Research group Private Equity Intelligence says the global private equity business is going great guns. It has raised a whopping US$240 billion in the first six months of the year. Last year's total was US$459 billion - a record that's sure to be surpassed.

Some 'intelligence'. The figure is wrong. You'll see why shortly. By contrast, though, a paltry US$10 billion was raised in 1991. Less, even. But since the end of the US-led world recession in 2001, global business has never had it so good.

Everywhere, private equity is buying up firms whose CEOs just can't seem to ride the wave of today's gung-ho business climate. It's even gobbling up companies whose values look like turning up. But is this as good as it gets for global private equity?

You'd need to read tea-leaves at the bottom of the cup. If they're still swirling by this third quarter, signs of a record 2008 will look more promising. Then again, knowing the history of international stock markets, it could end violently too, though possibly, it'll be more like a dead cat's bounce. The world economy isn't about to lose steam any time soon. Still, the sub-prime mortgage market in the US did give that market and others quite a jolt a few weeks ago, from which the world's key share markets are still recovering.

Who could forget the collapse of Long-Term Capital Management (LCTM), especially as it failed on its specialist convergence trade? Having taken out long positions on emerging markets, including foolishly buying hugely risky Russian debt, it then watched the trades go horribly pear-shape. The Federal Reserve stepped in, pumping US$4 billion to bail out LTCM, but only because of the magnitude of the fallout on the US financial market and its potential to roil world markets.

Now investment bank Bear Sterns has been caught short. Its hedge fund is melting. After buying heavily into the sub-prime mortgage market, where at least six million Americans have borrowed 100 percent of loans for homes whose values have sunk, Bear Sterns has been left howling from its darkened pit.

Luckily for the investment bank, it quickly rolled the debt into bond-backed mortgages, or Mortgage-Backed Securities, then sold them off to other financial institutions in tranches as Collateralised Debt Obligations (CDOs). It's another form of hiving off parcels of risks of varying degrees at nominal prices and letting these become other people's problem. Problem is, the CDOs are massively overvalued.

Same capitalist mantra

Still, the capitalist mantra hasn't changed: the higher the risk, the higher the returns, and so the higher the profits - if all go well or ceteris paribus, despite the latter's irrational absurdity. And world investors conveniently have forgotten former Fed boss Allan Greenspan's "irrational exuberance" lament. Then the bears did not feature. The bulls were rampaging. Predictably, the herd followed - until the tech bubble burst and the herd was fried. Imagine Greenspan chomping on a Cuban and snorting 'I told you so' within smoke-rings.

Nevertheless, Bear Sterns decided to work with a different script - the pre-bubble one. Now it's hoping for some luck for the housing market to nose up. It won't.

The global private equity market is hoping the world economy will keep its nose well ahead of the curve. Because if the world economy stays ahead of steam - if the International Monetary Fund's (IMF) analysis is to be believed, and it has gotten it wrong many times before - company profits will be greatly boosted. That's the icing on the cake that private equity firms want - where values keep rising, and quite exponentially, of some firms.

If these are big 'ifs', go tell that to the consortium of private investors who are forking out US$48.5 billion for BCE, a Canadian telecoms major. In itself, that sum is said to be a record. There's a US$22 billion bid for British media company Virgin, while Hilton Hotels has changed hands yet again for US$26 billion. They're reading tea-leaves from another cup, which says all will end well.

Last year, there were more than 1,000 private-equity buyouts worldwide with a total value of between US$500 billion and US$700 billion. Last November, leading private equity firm Blackstone Group paid US$32 billion for Equity Office Properties Trust, a commercial real estate business, in what was then the largest private equity deal so far.

The previous record was the US$31 billion buyout of private hospital operator HCA four months earlier. Barely a few months into 2007, a new record was been set when private equity pioneer Kohlberg Kravis Roberts & Co. and Texas Pacific Group, another buyout firm, agreed to pay US$45 billion to take over electric-power utility TXU Corporation.

Takeover targets

Back to the future. It's the 1980s all over again. Then, the hive of activity, mergers and acquisitions was called Leveraged Buy-Outs (LBOs). These days it's called private equity. But the intention, application and consequences haven't changed one bit. More, the spate of mergers and acquisitions isn't likely to end here, either, whatever the downside risks.

As long as global private equity companies see market values of targeted firms growing over the medium term at the very least, and as long as public companies remain largely inaccessible - protected by governments - mergers and acquisitions will grow exponentially. And where public companies come into the full glare, LBOs will come geared up.

Some public companies will look increasingly attractive as takeover targets, especially as governments slowly wean them off their burdensome bosoms, despite the protests of the political left wing, including trade unions. They know that once governments take a right turn and head down the path of greater market liberalisation, there's no stopping that trend. At least not so easily. But whether that means letting their public companies sink or swim depends on the loony nationalistic agendas in some countries that often sprout faster than noxious weeds.

Take France: Jacques Chirac has gone and the new president, the conservative Nicolas Sarkozy ( photo ), isn't cut from the same cloth as Chirac. Sarkozy is far more market-friendly and that means more large French firms could become targets of well-heeled private equity businesses.

He'll start with the rigid labour market before breaking up the nest of French companies that hide behind state protection. But here Sarkozy will tread gingerly. After all, his election mandate was by a mere 53 percent majority - hardly enough to give him full legitimacy to reform the economy. Not that he stands a chance of doing so.

Sarkozy may be a political conservative but he's not a market liberal in the true sense of the term. When the shove comes, he's more likely to protect the bigger companies from the clutches of global private equity firms. In a recent speech Sarkozy talked of a "protective Europe".

Let's see what Messrs Angela Merkel, Gordon Brown and other key European partners will say about Sarkozy's "protective Europe" caper amidst their own careful march towards greater market liberalisation. If words carry weight at all, Sarkozy also has signaled his government's plans to rescue the troubled French aerospace giant, EADS. Now that says a lot about the man's nerve, as much as what he thinks of global private equity companies. If not, he's either confused or playing politics.

Off-loading debts

Not that global private equity firms will wait out the likes of Sarkozy to make up their minds or to make economic policies. In their own right, they're powerful enough players in world markets. That's their rite of passage. What gets them noticed isn't their political clout alone but their amazing ability to make money - tons of it - and to turn companies around in short time. The more stubborn ones are offloaded to those who can be bothered dealing with them. Whatever the power of global equity companies, however, the intellectual argument in their favour hasn't changed in almost two decades.

After the Asian financial crisis that almost swept up the rest of the world in its wake, including some of the world's largest and most intractable debt-ridden economies such as Brazil and Argentina, the global private equity companies and hedge funds are back big time. In fact, if anything, the capacity of global private equity companies to leverage buyouts has gained more momentum in recent years.

Why? In valuation terms, public companies are tedious. Or worse. They don't create values; they suck them from their marrow. Global private equity companies have a range of financial sources from which to raise capital, more than governments can. Public companies bleed national wealth. Many are still woeful in terms of transparency and good governance. One more thing: CEOs of public companies are mostly political appointees, inward-looking, and constantly dancing to their political masters' tunes.

All said, however, there is a downside to global private equity firms. Of the companies they snare, they cut costs inevitably to secure their initial investment, weed out unprofitable operations as they should, and expand those aspects of the business with the highest returns. Sensible stuff. Romanticists of business economics will say that's surely a good thing, freeing companies from the tyranny of living up to short-term earnings expectations.

But it's also called by another name - asset stripping. It's rather like a debt collector coming into your home and stripping you of every last thing that may keep whatever last bit of self-respect is left to you. Private equity companies don't automatically or intuitively respond to the fears of labour or communities. Go to Philadelphia or the mid-west of America and you'll see how whole towns and communities have been hollowed out by neo-conservative economics and high-finance - viz. debt finance - business models.

Global private equity companies pile massive debt into these bought-out companies. And if their investments go awry? No problem: somebody else will come along and buy up that debt, much like the IMF was into debt-swapping with many African states. Only that mission, however impossible, failed - and failed wretchedly, wreaking more misery upon the people.

There are no guarantees these money mandarins and business gurus can turn any company around. Not all are Midas. The only thing on their side is money. Loads of it. But too often that's not enough.

This is what may befall the state-owned Malaysian national car maker Proton, when its protracted merger and acquisition talks finally conclude with one of Europe's and America's car majors.

Then again, Proton is hopelessly debt-ridden anyway, thanks to the unrelenting incompetence of its chairperson and former prime minister Dr Mahathir Mohamad, whose brainchild was the national car plan, Proton's board of directors, senior managers and the heinously corrupt Malaysian government.

MANJIT BHATIA, an Australian, is an university lecturer and writer who specialises in international economics and politics, with a focus on the Asia Pacific. He has been published in The Wall Street Journal .