The Great Deformation: The Corruption of Capitalism in America

769 Pages·2013·3.04 MB·English

by  David A. Stockman

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in The WorDs of
DaviD sTockman The GreaT DeformaTion
is a searing look at Washington’s craven response to the recent
myriad of financial crises and fiscal cliffs. It counters conven-
rogue central bank
Der “ At the heart of the Great Deformation is a tional wisdom with an eighty-year revisionist history of how
n
nGla that has abandoned every vestige of sound money.” the American state—especially the Federal Reserve—has fallen
ryl e prey to the politics of crony capitalism and the ideologies of
ca
fiscal stimulus, monetary central planning, and financial bail-
DaviD a. Stockman
was elected as a
“ In the years after 1980, America had undergone the equivalent of outs. These forces have left the public sector teetering on the
Michigan congressman in 1976 and joined the Reagan White a national leveraged buyout...[and was] now saddled with edge of political dysfunction and fiscal collapse and have caused
House in 1981. Serving as budget director, he was one of the
$30 trillion America’s private enterprise foundation to morph into a spec-
more in combined public and private debt.”
key architects of the Reagan Revolution plan to reduce taxes,
ulative casino that swindles the masses and enriches the few.
cut spending, and shrink the role of government. He joined
Defying right- and left-wing boxes, David Stockman
The Corruption of Capitalism
Salomon Brothers in 1985 and later became one of the early
While Main Street was still licking its wounds provides a catalogue of corrupters and defenders of sound
“ ,
partners of the Blackstone Group. During nearly two decades
money, fiscal rectitude, and free markets. The former includes
at Blackstone and at a firm he founded, Stockman was a private Wall Street greeted the Fed’s announcement of quantitative easing... in America
Franklin Roosevelt, who fathered crony capitalism; Richard
equity investor. Stockman attended Michigan State University as the equivalent of a horn call to a fox hunt.” Nixon, who destroyed national financial discipline and the
and Harvard Divinity School and then went to Washington
Bretton Woods gold-backed dollar; Fed chairmen Greenspan
as a congressional aide in 1970. He is also the author of the
and Bernanke, who fostered our present scourge of bubble
Number One bestseller The Triumph of Politics. “ [Mitt Romney] was the Jim Carrey of bubble finance. He had made
finance and addiction to debt and speculation; George W.
riding the The Corruption of
a fortune during a twenty-year career in the studio, Bush, who repudiated fiscal rectitude and ballooned the war-
Capitalism in America
wave machines of debt and leveraged speculation enabled fare state via senseless wars; and Barack Obama, who revived
failed Keynesian “borrow and spend” policies that have driven
and powered up by the Fed.”
the national debt to perilous heights. By contrast, the book
also traces a parade of statesmen who championed balanced
budgets and financial market discipline including Carter
“ Morgan Stanley was insolvent and belonged in the financial morgue
Glass, Harry Truman, Dwight Eisenhower, Bill Simon, Paul
crony capitalism
on a slab alongside Lehman. [But] had now
Volcker, Bill Clinton, and Sheila Bair.
reached its apotheosis: one insuperably arrogant price of Wall Street Stockman’s analysis skewers Keynesian spenders and GOP
[John Mack] was commanding his former chief rival [Secretary Hank tax-cutters alike, showing how they converged to bloat the
pull out any and all stops welfare state, perpetuate the military-industrial complex, and
Paulson]...to to save his firm.”
deplete the revenue base—even as the Fed’s massive money
Jacket DeSiGn by Pete GarceaU printing allowed politicians to enjoy “deficits without tears.”
PhotoGraPh of caPitol © Getty imaGeS $35.00/$38.00 can But these policies have also fueled new financial bubbles and
favored Wall Street with cheap money and rigged stock and
bond markets, while crushing Main Street savers and punish-
ing family budgets with soaring food and energy costs. The
available as an e-book
Great Deformation explains how we got here and why these
visit www.publicaffairsbooks.com www.PUblicaffairSbookS.com warped, crony capitalist policies are an epochal threat to free
follow @public_affairs on twitter market prosperity and American political democracy.
9781586489120-text_Stockman 2/14/13 8:53 AM Page i
THE GREAT
DEFORMATION
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THE GREAT
DEFORMATION
THE CORRUPTION OF
CAPITALISM IN AMERICA
DAVID A. STOCKMAN
PublicAffairs
New York
9781586489120-text_Stockman 2/14/13 8:53 AM Page iv
Copyright © 2013 by David A. Stockman.
Published in the United States by PublicAffairs™, a Member of the Perseus Books Group
All rights reserved.
Printed in the United States of America.
No part of this book may be reproduced in any manner whatsoever without written permis-
sion except in the case of brief quotations embodied in critical articles and reviews. For infor-
mation, address PublicAffairs, 250 West 57th Street, 15th Floor, New York, NY 10107.
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Library of Congress Cataloging-in-Publication Data is available for this book.
ISBN 978-1-58648-912-0 (HC)
ISBN 978-1-58648-913-7 (eBook)
Editorial production by Marrathon Production Services. www.marrathon.net
book design by jane raese
Text set in 10-point Utopia
first edition
10 9 8 7 6 5 4 3 2 1
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To my daughters, Rachel and Victoria,
whose future inspired me to start this book,
and my wife, Jennifer,
whose patience and loving support
enabled me to complete it.
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CONTENTS
Introduction ix
PART I
THE BLACKBERRY PANIC OF 2008
1 Paulson’s Folly: The Needless Rescue of AIG and Wall Street 3
2 False Legends of Dark ATMs and Failing Banks 19
3 Days of Crony Capitalist Plunder 35
PART II
THE REAGAN ERA REVISITED:
FALSE NARRATIVES OF OUR TIMES
4 The Reagan Revolution: Repudiations and Deformations 55
5 Triumph of the Warfare State: How the Budget Battle Was Lost 70
6 Triumph of the Welfare State: How the GOP Anti-Tax Religion
Was Born 87
7 Why the Chickens Didn’t Come Home to Roost: The Nixon
Abomination of August 1971 108
PART III
NEW DEAL LEGENDS AND THE
TWILIGHT OF SOUND MONEY
8 New Deal Myths of Recovery 137
9 The New Deal’s True Legacy: Crony Capitalism and
Fiscal Demise 169
10 War Finance and the Twilight of Sound Money 195
11 Eisenhower’s Defense Minimum and the Last Age of
Fiscal Rectitude 213
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viii | CONTENTS
12 The American Empire and the End of Sound Money 235
13 Milton Friedman’s Folly: Rise of the T-Bill Standard 260
PART IV
THE AGE OF BUBBLE FINANCE
14 Pork Bellies, Floating Money, and the Rise of Speculative
Finance 281
15 Greenspan 2.0 320
16 Bull Market Culture and the Delusion of Quick Riches 343
17 Serial Bubbles 361
18 The Great Deformation of Capital Markets: How Wall Street
Got Huge 382
19 From Washington to Wall Street: Roots of the Great Housing
Deformation 404
20 How the Fed Brought the Gambling Mania to
America’s Neighborhoods 425
21 The Great Financial Engineering Binge 443
22 The Great Raid on Corporate Cash 455
23 The Rant That Shook the Eccles Building: How the Fed
Got Cramer’d 475
24 When Giant LBOs Strip-Mined the Land 501
25 Deals Gone Wild: Rise of the Debt Zombies 520
26 Bonfires of Debt and the Road Not Taken 537
PART V
SUNDOWN IN AMERICA:
THE END OF FREE MARKETS AND DEMOCRACY
27 Willard M. Romney and the Truman Show of Bubble Finance 551
28 Bonfires of Folly: Bernanke’s False Depression Call and the
$800 Billion Obama Stimulus 577
29 Obama’s Green Energy Capers: Crony Capitalist Larceny 598
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CONTENTS | ix
30 The End of Free Markets: The Rampages of Crony Capitalism
in the Auto Belt 613
31 No Recovery on Main Street 631
32 The Bernanke Bubble: Last Gift to the 1 Percent 649
33 Sundown in America: The State-Wreck Ahead 672
34 Another Road That Could Be Taken 706
Note on Sources 713
Index 719
About the Author 743