Richard Shinnick

Carlyle Deserved to Collapse

Hi Chungst,

You are terrific! Hence forth I will consider you a friend and mentor. If Felix is anything like me, he really enjoys seeing independent dialogue on his articles, it is part of the fun of writing in this terrific venue.

At the end of the day, with Carlyle, it really will be the investors who get hurt. Sure, the billionaires who run the show will lose a little, but often the "investors" are not so well off and are sometimes three steps removed. Pension funds who invest in hedge funds who invest in other hedge funds, etc. It is sort of like the many investors in ETrade who had no idea that the company had so many billions in mortgages and MBS on their books, and still don't, what you see is not necessarily what you get. What I am seeing and hearing is that some of these funds were heavily marketed and the risks were minimized or glossed over. You could market a fund like this Carlysle fund like this "This fund holds Agency MBS which are Implicitly Guaranteed by the Federal Government and our parent company owns 15%." Looks great, implicit guarantee, parent company buys in, how can you lose?

But dig deeper, how was that 15% "ownership" generated? Actual dollars in, or simply accrued fees taken from investors?

Also, in the fine print "we use leverage" but not "we lever this puppy up 32 times, so if there is the slightest hiccup in the mortgage market you will lose big."

I maintain that the guys who ran this fund knew the risks, they will not seriously suffer, it was just a gamble for them and they will just move on to the next one.

BTW "Your actions here speak volumes of your character (if any such exists)".

This sentence does indeed speak volumes, but don't worr about me getting upset, I won't. I still enjoy our discussions and you have taught me quite a bit.