The "plot" of the ad is a middle-aged man driving his Jaguar very, very fast. Sometimes he seems to be driving through the countryside; other times he is taking turns on a high, banked racetrack. All of the video is filmed with a light blue tint, bleaching out a lot of the colors - just like a decades-old memory.

Every so often, the spot cuts from the speedy car and its determined driver for quick (well under one-second shots) of a laughing and smiling young girl, maybe about 18 years old. But the girl does not look like the kind you would see as one of today's college freshmen. Her hair is long, blond and billowing; to me, she has the classic looks of what young men of Deep Purple's era used to call a "hippie chick", a young woman who, since she was in proclaimed open rebellion of all of society's mores, obviously had little use of those hidebound traditions proscribing sex before marriage.

Putting the three sets of images together, and you don't need a doctorate in deconstruction to figure out what is being suggested here. The man, with the young woman's image burning hot at the front of his mind, is obviously traveling to meet her. With the speeds attainable with his new Jaguar, he is doing this very fast. He probably is not moving this rapidly because he expects on his arrival a stirring game of Pinochle or a rousing discussion of municipal bonds; a romantic assignation is obviously upcoming here.

Perhaps the appeal of the ad is that I remember, when I was the young girl's age, speeding off for encounters with young women who looked a lot like the girl in the ad. No, I didn't have a Jaguar for this purpose (the guys who did in those days of nationalized and disinterested British industry probably had more encounters with their mechanics than with girls). I had the use of my employer's huge, (almost 2,500 kg) 12-cylinder 455 cubic inch (that's about 7.45 liters!), pre-gas crisis Oldsmobile Toronado. That got me to the girl very quickly, provided, of course, there were no turns in the road between me and her.

At first, I thought that was the ad's purpose, to spur the memories and loins of guys old enough to remember "Hush" when it first came out. Then I thought again about the ad's rationale. The girl was unquestionably the hippie chick, but the man, the driver, presumably, the car's owner, is definitely not a hippie guy. He a rather bland looking, conservatively attired, middle-aged man. 

She's a trophy, not a memory
Then it hit me, this was not happening 40 years ago; it is happening today. The girl was not a memory, she was either a mistress, or a second (or third or fourth ) trophy wife. If you're rich enough to afford this new, US$60,000 car, you're rich enough to enjoy girls like the hippie chick as current-day experiences rather than just faded memories.

Maybe we are in the worst financial crisis since the Great Depression, maybe a quarter of a million Americans are losing their homes through foreclosure every month. Still, if you're in that class of wealthy Americans that only experience the subprime crisis as mindless chatter overheard in the servants' quarters, you can buy this car and, little blue pill willing, have romantic liaisons with girls young enough to be your daughter. Even as the job layoffs accumulate and the price dials on gas pumps spin upward like slot machines, apparently, rich American men are still speeding through the night , their minds red with lust, like the Marquis St Evermonde of Charles Dickens' A Tale of Two Cities, rolling over and flattening everything in their carriages' path.

In Andrew Lloyd Weber and Tim Rice's Jesus Christ Superstar, Pontius Pilate remarks, "You Jews produce messiahs by the sackful." Today, what the general financial media, especially US business and investment-themed cable station CNBC, produce by the sackful is proclamations that the entire subprime/financial crisis is over.

Has a small Midwestern millinery chain reported better than expected quarterly results? "That's it, it's all over, BUY! BUY! BUY!" they howl. A couple of bucks come off a barrel of oil, the same; surely, it's only a matter of time until US gasoline is not only once again priced under a quarter a gallon, but a smiling attendant in a pressed white uniform comes out into the snow and rain to pump it for you. The glee is particularly ebullient on days of heavy stock market selloffs. This surely must be a prime buying opportunity, even if the rout proves that all the previously proclaimed like opportunities were not.

Last week, the hosannas abounded over the news that a consortium of private equity buyout firms, Apollo Management, TPG Capital and Blackstone Group, were branching away from their usual practice of buying up companies listed on the stock exchange and taking the shares private so as to make money by laying off loads of the workers, to "buy" $12 billion of distressed leveraged loans from Citigroup.

Unpriceable, immovable loans
Starting last August, these types of loans could not sell, could not move, they couldn't even be priced, not with the sudden contraction of financial market liquidity that we now know as the subprime/credit crisis.

Private equity firms have been laying low for the past few months, but, for a few years before August's credit markets freeze-up, they were all the rage. (I explained much of the working of private equity in The highs and lows of buyouts, Asia Times Online, February 22, 2007.) Their managers and traders have acquired an enviable reputation for being very savvy dealmakers and financiers, so, if they're putting money back into the wounded US financial system, surely this must mean the worst is over.

The usually level-headed David Faber of CNBC television, talking about early reports of the deal, stated that this represented "the larger issue of liquidity starting to return to parts of the markets where it hadn't been". Even the New York Times, in its news story on the deal, opined that it "could mark a turning point for this crucial part of the credit markets".

But you've got to burrow through the steaming mounds of hype here to see what's really going on. For one thing, the $12 billion of "leveraged loans" being taken off Citigroup's books are not the glowing radioactive waste of today's credit market's crisis, the collateralized debt obligations (CDOs) comprised of subprime mortgages. It is the continuing erosion in value of these securities, due to home foreclosures and the continuing decline in US real estate values that the foreclosures engender, that is the black hole that continues to suck in and crush much of the world's financial system.

If it's not mortgage CDOs that Citigroup is offloading and private equity is buying, what actually is it? Before last August, the standard operating procedure of private equity was to buy up majority interests of stocks of companies publicly traded on the world's stockmarkets, remove them from public trading, "restructure" the companies, usually through significant layoffs, then sell back and return the companies to the public markets at a significant premium to what they paid for them a year or so later.

Financial wizadry
These feats of financial wizardry were accomplished in two ways. First, the private equity buyout firms raised substantial amounts of capital, mostly from wealthy private investors, with lesser amounts raised from university endowments and public pension funds. The minimum initial investment in these funds were usually in the $1 million or so range; these are not investments targeted for Joe Sixpack's desires to fund a retirement at a senior citizens manufactured home park in Florida.

With the money raised from those enjoying the lifestyles of the rich and famous, the proceeds went to banks such as Citigroup to use as collateral so as to borrow enough to actually accomplish the buyout. Once again, it appears that, much as in the rest of the economy, it was not some great technological invention or productivity advance, but plain old money creation through the age-old trick of borrowing-leverage, that was responsible for this decade's prosperity here, and in most other sectors of the economy.

The banks would loan the private equity to the funds to accomplish the buyouts, but here, like in most other methodologies of contemporaneous finance, the banks had no intention to keep these loans on their books. They fully intended to bundle up and sell them as high-interest-paying bonds to other investors. Much as with mortgages, car loans, student loans, credit card accounts and the like, these loans advanced to private equity would be "securitized".

Before last August, that's exactly what would have happened, with banks such as Citigroup earning substantial fee income for being the middleman, the "financial intermediary" between private equity and those who lent it money by purchasing its bonds.

But everything has changed since August. Now, the generalized decline in financial market liquidity that originated out of the subprime crisis has left big banks such as Citigroup unable to offload the private equity debt for the buyouts of companies such as Harrah's, Alltel and First Data, that they took on their books for what they thought would be only a temporary residence.

These are the loans that the private equity groups are buying from Citigroup. In essence, more than representing new liquidity into the market, what private equity is doing is bringing its deals back home.

But a little-noticed part of the deal clouds the picture even further. Not only is Citigroup selling the loans back to Apollo Management, TPG Capital and the Blackstone Group, they're also actually loaning the private equity groups 90% of the $12 billion cost to buy the loans!

Why would they do that? The banks failed in their effort to "place" the debt associated with the specific deals that the private equity groups were attempting; what makes Citigroup think it will have better luck with this debt from the private equity groups themselves?

No skid row for private equity
The answer lies not so much in today's banking and finance procedures, but in the structure of current American, and to a certain extent other capitalist countries', societies. Just because the credit crisis has shut down dealmaking, it does not mean that private equity has hit skid row. Far from it. According to the Dow Jones Private Equity Analyst newsletter, 81 private equity funds raised $58.5 billion in the first quarter of 2008, up 32% from the $44.3 billion raised by 68 funds during the first quarter of 2007.

Why is money still being pushed at the private equity funds hand over fist when the private equity funds' core business, leveraged stock buyouts, has all but evaporated?

Put yourself in the persona of the average wealthy investor, the guy in the Jaguar, who funded that $58.5 billion private equity war chest in the first quarter. You've just had a romantic interlude with hippie chick, OK, so what are you going to do with the other 23 hours and 45 minutes of the day? One thing that may come to mind is looking after your investments, your treasure. Here, things are not nearly so warm and inviting.

If you want total security for your funds, you have to accept the truly pitiful annual interest rates now being offered by US Treasury bills and notes, currently just under 2% for two-year notes, about 3.55% for 10-year notes. The stock market looks lousy. You could try one of the new financial engineering products, as wealthy investors were doing with auction rate securities over the past few years, but, if the new financial engineering product blows up in the next leg of the credit crisis, as auction rate securities did in late February, it might be the next decade before you can get your money out. (Wealth destruction gathers pace, Asia Times Online, February 20, 2008.)

The next decade? But hippie chick is already on your case for the condo payment and the Restoration Hardware escritoire! But one place where guys like you have always been treated warmly is in private equity. Prior to the August freeze-up, annual rates of return of 20-30% here were not uncommon.

OK, maybe they've hit a rough patch now, but, surely, they'll come back. And, at least with your private equity investment, if you have a question you won't be put on hold, to be 437nth in line to talk to somebody in some far-off call center, much as happens to those who invest with the RBE (really big and enormous) mutual fund family or discount stockbroker.

So the flow of funds continues and intensifies into private equity. Private equity funds charge hefty account fees, sometimes up to 5% of one's investment annually, even before they take big chunks (up to 20-30%) of any profits they generate. Even if they're not actually being busy doing deals, they can look like they're busy, as if they're earning their money, with events like the Citigroup deal.

What does Citigroup get from the deal? Well, it gets some good publicity (not that it's helped the stock much, which has remained flat to slightly weaker since the announcement) with the image of new chief executive Vikram Pandit at least trying to clean up the mess left behind by his predecessor, Chuck Prince. And if people really believe that this marks the end of the credit crisis, it may drive some fools back into the door to do some business.

Most of all, Citigroup gets a possibly very reliable new client. Even though they couldn't move the loans for the buyouts off the books, the private equity groups have proven themselves to be very worthy bank customers for another reason - their vault-busting first quarter fundraising totals.

The private equity funds' core business model, debt-fueled leveraged stock buyouts, may be lying in tatters, but their ability to raise funds from Jaguar drivers apparently still makes them very good clients, indeed.

For what is actually driving the appeal of private equity as banking clients is the continued flow and redistribution of America's wealth and income out of the many hands of its middle class towards the fewer hands of its wealthy. According to the Center on Budget and Policy Priorities, adjusted for inflation, the top earning 0.1% of America's population saw their income grow by 85% from 1990 to 2004, whereas the bottom 90% of earners saw only a 2% rise in their income.

Maybe the real lesson of the entire subprime crisis is that the banks have learned that you need not make dicey mortgage loans to NINJAs (no income, no job applications) when you can make very nice loans to those who provide services to those who make very nice incomes. With the US presidential election this week settling down into a contest over who shoots the most ducks rather who saves the most homes, this phenomenon will undoubtedly continue.

Beware the calls of crisis end
But beyond the sociology, there is an important markets and investing lesson to be had here. Beware the now incessant calls from grossly self-interested parties that the credit crunch is over. Someday, maybe this year, or the next or the next after that, the bottom in this credit cycle will occur.

I can't tell you when that will happen, but I can tell you that, when it does, it will not be accompanied by laughter and gaiety from those who make money selling stock.

The bottom will come in the midst of the darkest gloom and crisis, when the general, unchallenged consensus is that you have to be mad as a hatter to want to buy financial stocks. This was the case during the August 1982 bottom, with prospective loan defaults by Latin American governments threatening the solvency of America's big money center banks.

It was the case in the summer of 1990 stock market bottom, as the US economy, already reeling from the Savings and Loans crisis, the subprime fiasco of its day, then had to cope with the oil price rises and geopolitical implications of Saddam Hussein's march on Kuwait. It was also the case in the fall of 2002, as US stocks, already weak from the repercussions of the corporate earnings' meltdown of that summer, came to realize that, yes, America was going to invade Iraq.

Five years later, last October, some informed observers, most notably Nobel Prize in Economics winner Joseph Stiglitz, contended that at the actual root of today's credit crisis and resultant economic recession is the $12 billion a month the US is spending in Iraq. He may have a point there.

But as night falls here in the US Pacific northwest, once again I think of all those Jaguars and other luxury roadsters speeding away from the suburban office parks for encounters with the hippie chick.

I need her loving and I'm not to blame now.