The Subprime Meltdown

David M. Rubenstein is a Co-Founder and Managing Director of The Carlyle Group, one of the world’s largest private equity firms. Mr. Rubenstein co-founded the firm in 1987. Since then, Carlyle has grown into a firm managing more than $85 billion from 29 offices around the world.  Prior to co-founding Carlyle in 1987, Mr. Rubenstein practiced law in New York, with the firm of Paul, Weiss, Rifkind, Wharton & Garrison; served as deputy assistant to the president for domestic policy in the Carter administration; and practiced law in Washington, D.C., with the firm of Shaw, Pittman, Potts & Trowbridge. Mr. Rubenstein is a member of the Board of Directors of The Council on Foreign Relations, the Institute for International Economics and Freedom House; the Board of Trustees of Johns Hopkins University, Duke University, Cold Spring Harbor Laboratory, the Kennedy Center for the Performing Arts, the Lincoln Center for the Performing Arts, the Center for Strategic and International Studies and the Dance Theatre of Harlem; and a member of the Visiting Committee of the Kennedy School of Government at Harvard and the National Advisory Committee of J.P. Morgan Chase. He is based in Washington, DC.

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TRANSCRIPT

Well, “subprime” is a wonderful word, and it was a little bit alluring to people. If you had said “not credit worthy loans” as opposed to “subprime”, people might have been a little bit more careful. But the word “subprime” kind of rolled off your tongue, and it didn’t sound offensive. So people bought a lot of these subprime loans not recognizing that a lot of the people who were taking out these loans probably couldn’t honor their mortgage commitments. The effect on our business has been twofold. One, a lot of people who bought subprime loans were also people who bought LBO loans. And as subprime loans went down in value and began to default, many of them didn’t have the money any longer to buy LBO loans. In addition they began to worry that if subprime had a problem, maybe LBOs had a problem. So many of them pulled back, and that’s had a big effect on our . . . on our industry. A second effect has been that the whole securitization of private equity and LBO loans has been a global business. And now loans are taken down by people all over the world. Well as the subprime market in the United States declined and had a lot of problems, people around the world began to get nervous as well. And even though they weren’t directly affected by subprime, they began to be worried that they might be affected by things comparable to that in their own country. So they began to pull back in buying LBO loans as well.

Recorded on: 9/13/07


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