Carlye Group Got Called

[Snowalker]

While reviewing some economic reports this morning this little gem appeared.

_http://www.businessweek.com/ap/financialnews/D8V7U4OG1.htm.

Apparently Carlyle Capital Corporation (a part of Carlyle Group) has missed more than one margin call and has been served with default notices. This story has been picked up by just about every business newswire and includes similar missed calls by other investment firms like Thornburg and Kohlberg Kravis Roberts and Co.

This would be a significant event even if it was limited to smaller less known entities. The inclusion of Carlye in this group IMHO adds significantly to the impact this will have on the psychology of the investment community. In addition the numbers being talked about are likely to be worse given the nature of Carlye and the... um... "people" who run it.

This bears watching.

Jim

 

[Rabelais]

Here is a newswire release (probably DJ, but not stated) on the Carlyle margin calls and a comment from a contributor to the Midas daily report, from the subscription investment website, www.lemetropolecafe.com The snip below is from the March 6, 2008, daily newsletter:

07:21 Carlyle Group affiliate has not been able to meet some margin calls and has received notice of default (5-Mar 23:56 ET)
Since filing its 10K on 28-Feb, Carlyle Capital (CCC.NA) says it has been subject to margin calls and additional collateral requirements totaling more than $60M. Until 5-Mar, the company had met all of the margin requirements imposed by its repo counterparties. On 5-Mar, the company received additional margin calls from seven of its 13 repo counterparties totaling more than $37M. The company has met margin calls from three of these financing counterparties that have indicated a willingness to work with the company during these tumultuous times, but did not meet the margin requirements of the four other repo financing counterparties. From this group of four counterparties, one notice of default has been received by the company and management expects to receive at least one additional default notice. Carlyle Capital has received significant support from The Carlyle Group, most notably in the form of a $150M subordinated revolving credit line.
* * * * *

From Dave in Denver:

Let me get this straight. The article says:

"The Carlyle fund raised $300 million in July and used loans to buy about $22 billion of AAA rated so-called agency mortgage securities issued by Fannie Mae and Freddie Mac."

So they bought $22 billion of AAA-rated agency mortgage-backs using $300mm in capital? That's 73:1 leverage. Is Carlyle Capital treated like a bank? And where is the so-called "agency guarantee" which gives this AAA ratings? Why is Carlyle getting default notices?

There much more going on here and I'm sure it has to do with derivatives.

The system is completely melting down before our eyes. Some sectors in slow-motion and some of it vaporizes overnight. Remember how quickly Enron and Refco and Amaranth vaporized? Now we're seeing multiple entities vaporizing at once: Ambac, Thornburg, Countrywide, many hedge funds, etc.

We are now starting to see, firsthand and in reality (as opposed to the Bernanke academic theoretical ivory tower way of thinking) why Warren Buffet referred to derivatives as "financial weapons of mass destruction."