edu: Why the private equity bubble is bursting

--the bursting of the bubble will inflict broad damage. The cascade of private equity deals will slow to a trickle. Overpaid firms will deliver poor returns --the suffering won't be confined to the professionals or the wealthy. Ordinary investors investing in high-yield mutual funds will feel the pain. --begin:the combination of low interest rate, depressed stock prices, and rising corproate profits created ideal conditions for private equity firms to flourish. --middle: like many mania, the lure of easy riches drew new players, and the pace of dealmaking picked up. --As the good time rolled, the buyout binge took on a life of its own...Buyout targest realized they did not need to accept the first bid that came along, no matter how rich it was...push prices to new heights, reulting more debt. --the other half of the buyout equation are crazy lenders craving for higher yields. Banks drank the Kool Aid too, using convant lite to give green lights to deals --the cheap money pumped the bellows, and the pace of dealmaking accerlated in 2006. --All of a sudden, the music stopped. The trouble began with rising defaults in subprime market. While that market is unrelated to the buyout firms, the problems there served as a wake-up call. Debt investors began facing up to the risks they were taking. --Today the entire money-machine machinery that powered the boom has seized up as lenders awaken to the danger in these deals and insist on being paid for it. Banks will tak a bath on those transactions.