Carlyle Group

Very little will ever be known about the Carlyle Group, a privately held partnership with offices in both Luxembourg and Guernsey, where financials records need never be divulged. Most of the time, even the Carlyle investors do not have a track on what their investment is.171Snippets of news of the company are seldom released to the press, and the lack of transparency only fuels speculation. What is commonly understood is that the Carlyle Group has a reputation as a group of private equity bankers with the “inside track.”

“Carlyle was named by The New York Times in 2002 as the biggest defence company in the US, and the largest private defence company in the world, based on its controlling share of ownership in a vast range of defense, intelligence, and communications companies. The Wall Street Journal simply calls it the biggest private investment firm on the planet, bar none. Because of Carlyle’s unusually close connections to defense and intelligence figures, questions about the role of Carlyle in world affairs go deep. So entwined is the Carlyle Group with the Pentagon and other US defense and intelligence agencies and companies, it is widely regarded as an extension of the US government, or at least the National Security Agency, the CIA, and the Pentagon.” 172

The Carlyle Group was created by in 1987, but is widely recognized as starting on the path to becoming the $89 Billion financial juggernaut it is today when Frank Carlucci left the Bush administration, with coterie officials from the CIA, the State Department and Defense Department.173 Frank Carlucci had been Assistant Director of the CIA, National Security Advisor, and then Ronald Reagan's Defense Secretary. He had the mission of cleaning up after the Iran-Contra affair in the Reagan administration, and according to those involved, allowed four of the five supply operations to continue while declaring the matter closed.174 This was in January of 1989, the same year when George H.W. Bush was placing key National Security assets in Riggs Bank, and starting the Riggs-Valmet financial penetration of the Soviet Union. In a world where it is common for departing senior officials to enter the revolving door between government and the private sector, the practice of being accompanied by a “phalanx of CIA and Pentagon staffers” is not common, especially when joining a company that has not been financially successful in the prior years. This should have been even more so suspicious in Carlyle, where co- founder Bill Conway had a notorious reputation of being extremely harsh on ‘unnecessary expense.’175 If anyone suspected a ‘covert ops program’ was under way, no one reported their suspicion. In retrospect, that seems to have been the case.

Under Carlucci, Carlyle’s first Defense industry acquisition was a defense consulting company known as BDM, in September 1990. BDM was the company used by the Iran Contra CIA operation to move illegal weapons between the Israelis and Nicaraguan Contras. It was also a major contractor in the world of “Black Projects” whose budgets remain secret for the benefit of National Security.176,177 The world was witnessing the end of the Cold War at that time, and the stock values of Defense firms were dropping across the board. However, the Carlyle Group chose as its first acquisition, a trusted firm with the capability of discretely conducting illegal activity. By 1994, the Washington Post was reporting that BDM was procuring ex-Soviet/Russian military technology, suggesting that the very discrete privatization of key Soviet Defense assets was already well under way. This of course is speculation, and the unknown ownership of those ex-Soviet defense industries is now protected in the off-shore offices of the Carlyle Group and Group Menatep, which became the major financial power in the Soviet Union after the collapse of Gorbachev. It might only be coincidental that two members on Carlyle’s Advisory Board are Planton Lebedev, the Chairman of Group Menatep and Mikhail Khodorkovsky, the primary Russian front man for the Riggs-Valmet operation and Russian founder –in name – of Menatep. It might also be ‘only coincidental’ that seven of the key players in the execution of the 1991 covert economic war were also members of Carlyle: Fred Malek, George Soros, George H.W. Bush, Robert Gates, Bruce Rappaport, James Baker, and Robert Zoellick.178 The speculation of this report is that in releasing $240 Billion in covert bonds to finance the collapse of the Soviet Union, this small group of politicians and bankers created a U.S. based, private sector vehicle for controlling and profiting from those funds. That vehicle was the Carlyle Group. Moreover, in managing the laundering of the Black Eagle Fund/Yamashita/Golden Lily/Marcos gold, Carlyle became the focal organization for doing that as well. At least six members of Carlyle that were either familiar with the creation of the gold trusts, or were advisors to Barrick Gold included: George H.W. Bush, Richard Helms, Vernon Jordan, Fidel Ramos, Paul Desmarais Sr. and Karl Otto Pohl.

It should seem no less coincidental that “on September 11, 2001… the group had organized a meeting at Washington's Ritz Carlton Hotel with five hundred of its largest investors”.179 George H.W. Bush was in attendance, sitting with Osama Bin Ladin’s brother as the 9/11 terrorists executed the carnage that was to be the cover-up for the laundering of the $240 Billion in covert bonds that seem to have fed the success of the Carlyle Group. In the aftermath of 9/11, there would be a plethora of criticism of Carlyle and its ability to channel the profits from the Iraq War and the Homeland Security Act to individuals with the ‘inside track’.

Little noticed in the aftermath of 9/11 was the beginning of Carlyle’s Asset Management Group ‘second” private equity fund, managed by David Kupperman who was brought in from Goldman Sachs for this task. This fund would seek opportunities in new “areas of alternative asset management” also known as the “secondary, or resale, private equity market.”180 The main customers (buyers) would be “banks and pension funds.”181 The original fund was begun in 2001. By 2003, the ‘Asset Management Group’ was being spun-off in an employee buyout, with Carlyle maintaining a 40% interest.182 While the investments of the fund were not publicized, their direction should have been clear.183 The Carlyle fund was renamed Rock Creek Potomac. One of the General Partners of Rock Creek, John Sites (who previously created the mortgage department at Bears Stearns), was named to the Fannie Mae Board of Directors.

Carlyle Capital Corporation (CCC) was Carlyle’s second effort to facilitate the sub prime mortgage market. This effort was unique in the history of the firm, and was created as a publicly owned corporation. Its specialty was mortgage financing. CCC was well positioned with relationships with Fannie Mae and Freddie Mac. A long time Carlyle advisor – Robert Zoellick had been Executive Vice President at Fannie Mae between 1993 and 1997. David Moffet, who had been CEO at Freddie Mac joined Carlyle as well. The Carlyle Group’s total exposure when CCC declared bankruptcy in 2007 was $150 million, although the Carlyle Group loaned the company an additional $200 million in efforts to save it (or the reputation of the Group)– for naught. In this situation “The naughty Capital Corporation told shareholders it had no subprime exposure. But it did. It said all the exposure was Triple A rated. But it wasn’t. It said liquidity was ample. But it isn’t.”184

In the aftermath of September 11th, the Carlyle Group made two quiet efforts to facilitate the subprime mortgage market. In both cases they limited in unprecedented ways their exposure to the risk. Their company misrepresented the investments. These types of actions suggest that those in control of Carlyle had the inside track on the future of the subprime market, and did not want their personal fortunes tied up with the subprime market. Once again, individuals close to the original September 1991 bond deal seem to be immune to the meltdown of 2008.