Friday, March 14, 2008
They Never Learn
"Conditions at Carlyle Capital Corp. had become so dire Thursday that Carlyle Group co-founder David Rubenstein raced back to Washington, D.C. that night from a Wall Street confab at the swank Deer Valley, Utah, ski resort. ... It looked like easy money at first. Carlyle Capital would exploit the difference between the interest earned on its investments in mortgage securities and the costs of financing those investments. The secret to making money was borrowing massive sums. Carlyle Capital manged only $670 million in client money, but used borrowings to boost its portfolio of bonds to $21.7 billion. ... As a habitual buyer, seller, and financier of businesses, the firm gushes payments for the Street. Last year it paid out $330 million in investment banking fees", WSJ, 8 March 2008.
This was a strategy? Borrowing short and lending long? I read a treatise on banking written in Amsterdam that warned against this. When was it written? 1587! I kid you not.