any more events before the fall. But we're always open to the president if he wants to speak...

That's the same David Rubenstein of the recently signed Congressional bill. It bears his name and President Obama's signature. The club is very small and very tight, at least relative to America's 300 million population.

Most Credit Default Swaps Don't Match Up with Accounting Requirements for Risk Management

Credit default swaps are marketed as a risk management tool. The accounting profession sets standards as to what qualifies for hedge accounting, i.e. the CDS covers the risk of underlying debt instruments. The vast majority of credit default swaps don't qualify, according to a Reuters story.

This raises the question, "are CDS's really for risk management or are they for speculation?" Bloomberg reported on speculators buying CDS's for distressed firms with upcoming debt refinancing needs. Huge amounts of corporate debt need to be refinanced from 2010-2014, at least The Carlyle Group's David Marchick told a Congressional subcommittee this fact. He also said credit remain frozen.

The future could show more firms at risk for CDS speculation, something not constrained by President Obama's financial regulatory reform. It looks like Congress may need to intimidate accountants again. The FASB chief may still be quivering from his last Congressional beat down over "fair value" accounting. Relaxing accounting standards to get America out of a financial crisis seems odd. But that's the way it is.