Friday, June 26, 2009

PEU's & Systemic Risk

Private equity underwriters claim they pose no systemic risk to the economy. They suggest a long term investment horizon makes up for their past sins of excess leverage and greed based income model. The WSJ reported on PEU's:

Filings unsealed by federal regulators allege Danny Pang walked away with at least $83 million before the seizure of his investment firm, Private Equity Management Group. Additionally, estimates of potential losses by Pang’s investors have escalated to as much as $654 million - or nearly 80% of the $823 million investors are still owed.

No risk? Hardly. Add risky financial bets to the equation and the mendacity grows exponentially. This is the group President Obama caters to with his infrastructure bank, financial public-private partnerships, and FDIC sales of bad banks.

The Carlyle Group is a virtual one stop PEU shop for Uncle Sam. They bought BankUnited with a $4.9 billion government subsidy, free of TARP restrictions. Carlyle has an infrastructure fund ready to invest in public works projects. From Booz, Allen, Hamilton to ARINC, Carlyle affiliates garner huge chunks of government business.

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