Ready for a fun conspiracy theory? Guess where most PE guys start (i.e., where their base professional network is developed, where their expertise is, etc.). If you correctly guessed "Ivy League undergrad and business schools" and "investment banking", you can probably tell where I'm going with this. The gameplan is simple: lend your buddy the money to buy the business. Now you have a line to the person who has the most access to data about, if not control over, the direction of the business. Wherever it happens to go, you can be ahead of the market. Long if it's going to survive and grow; short if it's doomed. He's happy because the decision to be lenient or aggressive about repayment lies with his own contact - you.

How do you get businesses to agree to your terms? Well, they hired consultants at some point. Oh, those guys are your buddies, too. You have acquaintances on the BoD, too.

Why go through all the trouble? Besides the fact that you're becoming filthy rich, you also have the opportunity to remove rivals and consolidate markets under an n-opoly. More money. More control.

>"Unpleasant things are happening, we need some sort of regulation" doesn't seem like a sufficient basis for socially beneficial action.

How about fraud and insider trading?

I realize that this is a simplistic and somewhat paranoid take on the matter, but in a society with a broad and continuous history (distant and recent) of corruption at elite levels, maybe securities violations and revolving door employment aren't just for our politicians. I wonder if we're dealing with Occam's Razor: how are PE firms achieving phenomenal profits while the businesses they use to do so die? Easy: they're cheating.