Pete Kendall's Socio Times: A Socionomic Commentary

March 7, 2008
Carlyle Capital Suspended; Lenders Force Asset Sales
Carlyle Group's mortgage-bond fund was suspended in Amsterdam trading after creditors forced the sale of some holdings, jeopardizing shareholders' capital.

Lenders who issued default notices have liquidated some residential mortgage-backed securities held by the fund and may sell more as talks continue, Carlyle Capital Corp. said in a statement today. The fund had “substantial” margin calls and additional default notices from lenders yesterday, it said.

Carlyle Capital said yesterday it had failed to meet margin calls, prompting creditors to seek immediate repayment. Started by David Rubenstein in 1987, Carlyle increased its mortgage holdings last year, selling $300 million of shares in Carlyle Capital. The fund used leverage to buy about $22 billion of AAA rated mortgage debt issued by Fannie Mae and Freddie Mac.

“This marks a further savage step in the ongoing credit implosion of recent months,” Keith Baird, an analyst at Bear Stears Cos. in London, wrote in a note to clients today. ``The liquidation of the fund cannot be excluded nor the potential loss of capital, rendering the shares worthless.”

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Carlyle's Forced Sales Herald the New 'Wallpaper Era'
Category: MANIAS
By: Pete Kendall, March 10, 2008
By the end of the price decline in these bonds, when a bit of glue on the back of them will aid their use as wallpaper, observers will finally postulate why the bear market started in the first place. Even if most of the recent price declines are due to forced sales, those sales in turn are decreasing the total value of investments, which in turn will curtail individuals’ and companies’ economic activity, which will lead to an economic contraction, which will stress the issuers of such bonds to the point that they will be unable to make interest payments or return principal. In other words, whether investors understand it now or not, the forced sale of bonds is itself enough reason to sell them also on the basis of default risk.
The Elliott Wave Theorist, September 2007
The Carlyle Group was also the group that, together with Sitt Asset Management, bought two buildings in the Meatpacking District of NYC last summer, paying 70 million/$2500 a square foot for real estate that had sold the previous year for a mere $18 million. What was even more interesting, is that after the fact, they found out the building was in much worse shape than they expected and they have been gutting its insides ever since (I know, my office is right next door. In other words, all their $70 million bought them, is a facade. Sounds typical of the kind of “empty” deals made at the top of a mania, and clearly, they were just as careless with the rest of their money. –I.G.
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