The Carlyle Group, a bunch of neocons including former President George H W Bush, James Baker, former Secretary of State, Frank Carlucci, former Secretary of Defense among others, who sought to profit off the war in Iraq by investing in defense contractors, have come a cropper! Hip hip hooray! Hip hip hooray! Hip hip hooray! They had the inside information about war and the massive budget expenditures for war, and they sought to profit from this insider information and to profit off of war. For all essential purposes, they are war profiteers. But their greed did not stop there. Not content just to profit from war, they formed a couple of hedge funds in order to multiply their profits by investing in mortgage backed securities. Now those hedge funds have defaulted and I couldn't be happier. I hope these billionaires lose their asses. Just desserts I say.
A fund managed by the US private equity giant Carlyle Group has become the latest to be hit by demands from lending banks making calls on loans secured on mortgage bonds.
Carlyle Capital Corp, a publicly traded fund that holds $21.7bn (£10.8bn) of securities, said it had received a default notice from one of its lending banks and expected at least one more after it failed to meet demands for extra security from jittery counterparties.
The Guernsey-based fund has struggled to meet more than $60m of margin calls and demands for extra collateral since the start of the month. It met the calls until Wednesday, when it was landed with more than $37m of demands and missed four out of seven calls.
John Stomber, the chief executive of Carlyle Capital, said counterparties were demanding margin prices that did not represent the underlying recoverable value of the fund's assets. Carlyle Capital's investments are all AAA-rated securities issued by Fannie Mae and Freddie Mac, the US-Government-sponsored mortgage finance agencies.
"This disconnect has created instability and variability in our repo financing arrangements," he added. "Management is actively working with the company's repo counterparties to develop more stable financing terms."
The return demanded for agency mortgage bonds over 10-year US Treasuries has widened to the highest for 22 years, according to Bloomberg.
Tumult in the credit markets as asset values of all but the safest of debt plummet is prompting lenders to investment funds to demand ever-greater security for their loans, forcing funds into crisis even if they claim the underlying assets are sound. Carlyle Capital's woes come after Peloton, a London-based hedge fund, was forced to liquidate its two funds and shut down because 14 lending banks had pulled credit lines.
William O'Donnell, a UBS government bond strategist, said markets were "utterly unhinged".
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Carlyle Group has more than $75bn under management. In the 1990s, its advisers included John Major, the former prime minister, and George Bush, the former US president.
From a previous blog:
And then there's the Carlyle Group from which George Bush, the father, is making billions from the War on Terrorism. Even as the planes smashed into the WTC George Herbert Walker Bush was meeting with Osama Bin Laden's brother at the Carlyle Group. Quote from the website- the Bush- Saudi Connection: "It’s passing strange that even as the hijacked planes smashed into the World Trade Center, the Carlyle Group was holding its annual investor conference. Shafig Bin Laden, brother of Osama Bin Laden, attended."
Now while the Fed is bailing out investment bankers by pumping liquidity into the system, they are not pumping liquidity into the individual motgagees who are defaulting on their mortgage payments and going into foreclosure. A slight difference in moral hazard whether you are Joe Six Pack or a high flying financial institution. They lecture the poor mortgage holders that they knew what they were getting into; therefore, they are acting irresponsibly if they walk away from their obligation to pay their mortgage. However, when a financial institution gets a government bailout instead of facing the full consequences of the decisions it made, it's clear that there is a different standard for Joe Six Pack than there is for the mega-rich CEOs and billionaire investors.
The government is simply protecting its own: rich investors. They made a bet that the middle class would responsibly pay their predatory mortgages once they reset thus netting them juicy profits. That bet didn't work out so they went to Uncle Sam to bail them out. No such bail-out was extended to Joe Six Pack. Paulson and Bernanke tell you that the economy would grind to a halt if Wall Street investment banks fail. Nonsense! The only consequence is that all the rich investors would lose their shirts. They deserve to do so because of their greedy risk taking behaviour. In other words they rolled the dice and lost. Then they come crying to the government. When they are winning they chide that the government has no place interfering in the free market. The government should keep its nose out of their affairs. Wall Street to government: butt out. We rich bastards know what we're doing and we don't need government to regulate us. Privatize! Privatize! Hands off the economy.
I say let the hedge funds fail. They have nothing to do with the everyday needs of average middle class people. They only have to do with rich investors. Some hedge fund managers have made as much as $100 million a year. These people don't deserve to be bailed out by the government. It's just another example of the transfer of wealth from the poor and middle class to the rich facilitated by the Bush Administration and lauded by Rush Limbaugh and all the true conservatives. After all the $400 billion promised by the Fed to cover shaky investment banks will ultimately come out of taxpayers' pockets. Or the Fed will print money causing hyperinflation and the dollar's demise. Either way it's more government debt and taxpayer liability.
Well the chickens are coming home to roost. A good portion of Wall Street could go out of business without affecting the real economy. It only serves the needs of investors, not average citizens. This portion of the economy should be allowed to "seize up." Then the economy could get back to its real function: providing goods and services for real people instead of providing investment opportunities for rich investors. Bernanke and Paulson are only watching out for the investment class not the middle class home owners going into foreclosure, otherwise known as the debtor class.
