Stephen Schwartzman of Blackstone Group sums things up pretty nicely for where this meltdown might go when it stops melting down.

http://www.reuters.com/article/wtUSInvestingNews/idUSTRE52966Z20090310

As of now, 45% of worlds wealth evaporated in the past 1.5 years.  He mentions that the way out is private equity starting to buy into these assets.

Basically, it looks as if Barack will back this scenario, via Tim Geithner.   If so, what could happen is a repeat of what his own rhetoric is condemning.

 The US stock market was flat from 1961 to 1983.  What pulled things out of the gutter?  Basically, the rise of corporate raiders, m&a,  Michael Milken, junk bonds, shareholder advocacy, undervalued assets (particularly real estate, hmmm).    The lift and profits from private finance fueled stock values.  Wealthy investors financed the wave of phenomenal growth that occurred from a rising S&P500 — silicon valley, software, dotcom.   Those same private investors earned orders of magnitude more than any stock market investor in the same time frame again.  Hedge funds know this.  Stephen Schwartzman knows this.   It might be helpful to understand what makes him tick, see this Steve Schwarzman NYMag profile from 2007.

Stockholders are basically the last ones to get paid;  it’s a residual security.   It’s really a derivative security, which no one seems to want to mention — derivatives not that much different from ones that carve up pools of mortgages with senior and residual tranches backed by a future cash flow.    In a finance textbook, it would say that the theoretical value of a stock would be the npv of future cash flow expectations.  Cash flow goes to bondholders and preferred stock holders before a cent goes to equity.   Private equity and the US government are coming in at a seniority level above common stock.  With leverage.  

My point is that professional investors can take their money in and out often, again and again.  They’ve taken the wind out of the sails of your retirement schooner.   I know of one hedge fund employee that took every penny of their personal money out of the stock market in the early fall of 2007.   We must look closely at the flexibility and privilege of the private finance institutions such as Blackstone who will step in to re-finance US companies.   If the Obama administration favors this approach, the same scenario is going to be created again — fewer jobs from cost cutting, management getting a bunch of stock options for firing employees, quarterly ROI focus.

So if/when that 45% of wealth comes back, it will likely be even more distributed toward the wealthy.   A lot more has to be reexamined to put the US economy on better footing than relying on the old guard.  Real jobs, more jobs, a strong stock market, real growth.   In the meantime, the public should get a better deal, there is really no need to make the rich richer when things bounce back, is there?