Engdahl: Even Bush family is going down in the economic collapse!


Richard Moore


Bush family private equity fund in deep trouble as Financial Tsunami rolls on

By F. William Engdahl

Global Research, March 10, 2008

Carlyle Capital Corp. Ltd., a subsidiary of one of the most influential USA 
private equity funds and closely tied to the Bush family, is in default on 
several of its securities. Carlyle is an offshore subsidiary of the 
Washington-based Carlyle Group, one of the most politically powerful private 
equity firms of the past two decades. The severity of its liquidity problems 
indicates that the unfolding financial crisis is taking major parts of the US 
financial and political elite down with it. Among the leading partners of the 
Carlyle Group in recent years have been George H.W. Bush, father of the 
President; James Baker III, the Bush family¹s attorney and Œfixer;¹ former UK 
Prime Minister John Major.

Carlyle Capital reports it is attempting to convince lenders holding $16 billion
in securities not to liquidate the company's remaining collateral. The company 
is a listed mortgage-bond fund managed by the Carlyle Group. The Carlyle Group 
already has loaned Carlyle Capital $150 million to cover debt obligations since 
July 2007. In the past several days it failed to meet margin calls with four 
banks. The fear in the market according to informed reports is that its entire 
portfolio, recently valued at $21 billion, could be sold off in a distress sale,
putting major downward pressure on all mortgage bonds globally. A collapse at 
Carlyle would hit the value of all fixed-income securities, which have already 
dropped sharply as banks pull back on their lending, and force a new global 
round of asset sales.

Margin calls

In the past days Carlyle Capital had admitted it had received "substantial 
additional margin calls and additional default notices from its lenders." It 
said lenders are selling off securities held as collateral. Margin calls are 
demanded when a creditor questions the ability of the borrower to repay.

Shares in the fund, which trades on Euronext Amsterdam, have been suspended 
after closing down nearly 60 percent. Carlyle Capital was a prime example of the
financial engineering encouraged during the Alan Greenspan era by Washington. It
had leveraged $670 million in equity by an alarmingly high 32 times to finance a
$21.7 billion portfolio of highly rated mortgage-backed securities issued by US 
housing agencies Freddie Mac and Fannie Mae. To finance the deals it entered 
into repurchase agreements with banks where it posted the mortgage securities as
collateral in exchange for cash. If the value of the security held as collateral
falls, the lender has the right to ask for more collateral ‹ a "margin call" ‹ 
to secure the loan.

If the borrower does not meet the margin call by putting up more collateral, the
lender may sell the security.

More worrisome is the fact that the Carlyle crisis does not owe to so-called 
sub-prime or bad grade mortgage debt. The company held US government agency 
AAA-rated residential mortgage-backed securities (RMBS). Now Carlyle¹s lenders 
have issued margin calls in excess of $400 million. At the onset of the 
sub-prime crisis in September 2007 Carlyle was forced to go to Abu Dhabi¹s 
sovereign wealth fund to get capital. Mubadala, the arm of Abu Dhabi which has 
invested in sectors as diverse as Libyan oil exploration and Ferrari, the 
Italian motor company, paid $1.35bn for a 10% Carlyle stake.

And Blackstone Group too?

Carlyle is by no means the only elite US private capital group in serious 
trouble. Blackstone Group, manager of the world's largest buyout fund, said 
fourth-quarter profit plunged 89 percent after a ``meltdown'' in the credit 
markets and warned that getting loans for takeovers will be difficult in 2008. 
Profit declined to $88 million from $808.1 million a year earlier.

Blackstone decided to list the private equity company on the stock market in 
June 2007 in a move some date as the last gasp of the huge securitization and 
private equity buyout mania of the past decade. Since June its stock has fallen 
53 percent. More serious, it hasn't completed a takeover of more than $2 billion
in five months and is struggling to close the $6.6 billion buyout of 
Dallas-based Alliance Data Systems Corp., a credit-card processor, announced in 
May 2007.

Blackstone and Carlyle led the recent ³locust capitalism² (Heuschrecke) hostile 
takeover binge which triggered a major political backlash in Germany and 
elsewhere. That debt-financed takeover binge came to a halt with the eruption of
the sub-prime securitization crisis last fall. Blackstone has $102 billion in 
assets under management at present. The value of Leveraged or debt-financed 
Buyout (LBO) deals announced in the second half of 2007 plunged two-thirds from 
the first six months, according to data by Bloomberg.

Crisis spreads to US municipal debt market

The ongoing financial market crisis whose background I have detailed in the 
series, The Financial Tsunami, Part I-V, was nominally triggered by a crisis of 
confidence in the value of the most risky securities, sub-prime home mortgages 
in the US, mortgages often made by banks without checking the borrowers credit 
history or income. Because the securitization revolution was premised on the 
flawed illusion that by spreading risk throughout the global financial system, 
risk would disappear, once the weakest part began to collapse, confidence in the
multi-trillion entire edifice of securitized debt began to collapse. The process
unravels over time which is why most have the illusion of a localized crisis. In
reality, centered in the US economic and financial sector, what is now underway 
is a crisis not even comparable to the 1930¹s Great Depression.

Now the normally high-quality debt of US local and state governments, so-called 
municipal debt, is getting hit. California, New York City and the owner of the 
World Trade Center site will replace their floating rate debt, sharply raising 
costs for local governments as the economic depression is slashing their tax 

In February, interest rate yields on US tax-exempt municipal debt rose to the 
highest ever relative to Treasuries. The market is reacting to deteriorating 
finances at bond insurance companies and credit rating companies. States, cities
and agencies are pulling out of the $330 billion floating rate or auction-rate 
market, where costs have doubled since January and plan to sell about $22.5 
billion of fixed-rate, tax-exempt bonds to raise capital at a significant 
penalty price.

Bond fund managers in New York and London tell us they have never seen such 
troubles in the municipal bond market before.

The market for floating rate or auction-rate municipal bonds in the US, once 
thought safe, entered crisis as losses tied to sub-prime mortgage bonds and 
related securities threatened so-called monoline bond insurers' AAA ratings, 
causing investors to avoid the bonds they had insured. The same monoline 
insurers, specialized New York financial security insurance companies, had 
insured sub-prime mortgage securities and municipal debt. The monoline companies
guarantee about half the $2.6 trillion of outstanding state and local government
debt, some $1.2 trillion. Higher interest rate costs for states and local 
governments will aggravate local US fiscal crises as the depression spreads, 
creating a self-reinforcing downward spiral. The process is in its early stages 

Disclaimer: The views expressed in this article are the sole responsibility of 
the author and do not necessarily reflect those of the Centre for Research on 

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