Couple of interesting followups from correspondents re the capital slosh.  One, here’s a former student who works as a money manager:

One little-known (or
little-appreciated) fact about private equity is that a huge chunk of the
capital which PE funds use for LBOs comes from public pension plans. 
Oregon had $640M invested in KKR’s funds by 1988!  Oregon and
Washington both committed $1B-plus to KKR’s 2004 vintage.  … From the very
start of big-time private equity it’s been as much about pension money as it’s
been about rich-guy money.  If anything the pension money has
created a lot of rich guys…

And this, from a bankruptcy judge:

You (or Palley) left out of #6 the advent of Securitization of accounts receivable in credit
cards and both car and home mortgages from the mid-90’s forward, largely unregulated
by Congress — at least intentionally:  the securities laws apply, but they weren’t written
to apply specifically to this new form of "asset-based financing."