Private Equity in Trouble: How Sweet It Is

Last Updated Mar 26, 2008 10:31 AM EDT

Whenever a group that portrays itself as Masters of the Universe gets into trouble, it is time to rejoice.

How delicious that Bain Capital and Thomas H. Lee Partners are about to lose out on their deal to take Clear Channel Communications private. It's a $19.5 billion deal. The banks that threw hundreds of billions of dollars at the private equity crowd until the credit markets seized up are suddenly apprehensive--they include Citigroup, Deutsche Bank and Morgan Stanley. Many of these banks themselves are in hot water and don't want to take any new risks.

I guess the heart of my philosophical objection to the private equity guys is that they engaged in many transactions that were not driven by economic necessity as much as by the desire to enrich themselves in the short term. They would take companies private, load them up with debt and then begin extracting fees and dividends of various sorts from the acquired companies. In too many cases, they weren't really trying to fix the companies. The private equity guys also portrayed themselves as somehow smarter than everybody else. Only they knew the secret sauce.

In some ways, it's a painful process to watch, but slowly, every so slowly, some rationality is returning to our financial and economic system.

What's your take?