The Access Capitalists

When you first meet David Rubenstein, you have to force yourself to remember that as a young staffer in the Carter White House he believed that the best thing in the world to be was a public servant. In those days he was known mainly for his unwillingness to go home at night. One of his former White House colleagues describes him as “the personification of the sheer, boring insistence that enables people to rise to the top.” He himself says that he was “the first one to arrive on the first day of the administration and the last one to leave on the last,” though he didn’t, as was rumored, actually live in his West Wing office. He became famous, briefly, when a magazine article described his ascetic daily regime, which included eating dinner from White House vending machines. “Machine food is underrated,” he said. That did it. A sperm bank called from California and asked him to contribute a specimen.

But then Carter lost and Rubenstein became just another Washington lawyer, peddling influence on behalf of clients he didn’t care about with causes he didn’t believe in. “I found it demeaning,” he says. “It was legalized bribery. You’d go up to talk to a senator and the minute you got back to your office the phone would be ringing and it would be the senator’s aide asking when you might be able to throw a fund-raiser.” So in the middle of 1987 he and Stephen Norris, a Washington lawyer who worked for the Marriott Corporation, opened their own merchant bank.

“Merchant bank” is a term of art that obscures more than it describes; the one thing merchant bankers don’t do is bank. Rubenstein and Norris planned to insinuate themselves into the Wall Street fad of buying companies with money borrowed from real banks: leveraged buyouts. It hardly mattered that neither man had any experience on Wall Street. By the middle of 1987, just about anyone could rent space and declare himself a financier, and just about anyone did. “I thought I had a pretty good I.Q. myself,” says Rubenstein, “and people were making a lot more money than me who I thought maybe weren’t so smart.”

Six years later The Carlyle Group—the name was inspired by the New York hotel and chosen because, like “merchant bank,” it sounded old and established—holds a majority stake in a dozen or so companies, which employ about 45,000 people and generate about $5 billion in revenues annually, principally from the United States government. But what Rubenstein has done is in a way less impressive than whom he’s done it with. He employs former Secretary of Defense Frank Carlucci, former Secretary of State James Baker, former budget director Richard Darman and many lesser rolodexes: the son of Bahrain’s ambassador to the United States, a former U.S. ambassador to NATO and so on. Colin Powell is the most recent big shot considering an offer from Carlyle. Former Treasury Secretary Donald Regan, former Bush Campaign Chairman Fred Malek, former first son George Bush Jr., former CIA Director Robert Gates and current sec Chairman Arthur Levitt are advisors to, investors in or board members of Carlyle’s companies. Vernon Jordan and Bob Strauss, the Tweedledee and Tweedledum of Washington Insiderdom, are on the list of references Carlyle includes in its press kit.

The Carlyle Group, in short, has become a kind of salon des refusees for the influence-peddling class. It offers a neat solution for people who don’t have a whole lot to sell besides their access, but who don’t want to appear to be selling their access. “Jim Baker wouldn’t have joined us if we lobbied,” says Rubenstein. The former Carter operative is right. He is able to attract political celebrities such as Baker, Carlucci and Darman precisely because he has found a way to exploit their connections without seeming to be doing so. Almost unwittingly, he has helped to create the finest specimens of a new social type: the access capitalist.

The access capitalist enjoys a number of advantages over his progenitor, the Washington lobbyist. For a start, he stands to become very rich, very quickly. The lawyer-lobbyist merely rents his influence. The access capitalist effectively sells the present value of all his influence, in perpetuity, each time he makes a phone call. What’s more, the access capitalist can plausibly represent himself as a higher social type—a businessperson rather than an influence-peddler—which gives him an edge if he decides to return to politics. But perhaps best of all for those who have spent their lives in politics, the access capitalist doesn’t really need to know much about business. Wall Street has proved brutal to the many beginners, such as David Stockman and Larry Speakes, who have gone there to work from Washington. That true capitalism requires something more than connections is the source of Carlyle’s appeal: only a merchant bank that trades more on whom one knows rather than on what one knows can provide a real home for the access capitalist.

My first meeting with the man who runs what must now be the best game in town occurred beneath one of the English hunting scenes that decorates his lobby. Rubenstein has an almost charming disregard for conventional charm. He shakes hands unhappily, his eyes aimed into his carpet. He doesn’t often smile; when he wants to convey the idea of a smile, he grimaces. This he did as he began his monologue, which lasted four hours, with a couple of short breaks for questions. It opened:

I’ve thought more about what I was going to say to you than I do before I go in to negotiate a deal. Everyone you’ve talked to has called me. I figure you will go one of two ways with your story. You could write a story saying, what are all these former government officials doing making all this money? Or you could say, who are all these bozos who think they know how to manage money? I called Jim [Baker] and asked him what he thought about your story. He said there was no way that you were going to write anything nice about us because The New Republic hates him. Now, [he grimaces brightly] if you were writing for another publication you could write a story about how all these smart guys had got together and were making all this money. You ought to think about that. You could tell it as an adventure story. How a bunch of smart guys got together, raised $5 million and started something....

He then went on shallow background to dispute what I thought I had learned about The Carlyle Group. First he argued that he and his partners, most of whom had no previous experience in finance, had made so much money that they would never be able to spend it all. Then he reversed himself, sensing perhaps that quick success was implicitly damning: the more successful they were the more loaded the question of whether Jim, Frank, Dick and the others had been exploiting their connections. The conversation flipped back and forth. One moment Rubenstein was rich, the next he was poor. One moment The Carlyle Group was struggling to make ends meet, the next it had amassed profits of more than $1 billion in just six years. Four or five times he stopped himself to say, apropos of nothing, “I don’t spend money. I don’t enjoy spending money. The car that I drive is an 11-year-old Honda.” On and on this went, while outside, the rush-hour traffic on Pennsylvania Avenue collected and then dispersed.

The way Rubenstein tells it, the creation of Washington’s leading merchant bank was good old-fashioned American entrepreneurship, similar to, if more modest than, Bill Gates’s founding of Microsoft. But this is one of those half-truths that contains even less truth than a lie. The Carlyle Group has passed through several distinctly original phases of money-making, each more grandiose than the last, none of which would have occurred in a properly functioning capitalist economy. The first of these was what is known jokingly around the Carlyle office as The Great Eskimo Tax Scam of 1987. The Great Eskimo Tax Scam grew out of a brief, curious tax loophole that permitted Alaskan companies owned by Eskimos to sell their losses for hard cash to other American corporations. By offsetting the Eskimo losses against their gains, American corporations were able to avoid income taxes. All of a sudden there was a business in matching up profitable American corporations with Eskimos. Rubenstein and Norris spotted the window of opportunity and leapt through.

Since no one likes to pay taxes, finding the corporate buyers was easy. The trick was to flush out the loss-making Eskimos. Through a friend in Washington, Rubenstein plugged himself into a group in northern Alaska that had discovered a dubious technique for showing tax losses on idle property. (The Internal Revenue Service now challenges the validity of the Eskimos’ accounting.) To persuade the Eskimos to deal with him, Rubenstein flew them to Washington and put them up in a fancy hotel on the condition that they listen to his pitch. In less than a year Rubenstein and Norris shuffled between $1 billion and $2 billion dollars of dubious Eskimo losses into profitable American companies, for which they took a 1 percent fee, or between $10 million and $20 million. “I wouldn’t be surprised if they made more on that than they’ve made on everything else since,” says a Carlyle associate. According to Rubenstein, “It gave me and some of the others here the confidence that we could compete in the investment world.” Still, he only acknowledges his debt to the business of tax avoidance after the subject has been raised. The official company literature—and his own oral history of the firm—fails to mention The Great Eskimo Tax Scam.

About the same time he was romancing the Eskimos, Rubenstein was raising $5 million from a handful of big investors, mainly friends. (“David really leveraged his old political connections to raise money,” says a friend who watched him do it and who, like nearly everyone else in this article, spoke only on the condition of anonymity.) At least part of his appeal was that he would be able to exploit the false, but common, perception among foreign investors that they need Washington insiders to facilitate their American business deals. Explaining to Forbes in 1991 why he had committed funds to such an unusual operation, Arthur Miltenberger, the chief investment officer for the Mellon family, Carlyle’s most important investor, said, “I was intrigued by a merchant bank based in Washington, D.C. Foreigners have to come to Washington.” (The son of the Mellon family’s general counsel now works for Carlyle.)

But Rubenstein wanted to do more than just grease the skids in Washington for credulous Arab sheiks and gullible Japanese real estate tycoons. In 1987 the big money was being made in leveraged buyouts. As if inhabited by some rogue virus that transforms people into creatures of the zeitgeist, Rubenstein, former devoted assistant domestic policy advisor to saintly ex-president Jimmy Carter, hired a few bright young men to analyze publicly traded companies. When they found one that seemed undervalued, they staged a raid.

In September 1987 The Carlyle Group, represented by Drexel Burnham, made their first bid for Chi-Chi’s, a chain of Mexican restaurants, but ended up losing out to a rival bidder, also represented by Drexel. They made bids for several other companies in various industries, rewarding themselves and their backers modestly and annoying corporate managements greatly. “What do they add to the picture?” an executive of one Carlyle target, a defense firm called Fairchild, asked a reporter for The Washington Post. “These aren’t guys who know the industry.” Though their desire to purchase companies (with borrowed money) was sincere, they seemed relegated to the role of small-time greenmailers.

While it was true that in the 1980s a lot of people without much business experience made a great deal of money buying undervalued companies with money borrowed from banks, The Carlyle Group represented an extreme case. Even after their hiring, in the summer of 1987, of William Conway, a highly respected chief financial officer from MCI Communications (actual business experience!), they had little credibility with bankers or sellers. One of the biggest investors in leveraged buyout firms told me that he has refused to finance their ambitions, “principally because they didn’t have enough experience actually doing it.” Says an investor who gave them money for one aborted hostile raid, “Was it a successful experience? Not really. I wouldn’t do it again.” Finally, toward the end of 1988 Carlyle spent $90 million to acquire a New Jersey chemical company called Oakite Products, but only, as the firm now admits, by paying far more than it was worth.

What transformed The Carlyle Group from a collection of third-stringers in the leveraged buyout jamboree into a thriving enterprise of a kind that had never before existed was, oddly enough, a political scandal. Fred Malek was forced to leave the Bush campaign after The Washington Post revealed that in 1971, as a young aide to Nixon, he had toted up the number of Jews in the Department of Labor statistics. (Nixon suspected a Zionist conspiracy there.) Malek was friendly with Norris and Daniel D’Aniello, another Carlyle partner, from his time at the helm of the Marriott hotel chain, and he sought temporary asylum in the firm’s offices. In early 1989 he persuaded his fellow Republican, Frank Carlucci, recently retired as Secretary of Defense, to join the firm.

When Carlucci came on board, the defense industry was in turmoil, with as many as fifty-five different businesses for sale. To profit from the disarray, Carlyle needed to secure invitations to the sort of private corporate sales in which the price is kept down by the absence of bidders. “Everyone in our business is trying to figure out ways to avoid getting into an auction ... run by Wall Street,” Rubenstein explains. “Get into auctions—that’s the way to lose a lot of money. That’s why Baker, Darman and Carlucci are so valuable to us.” Pressed to explain why a CEO looking to sell a division of his company would entertain the call of a former Cabinet officer over one from a businessman, Rubenstein says, “Let’s suppose you’re the CEO of G.M. and you get a call from Baker. You think, `Hey the former secretary of state wants to come out and have lunch with me. I’ll get the photographer out ... have my picture taken.’”

In other words, Carlyle’s chief innovation was to insert the former defense secretary systematically into leveraged buyouts. Carlucci was ideally suited to the task. He still had a bit o’ the old glitz. He possessed a reservoir of goodwill with the defense contractors who were the main sellers of businesses. (The result, no doubt, of his having spent billions of taxpayer dollars on items for our national defense.) And his presence conferred a self-fulfilling financial credibility on a deal. “Somehow bank presidents are reassured when they learn there is someone involved who can place a call,” says a leading defense industry analyst. “An assurance from Carlucci that this business is sound is more influential than the best financial analysis.... There’s an awful lot of atmospherics in this business.”

Over the next four years The Carlyle Group was able to exploit Frank Carlucci’s connections within the industry, and within the Pentagon, to turn itself into one of the twenty-five largest defense contractors in the world. In September 1990, a year or so after Carlucci joined the firm, The Carlyle Group paid $130 million for a defense consulting subsidiary of Ford Aerospace called BDM, which Ford had bought two years before for $425 million. (The CEO of BDM, a close friend of Carlucci’s named Earle Williams, threatened to walk out with his top management unless his owner sold him.) In March 1992 Carlyle paid a still-undisclosed sum for Vinnell Corporation, which trains the Saudi Arabian Defense Force and allegedly has ties to the CIA. (The company was owned by another friend of Carlucci’s.) In August 1992 Carlyle paid $215 million for Vought Aircraft, which makes parts for the B-2 bomber and the C-17 transport plane. In October 1992 Carlyle paid an undisclosed sum for gde, an electronics division of General Dynamics. (Carlucci sits on the board of General Dynamics.) In July 1993 Carlyle paid $400 million for Magnavox, a military electronics division of Phillips. (Carlucci is friends with—and, again, formerly a big customer of—the CEO of Phillips.)

Rubenstein claims—and others confirm—that The Carlyle Group earns returns on these companies of between 40 percent and 60 percent a year. This is, of course, in addition to the several million dollars in fees that it bills the companies for the privilege of being acquired.

Perhaps a more telling indication of the value of Carlucci’s connections is how much better the firm has done with defense companies than it has with the businesses it acquired without the same edge in access. After the disastrous purchase of Oakite, the firm paid $300 million to Sears in April 1989 for the real estate brokerage firm Coldwell Banker. Immediately the real estate market crashed, Coldwell’s revenues plummeted, $107 million in equity value vanished and shares owned by Coldwell’s employees (similar to those purchased by Carlyle) fell from $10 to $2. For their next trick, Carlyle sunk $24 million of equity into a chain of radio stations called Four Seasons Communications; nearly all of that money is now gone. Also in 1989, the firm bought Caterair, the world’s largest in-flight catering business, from the Marriott Corporation. They billed the company $8.6 million for the privilege of leveraging it to the hilt; but then the airline industry fell out of the sky and Caterair lost several big customers to bankruptcy. (Rubenstein claims to have hidden profits in the company of $250 million. Another investor in the deal, when I related the number, laughed and asked, “He really said that?” Wall Street’s nickname for Caterair is “Craterair.”)

Probably only Rubenstein and his partners know for sure whether their gains in defense offset their losses elsewhere. In late 1989 three of the firm’s original four major institutional investors asked for their money back, leaving the Mellon family as the sole outside partner. In 1991, according to two well-placed sources, Carlyle almost failed to meet its payroll; the firm was saved by a $2 million fee from a Saudi prince whom they had represented during the Gulf war in the purchase of shares in Citicorp. (Rubenstein denies the payroll crisis.)

Though Rubenstein announced several times over the next eighteen months that Carlyle was raising two investment funds totaling $2.3 billion, the firm failed to raise a dime. The main reason is that it hasn’t completed a successful leveraged buyout by selling a business back to the public for a profit, presumably because there have been no profits for the taking. Rubenstein puts a noble face on the situation, saying that he is a long-term investor who does not want to sell: “If we were in the business of cashing in we’d have sold BDM,” the most successful and most advertised of his acquisitions. This would be more admirable if it were more true. By prior agreement with the seller, Carlyle is not permitted to unload BDM until sometime in 1994, and Carlyle partner William Conway told me that the firm would probably sell BDM as soon as it could.

What Rubenstein freely admits is that there is no money to be made buying companies at a fair market price and then managing them more efficiently. Money is to be made buying companies cheaply. Carlucci has enabled Carlyle to buy cheaply into the defense industry. Baker may be more broadly useful. As Rubenstein says, “Baker and Carlucci both have the ability to call any CEO in America. But Baker just puts us in a different league.” Baker (like Darman) is new to the business, however, and so is not fully developed as an example of how little success in this line of work has to do with ordinary business principles.

Frank Carlucci, on the other hand, may be the closest thing there is to a pure study of the market value of political contacts. He has spent all but two years of his career as a government bureaucrat. He has held jobs in every administration from Kennedy to Bush and rose, without leaving many footprints (except for his insistence that after a press leak everyone take a lie-detector test), through the State Department, OMB, HEW, the CIA and DOD. His first big career break reads like a literary invention. Riding with fellow foreign service officers through the Congo in 1960, his car hit and killed a cyclist. A mob formed around the car and, in the ensuing melee, Carlucci was nicked in the back with a knife. He was decorated by his government for heroism. His service in the Congo brought him to the attention of Prime Minister Cyrille Adoula, who, surveying the photographs of Cabinet officers in the White House state dining room in early 1963, asked President Kennedy, “Ou est Carlucci?”

Carlucci’s rise in government was unimpeded by his tendency to botch things up the few times he was thrust into anything remotely resembling a business problem. Presiding over the federal flood relief program that followed Hurricane Agnes in 1972, for example, he became the subject of a scathing series of articles in The Washington Post by Jack Anderson, who described in hilarious detail “the bureaucratic havoc wrought by Frank Carlucci, a human windstorm out of Washington.” Before he became vice chairman of The Carlyle Group, he had held two jobs in the free market. After graduating from Princeton (he and Baker were both in the class of ‘52), he spent a few months as a trainee with the Jantzen swimsuit company—years ago he told reporters he had quit because he didn’t like business. And before he accepted his final Defense Department posting, he spent two years, from 1983 until 1985, as president and chief executive officer of a subsidiary of Sears called Sears World Trade.

Sears World Trade was the giant retailer’s attempt to compete with Japanese trading companies in shuttling goods around the world. “His job was to ride hard on 180 people and prevent them from overrunning their budget,” says Rod Hills, who oversaw Carlucci’s work at Sears. “He couldn’t do it.” “I think they’re klutzes,” an unnamed analyst at E.F. Hutton told The New York Times at the time, in a colorful but typical assessment of the venture. By the time Sears World Trade closed, it had dropped a cool $60 million. Carlucci now says that Sears World Trade was “a good experience” but that “it was hard to have an entrepreneurial company in a big bureaucracy.” A Sears employee who watched his work closely now says that “Frank’s a nice guy, but he’s got to be the worst businessman I’ve ever met.”

Yet by some miracle of corporate politics Carlucci has remade himself into the darling of the American CEO class. He sits on the boards of thirty-two companies. A typical day in Carlucci’s life—described by Kathleen Day of The Washington Post—consists of racing back and forth to the board meetings he’s meant to attend at the rate of one per day. Meetings in a doctor’s office by speakerphone! Conference calls from National Airport! Frequent flier miles! (He says he doesn’t have time to use them.) So much for so little. “People think you make a lot of money out of boards,” he says. “You don’t, you know.” That remark reveals as much as anything how thoroughly Carlucci’s standards have changed since he left public office. From just nine of his board memberships he receives annual fees of $342,000 plus perks and pension benefits.

I spent an hour with Carlucci at his Carlyle office, which put me in mind, probably unfairly, of one of those special stage sets they used to design to make Alan Ladd seem tall. A toy cannon given to him by the officers and soldiers of the 109th Artillery guards the door; a miniature oriental rug lies on the floor; a tiny statue of Columbus gesticulates on the sideboard. Between the statue and the three letters of gratitude from Ronald Reagan, there rests a framed National Journal cover of the diminutive Carlucci leaning back in an armchair, hands clasped behind his head in the classic pose of corporate porn. Beneath him are the words: “In Control”—the one thing he most clearly is not. Carlucci’s success, like that of other professional board members, depends entirely on going along with the people who actually are in control. Of his ridiculous number of board memberships he gives this revealing account: “All these things just happened. For example, Bill Anders from General Dynamics came in. He sat right there and said, `Frank, I need your help because here’s the game plan and I need support on the board for it.’ Same thing with Upjohn....” In any case, Carlucci hardly has time to be in control. Apart from his board memberships and his commitment to Carlyle, he has opened his own investment bank in Bulgaria, and who knows what else. “I’m part of a group that advises Korea secretly,” he said, blowing the secret. “I mean we meet behind closed doors with prominent Koreans.”

Of course, the reason Carlucci—and now Baker—can work on so many fronts at once is that he doesn’t do much more than make a few phone calls for each deal. One imagines Carlucci saying to a potential seller or lender the sort of things he said to me: “Les Aspin and Bill Perry have called me several times to ask my advice about the defense budget.” (Perry, the deputy secretary of defense, oversees procurement. He is now deciding, for example, how much to spend on C-17 transport planes, built partly by Vought Corporation, a Carlyle Group company.) Carlucci’s advice to the Defense Department is reassuring for owners of defense-related businesses. “I think the cuts in defense spending—I know they’re too deep,” he says. “You are going to destroy the coherence of the military if you implement these cuts.”

It’s a bit of a mystery what access capitalists say or do during those precious seconds when they are fully employed, since no one involved in the deals has any incentive to expose himself. This gives Rubenstein the confidence to claim that, no matter how long I looked, I would find no case in which Carlucci, Baker and the others used their political connections on behalf of The Carlyle Group. “It’s not fair to say that we’re lobbying the government,” he said. “That’s not what we do.” He’s right—the use of influence is usually much more subtle. Still, I didn’t have to look far to disprove his claim. One piece of Carlyle’s business fell briefly into the public domain. And it nicely illustrates the manner in which political people who turn their hands to finance are able to blend their former public roles with their private interests.

In the early part of last year The Carlyle Group, in partnership with Thomson csf, the French government-owned electronics company, purchased the missile manufacturing and aerospace divisions out of the bankruptcy proceedings of the ltv Corporation. ltv’s prized missile technology was what the Pentagon calls a “black box program,” which means no one from outside is meant to know what’s inside. Because the French are notorious both for the theft of industrial secrets and for the sale of advanced weapons to all takers, the purchase was challenged in Congress on national security grounds. That Carlyle was paying an extremely low price for its half of the deal, while Thomson was paying through the nose for the missiles, heightened suspicion that the French buyers, despite their promises not to peer into the black boxes at ltv, were, in effect, buying American military secrets.

Hearings into the deal were to be held by the Senate Commerce Committee. According to one committee staffer, the first sign of Carlyle’s clout came when Senator Ernest Hollings, the committee’s chairman, “received an ominous sounding phone call from someone who said, `I want you to know that Arthur Levitt owns Roll Call.’” (Roll Call is an influential Capitol Hill publication and Levitt, now sec chairman, is a Carlyle investor.) During the hearings similar messages were delivered to staffers, though never by a Carlyle employee. “They were very subtle,” says the staffer.

Carlyle appointed Frank Carlucci to testify on behalf of the partnership, a move that was a bit strange because, of the several Carlyle partners involved, he knew the least about the deal. In response, the Commerce Committee decided it required someone of equal stature—perhaps another former defense secretary—who might be more objective. “At first we thought it wasn’t going to be a problem, but then we couldn’t find anyone to testify,” says a person involved in the process. “But it was [a problem]. I had the sense that Carlyle had spoken to all of our sources.”

In addition to the interested parties, the committee heard the testimony of two independent expert witnesses: Frank Gaffney, a former defense department official, and Alton Keel, a former ambassador to nato. Gaffney came down strongly against the deal, and was scathing about Carlucci’s role. (“The one thing that people like Frank Carlucci know how to do is to work the system,” he says now.) Keel came down strongly in favor of it. “Al’s testimony was so striking,” says Gaffney, “that afterward I asked him if he had any interest in the transaction. He said he did not.” Following a hunch, a participant in the hearings telephoned The Carlyle Group and was immediately put through to the firm’s newest associate—Alton Keel. The hearings occurred on May 14. According to one Carlyle partner, Keel had joined Carlyle in February. Yet during the hearings Keel kept this seemingly relevant data to himself.

But it was Carlucci’s manner, in both the Senate and the House hearings, that revealed the most about the mindset of the political bigwig turned business tycoon. He was at once a businessman representing his own interests, and those of the French, and a kind of ex officio public official. “I’ve been working with this subcommittee since 1977,” he explained in his House testimony before a subcommittee of the Armed Services Committee, “when I first became deputy director of the CIA. I think the members of this subcommittee are well aware of my commitment to U.S. national security.... I am absolutely convinced that this [deal] will add to the capability of our defense industrial base.” During the hearing, after a Congressman claimed he had seen a secret Defense Department study recommending the rejection of the sale, Carlucci left the room, called his friend Donald Atwood, the undersecretary of defense, returned to the room and reported that his friend did not oppose the acquisition.

Although Carlucci recalls having been grilled mercilessly on both sides of the Hill, he was for the most part treated with deference. There was one exception.

Hollings: I could not possibly see, and I am sure Mr. Carlucci cannot see, General Schwartzkopf being employed by Saddam Hussein to train his troops. Why should we allow you to come in now, as a former secretary of defense, and take over our defense technology for France?

Carlucci: Senator, I resent that question.

Hollings: I do not resent it. That is a very serious question.

Carlucci: I devoted a lifetime of service to my country.

Hollings: Yes, sir.

Carlucci: I rose up through the civil service ranks. I have seen a bayonet jammed in the face of my daughter in service to my country. I have been arrested. I have been stabbed. I have been brought in to clean up the mess after Iran-contra. I would not do anything to undermine the security of this country.

Propped up on a coffee table in Carlucci’s office is a framed letter from George Bush. It says how sorry the president was to hear that Congress had stymied Thomson’s purchase of LTV’s missile systems (which it did), but how happy he was to hear that Carlyle had found an American partner for its deal (which it did). The letter is another one of those inside jokes—like The Great Eskimo Tax Scam—that the outsider doesn’t get. “No one but Carlyle could have gotten this thing as far along as it went,” says Gaffney.

My second session with Rubenstein began much like the first, except that he kept himself on the record. In the three weeks between our two encounters he and other Carlyle employees had placed a sensational number of defensive phone calls to my friends, colleagues and potential sources. “The last time we met,” he began, “I told you that you could go one of two ways with your story ... so which is it?”

But before I could answer, he was off and running: “I’m concerned that the tone of the article will be that what I’ve done is illegal, unethical and immoral. I just think it’s unfair. I’ve been very careful to make sure that Baker isn’t out raising money in the Middle East.... I’ve leaned over backward so far to avoid using government contacts. I didn’t want anyone to be able to write an article saying we were trading on our connections.”

I have no doubt that Rubenstein’s concern for appearances is sincere. The access game is growing more complicated as the seriously well-connected juke and jive to adapt to the nation’s moral climate. The distinctions they make grow finer all the time. Of course, the point of all these distinctions is that they don’t require any truly well-connected person to forego his one shot at the main chance. Rubenstein may not have asked Baker to pass the hat in the Middle East, but he is passing the hat in the Middle East, and implicit in that pitch is that James Baker works for him.

Perhaps the best indication of the nature of The Carlyle Group’s business is that each week it receives hundreds of resumes from Washingtonians as free of financial sense, and as frustrated with conventional influence peddling, as its founders once were. “I get resumes from some of the biggest names in town,” says Rubenstein, “lawyers who are making $800,000 a year. They call and say they’ll come and work for free. It’s almost embarrassing.”

Finally, I was able to ask Rubenstein a question. I asked if it was true, as I’d heard, that he told people he wouldn’t consider returning to public service until he had made $50 million. “I don’t think I said that,” he said. “What I said was that someone in the Bass family said that when you make $50 million you have a different perspective on life.”

As the doors were closing behind me at The Carlyle Group, he asked me his final question: “How do I keep it from being a cover story?”