If you regularly read the business section in your local newspaper or subscribe to the Wall Street Journal, then you have been reading over the past few years about the rise of ‘Private Equity’ and Hedge Funds.  We’re going to spend some time discussing these funds in this post along with an article that was published today in the Wall Street Journal.  If you are unfamiliar with these funds, you’ll gain a little insight into what they are and what they do.  We’re not going to go into details, we’ll simply look at what they do and apply to them what the Bible says about wealth and the accumulation of wealth.  If you are (or were) wealthy and invested in these funds, you are probably starting to feel a little uncomfortable - because you know where this is going……..

Hedge funds and private-equity funds are pools of private investor money.  They typically boast of very high returns and therefore, attract large amounts of cash from very wealthy investors.  There is a high degree of risk involved with these funds, but over recent years, the returns have been large enough to outweigh any perceived risk – and billions of dollars have flowed into them.  Because of the promised high returns, they charge very high fees which are typically 2% of assets under management every year and 20% of any profits.  So, they must be both aggressive and creative in order to make money for themselves and to keep their investors happy…..and from withdrawing their money.  They have made billions of dollars in recent years for themselves and their investors.  We’re going to take a brief look at how they have done this.

Have you ever been called by a hedge fund or private equity fund looking for new investment dollars?  The answer for the vast majority of us is – no.  The reason is that these funds cater to the rich.  They are looking for multi-million dollar initial investments, not the few dollars you and I would put into a mutual fund every month.  So, they are investment vehicles for the rich and are certainly influenced by very rich people.  What does the Bible say about the rich and the pursuit of riches?  We have already discussed this, so I will summarize here.  The Bible tells us that we should seek the Lord and His Righteousness first – other things we need will be given to us.  Do not love money, love the Lord.  He will take care of us and give us all we need.  What do you think the Lord sees when he looks at Wall Street and these funds?  He sees wealthy people pursuing ever more wealth.  Do these funds make money at the expense of the poor or less fortunate?  Yes – they do.  The pursuit of money has blinded us to how this money is made.  This is what we’re going to focus on.  Do you think the Lord approves of this type of behavior?  We’ve already covered this topic in previous posts and the Bible is clear – the love of money is the root of all evil.  It can’t get any clearer than this.  So, if these funds and Wall Street in general are pursuing riches at all costs, how long do you think the Lord will allow it to continue?  Will He allow the rich to continue to exploit the poor forever?  I believe we’re about to find out that the answer is no.  We are beginning to see this today – .  Let’s take a quick look at events that have transpired over the past few months that are beginning to have a very direct impact on Wall Street.

We discussed the current subprime mortgage problem in a previous post.  Let’s do a quick review of what has happened and what may happen in the future as a result of these events.   Subprime mortgages are mortgages that are given to homebuyers with poor credit.  These mortgages typically have much higher overall interest rates than mortgages given to consumers with good credit.  It appears that many of them are not fixed rate loans, but have adjustable interest rates so that the mortgage broker or bank can offer very low initial interest rates that will reset at a much higher rate at a later date.  It’s what many would call a ‘teaser’ rate that looks good to the borrower and sells more mortgages.  As the Federal Reserve has increased the Federal Funds Rate, many of these mortgages have reset at much higher interest rates which have then increased the monthly payments that many of these subprime borrowers must pay every month.  As a result, many of the subprime borrowers have been unable to make these increased payments leading to a very dramatic increase in home foreclosures.

You may be wondering how this has affected Wall Street and hedge funds.  Good question.  Until recently, a housing downturn could have affected Wall Street due to the overall impact to the economy, but now there is a much more direct correlation.  In recent years these loans have been sold by the banks who initiated the loans to the big Wall Street investment banks.  The Wall Street banks have then re-packaged these loans into investment securities called collateralized debt obligations or CDO’s.  These CDO’s have then been bought by many different hedge funds.  In recent years, these have been attractive to investors because they promised high returns and with the housing boom and low interest rates, the risk involved seemed muted.  With the downturn in the housing market and increased interest rates, it has become apparent that many subprime borrowers were issued loans they could not afford.  They can’t refinance because the value of their home has not appreciated (in some cases has depreciated) and interest rates are now higher than their initial rate….so they’re trapped.  With no options, they lose their homes in foreclosure.  We can talk about why this has happened, but the bottom line is that many have taken advantage of the poorest of us in the pursuit of wealth.  I’m sure that the borrowers, brokers, banks and Wall Street have all played a part in this, but the bottom line is that many wealthy people were profiting from these loans.  From what we read, there is very little concern about the people who have lost their homes as a result of this.  The vast majority of articles we read are about how this could affect hedge funds, the housing market and the stock market.  Ever wonder what the Bible says about loaning money to the poor at high interest rates?  The answer is there and remember, the Lord’s Word applies to us today, just as it applied to everyone alive when it was written.

“He who increases his wealth by exorbitant interest amasses it for another, who will be kind to the poor.” (Proverbs 28:8)

The Lord is clear: if you continue to exploit the poor, your wealth will be taken from you.

“You trample on the poor
       and force him to give you grain.
       Therefore, though you have built stone mansions,
       you will not live in them;
       though you have planted lush vineyards,
       you will not drink their wine.

For I know how many are your offenses
       and how great your sins.
       You oppress the righteous and take bribes
       and you deprive the poor of justice in the courts.

Therefore the prudent man keeps quiet in such times,
       for the times are evil.

Seek good, not evil,
       that you may live.
       Then the LORD God Almighty will be with you,
       just as you say he is. “ (Amos 5:11-14)

“He oppresses the poor and needy.
       He commits robbery.
       He does not return what he took in pledge.
       He looks to the idols.
       He does detestable things.

He lends at usury and takes excessive interest. Will such a man live? He will not! Because he has done all these detestable things, he will surely be put to death and his blood will be on his own head.” (Ezekiel 18:12-13)

“The LORD takes his place in court;
       he rises to judge the people.

 The LORD enters into judgment
       against the elders and leaders of his people:
       "It is you who have ruined my vineyard;
       the plunder from the poor is in your houses.

 What do you mean by crushing my people
       and grinding the faces of the poor?"
       declares the Lord, the LORD Almighty.” (Isaiah 3:13-15)

There are many other verses, but we’ll stop there.  Where is this subprime problem leading?  Hedge funds that invested heavily in these subprime securities are closing.  Debt markets are tightening due to investor’s adversity to the perceived increase in risk.  This, in turn, is making it much harder for private equity companies to fund their buyout deals.  This issue, coupled with the housing downturn, is causing the stock market to fall (the NYSE dropped over 300 points yesterday).  It shouldn’t surprise anyone who is spiritually mature that the exploitation of the poor by the wealthy is turning around to bite the wealthy.  Will the current situation end softly or are we facing something much more dramatic?  I believe we are seeing the beginning of the end of the financial dominance of the United States.  What we are seeing is only the beginning as the Lord begins to redistribute wealth from those focused on themselves and the pursuit of money to those who are following Him and His kingdom.

The following article appeared in the Wall Street Journal today.  Take note of who is benefiting from the efforts of private equity and who is suffering.

IN THE TRENCHES
How a Blackstone Deal
Shook Up a Work Force

Layoffs at Travelport,
Dividend for Investors;
'On Pins and Needles'

By IANTHE JEANNE DUGAN
; Page A1

CENTENNIAL, Colo. -- Not long after the Blackstone Group bought Travelport Ltd. last August, workers at the company's office campus here began feeling the squeeze.

Two months after the deal closed, scores of employees were lugging boxes of personal belongings to their cars, having lost their jobs. Under Blackstone's ownership, the travel-reservations conglomerate has laid off 841 people, about 10% of its work force. Blackstone, a private-equity firm, has already recouped all of the money it invested in Travelport.

__________________________________

RAPID PACE

•  The Situation: After Blackstone Group bought Travelport, changes came swiftly for some workers.

•  The Background: To capitalize on their investments more quickly, private-equity firms have been overhauling companies faster.

•  The Bottom Line: Travelport has laid off 841 workers, and Blackstone has already recouped its investment.

_______________________________

Similar scenes have been unfolding at companies around the nation, a human toll of the corporate-buyout boom. Private-equity firms, which say they bring sorely needed financial discipline to poorly run companies, have been slashing costs and extracting profits at warp speed. As the cycle of buying and selling companies has intensified, life in the trenches can be unstable and traumatic.

By the end of 2007, Travelport expects to slash costs by $150 million. Last week, it brought public its online reservations unit, Orbitz Worldwide Inc., using the proceeds to pay off debt. Its Galileo unit, which feeds airline information to travel agents, is the focus of much of the overhaul. Many of the job cuts have occurred at the company's data-operations center here outside , where some jobs have been outmoded by shifts in technology and in the way people buy airline tickets and rent cars, executives say.

John Kliegel, 41 years old, a computer-systems analyst, and his twin, Russell, a technical writer, were both laid off. They're selling the house they share because they can no longer afford it. Don Kleppinger, a 46-year-old software engineer with five sons, lost his job, leaving him without health insurance for several months. Grace Covyeau, 63, who lost her job as a telecommunications engineer, took a part-time job last month making sandwiches and coffee at King Soopers grocery store.

"It came as a shock," says Michael Berson, 49, who lost his job as a data engineer in October, three years after receiving a "Super Star" award for saving the company $1.2 million on telecommunications costs. Mr. Berson has moved to , where he is looking for a new job.

In addition to the 841 layoffs, 1,500 Travelport workers have left voluntarily since the buyout. The company says it has hired 1,582 new workers during that period, and has invested heavily in new technology.

Travelport Chief Executive Jeff Clarke describes the Centennial operation as the "factory" through which thousands of transactions pass every second. "We need to shift into new technologies," he says. "Some require productivity improvements and often will lead to layoffs."

To complete their $4.3 billion Travelport purchase, Blackstone and Technology Crossover Ventures, a , venture-capital firm that now owns 11%, invested $1 billion and borrowed the rest. That debt landed on Travelport's balance sheet. In March, Travelport borrowed an additional $1.1 billion and paid it out as a dividend to the two firms, returning all their money in just seven months.

"This is likely one of the quickest returns of invested capital for a private-equity deal of its size," Travelport's new chief financial officer, Michael Rescoe, said in a May conference call with analysts.

The buyout boom has been lucrative for Blackstone partners and investors, which include large institutions such as pension funds. Last year, Blackstone managed assets valued at about $88 billion and earned $2.27 billion, according to a prospectus for its own initial public offering in June. Its chief executive, Stephen Schwarzman, who resides in a 35-room apartment, made more than $650 million on the offering and retained a 24% stake now worth more than $5 billion.

Such riches raise hackles among laid-off workers. "These investments are helping the fat cats by hurting the little guys," says Ms. Covyeau. "It'll make you sick."

Over the past five years, private-equity firms have bought more than 10,000 companies. This year, through June, 1,399 deals worth $582 billion have been announced, according to data provider Dealogic.

In order to recoup their investments quickly, buyout firms are speeding up everything -- closing deals more swiftly, cutting jobs and restructuring companies faster, and taking them public sooner. They've also been taking big cash payments out of the companies they buy, as Blackstone did with Travelport. These payments, known as "dividend recapitalizations," reached a record $25 billion in 2006, and are on pace to exceed that amount this year, according to Standard & Poor's Corp. In 2001, they amounted to just $1 billion. The payments increase pressure to cut costs.

"Layoffs are far more likely at firms that pay these dividends," says Steven Bavaria, who oversees bank-loan ratings at Standard & Poor's. "Employees left behind are doing more work, looking over their shoulders, feeling stressed."

At a congressional hearing in May, the Private Equity Council, a lobbying group, testified that buyouts often result in long-term job growth. It cited the Carlyle Group's 2005 purchase of auto-parts company AxleTech International Holdings Inc., which grew to 568 from 425 workers after it began supplying parts to military-vehicle makers.

In other cases, job cuts follow buyouts. After buying Hertz Global Holdings Inc. for $15 billion from Ford Motor Co. in late 2005, Clayton, Dubilier & Rice Inc. and a unit of Merrill Lynch & Co. collected a $1 billion dividend, then took the company public. This year, Hertz cut more than 2,000 jobs, or about 8% of its work force.

Last summer, Blackstone teamed up with Carlyle, Kohlberg Kravis Roberts & Co. and other buyout firms to buy VNU, the parent of Nielsen Media Research and ACNielsen, for about $10 billion. In December, the firm announced 4,100 job cuts, about 10% of its work force.

"None of us wants a single job to be cut," says Paul "Chip" Schorr IV, the Blackstone senior managing director who orchestrated the purchase of Travelport and now serves as its chairman. Mr. Schorr, 40, joined Blackstone in 2005 from the venture-capital arm of Citigroup Inc.

The layoffs at Travelport were one of many steps taken to revamp the company. All told, Travelport has reduced operating costs by 6%, the company says.

Before Blackstone bought it, Travelport was operating as the Travel Distribution Systems unit of Cendant Corp., a travel and real-estate conglomerate based in Cendant's founder and chief executive, Henry Silverman, a former Blackstone partner, had cobbled together Cendant's travel unit through a series of acquisitions.

Galileo, which Cendant bought in 2001, gets paid by airlines to feed information about airline schedules, pricing and inventory to travel agents. In addition, it runs the reservations system for United Airlines. Galileo is the largest contributor of Travelport revenue, which totaled $2.6 billion last year.

That business has been suffering. The Sept. 11 attacks curtailed airline travel, as did the outbreak of severe acute respiratory syndrome, or SARS. In 2003, struggling airlines reduced the fees they paid to middlemen such as Galileo.

Cendant also had gotten into the online travel-agency business by buying Orbitz, which competes with Travelocity, Expedia and others. Each time consumers use the site to book reservations for flights, rental cars and hotels, Orbitz collects a fee. As more consumers turned to the Internet for travel planning, the business grew.

But as airlines and hotels began handling reservations through their own Web sites, the middlemen lost business. In 2001, systems such as Galileo had handled 70% of airline reservations, according to Forrester Research, a market-research firm. These days, such systems handle just 50%. Cendant began laying off employees, and in 2005, it decided to split itself into four parts.

Mr. Schorr believed that Cendant hadn't fully integrated the systems behind the travel businesses it had acquired. "It was like having a house with eight kitchens," he says. If it eliminated overlapping systems, he believed, the business could become more efficient. He also saw growing opportunities in foreign markets such as the and .

On Aug. 23, the day Blackstone took over, Mr. Clarke wrote to employees on an internal blog: "For most of us, our jobs won't change." Mr. Clarke, who had become chief executive a few months earlier, previously held senior positions at Computer Associates and at Compaq Computer Corp.

Some employees believed Blackstone's arrival would ease the belt-tightening and stress that had begun under Cendant. "A lot of us thought these layoffs would stop," says Gina Fugazzi, 51, who oversaw the company's voice systems in the "There was no more to cut."

Others had heard enough about how private-equity firms operate to be concerned about their jobs. Ms. Covyeau, the telecommunications manager, says many employees were "aware that the pattern at private-equity firms was streamlining work forces." Anxiety, she says, began rising.

In the blog, Mr. Clarke noted to employees that Travelport intended to re-engineer operations to reduce overlap and to eliminate "activities that are not contributing to our success."

The company decided to overhaul the telecommunications center housed in Centennial. "We are automating work that was done manually," explains Mr. Clarke.

Within weeks of the buyout, at a meeting with employees in Centennial, some managers warned that more cuts were coming. Ms. Covyeau says she began packing her boxes and told a manager: "Please, just give me a severance package and let me out of here."

One morning in October, managers in Centennial sent emails instructing employees to report to various conference rooms and cafeterias. Ms. Fugazzi says her heart sank when she walked into her designated room and found only about 20 people. "I suddenly realized I was in a group getting laid off," she says. A colleague, she recalls, spotted a tray of bagels and coffee and chortled: "Looks like this is our last supper."

A manager told them their jobs were being cut for economic reasons, according to several people who were there. Some employees burst into tears; others stared stoically. "I was devastated," recalls Ms. Fugazzi, who says she had planned to retire in four years. "I had the mentality that if you worked hard, you could keep your job forever."

When they got back to their desks, their email had been disabled. Guards lingered while employees filled boxes with belongings. The company declined to provide written references. In the confusion, some employees say, they were inadvertently given a wrong number to call about benefits -- it was a sex line. A company spokesman says only eight employees received the incorrect number, and the company corrected the mistake right away.

All told, Travelport laid off about 500 people that month, including veterans in their 50s and 60s who say they had good performance reviews and relatively high salaries of about $100,000.

Most of the layoffs occurred at Galileo. Gordon Wilson, Galileo's London-based chief executive, said in a written statement that many of the jobs had been outmoded by technology. For example, travel agents used to connect to Galileo's system by phone. Now, many of them access it via the Internet.

The company offered laid-off employees two weeks severance for every year they worked, according to several employees. Mr. Wilson declined to provide details about the severance packages, which he called "generous."

In December, Travelport announced the acquisition of Worldspan, one of Galileo's chief competitors, for $1.4 billion. At a Christmas party at the Denver Museum of Nature and Science, a Travelport executive assured remaining employees that 2007 would be more stable, according to people who were there.

In January, Mr. Clarke, the chief executive, reorganized Travelport into three brands -- Orbitz, Galileo and Gullivers Travel Associates, a wholesaler of hotel rooms and group tours. The company continued to cut jobs.

Galileo's Mr. Wilson says he has warned employees of "further changes" as the company completes the Worldspan acquisition. The deal could produce about $100 million in cost savings through the consolidation of sales staffs, data centers, and other operations, Mr. Clarke says.

In this year's first quarter, Travelport's profits were up 36% over the year-earlier period, to $157 million. Half of the profit improvement was because of revenue growth, the company says, 25% was because of vendor-related cost reductions and 25% was from productivity improvements, including reductions in the work force.

Mr. Wilson says Travelport's debt load has made it more urgent to generate cash. "If we can accelerate the reduction of our debt and therefore lessen our interest payments," he says, "no one would expect management to do otherwise."

With the Worldspan merger looming, employees at both companies say they are worried about their jobs. "We are all on pins and needles," says one employee. "Everybody here feels it's only a matter of time."

For many laid-off employees, finding new jobs hasn't been easy. Danny Carrasco, a software developer in his 50s, searched for five months before finding a job at a telecommunications company. Technical analyst Robert Renwick, 30, sent out more than 100 résumés over four months before landing a job at the local school district. He and his wife, a first-grade teacher, put off having children, he says. "I can't believe they would ruin all these lives to make a couple extra pennies," he says.

John Kliegel is earning 33% less as a program manager at a satellite company. His twin, Russell, is juggling job hunting with free-lancing. Mr. Kleppinger, the software engineer, once expected to retire at Travelport. He's now earning 20% less at a new job.

After months of searching, writing résumés and reading books on how to interview, Ms. Fugazzi landed a job with the Colorado Department of Human Services. She earns about $33,000 less than she did at Travelport, counting her old bonus. But the government job, she says, "feels more secure."

Write to Ianthe Jeanne Dugan at ianthe.dugan@wsj.com