Tuesday, October 13, 2009

Carlyle exec: buyout firms contributed to downturn

Speaking at an investment conference in Dubai, David Rubenstein said private equity firms helped inflate the credit bubble by buying companies at high prices, relying on large amounts of cheap debt, and pursuing ever-larger buyout deals.

"Private equity contributed to the problem. ... I think we made some mistakes ourselves," he said. "We tended to invest near the bubble peak at very high multiples."

This is an amazing admission, but not something that should come as a surprise to anyone. The only thing "brilliant" about these guys (and many hedge funds) is their ability to raise money, not their investing or trading acumen.

But what is so disturbing about this is that the Obama Administration has not only bent over backwards to sustain the financial sector in its current form--with all these useless speculative intermediaries--but Tim Geithner's, Public-Private-Partnership is literally handing over assets that rightfully belong to the public (bank assets, regulated by the gov't and acquired with government-backed deposits) to some of the very people that either caused the problem or targeted financial institutions for demise!

This is beyond outrageous!!

A nation's power does not depend on a vast network of cowboy speculators that purport to be the "financial system." These entities add nothing but risk without contributing any real benefit to the economy. Moreover, from a socioeconomic point of view it is highly destabilizing to allow a small percentage of individuals to garner the lion's share of national income for activity that adds no real wealth building product.

The fact that Obama can't see this is a testament to what may end up to be a fatal character flaw: a flaw that causes him to seek validation from those who are in an elite circle (Goldman Sachs, others of the "Finance Capitalist class"), whose interests are solely their own and not those of the nation!

David Rubenstein, Carlyle's Managing Director, is literally screaming this. He's laughing in our faces. Do you think Obama will listen? Will this affect change from a policy level? Highly doubtful.

Rubenstein and his ilk are most likely beside themselves at how easy it is for them to come right out and admit that they either commited, contributed or were otherwise complicit in this economic debacle, yet they know, not a finger will be lifted by anyone in the Administration to take away their ability to abuse the system and walk away with the spoils at the expense of everyday working people.

And the looting rolls on, as commodity speculators now are given free reign to push up the price of food and fuel under the guise of the vaunted free market.

John D. Rockefeller was one of the greatest capitalists of all time, but he did not believe in allowing the free market to run free. He hated speculators. He became the wealthiest man in the world by subverting the market and crushing speculators. In essense, he acted as a state or any other entity with total authority to regulate, dominate and control. This didn't only benefit him; it also benefitted a nation of people who then had access to an abundant supply of cheap fuel. Moreover, Rockefeller's workers did not suffer in the Depression; their jobs were secure.

We have not learned this valuable lesson.


LouS said...

Mike I agree with you. I would like to see and end to speculative trading of commodities. The system has been abused and now skewed against the consumer. ( $150 a barrell oil prices for example) The only ones that should be allowed to hedge on the commodities are those business and distributors that use or supply those commodities.

googleheim said...

can Matt expound about how debt is monetized with a weak dollar to help pay off the debt ?

Matt Franko said...


Probably not!

Do you mean Govt debt or corporate debt?

googleheim said...


Unknown said...

Mr. Norman- If I'm not mistaken, doesn't your professional career involve futures trading of foreign currency & possibly others, as well as time spent at a large bank's derivatives desk?

If I'm wrong, my apologies. If not however, I can't help but read this post w/your career path in mind, leading me to question what's so shocking to you about Rubenstein's statement.

For instance, you claim "The only thing "brilliant" about these guys (and many hedge funds) is their ability to raise money, not their investing or trading acumen.". Since you're familiar w/currency trade, were you not aware of the risk of heavy investments made at or near "the peak" of a trend?

And in working w/derivatives, were you not a "fundraiser" as well? Difference being, in your case, you'd have been raising funds for individuals who had a majority of the world's wealth as you did so?

Just questions, no malice. I just found it difficult to fight off the cynicism while reading about how "outrageous" this was to you.

Nevertheless, this blog is much better for your image than the potent mixture of the "spray tan" & Schiff ranting on YouTube:)

"Print it up, or cash it in".