Thursday, December 23, 2010

OPINION: Who’s Running This Ship?

Magdalena Potluck
By Don Wiltshire

Are we on “Auto-Pilot” or is there really a group of people in charge of where we’re headed and what we’re supposed to do once we get there?
At some point in the two weeks before my column is due, two or more events, books or ideas will smash together in my head. This time it was the movie Titanic and several small news articles about the austerity measures being imposed on Ireland.
The recent bailout of Ireland’s banks, to the tune of €85 billion ($112 billion) will cost the average Irish citizen €12,500 ($16,460). In contrast, the average American citizen has only assumed a $10,000 bailout for our banks, auto industries and the too-big-to-fail corporations.
“Those in charge” of the economic situation in Ireland deemed it necessary to slash billions of Euros from social services, health care and infrastructure expenditures. Unemployment in Ireland is running at about 14 percent, and wages have been cut by 20 percent. The stoic Irish (bless them) have had about as much of this nonsense as they can stand and are about to take to the streets in massive demonstrations of civil unrest.
Watching Ireland is like looking at a mini-scale version of our own country. “Those in charge” are basically the same: the banks, the investment companies and the multinational corporations. The austerity measures being put in place are to insure that the appropriate amount of profits flow to those “in charge.”
The movie Titanic was also a metaphorical play in miniature of our own situation. The ship is sinking and the affluent assume their rightful position in the lifeboats while the lower class passengers remain locked below deck. This same assumption is also available in a “trickle down” format. I’ve read more than my fill of blogs about income inequity where the less fortunate are told to “stop their whining”; “if they had any smarts, they would be wealthy too”.
So just who is in charge of our ship? Who is steering our Titanic? Go ahead, call me a “conspiracy theorist” but a fairly solid guess is The Carlyle Group. Founded in 1987, it was named after the luxury New York hotel, a favorite of the company’s first investors, the Mellon family. The firm, valued at more than $13.5 billion, manages $88.6 billion of capital (other peoples’ money), making it, until this year, the largest private equity firm in the world. It’s called a “global alternative asset management firm, specializing in private equity.” It claims to have four fund “families”: buyout capital, growth capital, real estate, and leveraged finance investments. Sound like a club for the “big boys”? Indeed it is.
The home office is on Pennsylvania Avenue in Washington, D.C., right between the White House and the Capitol building. The cast of characters includes, or has included, former Presidents George H. W. Bush and George W. Bush, former Secretary of State Jim Baker, former Secretary of Defense Frank Carlucci, former White House budget director Dick Darman, former British Prime Minister John Major, former Philippines President Fidel Ramos and, oh yes, members of the bin Laden family.
So just how does this seemingly respectable model for an investment firm generate its billions of dollars with a 36 percent annual return? Basically it buys privately held companies or divisions of big public corporations that are deemed to be in the most lucrative of future niches. These new “cash cows” are then repackaged, polished up, pushed in the “right” direction then sold off for many times their purchase price, after, of course, the managing directors and Carlyle partners take their 20 percent cut.
What sort of crystal ball allows Carlyle to peer into the future and decide which company cow will give the richest milk? Carlucci seems to have a good handle on the $150 billion per year U.S. defense industry. Will many more tanks or drones or airport scanners be needed next year? Buy, invest, position, persuade and profit.
Not only are defense contractors, like United Defense, Magnavox, GDE, Vought and Booz Allen Hamilton, subject to the insatiable appetites of Carlyle, recent acquisitions have included the Hertz Corporation, HCR ManorCare (senior care facilities) and Dunkin’ Brands, makers of the all American favorites, coffee and donuts!
This directly from the pages of Carlyle’s glossy annual report: “Diverse teams with deep expertise focus on buyout, growth capital, energy and power, infrastructure, real estate, and credit alternative transactions, as well as distressed situations.” I guess that last phrase means us.
Because of its global reach, this also appears in the annual report: “Perhaps more than any other country, China has a greater number of assets that could grow dramatically in value.”
Carlyle has 27 offices worldwide, including Denver, New York, and Milan, Italy. Hmm, I wonder if Bruno Modena has positioned himself for maximum growth potential. We will all know soon enough.
This was probably not the most uplifting topic I could have picked for the Christmas column. To end on a more cheerful note, the Magdalena Public Library is busy planning many workshops and events of local interest. Watch the community bulletin board outside the library for dates and times.

If you have any comments, problems, solutions, upcoming events or extra life vests, contact me, Don Wiltshire at

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