Blackstone's bruising fall tied to credit market woes

— -- A: When private-equity firm Blackstone when public in 2007, investors couldn't wait to get in. Now, it seems, they can't wait to get out.

Shares of the private-equity firm got snapped up as investors figured it was their ticket to the upper class. Many investors had enviously read about how private-equity investors were getting rich during the leveraged buyout boom of the mid-2000s. You can read more about the intense enthusiasm for the initial public offering here.

Sadly, though, instead of getting into the country club by investing in Blackstone, many of the investors have landed in the poor house. Shares of the company have collapsed nearly 90% from their first-day closing price of $35.06 a share.

One of the biggest problems facing Blackstone is the difficult credit market. Blackstone, along with most of the leveraged buyout firms, relied on using borrowed money to buy companies and then run them for the cash flow or sell them later for a profit. But now that getting financing is difficult, that means the buyout firms cannot do deals. The level of buyout activity has shriveled up since the credit crisis erupted last year.

Meanwhile, the company has posted a loss of $917.9 million during the twelve months ended September 2008. That mars the company's history of a string of large profits. The stock is yet another reminder, as if we needed another, or how stocks that everyone wants to own almost always wind up being poor investments.

Will Blackstone's stock rebound? That's not really the question you're asking. If you assume that the ability to borrow at low-cost was the driver of Blackstone's profit, you're asking when the financial crisis will end. And that's the question no one at the moment seems to have the answer to.

Matt Krantz is a financial markets reporter at USA TODAY and author of Investing Online for Dummies. He answers a different reader question every weekday in his Ask Matt column at money.usatoday.com. To submit a question, e-mail Matt at mkrantz@usatoday.com. Click here to see previous Ask Matt columns.