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Stephen Schwarzman and David Rubenstein are co-founders of two of the largest private equity firms in the world, the Blackstone Group and the Carlyle Group.  Both are under investigation by

Stephen Schwarzman and David Rubenstein are co-founders of two of the largest private equity firms in the world, the Blackstone Group and the Carlyle Group.  Both are under investigation by the bubble baron research group, with seanhartnett and Dan doing a tremendous job researching their networks and following their money.

As it turns out, Schwarzman and Rubenstein are closely connected to one another through a number of shared institutional affiliations.  So far, Dan and seanhartnett have connected both of them to JP Morgan, the Council on Foreign Relations, the Asia Society, the Business Council, and the Kennedy Center for Performing Arts.  Rubenstein rises to the top of Schwarzman’s interlocks tab, and vice versa.

Two days ago, Dan noticed that Rubenstein was succeeding Schwarzman as chair of the Kennedy Center, and wrote a note:

Bubble Baron David Rubenstein of Carlyle Group will succeed Bubble Baron @Stephen Schwarzman of Blackstone Group as chairman of the Kennedy Center for the Performing Arts in May (NYTimes, 3/3/10). The chairman gets to sit in a box every year with the president. Rubinstein hopes to use his position to bridge the “increasing divide in Washington between Republicans and Democrats,” since “the arts help bring people together.” (NYT, 3/3/10)

Rubenstein is primarily a Democratic donor, so it makes sense that he would take over for Schwarzman, a Republican donor, during a Democratic administration. But it doesn’t look like they need the arts to bring them together.

For another angle on their relationship, watch this Charlie Rose interview with Rubenstein and Schwarzman. They discuss their relationship starting around 13:00.  Here’s the transcript:

MARIA BARTIROMO: Now, on the one hand, you’re competitors. On the other hand, you’ll team up on deals. How does that work?

STEPHEN SCHWARZMAN: Well, actually, it works pretty well, to tell you the truth.

MARIA BARTIROMO: Putting billions and billions of dollars together enables you to buy a bigger company.

STEPHEN SCHWARZMAN: That’s true, and, you know, David’s fun to work with.

At this point, with Schwarzman smirking, the camera cuts to Rubenstein, who appears to be attempting to destroy his coffee cup with a death stare:

Schwarzman's smirk v. Rubenstein's Death Stare.
Schwarzman's smirk v. Rubenstein's Death Stare.

Rubenstein then discusses how easy it is to work with his bubble baron friend:

I am surprised sometimes at how easily it works, in the sense that Steve and I may be competing on a deal, and at the same time we might be teaming on a deal. And you just have to keep it very separate and recognize that there are certain Chinese walls and certain deals that you can’t talk about things with each other, and sometimes you’re talking about everything because you’re teaming up.

A very complex relationship, indeed. Chinese walls refer to the legal barriers that are supposed to guard against conflicts, collusion, that sort of thing. Typically, Chinese walls are actual information barriers erected between different divisions of an investment firm — keeping the research and underwriting departments of a bank separate, for instance.

So in the course of their conversations, as Rubenstein says, these two private equity kings deftly negotiate imaginary Chinese walls that are supposed to keep them from profiting from anti-competitive behavior.

How often do Blackstone and Carlyle invest together? Do Schwarzman and Rubenstein donate money to the same organizations? Who else do they work with? (at least two other bubble barons: Pete Peterson and William E Conway). These are the kinds of questions that keep arising during the bubble barons investigation; their networks are extremely dense, and they often work together. Their monopolies are harder to detect than they were when Roosevelt and Taft took it to the trusts, but they’re still there.

What will it take to bust ’em?