As layoffs have spread across banking, investment banks and hedge funds, things have been fairly quiet for private equity firms. Then again, these operators tend to have small employee bases.

But, interestingly enough, we may be finally seeing some pink slips for the private equity folks. According to The Wall Street Journal, 3i will announce a 15% cut in its staff and that there will be a 19% cut at American Capital.

And now it looks like the tier-1 firms are not immune. The Carlyle Group is gutting 10% of its staff this week (which comes to about 100 people). There's not much deal-making to do right now. Besides, it looks like it will be tougher for private equity firms to raise new capital. If anything, the focus will be on trying to manage the existing portfolios.

What's more, Carlyle has had a variety of blunders. There was the implosion of its mortgage fund (Carlyle Capital) and the recent bankruptcy of its Hawaiian Telecom holding.

Of course, Carlyle is not alone. So, it's a good bet we'll start seeing more layoffs in the private equity world.

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Streetsmart Guide to Short Selling: Techniques the Pros Use to Profit in Any Market. He is also the founder of BizEquity, a valuation website.

Jonathan Miller, the former chief executive of AOL, is apparently trying to raise money to buy Yahoo! Inc. (NASDAQ: YHOO).

The Wall Street Journal is reporting that Miller has been talking to the only people who have any money left to invest right now, deep-pocket private equity investors and sovereign wealth funds. Miller would like to purchase the whole Yahoo! enchilada at $20 to $22 per share, for a total value of $28 to $30 billion.

Yahoo! stock is spiking on the report. As of 1:15, Yahoo! is trading at $11.74, up 9% on the day.

Last week, Zac Bissonnette wrote about the fact that Carl Icahn has recently increased his stake in Yahoo! Icahn bought nearly seven million more shares in the company last week, raising his stake in Yahoo! to roughly 5.5%. Is it possible that a buyout led by Miller is part of Icahn's plan?

Whatever the backroom maneuverings, there is a lot of skepticism about any kind of Yahoo! deal, no matter who leads it. Financing such a big deal would be mighty difficult in this market, and Yahoo!'s valuation remains in flux. So you should probably take the news as reported: people are talking about a deal for Yahoo! but no deal is in place.

Harvard is an easy target for the woes of our economy. Its business school produced George W. Bush, the fellow who's presided over the current economic catastrophe, and Rick Wagoner, the CEO of the largest automobile maker who's led its stock down 95% in the last eight years and now wants $25 billion worth of taxpayer money to keep the millions rolling into his bank account. But Harvard had these folks for just two years, so it's tough to blame the school for the current predicament.

However, with $36.9 billion in assets (as of June 30), Harvard also has the largest endowment of any university. And thanks to its big exposure to very illiquid interests in venture capital (VC) and private equity (PE) firms, Harvard leads a growing list of limited partners (LPs) which are selling stocks and those very illiquid interests in order to come up with the cash needed to fulfill their capital calls to these partnerships.

This requires some explaining. VC firms raise money from limited partners such as wealthy individuals, foundations, pension funds, and endowments. But the LPs don't write checks up front -- instead they hold onto their cash and must write a check when the VC calls and asks for the money when the VC is on the verge of making an investment. The problem for many LPs like Harvard is that much of their stock portfolio is locked up in hedge funds and these illiquid VC and PE interests.

KKR is the pioneer of private equity (specializing in buyouts). The firm has survived a variety of tough economic cycles, such as the junk bond implosion of the late 1980s.

Yet, KKR can't seem to get the timing right on an IPO. For the second time in a year, the firm has postponed plans for a public offering.

Then again, KKR devised a convoluted plan for its IPO, involving a merger of KKR Private Equity Investors LP holding, which is traded in Amsterdam. In fact, the deal would involve no capital raise.

With the plunge in September and October, the portfolios of private equity firms have been ravaged. That is, expect some large writedowns, which is something that scars away IPO investors.

Besides, the shares of KKR Private Equity have deflated, dropping 73% in 2008. In other words, this makes it extremely difficult to pull off an IPO at a decent valuation.

Interestingly enough, the portfolios are likely to not improve until the public markets warm up again (it's the main way to get returns). But KKR is still optimistic and thinks that next year may finally be the time for an IPO.

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Streetsmart Guide to Short Selling: Techniques the Pros Use to Profit in Any Market. He is also the founder of BizEquity, a valuation website.

In February of 2007, Blackstone Group (NYSE: BX) boss Stephen Schwarzman spent $3 million on his own birthday party at the Park Avenue Armory. Patti LaBelle and Rod Stewart (singing 'Reason to Believe' perhaps?) provided the entertainment for the 500 guests.

The lavish excess was ill-timed, as the industry went sour shortly thereafter. A few months after that party, Blackstone went public in the $25 per share range. Now the stock trades at less than $9 and the orgy surrounding Schwarzman's $8 billion cashout helped fuel calls for increased regulation of private equity.

Now Schwarzman regrets the whole thing -- or at least the birthday party. Speaking at a conference in New York, he said that "Obviously, I wouldn't have wanted to do that and become, you know, some kind of symbol of sorts of that period of time. Who would ever wish that on themselves? No one."

Indeed. Who would ever want to become a symbol of having enormous amounts of money? How awful.

Will a marriage occur between General Motors (NYSE: GM) and Chrysler? According to industry scuttlebutt, talks have been going on for several weeks, but have been held up partially because of the credit crunch. Today in the Wall Street Journal, a source familiar with the talks reported that talks were proceeding at a "measured pace" and that Cerberus, the private equity firm that owns Chrysler, would want to breathe "fresh air" into the management team of the combined company.

The only member of the two current management teams who could possibly be considered "fresh air" would be Robert Nardelli, much-maligned former CEO of Home Depot and now-chief of Chrysler. He's been in the spot for a little over a year, the sum total of his auto experience. The two most likely candidates to head the combined entity at GM, CEO Rick Wagoner and COO Fritz Henderson, have each been with GM for decades (Henderson was even born in Detroit) and can hardly be considered new blood.

Bringing an outsider into a merged company would certainly create change, though it's hard to know who Cerberus has in mind. The firm's own staff is filled with onetime Fortune 500 executives, including former Johnson & Johnson COO Jim Lenehan and former MCI president and COO Tim Price. My money's on Price, who worked actively on the GMAC deal and thus has deep experience with the industry. Who else could Cerberus be considering for this historic amalgamation of American autos?

Since filing for bankruptcy in July, Mervyn's has been closing stores and fighting for survival in a much-smaller form. But now the company has announced that it will close its 149 remaining stores, with going out of business sales set to begin shortly.

In a press release, CEO John Goodman announced that "We are disappointed with this outcome but the Company's declining liquidity position and the extremely challenging retail environment, together with the fact that we have exhausted all other possibilities, requires that we take this action."

The company was taken private by a group including Cerberus and Sun Capital back in 2004, and that deal is now the subject of considerable controversy. Last month, the bankrupt company sued its former owners, alleging that the deal was structured to separate the operations from the real estate, and that the private equity owners then proceeded to sell real estate, pay themselves dividends, jack up lease payments, and essentially transfer value from the chain to the private equity buyers.

It remains to be seen what will come of that lawsuit but, if it goes to trial, it will be an interesting case that looks at the role of private equity in the financial world.

The Wall Street Journal reports (subscription required) that private equity heavyweight JC Flowers & Company recently told its investors that it had marked down $6.5 billion worth of holdings by 30%.

That's not good news but it's interesting to note how much worse off Mr. Flowers would probably be if he'd been able to do all the deals he wanted. In 2007, Flowers was set to pay $25 billion for student lending giant SLM Corp. (NYSE: SLM). That deal fell apart and the stock is down about 80% since then on credit market turmoil. Flowers was also a contender for Bear Stearns.

But Flowers isn't backing down. He recently raised $2.5 billion last month for a third fund and received regulatory approval to buy a small Missouri bank.The Journal adds that "Although it is a flyspeck of a transaction -- the bank has just two branches and $14 million of assets -- the deal provides Mr. Flowers a base from which to acquire failed banks or their deposits."

Recent gaffes aside, Flowers has an excellent reputation as a bargain-hunter, and the fact that he's building his war chest with an eye toward the financial sector should give investors something to think about.

While the government plans to write some big checks to stabilize the financial system, it's probably not enough. There are various sources of capital that can help out, such as private equity.

But there has been a big stumbling block: regulation. That is, if a private equity operator takes a 10% equity stake in a bank, the firm may be considered "controlling," which would trigger some onerous compliance requirements and may mean becoming a bank holding company.

Well, according to the Wall Street Journal [a paid publication], the Federal Reserve is now going to loosen things up. The trigger point is now a 33% equity stake (up to 15% can be voting stock). Something else: a private equity firm can even have as many as two board seats.

No doubt, this is a big deal for private equity firms. And it's a nice option for ailing banks.

According to Bloomberg, private equity firms raised $324.4 billion in the first half of this year, and as should be no surprise, the hot area is distressed investing. In other words, the private equity folks have something to be happy about.

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Edgar Online Guide to Decoding Financial Statements. He is also the founder of BizEquity, a valuation website

One of the most common complaints about private equity companies (and activist investors, corporate raiders, etc.) is that their relentless focus on making a quick profit results in the looting of companies, job losses, and so on.

That theory will be tested in court: Mervyn's LLC has sued its former private-equity owners -- including Cerberus and Sun Capital -- alleging that their profiteering tactics led to the chain's bankruptcy. When the $1.26 billion deal was consummated in 2004, The Wall Street Journal reports that (subscription required) "the deal was structured as two separate transactions -- one for the retailer and a second one for the retailer's real estate. This complicated structure, the suit alleges, enriched the private-equity firms while leaving the retail operations insolvent."

The firms then sold off real estate, paid themselves dividends, jacked up lease payments, and essentially transferred value from the chain to the private equity buyers, according to the lawsuit.

This will be a must-follow case -- assuming it isn't settled quickly and confidentially -- for those looking to understand the larger effects of buyout shops. I'm skeptical of the notion that private equity firms destroy companies and, if that was indeed the case with Mervyn's, it may have been a result of the complex structure and self-dealing.

In most cases however, there is little money to be made bankrupting something for which you pay hundreds of millions -- or billions.

Were you wondering which sector of the U.S. economy would be next to take a dive from the year-old credit crunch? Well look no further, because Barron's [subscription required] reports that private equity firms like Apollo Global Management, Kohlberg Kravis Roberts, and Blackstone Group (NYSE: BX) are hurting gators thanks to too much borrowed money and the weak financial performance of the companies they bought. And business is way down, Barron's reports that through mid-August, the 2008 total deal volume "stood at $67 billion, versus more than $400 billion in the corresponding 2007 period."

This does not come as a surprise to me. In February 2007, I appeared on CNBC arguing that private equity had peaked. And I began to question its long-term viability back in August 2006 when Barron's Alan Abelson quoted my thoughts on the matter. The basic problem is that when debt is cheap, private equity booms and when it starts selling itself to the public, investors should hold onto their wallets for dear life. People who own private equity firms tap their superior knowledge of the coming downturn to convince the public to bail them out by buying their stock.

Barron's cites -- as evidence of trouble in private equity land -- examples of the declining value of the publicly traded debt in companies that private equity took private at too-high prices with too much borrowed money. It writes that bonds of "many companies taken private in the past two years have plunged to 50 cents on the dollar or less, signaling that investors fear they won't be fully repaid. Many companies that were the subjects of buyouts a year or two ago are so grossly over-leveraged that they're struggling simply to pay interest. If they were to default, debt investors would be stung, but equity investors would be even worse off; the value of their holdings would be deeply impaired or wiped out."

TheStreet.com's Jim Cramer says the only action in the sector is that the rumor mill is spinning overtime.

There are tons of ridiculous stories that can be written in the Naked City. Notice that every day we are blessed with a story about how there are three private-equity firms examining Lehman Brothers (NYSE: LEH) (Cramer's Take) and Neuberger Berman (NYSE: NEU) (Cramer's Take). I think I have read that story a dozen times now.

You can list them, too: Blackstone (NYSE: BX) (Cramer's Take), KKR (NYSE: KFN) (Cramer's Take), Apollo (NASDAQ: AINV) (Cramer's Take), maybe Cerberus. What are they going to do, deny it? "No, we are not looking at it?" Their investors would love that: "Well what the heck are they doing with our money?" would be the reaction of investors if they issued denials. I predict weeks more of phantom tire-kicking of Lehman by nonexistent private-equity firms.

How about private equity about to swarm over collateralized debt obligations? Usual cast of characters there. Right? Come on, those stories are a penny a dozen. Every day I read about them. But nobody, other than Lone Star, is doing anything, anything at all on this front. If there were buyers, you can bet that Lehman and AIG (NYSE: AIG) (Cramer's Take) wouldn't be in the woods, lost, hopeless, with tons of bad European paper.

I'm not normally one for union-bashing, but I'm puzzled by organized labor's record of private equity-bashing. The New York Post reports that the two million member Service Employees International Union wants increased government oversight of the private equity industry, with a special emphasis on the various banks that are in desperate need of cash.

"The biggest buyout firms are used to gaming the system to turn a profit -- it's no surprise they want special rules now to take over another sector of our economy," SEIU president Andy Stern told the Post.

KKR and other buyout shops counter that the SEIU is trying to unionize employees at companies acquired by private equity, and is grasping at straws to drum up support.

That may be the case, but I can't imagine one has to do with the other. Employees should join unions (or not) because they feel (or don't feel) that their pay, job security and working conditions will benefit from membership. Bashing buyout firms would seem to be an irrelevant sideshow and a counterproductive one at that. Many union pension plans are large shareholders in banks and other firms that stand to benefit from private equity involvement, and they may be shooting their members in the foot by fighting macro issues like banking regulations that have absolutely nothing to do with their members' interests.

For financial markets, August is always a slow time as Wall Streeters head for their vacations. But this year, there was more than just seasonality. Simply put, it was a very tough month for M&A operators.

In fact, according to Reuters, August was the worst month since 1992.

It's been about a year since the credit crunch started, and it looks like things aren't getting better. If anything, it's a good bet we'll continue to see volatility and layoffs in the financial services space.

In August, the M&A volume in the U.S. came to about $28.5 billion, which is 53% off from the same period a year ago.

Ironically, while private equity funds have a huge amount of capital to put to work, there is not much bank financing. As a result, most of the private equity deals have been fairly small (below $2 billion or so).

Also, some of the recent mega deals – such as InBev's $45 billion acquisition for Anheuser-Busch Cos. (NASDAQ: BUD) – are crowding out the financing market.

In other words, investment bankers may need to wait until next year for things to warm up again.

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Edgar Online Guide to Decoding Financial Statements. He also operates MergerBook.com.

Launched in 1992, private equity firm Madison Dearborn Partners, LLC ("MDP") has grown into a powerhouse. The firm invests in a wide array of industries such as communications, consumer, financial services, health care and so on.

However, MDP is now feeling the pressures from the credit crunch. In raising its next fund, investors have been fairly lukewarm. Instead, MDP is now planning to raise a mere $7.5 billion. The original goal was $10 billion.

Actually, when compared to the 1990s, this is still a pretty big fund and will generate juicy fees. What's more, MDP is likely to get some nice valuations on deals, which should benefit investors over the long haul.

Although, things are far from done. MDP has raised about $4 billion so far, and if the markets continue to be rocky, even the $7.5 billion target could be elusive.

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Edgar Online Guide to Decoding Financial Statements. He also operates MergerBook.com.