Over the past decade we seen at least $1 trillion dollars spent by private equity firms. These firms have taken over companies for a pittance and then pillaged them by slashing employees and cutting costs. They then used the money to pay down debt rather than rebuilding the company.

Now all of the debt thrown on the acquired companies is coming due and it could cause another economic disaster, even bring down the economy.

Raj Rajaratnam's life has just changed profoundly. The 52-year-old founder, fund manager, and partner at the Galleon Group has been accused of insider trading, conspiring with others (now named as defendants with him) to trade shares of Google (NASDAQ: GOOG), Hilton (OTC: HLNQ), and Sun Microsystems (NASDAQ: JAVA), among others. Rajaratnam generated $25 million in profits on these trades, but that's moot now.

Rajaratnam, who is #559 on the list of the world's richest people, with a net worth of $1.3 billion, now faces fines of up to $250,000 and from 5 to 20 years in prison. I doubt he'll be in the same slot on next year's list of billionaires.

Buyout funds managed by private equity giants Apollo Management LP and Blackstone Group LP (NYSE: BX) are among a growing number of limited partnerships that have experienced sharp declines in value, reports the Wall Street Journal, which highlights the economy's impact on such funds, as well as the influence of mark-to-market accounting.

Apollo and Blackstone recently disclosed to investors the values of their last buyout funds at year-end. Apollo Investment Fund VI LP, a $10.1 billion investment vehicle that closed in 2005, was held at 34% below cost. Perhaps the most notable Fund VI deal is Harrah's Entertainment Inc., which has struggled with its debt covenants. Apollo and TPG Capital LP acquired Harrah's in January 2008 for $27.8 billion.

The Blackstone Group L.P.'s (NYSE: BX) stock is down from about $25 to under $10 during the last 52-weeks. No wonder. It does deals like buying Hilton Hotels According to The Wall Street Journal, "The $26 billion leveraged buyout of Hilton Hotels Corp., with its 2,900 hotels and 490,000 rooms throughout the world."

Travel is likely to be way, way down during the recession.

But, the news has broader implications than that. Most LBOs are done with heavy debt, usually borrowed from major banks. Often that debt carries high interest rates to account for risk. In a slowing economy, a lot of that debt will default. Companies which were taken private will end up in Chapter 11, especially those which depend heavily on consumer spending.

That brings the issue around to bank earnings in 2009. While write-offs for mortgage-backed paper may be improving somewhat, a wave of LBO defaults are likely to hit money center banks hard. More losses, more need for capital.

The Treasury may not be done handing out money yet. Another wave of trouble for banks is just around the corner.

Douglas A. McIntyre is an editor at 247wallst.com.

It looks like Blackstone Group LP (NYSE: BX) will post its smallest profit since becoming a public company in June 2007.

Simply put, the firm relies on transactions -- which have ground to a halt. As a result, fees are likely to plunge. This is what happened to KKR Private Equity Investors LP, which recently reported 15% write-down of its portfolio.

Keep in mind that Blackstone will also need to come to terms with some mega-deals it struck before the credit crunch hit. An example is the firm's $26 billion leveraged buyout of Hilton Hotels.

True, it's a marquee asset. But the transaction was made when debt was dirt cheap. Blackstone raised about $20 billion in financing for the deal.

Now, with the global economy sliding into recession, it's inevitable that there will be cutbacks in travel.

Marriott International Inc. (NYSE: MAR) opened at $48.77. So far today the stock has hit a low of $46.82 and a high of $48.85. As of 10:55, MAR is trading at $47.45, up $2.99 (6.7%).

After hitting a one year high of $52.00 in April, the stock dropped sharply to find support just below $44. Hotels are soaring today after Blackstone Group (NYSE: BX) announced plans to purchase Hilton Hotels (NYSE: HLT). Jim Cramer says that some other hotel stocks are deserving of takeovers, and he is tagging Marriott as possible buyout candidate in the aftermath of the HLT deal. Other potential targets mentioned are Starwood Hotels (NYSE: HOT) and Wyndham (NYSE: WYN). Our own Douglas McIntyre sees MAR and HOT as targets as well. Recent technical indicators for MAR have been bearish and steady, while S&P gives the stock a neutral 3 STARS (out of 5) hold rating.

For a bullish hedged play on this stock, I would consider an October bull-put credit spread below the $40 range. MAR hasn't been below $40 since October and has shown support around $43 recently. This trade could be risky if the acquisition buzz surrounding the hotel stocks dies down with little action, but even if that happens, it looks like this stock could find support right near $45, where it bounced a few times in the past two months.

Brent Archer is an options analyst and writer at Investors Observer. DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent neither owns nor controls positions in MAR, BX, HOT, HLT, or WYN.

Now that Blackstone (NYSE: BX) has bought Hilton (NYSE: HLT) for $26 billion, The Wall Street Journal is asking [subscription required] whether Marriott (NYSE: MAR) and Starwood (NYSE: HOT) might be next.

The question is reasonable. Hilton has outperformed the other two companies in the stock market over the last two years, with its shares up 50%. Some of that is due to recent takeover speculation.

Marriott's shares are up only 30% over that period and Starwood's only 15%. All three companies have market caps in the $15 billion to $20 billion range, so none is so large as to be outside the financial ability for a private equity firm to take them over.

But, Starwood may make the easier target. Marriott is still controlled by its founding family while Starwood has had a bit of musical chairs in its executive suite. The company's CEO left in April.

Starwood has had virtually no growth in revenue over that last four quarters, and had low operating income in its last reported quarter. If private equity interests think they can improve that, the company becomes an attractive candidate.

Douglas A. McIntyre is a partner at 24/7 Wall St.

Is private equity really dead?

Well, it looks like the death has been widely exaggerated. Not only has KKR filed to go public, but the newly public Blackstone Group LP (NYSE: BX) has agreed to buy Hilton Hotels Corp. (NYSE: HLT) for a cool $26 billion.

It was back in 1919 that Conrad Hilton purchased his first hotel in Cisco, Texas. He certainly had lots of drive and ambition.

Now, the company has 2,800 hotels and 480,000 rooms across 76 countries.

But, the company thinks it's better keeping things private (at least for now). And, hey, why not take billions from the hungry Blackstone?

The deal comes at $47.50 or a 40% premium from yesterday's closing stock price.

When the markets open on Thursday, it will be interesting to see how Blackstone's stock reacts to the news.

Actually, the deal is a good fit for Blackstone. After all, the firm has been ravenous for hotel/resort properties. In fact, it owns more than 100,000 hotel rooms and has brands like La Quinta and LXR Luxury Resorts and Hotels.

Tom Taulli is the author of various books, including the Complete M&A Handbook and the EDGAR-Online Guide to Decoding Financial Statements.

Hilton Hotels Corp. (NYSE: HLT) opened at $33.75. So far today the stock has hit a low of $33.44 and a high of $33.80. As of 11:45 this morning, HLT is trading at $33.62, down $0.28 (-0.8%).

After hitting a one year high of $38.00 in April, the stock has dipped slightly, bouncing off support a few times just below $34. Billionaire investor Carl Icahn dumped all of his HLT shares in the first quarter of this year, indicating sentiment that HLT is unlikely to rise above its previous high. In fact, the stock is breaking below its support line today, which is not a good sign. Recent technical indicators for HLT have been bearish and steady, while S&P gives the stock a positive 4 STARS (out of 5) buy rating.

For a bearish hedged play on this stock, I would consider an October bear-call credit spread above the $40 range. HLT has never been above $40 and has shown resistance around $36 recently. This trade could be risky if the company's earnings (due out on July 31) impress, but even if that happens, HLT would have to break through the three tops it has already formed this year between $36 and $38 before this position would be in trouble.

Brent Archer is an options analyst and writer at Investors Observer. DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent neither owns nor controls a position in HLT.

The Hilton Hotels Corporation (NYSE: HLT) has unveiled a ten year plan that shows its intention to continue aggressive expansion in world markets, especially in the hot economies of India and China. The plan calls for Hilton to build a thousand new hotels in North America and another thousand worldwide, adding to the 2,800 they currently own. Hilton currently offers almost half-a-million beds in 80 countries under a variety of names reflecting different price points, from Hilton to Embassy Suites, Hampton, Doubletree, and more.

The company plans include expanding top-tier hotels under the Waldorf-Astoria and Conrad brands in places such as Thailand and Saudi Arabia. Mid-priced Hampton and Hilton Garden Inn brands will be pushed in North America, taking advantage of their lower development costs.

The company will affiliate with DLF in India to open 50 or more locations with that country. In China, they plan to work with RREEF and H&Q Asia Pacific to build 20 or more hotels.

This expansion program is already well under way, with over 750 hotels currently in development. Hilton properties will open in four new markets this year: Portugal, Poland, Ukraine and Russia.

Each year Steven Halpern, editor of TheStockAdvisors.com, surveys the leading financial newsletter advisors asking for their favorite stocks for the coming year. This article is part of his 24th annual Top Picks Report.

Hilton Hotels Corp. (NYSE: HLT) is the favorite conservative play from Dylan Jovine, editor of The Tycoon Report. He explains, "During the past two years, while Paris Hilton has been getting all the press, it's been the Hilton Corporation that's truly been doing great things.

"If HLT reaches $35 per share, sit tight and wait for a pullback. Meanwhile, here are the top reasons Hilton is worth owning:

• Hilton wasn't doing anything for a long time but just managing its assets. Last year they decided to buy back their international arm. They got their house in order and are now expanding. From 2001 to present, profit margins have been steadily increasing.
• I've always loved the hotel business: You build something -- which means that your heavy costs are incurred up front -- and then, if you know how to market it, people come. Most risk is in development.
• During the past few years, Hilton increased capacity at their hotels by lowering costs and tightening operations. This is evidenced by the fact that sales have increased 8% from 2005 while operating income increased by 22% over 2004. Net income was up 93%!
• Transformative year in 2005: Acquired Hilton Lodgings PLC and became largest hotel company in the world with 2,800 properties and 475,000 rooms.
• Demand is very strong -- Hilton managed to raise prices above the inflation rate: That means pricing power.
• When Hilton bought the London Hotel, they decided to do an all-cash transaction, which meant they had to issue debt. The reason? They would rather take on debt then issue equity, realizing the upside.
• Increased operating margins: When you increase revenue but lower costs, you increase profitability. They've been doing that to perfection."

To see Dylan's favorite speculative stock pick for 2007, click here.

This post is written as part of AOL Money & Finance's Best & Worst 2006. If you believe Paris Hilton makes too much money, cast your vote.

Socialite, singer, actress, and model, Paris Hilton is an heiress to the Hilton Hotel fortune. Already a celebrity in Manhattan and Los Angeles nightlife circles, she came to wide attention for starring in the reality television program The Simple Life, and for the infamous sex video that was leaked onto the Internet. She is also the niece of former child stars Kim and Kyle Richards, who appeared in the film Escape to Witch Mountain, and also distantly related to actresses Zsa Zsa Gabor and Elizabeth Taylor.

Hilton grew up in homes in Beverly Hills and the Hamptons, as well as a suite at the Waldorf-Astoria Hotel in Manhattan. She dropped out of high school, but earned a GED, and did not go on to college. Besides starring in The Simple Life, she has also had cameo appearances in television programs such as The OC and Veronica Mars, in music videos by Eminem and John Oates, starred in a TV commercial for the Carl's Jr. burger restaurant chain, and made numerous appearances at red carpet events. Her role in the film House of Wax earned her a Worst Supporting Actress Razzie Award in 2005.

She is the founder of Heiress Records, a record label whose only release is a Paris Hilton album. Her other projects include a line of jewelry, a chain of nightclubs, and a New York Times bestselling book of advice for would-be heiresses. In 2004 she participated in a campaign to encourage young people to vote, though it was later revealed that she hadn't bothered to register to vote herself.

While she has been quoted comparing herself to blonde icons Princess Diana and Marilyn Monroe, she will reportedly appear in the 2007 Guinness Book of World Records as the world's most overrated celebrity.

MOST NOTEWORTHY: Three prominent stocks in the hotel sector along with Analog Devices (ADI) topped today's list of downgrades.

• A.G. Edwards downgraded three hotels, citing valuation for their rationale: Starwood Hotels (NYSE:HOT), Hilton Hotels (NYSE:HLT) and Marriot Int'l (NYSE:MAR) were downgraded to Hold from Buy.
• Bernstein downgraded Analog Devices (NYSE:ADI) to Market Perform from Outperform; they are cautious on the strategy, execution and overall risk/reward profile of the company.

OTHER DOWNGRADES:

• Brean Murry downgraded two retailers to Sell from Hold today: Claire's Stores (NYSE:CLE) and Aeropostale (NYSE:ARO). The firm believes Claire's recent upside was due to speculation of a buyout, which they feel is unlikely, while Aeropostale's downgrade was based on the "50% off-the-store", which should limit the potential benefits.
• Finally, US Steel Group (NYSE:X) was downgraded to Hold from Buy at Soleil, citing valuation.

Analyst summaries provided by TheFlyOnTheWall.com (subscription required).

MOST NOTEWORTHY: American International (AIG), Dow Jones (DJ) and Hilton Hotels (HLT) top today's giant list of initiations.

• Bank of America initiated American International Group, Inc. (NYSE:AIG) with a Buy and $86 target; the firm said investors could now focus on improving fundamentals, especially in foreign life operations, following the company's two-year turnaround.
• Bear Stearns started Dow Jones & Company, Inc. (NYSE:DJ) with a Peer Perform rating based on valuation and secular declines.
• Jefferies initiated Hilton Hotels Corp. (NYSE:HLT) with a Buy rating and $38 target; Hilton is Jefferies' top lodging pick given its favorable valuation and potential balance sheet improvements from selling hotels.

OTHER INITIATIONS:

• Wedbush started Cheesecake Factory, Inc. (NASDAQ:CAKE) with a Buy rating and $38 target, citing expectations for 20%+ revenue growth in 2007.
• CIBC initiated FuelCell Energy, Inc. (NASDAQ:FCEL) with a Sector Performer rating, citing expectations of a likely liquidity event in July 2008 in order to bolster cash and regulatory uncertainty.

Analyst summaries provided by TheFlyOnTheWall.com (subscription required).