EDITOR’S COMMENT: In a recent article I said that Wall Street no longer provides capital, it consumes it. The earnings reports are a resounding corroboration of the simple fact that big business and big banking is thriving. Those businesses that simply issue new securities and trade them, those companies that buy and sell old companies are getting money at virtually no cost. And that makes up a huge percentage of our GDP.

We now are a country that specializing in doing nothing except shifting money and securities from one pocket to another and calling it commerce. It isn’t. If it was, employment would be higher and the ability of someone to start a new business would be easier. Microsoft borrowed at 7/8%, but a small business loan is scarce and priced quite differently. All economists agree that small business is the backbone of our economy so why are we allowing policies that reverse what is good for the country?

The simple answer is that wall Street has made so much money and still has it that they are the only deep pocket around. They care about themselves, as any free market fundamentalist will tell you — and that is a good thing. The false premise being that it is a free market when the market forces and government controls are held captive to the control of the mega banks and big business.

So you can’t get a mortgage or a small business loan, but you can borrow the money to buy  another company, as long as the deal is big business rather than small business — as long as the money, the profit, the principal and the prospects stay on Wall Street. Yet somehow the American public, our society has fielded an array of candidates that is not only a repeat of the past politics and policies is that drove us into a ditch, but we managed to come up with a less intelligent, less informed, even ignorant group of people running on apathy, fear and intimidation.

I’m not radical by nature when it comes to corrections. I’m radical when it comes to revealing the truth. So being a lawyer who believes very strongly in what is in the Constitution, I looked into the keystone document from which all of our laws emanate. It says that all powers not specifically reserved to the Federal Government and the States, reside in the people. (Right there, 9th Amendment, practically nobody ever mentions it because it contains the nuclear option of putting our current politicians on the unemployment line). Whether it comes from Wall Street, Missouri or Main Street, the simple answer is that the financial system must be forced to change back to providing  capital to people and small businesses.

I’m getting reports from all over the country. Things are about to change in a large way. Don’t let the Tuesday election fool you. The results of the election really don’t matter anymore because the candidates in most cases are useless. And we don’t need a third party. We need people to form their own associations under freedom of assembly and take control of those things that are not specifically enumerated powers of the states or Federal government. There is plenty of room in that statement. Go read it. The whole Constitution is a very short document, easy to read in one sitting, like a news article.People are fed up with the way the system is working and with the people who are running it. People from all sectors are finding innovative ways to leverage off the deficiencies of the our current dysfunctional system. None of these plans include the companies that currently run our lives. I wish them luck and I hope they succeed. I think they will.

Cheap Debt Fuels Private Equity Revival

October 28, 2010, 8:51 pm

By PETER LATTMAN and MICHAEL J. de la MERCED

The Blackstone Group and the Carlyle Group demonstrated on Thursday that the private equity industry is thriving amid a weak economy — but they did so in nearly opposing ways.

Blackstone, in reporting a 23 percent jump in third-quarter earnings, said it has found the market to buy out companies unappetizing. “There are some good companies being sold, but we just can’t get to the prices that are required,” Hamilton E. James, the company’s president, said Thursday morning.

Carlyle, though, is gobbling up companies. Not long after Mr. James’s bearish comments, Carlyle announced a $2.6 billion deal for Syniverse Technologies, a voice and data services provider for telecommunications companies. On Wednesday, it completed a $3 billion takeover of CommScope, a maker of telecommunications equipment.

The divergent approaches highlight how cheap corporate debt is fueling the recovery of the private equity business. While it remains difficult to get a mortgage to buy a home or to get a loan to fund a small business, yield-starved investors are creating a robust market for corporate bonds and loans.

Private equity firms are seizing upon the corporate-debt boom in myriad ways. For the debt-heavy companies they already own, Blackstone and Carlyle are improving their balance sheets through aggressive refinancing. Corporate loans are now available to do multibillion-dollar buyouts, too, but the easy lending environment has created fierce competition for takeover targets, driving up prices. The corporate loan market “is almost hard to believe,” Mr. James of Blackstone said.

Private equity’s outlook is certainly brighter today than it was one year ago. Buyout firms have made $173 billion worth of deals so far this year, up 95 percent from last year, according to data from Thomson Reuters.

Blackstone, co-founded by Stephen A. Schwarzman, may be reluctant to do deals at the moment, but its earnings report underscored just how favorable the environment has become. The New York-based firm, with $119 billion in assets under management, said its third-quarter profits were bolstered by sharp increases in the value of its real estate holdings.

More than 50 percent of the debt carried by Blackstone companies has either been refinanced at a lower cost or modified with better terms, Mr. James said.

Carlyle, meanwhile, which is based in Washington and whose public face is David M. Rubenstein, is proving that it is unafraid to pay a high price for companies. The buyout firm’s $31-a-share bid for Syniverse is 45 percent higher than the company’s average closing price for the past 30 days. Its $31.50-a-share offer for CommScope, meanwhile, is 39 percent higher than the company’s 30-day average stock price.

Both Carlyle and Blackstone have billions of dollars in investor capital to put to work. Blackstone has invested more than $7.2 billion of investor capital in private equity and real estate deals since the fourth quarter of last year, though it has announced only one major buyout this year: the $4.7 billion takeover of Dynegy, whose purchase price includes the assumption of the energy company’s debt.

Carlyle has invested about $5.8 billion in private equity and real estate this year, more than the $5.2 billion it spent in all of last year. (That figure does not include the Syniverse and CommScope deals.) The firm was behind four of the biggest leveraged buyouts announced this year, including those of Syniverse, CommScope, the vitamin maker NBTY and the Australian hospital operator Healthscope.

Traditionally, Carlyle is not shy about bidding up. In his annual e-mail to employees, William E. Conway Jr., a founder and the firm’s investment chief, hinted that it’s O.K. to pay up for good businesses.

“Of course higher quality assets are never cheap and may initially model at a lower expected” return, he wrote in the message, which was sent in February. “I believe the actual returns will exceed the model returns on these high-quality transactions. The decision to do the deal (or not) will always trump the impact of the final price negotiation. If you do great deals you will get great results.”

Historically, Blackstone has been more averse to pay a premium for its deals, though it did on the buyouts of Equity Office Properties Trust and Hilton Hotels during the equity bubble of 2006 and 2007.

Other buyout firms are also showing some hesitance about jumping headlong into expensive deals. Kohlberg Kravis Roberts is now leaning against making a bid for Seagate Technology, the hard drive maker, alongside TPG, according to a person briefed on the matter.

While they may differ on current buyout opportunities, Blackstone and Carlyle share several investments that they are preparing to take public, including the media company Nielsen. The two firms also joined forces in April 2009 to buy BankUnited, an ailing Florida lender. Eighteen months later, the bank’s results have now stabilized and the firms are prepping an initial public offering to raise $500 million that the bank will use to expand into New York and other locations.

Still, the firms are suffering the effects of having gotten caught up in last decade’s leveraged buyout binge. Blackstone and Carlyle teamed up with two other firms to buy Freescale Semiconductor for $17.6 billion in 2006. Soon after, the chip market collapsed and the deal was widely denounced.

Now, even Freescale is showing signs of life. The value of the investment remains under water, with the firms having it marked down by about 65 percent, according to people with direct knowledge of their valuations. But amid a sharp turnaround in the semiconductor market, Freescale results have improved, recently posting a 29 percent year-over-year revenue increase.

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