Know your BFEE! Carlyle lobbies for bigger share of banks!

[Joanne98]

The housing crisis is becoming more clear everyday. Who's benefits? Why Bush of course!

The Debate Over Private Equity In Banking
Posted by John Carney, Aug 04, 2008, 11:57am
While the collapse of Bear Stearns and financial industry losses now topping $400 billion, many lawmakers and regulators are calling for increased regulation of the banking industry. But a parallel argument has been pointing in the opposite direction: loosening some regulations to allow private equity firms to invest more in banks.

The losses have forced banks to raise somewhere around $400 billion in new capital (the number changes every couple of days, so we forget exactly how much), much of which is now under water from further losses. With estimates of further losses totaling as high as $1 trillion to $2 trillion, many now wonder where the banking industry will find new capital to replace these holes.

One answer might be the government, although contracting revenues due to a dithering, recessionish economy may limit this option. Others have proposed easing rules that have discouraged private equity firms, which have something like $400 billion of capital on hand, from investing in banks.

Those rules subject investment firms which own more than 25 percent of a bank to the full panoply of banking regulations, basically declaring the owner a bank itself. Holders with between 10 percent and 25 percent are prevented from controlling the banks management.

The practical effect of all this limits outside investment firms to holding less than a 10% stake in a bank if they wish to place a director on a bank's board. Perhaps the greatest barrier to private equity investment, however, isn't these limitations. It's the "source of strength" doctrine, which exposes controlling firms to potentially unlimited liability for bank losses. It's meant to ensure depositors that the owners of the banks holding their deposits stand ready to support the banks with their full faith and credit. But it also helps deter investors, such as private equity firms, from taking large stakes in the firms.

Private-equity firms seem eager to invest in banks, and have been encouraging lawmakers to reform the regulations to make this easier. Proponents of the move, including two managing directors at the Carlyle Group who penned an op-ed in the Wall Street Journal in June, argue that the ideas behind the regulations--the need to prevent conflicts of interest and concentration of economic power--do not apply to private equity firms, who generally would only hold their stakes in banks for limited periods of time.

Opponents of the reforms hardly find this reassuring. Andy Stern, president of the Service Employees International Union, last month wrote that "short-term capital infusions from private-equity funds will only make the banking crisis worse, by encouraging risky behavior and abusive banking practices." Of course, the SEIU has become one of the most prominent opponents of private equity firms in recent years.

Continued>>>
http://dealbreaker.com/2008/08/the_debate_over_private_equity.php

[lambosv21]

1. nice post

so basically we are seeing the same situation as the great depression in which top people swooped in and bought up all the closed banks. I fail to see how more people are not upset by this. Perhaps people are ok with middle class / slipping towards lower class?

[Joanne98]

3. That's pretty much it. I guess I'll have to check out a book on the depression tommorrow.

Welcome to DU!

[angrycarpenter]

2. easing regulations

Have worked well so far.

:sarcasm:

[Joanne98]

4. Meet the Carlyle Group...

Featured Articles:

The ex-presidents' club The Guardian
Oliver Burkeman and Julian Borger Wednesday October 31, 2001

It is hard to imagine an address closer to the heart of American power. The offices of the Carlyle Group are on Pennsylvania Avenue in Washington DC, midway between the White House and the Capitol building, and within a stone's throw of the headquarters of the FBI and numerous government departments. The address reflects Carlyle's position at the very center of the Washington establishment, but amid the frenetic politicking that has occupied the higher reaches of that world in recent weeks, few have paid it much attention. Elsewhere, few have even heard of it...

But since the start of the "war on terrorism", the firm - unofficially valued at $13.5bn - has taken on an added significance. Carlyle has become the thread which indirectly links American military policy in Afghanistan to the personal financial fortunes of its celebrity employees, not least the current president's father. And, until earlier this month, Carlyle provided another curious link to the Afghan crisis: among the firm's multi-million-dollar investors were members of the family of Osama bin Laden More...

Carlyle's Way Red Herring Business Magazine
Dan Briody, author of The Iron Triangle Wednesday January 8, 2002

Like everyone else in the United States, the group stood transfixed as the events of September 11 unfolded. Present were former secretary of defense Frank Carlucci, former secretary of state James Baker III, and representatives of the bin Laden family. This was not some underground presidential bunker or Central Intelligence Agency interrogation room. It was the Ritz-Carlton in Washington, D.C., the plush setting for the annual investor conference of one of the most powerful, well-connected, and secretive companies in the world: the Carlyle Group. And since September 11, this little-known company has become unexpectedly important...

And as the Carlyle investors watched the World Trade towers go down, the group's prospects went up. In running what its own marketing literature spookily calls "a vast, interlocking, global network of businesses and investment professionals" that operates within the so-called iron triangle of industry, government, and the military, the Carlyle Group leaves itself open to any number of conflicts of interest and stunning ironies. For example, it is hard to ignore the fact that Osama bin Laden's family members, who renounced their son ten years ago, stood to gain financially from the war being waged against him until late October, when public criticism of the relationship forced them to liquidate their holdings in the firm. Or consider that U.S. president George W. Bush is in a position to make budgetary decisions that could pad his father's bank account. But for the Carlyle Group, walking that narrow line is the art of doing business at the murky intersection of Washington politics, national security, and private capital; mastering it has enabled the group to amass $12 billion in funds under management.
More...
http://www.hereinreality.com/carlyle.html

[Joanne98]

5. The roads and bridges and airports will be up for sale!

Friday, August 1, 2008 12:28 PM

Article Font Size




New Yorki Gov. David Paterson is among the latest to voice support for at least partially privatizing infrastructure assets as a way to plug budget deficits caused by soft state economies.

NEW YORK -- Cash-strapped U.S. state and city governments are likely to sell or lease more highways, bridges, airports and other assets to investors desperate for stable returns after being frazzled by the credit crisis.


The trend is set to pick up speed given worsening budget deficits in state capitals and city halls nationwide.


It will also be welcomed by Wall Street bankers hoping to help create and market so-called "infrastructure" transactions at a time many debt markets remain paralyzed, and after major U.S. stock indexes fell into bear market territory.


"When you are nervous about everything else, you put your money in a toll road," said John Schmidt, a partner at the law firm Mayer Brown LLP in Chicago. "That's the logic of infrastructure. Returns are stable and predictable. You won't get fabulously rich, but you'll get stable cash flow."


The latest enthusiasm for at least partially privatizing infrastructure assets came on July 30 from New York Gov. David Paterson, who is trying to plug a budget deficit caused in part by lower tax revenue as Wall Street retrenches.


"We're just looking at ways to be more efficient and that's why I used the term public-private partnerships -- trying to find some creative solutions," Paterson said. "The reason I'm avoiding taxes is because I think taxes are addictive."


Bankers and others in the industry say there is pent-up demand from dedicated infrastructure funds and public pension funds to invest in hard assets — perhaps $75 billion to $150 billion of equity capital — but not enough supply.


"Economic conditions are tough, and are going to be very harsh on the performance of state budgets in 2008 and 2009," said Greg Carey, co-head of infrastructure banking at Goldman Sachs Group Inc. "States are looking for long-term solutions in running businesses. A public-private partnership is a tool in their toolboxes."


A high-water mark came in May, when a group led by Spain's Abertis Infraestructuras SA and Citigroup Inc agreed to pay $12.8 billion to lease the Pennsylvania Turnpike for 75 years. The total could reach $18.3 billion, including promised improvements. Legislators must approve the lease.


Other transactions have included the $1.8 billion lease of the Chicago Skyway toll road bridge in 2005, and a $3.8 billion lease of the Indiana Toll Road the next year. Chicago Mayor Richard Daley is preparing to lease Midway Airport this year.


For Wall Street, infrastructure can be a bright spot at a time of deep job cuts and expected declines in bonuses.


"We've seen an unprecedented number of headhunters recruiting for positions on the buy and sell sides," said Rob Collins, head of Americas infrastructure banking at Morgan Stanley. "Infrastructure investing can be counter-cyclical to economic trends."


BIG NAMES


At Goldman, Carey and Ma replaced Mark Florian, who is moving to First Reserve Corp, a private equity firm specializing in energy, a person close to the matter said.


Goldman itself raised a $6.5 billion infrastructure fund in 2006, and is reportedly trying to raise a $7.5 billion fund.


Morgan Stanley raised a $4 billion fund in May. Global Infrastructure Partners, a joint venture between Credit Suisse Group AG and General Electric Co, raised a $5.6 billion fund the same month. Private equity firm Carlyle Group CYL.UL last year raised a $1.15 billion fund.


And Kohlberg Kravis Roberts & Co KKR.UL, which is preparing to go public, in May lured George Bilicic from Lazard Ltd, where he led power, energy and infrastructure efforts worldwide, to run its own infrastructure investments.


Two of the largest specialists in the area are Australian: Macquarie Group Ltd and Babcock & Brown Ltd.


Schmidt, the Mayer Brown partner, said if the Midway transaction succeeds, other airports could also go private, perhaps leading to "lower and more predictable landing fees and terminal rentals for airlines, which certainly aren't flush."


That, he said, could bring the value of roads, bridges and airports that could be privatized to half a trillion dollars.

http://moneynews.com/economy/infrastructure/2008/08/01/118252.html

WE'VE BEEN HAD!!!!!!!

[formercia]

6. Just think of all the public lands owned by the people of the US

They may soon wind up in private hands to settle public debt.

The boys loot the Treasury then use the money to buy up infrastructure.

[Triana]

7. Disaster Capitalism at its finest. Pffft! n/t

[flashl]

8. Privatization of roads and highways is being push by DOT in the name of 'convenience'

New toll lanes make drivers pay to avoid congestion

By Katharine Lackey, USA TODAY

Already facing $4 a gallon at the pump, drivers in a growing number of states are tempted to pay even more for a quicker ride home.

Transportation agencies are increasingly looking to reduce congestion and make more use of sometimes under-utilized high-occupancy vehicle (HOV) lanes.

Some are developing plans to allow vehicles that don't have the required number of passengers to use the lanes if they are willing to pay.

...

"Congestion has grown dramatically in the United States in the last 25 years," says Tyler Duvall, acting undersecretary for policy at the U.S. Department of Transportation (DOT). "There's a fundamental problem — a supply and demand imbalance."

"There's a fundamental problem — a supply and demand imbalance."

Pleeze, more supply and demand BS? Will it sell?

[truedelphi]

9. The new guard is the same as the old guard

If you wanna know when this started, investigate the Federal Reserve.

Same individuals (or their grandkids!) of the group that started the Fed benefitted from the taxpayer bailout of Bear Stearns

http://tinyurl.com/68b854