Tuesday, September 28, 2004

Carlyle's role in the military-industrial complex

Guerrilla News Network interview business reporter and Carlyle expert Dan Briody on Carlyle’s part in the growth of the American military-industrial complex, and the large sums of money they have made as a result of 9/11.

The Interview is definitely worth reading in full. Here are a few extracts:

GNN: What direct benefit has been accrued by Carlyle since the war and more specifically talk about what they own and what they are all about?

Briody: The Carlyle Group is a private equity firm, which essentially means that they invest in private companies - they take money from private investors and then invest that money into private companies. They essentially work like a mutual fund would, only instead of buying and selling stocks, they buy and sell companies. So they have different funds and among those funds are industries that are heavily government regulated. So health care, telecommunications and two of the biggies are defense and aerospace. Those are the industries that Carlyle got their start on back in the early 90s. It is what they have built their practice on.

The way that Carlyle is able to succeed at investing in these heavily government regulated industries is they hire ex-politicians - George H. W. Bush, John Major, Frank Carlucci, former secretary of defense under Reagan, James Baker III. These are guys that have access to former heads of state, foreign business leaders, and they enable Carlyle to really get its tentacles out all over the world and do some very serious investing with heavy-hitter investors from all around the world. And it also gains them access to investment opportunities.

After 9/11, Carlyle was set up in a number of defense properties. They owned a company called United Defense - this was probably the biggest boon after 9/11 that Carlyle experienced. United Defense was a company that makes the Bradley fighting vehicles, the Crusader gun system - these are things we have seen on TV a lot since the Iraq war started, and United Defense was able to go public months after September 11 because of the huge increase in defense spending. Carlyle made $270 million on one day in that IPO and then went on to make close to a billion dollars on paper from that transaction over time as the stock price continued to go up. This was an enormous investment for them and it was a huge win.

Their other aerospace companies, their other defense properties, their security companies, their biological cleanup companies - all of them scored major contracts after September 11, which improved the fund - the defense and aerospace funds invested in, which are billion dollar funds - $1-2 billion funds - huge private equity funds. The list of benefits is long, but we will never know exactly how much Carlyle made from 9/11 because they are not under any obligation to disclose that information.

They are never going to tell.

GNN: What is its reputation globally and how are they perceived in the business community?

Briody: They are called the ex-presidents club by a lot of folks in the international business community. When the head of a foreign business gets a call from George H. W. Bush or John Major it's very difficult to distinguish with whom he is doing business. Am I doing business with the American government or am I doing business with Carlyle or both? And in some cases they don't really care because they are sitting across the table from the president's father, who himself is a former president, and that's enough credibility for them. It makes it very easy to do business with these guys.

GNN: The names associated with the Carlyle Group - you can't really stop and not give pause - was this something you were aware of before you started your research and how has the American public responded to it? Do you think they are very savvy about these types of inter-relationships between government and business or do you think they would be surprised?

Briody: I actually think that the American people, to some extent, have come to accept relationships like this between high-level ex-politicians and very profitable businesses. At the same time, the story of the Carlyle Group was something that was very much underneath the radar prior to 9/11. There had been a couple of stories that had come out by some enterprising journalists that had been good at scratching the surface of what this company was about, but overall they didn't really delve into just how enmeshed this company is, particularly in the current administration and with the political situation in Washington DC. After September 11, it became clear that the Carlyle Group was in bed with the bin Laden family.

The bin Laden family was an investor in the Carlyle Group. The fact that the bin Ladens were investing in a company that was largely a defense aerospace company at a time when George W. Bush was going to war against Osama bin Laden, left the company open to some serious criticism. At that time we started investigating a little bit further. I was working for a magazine called Red Herring, which no longer exists. We wanted to look at business stories coming out of 9/11. What kind of financial impact is the disaster of September 11 having on the financial industry? And we wanted to find companies that were actually doing well after 9/11 and Carlyle Group was actually one of those companies. They had investments spread out in all kinds of areas that set them up to profit from 9/11 including aerospace and defense obviously, and also biological cleanup. One of their companies scored the contract to clean up the Senate building after the anthrax scare. They had companies that do security background checks for government employees and airline employees, which obviously skyrocketed. So they had investments spread around a lot of different areas that benefited greatly from September 11.

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