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Great Deformation: the Corruption of Capitalism in America

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Great Deformation: the Corruption of Capitalism in America 4/C PROCESS + PANTONE 8402 GRITTY MATTE UV 100#PAPER. ECONOMICS / BUSINESS $35.00 / $38.00 can 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- ER D “ At the heart of the Great Deformation is a rogue central bank tional wisdom with an eighty-year revisionist history of how LAN G N E that has abandoned every vestige of sound money.” the American state—especially the Federal Reserve—has fallen ARYL ARYL C prey to the politics of crony capitalism and the ideologies of 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 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, $30 trillion 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 Salomon Brothers in 1985 and later became one of the early The Corruption of Capitalism provides a catalogue of corrupters and defenders of sound partners of the Blackstone Group. During nearly two decades “ While Main Street was still licking its wounds, 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. The Corruption of a fortune during a twenty-year career in the studio, Bush, who repudiated fiscal rectitude and ballooned the war- riding the 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 on a slab alongside Lehman. [But] crony capitalism 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 Paulson]...to to save his firm.” welfare state, perpetuate the military-industrial complex, and pull out any and all stops 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 9781586489120-text_Stockman 2/14/13 8:53 AM Page ii 9781586489120-text_Stockman 2/14/13 8:53 AM Page iii 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. PublicAffairs books are available at special discounts for bulk purchases in the U.S. by corpo- rations, institutions, and other organizations. For more information, please contact the Spe- cial Markets Department at the Perseus Books Group, 2300 Chestnut Street, Suite 200, Philadelphia, PA 19103, call (800) 810-4145, ext. 5000, or e-mail special.markets@perseus books.com. 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 9781586489120-text_Stockman 2/14/13 8:53 AM Page v 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. 9781586489120-text_Stockman 2/14/13 8:53 AM Page vi 9781586489120-text_Stockman 2/14/13 8:53 AM Page vii 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 9781586489120-text_Stockman 2/14/13 8:53 AM Page viii 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 9781586489120-text_Stockman 2/14/13 8:53 AM Page ix 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 9781586489120-text_Stockman 2/14/13 8:53 AM Page x 9781586489120-text_Stockman 2/14/13 8:53 AM Page xi INTRODUCTION Less than two weeks before The Great Deformation went to press, the pow- ers that be in Washington pulled off a “deal” that allegedly stopped the country from going over the fiscal cliff. What they did, in fact, was to per- manently add nearly $5 trillion to Federal deficits over the next ten years, ensuring that the national debt will continue to surge higher and that Washington will become strangled even more deeply in a fatal paralysis of governance. In truth, the fiscal cliff is permanent and insurmountable. It stands at the edge of a $20 trillion abyss of deficits over the next decade. And this es- timation is conservative, based on sober economic assumptions and the dug-in tax and spending positions of the two parties, both powerfully abet- ted by lobbies and special interests which fight for every paragraph of loop- hole ridden tax code and each line of a grossly bloated budget.
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