David Stockman on Mitt, Newt and Crony Capitalism
January 23, 2012
Former Ronald Reagan OMB director David Stockman joined us on The Dylan Ratigan Show today to explain explicitly why both Mitt Romney and Newt Gingrich are incredible offenders and beneficiaries of corporate communism or, as he likes to call it, “crony capitalism.”
He specifically laid out the atrocious track record that is displayed by Mitt Romney and Bain Capital’s ability to make hundreds of millions of dollars on leveraged buyouts (just to name one illustrative example: buying and selling the Yellow Pages from the Italian government.)
The most important thing about the Stockman indictment of Romney and Gingrich is that it also speaks to the Obama administration’s similar characteristics, through the lens of Geithner and Summers. He points specifically to the failure to reform our banking system, and the massive expansion in too big to fail financial institutions since the financial crisis as the single greatest risk to the Western economy, as well as the greatest cause of distorted incomes, poverty, and unemployment.
Stockman proves that it’s not about the identity of the politicians, it’s about understanding the distinction between aligned interests between investors, entrepreneurs and inventors working together to solve problems — this in contrast with the misaligned interests, crony capitalists and corporate communists who use use access to power to extract money for themselves at the expense of our nation and the world as a whole.
Here’s the segment, and the full transcript is below:
Dylan: Well, just about four hours now until tonight’s debate and the economy may well actually make it to center stage here. It’s certainly a favorite talking point for both of the big GOP hopefuls right now, not to mention the President himself. New data out today shows that 83% of Americans now say they are dissatisfied with the current economy—looked to poverty, looked at wealth and equality, looked to unemployment.
We figure if the 1% has all the money, the other 16% must just be confused in that number. How could anyone be satisfied when, according to Gallup, more than 26% of us are unemployed or underemployed? Just the latest example of the split in the country between those that have and those that do not have and, more importantly, those that are working together in alignment to help each other and those that are screwing each other over, you know what I’m saying?
I want to bring in former OMB Director under President Reagan, David Stockman, a man who is one of the most aggressive advocates of capitalism and one of the aggressive opponents of crony capitalism. I just want to continue the conversation we were having, David…
David: Sure.
Dylan: …about the education Newt and Mitt are giving us as they try to attack each other—your assessment of their indictments of one another.
David: Well, you know, Freddie Mac and Fannie Mae were a cesspool of crony capitalism; we could go on about that. So Newt was hypocritical in taking money from Freddie Mac and pretending they needed a historian. Why does a cesspool of crony capitalism need a historian? Okay?
Dylan: Yes.
David: But when you look over on the other side, I think, unfortunately, Romney was disingenuous when he said that he got a graduate education in company creation, job creation, and growing economy as an LBO artist. Let me tell you why.
Dylan: Because people that invest money, we were just out in Silicon Valley, lots of folks there invest money all the time, they start businesses, what’s the difference between what Mitt Romney was doing and what –
David: Because leverage buyouts are just financial speculation. I was in the business for the same period he was and I would not pretend that I learned anything during that time that tells me how to improve the U.S. economy or how to even build companies or create jobs. What I learned was how to strip-mine the cash out of a country, a company to pay the debt. What I learned was how to powder up the pig in order to sell it in the quickest IPO or the best buyer you could do.
Dylan: Did you make good money?
David: Made some very large gains in some cases and had some bankruptcies in others. So the point, though, is leverage buyouts are not about growing an economy. And when you look at the record of Bain Capital, that’s what it shows. Now, everybody’s aware of the five companies that went bankrupt, they put in $100 million, they took out $500 million within a year or two, these five companies including Georgetown Steel went bankrupt. Okay, that happens. And frankly, if you’re in that business and you want to be a speculator, fine. If you want to own a casino, fine. If you want to own a brothel, fine. I believe in a free economy. But you shouldn’t pretend that somehow this gives you superior qualifications to figure out how to run the economy. Now, let’s look at the other two companies on the other side to give some idea what leverage buyouts really do. They have…
Dylan: Well, slow it down, though, because this is an important lesson. Walk us through it, if you don’t mind.
David: Well, they had – Bain Capital had two other companies where they invested $100 million and they also…
Dylan: $100 million of their own money.
David: Of the fund, of the fund –
Dylan: So they’re managing other people’s money.
David: Right, right. And they put in $100 million and they took out $500 million. And in these two companies, they were spectacular successes. One was called Experian; they bought it for $1 billion in September 1996. Two months later, they sold it for $1.7 billion. They bought it cheap from TRW, a big conglomerate. I don’t think there was an auction. Two months later before they even moved into the house or painted the kitchen or even crossed the front door, they sold it to a British company that was run by Margaret Thatcher’s former Staff Director. So I would…
Dylan: How’s that for crony. I mean, come on.
David: So look, they made $200 million in two months, so good for them. That’s great speculation. I’d call that an inside job. Now, the other one was that they bought the Yellow Pages in 1997 from the utility in Italy. They put…
Dylan: Which means if you’re going to do that, you have a relationship with the government if you’re buying something from the government for cheap, yes?
David: I would guess there was a relationship because they put in $17 million and three years later they took out $350 million, they made 22 times their money on the Yellow Pages at the time we had the dotcom bubble and technology was all the rage.
Dylan: And the Yellow Pages was a 22-bagger.
David: Yeah, how can you make a 22-bagger in the Yellow Pages unless you bought it really cheap, you were part of a crony capitalist crowd that took it over on the cheap, which was the case. They were involved with Berlusconi and all the rest of them. Let’s call that the “Italian Job.”
Dylan: Okay.
David: So when you look at the record, $100 in and — $200 in a billion out.One was an Italian Job, one was an inside job, and five were a screw job. And that’s how you make a billion dollars.
Dylan: And that’s a way to make money but that is a fraudulent way to represent the narrative of American just capitalism.
Tim: So the question is, is there anything – can Romney, can any of these candidates draw a distinction between sort of crony capitalism and capitalism because I think the left is all about blurring those two together. Because Obama will do the crony capitalism while attacking capitalism at the same time. It seems like Gingrich certainly can’t make that distinction given his record, but is there – can Romney do it to…
Dylan: Or do we, the Press, have to do it? I mean, that’s really what we’re trying to…
David: I think the Press can do it and I think Ron Paul’s doing it. Now, whether you like what he has to say or not, he’s been consistent over the years and over the years. Let the free market work. Now, if we would only get back to letting the free market work—and, frankly, Obama’s been just as bad—they didn’t do anything about a banking system that’s more out of control today than it was when they came in. They put into the key economic jobs Summers and Geithner and all of the rest of them, Bernanke, who had caused the problem in the first place.
Dylan: So how do we solve this? One at a time, one at a time.
Sam: How did these people cause the problem in the first place? It was buy regulation. I mean, so this is…
Dylan: Let him answer, let him answer.
David: It was not deregulation. It was mainly free money from the Fed, almost zero interest rates, massive encouragement for people to leverage, speculate, and then…
Dylan: And the swaps market.
David: …well, but the reason those worked is you had the Greenspan put and the Bernanke put which told speculators borrow 99 cents, buy 100 cents worth of speculative assets, and don’t worry that anything bad is going to happen because the Fed has your back. That’s what caused this.
Imogen: What you’re saying is he’s done absolutely nothing since 2008.
David: We have done nothing.
Imogen: Is it – okay, so is it going to take worldwide financial meltdown thanks to the Euro zone, say…
David: Absolutely.
Imogen: …for a reset meeting because it sounds to me that – surely, we’re going to hit rock bottom somewhere.
David: No, we’re doing the same thing over and over. The top six banks in 2008 had $6 trillion of assets in the United States; they now have $9 trillion. The top three banks in France have $6 trillion of assets and the GDP is only $2.5 trillion. We have got banks everywhere in the world that are out of control, stuffed with bad asses being propped up by the central banks, the ECB and the Feb, and they’re playing this game of kick the can and pretend that everything’s rosy.
Dylan: So put yourself in the American people’s position. So now – because you and I are obviously in full agreement on the – it’s the basic theme of Greedy Bastards as a book, it’s the theme of this TV show, which is that there’s this system with both political parties facilitating a totally distorted capital market with banking, trade, and taxes. If you look here in reality at a President who has facilitated a complete cover up of all that with his apparatus and two potential aspirants, one who’s on the take in the classic crony capitalism sense of Fannie and Freddie (I’m your historian), and another one who really is doing the closest masquerade of a capitalist by buying businesses and hiring people and firing people, but the unwritten component is that his motivation is not to create value or the business’s motivation is not to create value, it’s to extract money using other people’s money. As we are all learning this, it becomes remarkably frustrating for the American voter, let alone the people sitting around here and anywhere else, to reconcile it. So I’m interested on your thoughts of how we can apply pressure to all three of these people—the President, Mitt Romney, and Newt Gingrich to talk about the elephant in the room.
David: Well, the elephant in the room is really the Federal Reserve. The problem behind all this is the tri-fecta of almost free money. When debt has an interest rate on it of zero overnight or for the short term or 2% for ten years, you’re encouraging people to build up leverage and speculate. It doesn’t help Main Street, it only showers gains [cross-talking 09:04]. It makes the finance sector bigger and that doesn’t help the economy. It’s just churning.
Sam: You saying that capital constraints – you’re saying that any type of regulations about speculation, those would be irrelevant.
David: No.
Sam: The only issue here is cheap money. Is that what you’re saying?
David: One issue is cheap money and the second thing is the banks. The banks are not free enterprise institutions. They’re wards of the state, they need to be strictly regulated, we need to bring back Glass-Steagall, and we need to get banks out of trading. Banks should be in the business of taking deposits and lending.
Dylan: Right.
David: If you want to be Goldman Sachs, give up your bank charter…
Dylan: Right, and be a man. Be a man.
David: And be – if you want to speculate, be a hedge fund, which is what they are, then do that, but don’t have the Fed window, don’t have deposit insurance, which their bank has…
Dylan: And then walk around like you’re a tough guy, Mr. Capitalist, while you’re taking out of the back. Anyway, thank you very much. Come back sooner rather than later. You’re also set the table perfectly for Governor Spitzer’s visit tomorrow. There’s scorched earth here today. Nice to see you, Sam. Nice to see you, Tim. Nice to see you, Imogen. I look forward to seeing tonight’s debate to hear these two throw housing and unemployment at one another. Interesting times.
There are people we have elected to Congress who have been there 10, 20, 30, 40, even over 50 years! Our Congress has been betraying our trust and selling us out for generations. They not only suffer no consequences for what they've done; they've benefited greatly from their wheeling and dealing. They take an oath to protect our best interests and defend our rights as guaranteed by the Constitution and Bill of Rights, and yet they make a mockery of that oath.
Republicans and Democrats take the exact same oath of office and very few of them take it seriously.
I do solemnly swear (or affirm) that I will support and defend the Constitution of the United States against all enemies, foreign and domestic; that I will bear true faith and allegiance to the same; that I take this obligation freely, without any mental reservation or purpose of evasion; and that I will well and faithfully discharge the duties of the office on which I am about to enter: So help me God.
There are several very good reasons we make them all take this oath. The primary reason is to make it CRYSTAL CLEAR that the job we're hiring them to do is to make sure nothing unconstitutional happens. I read a quote the other day attributed to Senator John Glenn in which he said something to the effect, "If we had to apply the Constitution to all the legislation that passes before us, we wouldn't be able to pass anything."
This is the whole point of the Constitution.If followed, it limits the ability of the Federal government to tax, regulate and control our lives. THIS is the job we're hiring representatives to do for us. We're not hiring them to crank out endless streams of legislation – most of which only benefits selfish private interests.
3.Also, strict adherence to the Constitution is the ONLY thing that makes it a LOT harder for those with the most wealth to seize the powers of government and use it for their own selfish purposes. Our Congress has totally abdicated their responsibilities and handed the powers of government over to corporate interests that have absolutely no allegiance to this nation, to the Constitution, and certainly not to playing fair. Both major political parties are complicit. They have shredded the Constitution and Bill of Rights and are about to blow the Constitutional Confetti into the air as they celebrate "closing the deal" with their "real employers," the transnational corporate interests that have orchestrated the whole mess.
The dominant ideologies of the most destructive and powerful transnational corporations are predatory and tyrannical in nature. The notion that they are even remotely interested in such things as "free trade," or democracy flies in the face of basic common sense. The corporations wreaking the most havoc on this planet, the central banks, the military, medical, pharmaceutical, agricultural, and energy industrial complexes, have set up monopolies and cartels by using the powers of government to legislate and regulate the industries they wish to control. The people inclined to abuse their wealth and power do what they always have done throughout history. They TAKE the most, give the least, and don't give a damn about the rest of humanity.
There is a mountain of evidence, to prove that powerful transnational corporations, through their control of our election process, the legislative powers of government, the courts, the international treaty process, the world's currencies and of course, virtually total control of our mainstream media, have just about totally taken over our country. If we don't take control of Congress away from them, and fast, by a massive act of civil disobedience like this project is proposing (by not voting the way they want us to), we are simply not going to survive as a nation much longer the way things are going.
What sense does it make to allow the vast majority of people in Congress to remain there for one second longer than absolutely necessary? There is an endless stream of people pissing and moaning about how Congress is screwing us up one side and down the other and yet nobody will do a damn thing to MAKE SURE they all get voted out of office. If we don't make a point of doing just that, most all of them will get reelected yet again and they will most certainly give themselves another raise for the fine job of screwing us they've been doing. Then they will wrap up the task of destroying this country for the International Bankers, the people they really work for. We pay their salaries and the Bankers reap all the rewards. It's INSANE to allow any of the people to remain in Congress!
So here's the bottom line. If you're one of those people that is screaming and yelling and complaining about what the Congress is doing to us all, and you are not helping to make sure the people doing it are removed from office, then what's the point of all the complaining? At the very least, don't you think holding them accountable should mean the people WE KNOW ARE BETRAYING US lose their seat in Congress?
If most people continue to vote the way they usually do, in a way that allows most incumbents to be reelected, how are we holding any of them accountable for anything? We need your help to convince enough voters to vote differently, to deliberately vote for an incumbent's strongest competitor in order to make sure the incumbent will be voted out of office. We need you to help us convince enough voters to Vote for America in the upcoming election,not a political party.
"Start by doing what's necessary, then do what's possible,
and suddenly you are doing the impossible." – Francis of Assisi
We must start fixing the mess we're all in
by first "doing what's necessary."
Our employees need to KNOW we will fire them
when they betray our trust.
“Never doubt that a small group of thoughtful, committed citizens can change
the world. Indeed, it’s the only thing that ever has.” – Margaret Mead
Sincerely:Thomas W. Baird
According to Mark Carney governor of The Bank of Canada, the U.S. economy is unlikely to ever fully recover and Canada must look beyond the America.
1957, Graduated college with N0 school debt. A summer farmhand and schoolterm linotype operator earned enough money to pay for college. How about that possibility today? Whence have we come, and where are we going. We each have one lifetime and by trying to mortgage tomorrow for today we miss the point the materialism is a symptom of a great illness not a cure. Get with it, and try to help us regain a sense of responsibility for the future.