cozcommunio

When the markets are de-leveraging like they are currently, some rich are getting poorer. The Carlyle Group (a firm that runs money for the super rich and politically connected)is a powerful Washington-based private-equity firm which currently is in the process of collapsing. The companies shares are down over 80% since problems were disclosed last week. The Carlyle Capital Corp. is heavily leveraged, in some accounts over 30 times. What this means is if they liked a position they borrow from investment banking firms with say only 3.34% money down (this gives them a 30 times leverage). If the position goes up in value they would score monster returns on their investment. The problem today is their investments are going down in value do the sub-prime and credit market problems. So they are experiencing monster loses and their bankers are demanding they put up more money. These capital calls are forcing them to liquidation positions into weak market. The firm is well known for the dozens of world political figures and luminaries it has employed and has as investors in the fund include George H. W. Bush and James A. Baker III. Carlyle’s current chairman is Lou Gerstner, former CEO of IBM and Nabisco. The Carlyle Capital Corp. is just one of the funds that the Carlyle Group runs. It is a mortgage investment fund. A year ago it was valued over $22.7 billion in the last year it has lost over 97% of its value. Here is a link to today’s Wall Street Journal a story:

http://online.wsj.com/article/SB120537974320632835.html?mod=hps_us_whats_news

The moral to the story is leverage can make you rich in rising market and it can make you poor in weak markets. Leverage is a double edge sword.

This entry was posted on March 13, 2008 at 10:15 am and is filed under Markets & Freedom. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.