DIAMONDS | money bags

THE CARLYLE GROUP: 10 of diamonds
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"Staffed almost entirely by ex-government officials and investing primarily in defense companies that derived most of their revenues from government contracts, the Carlyle Group for much of its existence occupied a dismal niche a cranny inhospitable to democracy, fairness, and free enterprise." Such is Daniel Gross's assessment in a recent piece in Slate.


It is difficult to accuse him of exaggerating.

Carlyle invested primarily in the defense industry, making its money through connections alone. In the '90s, Carlyle concentrated on buying companies that needed government patronage for business. Much was in the defense field. Over the last decade, Carlyle has grown to include investments in most corners of the world. It is now in basically one of the nation's biggest defense contractors and well established in global telecommunications. Lelsie Wayne writes "Its blue-chip investors include major banks and insurance companies, billion-dollar pension funds and wealthy investors from Abu Dhabi to Singapore."


But skills rooted in connections often have little to do with being a real businessperson. Gross writes "Soon after it bought airline services company Caterair, and placed George W. Bush on the board, that company cratered." Even so, the company prospered from its combination of connections and willingness to take money from most anything.

Now, like a Mafia family trying to go legit, defense connections remain an important, but now secondary element in Carlyle's dealings. They made too much money off taxpayers to simply stay in their old field. Carlyle even hired some genuine businesspeople to manage the company's major decisions, turning it into a strange kind of hybrid. At one level it looks like a normal business. It isn't nearly as secretive as it used to be. At another level, it is rooted in political connections and the most cold blooded way of making money arms no matter how undemocratic the government that uses them.


Crony capitalists
Carlyle specializes in investing in firms or areas which are greatly affected by change in governments. In simpler terms, it means they try to take advantage of how public policy is made, and buy firms where those policies affect industry profits. This area is not covered by laws against lobbying by former government officials, and they have flocked to it.

Having connections with government leaders pays in two ways. First, you can get the inside skinny on what's up policy wise, and make a killing on it. Second, once those leaders are out of power, you can offer them a great position where connections lead to enormous profits. That, of course, encourages them to co-operate with you while they are in power.

So who gets the swag?

  • Former US President, George Bush, Sr. Carlyle Senior Advisor
  • Former Reagan Secretary of State, James Baker Carlyle Senior Counselor
  • Former Reagan Secretary of Defense, Frank Carlucci Carlyle Chairman Emeritus
  • Former Bush WH Budget Advisor, Richard Darman Carlyle Senior Advisor
  • Former US Federal Communications Commission, Chairman William Kennard Carlyle Managing Director
  • Former US Securities and Exchange Commission Chairman, Arthur Levitt Carlyle Senior Advisor

All these guys do very well, and even call themselves businessmen.


Carlyle maintains that it does not lobby federal government officials, and therefore claims to avoid conflicts of interest. But that is largely because the lobbying laws do not cover what they do. Why then so many former government officials? Why the reliance on such good political connections rather than, say, simple analysts? This isn't just charity for unemployed politicians.

Leslie Wayne continued in an excellent study: "Carlyle is as deeply wired into the current administration as they can possibly be," said Charles Lewis, executive director of the Center for Public Integrity, a nonprofit public interest group based in Washington. "George Bush is getting money from private interests that have business before the government, while his son is president. And, in a really peculiar way, George W. Bush could, some day, benefit financially from his own administration's decisions, through his father's investments. The average American doesn't know that and, to me, that's a jaw-dropper."


Weapons for defense or weapons for Carlyle?
For example, when several important defense contracts were under consideration in February 2001, Donald Rumsfeld met privately with Chairman and CEO Frank Carlucci, Reagan's former defense secretary. These guys would probably claim it was just a meeting between friends. But that's just the point. Does friendship translate into business deals? Ask anyone who joins the Chamber of Commerce, a country club, or all the other places where business and friendship meet, blur, and combine.

According to two internal Defense Department documents, quoted in the Village Voice, Carlucci and Rumsfeld are very close. "Dear Don," reads Carlucci's note, dated February 15, 2001 on Carlyle stationery, "Thanks for the lunch last Friday. It was great seeing you in such good spirits even if you are 'all alone.'"


In February 2001 the Defense Department was deciding whether to continue or discontinue certain military contracts. So the note on company letterhead creates an appearance of a conflict of interest. For five years prior to that February meeting, Carlucci was trying to sell the the Defense Department 482 Crusader armored vehicles, over $11.2 billion dollars worth of them. The Village Voice editorialized that "he might as well have been going door to door with vacuum cleaners." On the campaign trail in 2000, George W. Bush panned them: "It looks like it's too heavy; it's not lethal enough. There's going to be a lot of programs that aren't going to fit into the strategic plan for a long term change of our military." Carlyle might not make a killing either.

But Bush must not have known the extent to which Rumsfeld and Carlucci are such good friends. In March 2002, Rumsfeld gave the go-ahead for United Defense to continue work on the development of the Crusader, depositing nearly $470 million into Carlyle's coffers. According to Eric Miller, a defense analyst for the Project on Government Oversight, "The Crusader has been the GAO's poster-child for bad weapons development. Influence is tough to measure, but it's certainly had a friend somewhere." We may be in a big deficit, but no deficit seems too big to withhold help from well placed corporations.


The "Iron Triangle": defense, government and industry
Carlyle's own marketing literature calls itself "a vast, interlocking, global network of businesses and investment professionals." This includes not just American politicians, it includes former political leaders from all over the world. While their interests as citizens of their respective nations might conflict, their private interests as people interested in money can harmonize greatly. The result can be serious conflicts of interest.

For example, The Carlyle Group had long worked with the Saudi government and the bin Laden family. Before 9-11 though, Bush "41" had made two trips to Saudi Arabia to meet with the "Binladins" (they've changed their name) on behalf of Carlyle. Not surprisingly, father and son discuss political issues together. Might this be why the US has treated Saudi Arabia with kid gloves, despite the fact that nearly all the men involved in 9-11 were Saudi nationals? (And none were Iraqis?) Our point is not that George H. W. Bush and son prefer making money even at the cost of thousands of American lives. Our point is that such close intertwining of politicians and business create at the minimum, apparent conflicts of interests, and can very well influence what the see, or choose to see, in the behavior of others. People are thrown off juries for far less.


George W. Bush is in a position to make budgetary decisions and policy decisions which could affect his father's bank accounts. This example is perhaps the most frightening. Bush the Elder had once spearheaded Carlyle's effort to purchase KorAm Bank and Mercury, a telecom company in South Korea. The success of the business hinges on the stability between the North and the South Koreans.

Shortly after his inauguration in 2001, Bush broke off talks with the North Koreans about their long-range ballistic missiles. The news hocked the South, as they had been dealing for years negotiating with the North, in partnership with the Clinton administration. Six months later, Bush reopened negotiations only after urging from his own father. Red Herring reported that, according to reports, the former president had sent his son a memo persuasively urging him to work with the North.

Whether or not there is evidence linking the policy decision of the Bush administration to reopen negotiations with the North Koreans with the personal financial status of the former president is in some ways almost moot: "Whether the decisions made by the former president are a real or apparent conflict of interest doesn't matter, because in the public's eye they're equally as damaging," says Larry Noble, executive director and general counsel of the Center for Responsive Politics. "Bush [Sr.] has to seriously consider the propriety of sitting on the board of a group that is impacted by his son's decisions."


Most interesting perhaps, for people calling themselves businessmen and saying they favor a conservative agenda, since the source of their profits is connections with government, they need big government and big spending. It is what got them to where they are today, and how they can hold out the promise of even more wealth to today's politicians, when they leave their supposed service to the public to serve themselves.


Dan Briody, The Iron Triangle: Inside the Secret World of the Carlyle Group, (John Wiley and Sons, 2003)

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