David Stockman

  • Aired:  04/08/13
  •  | Views: 14,784

"The Great Deformation" author David Stockman criticizes the 2008 bailout and the concept of "too big to fail." (8:10)

>> Jon: MY GUEST TONIGHT, HE WAS THE BUDGET DIRECTOR FOR PRESIDENT ROUND REAGAN.

HIS NEW BOOK IS CALLED THE GREAT DEFORMATION, THE CORRUPTION OF CAPITALISM IN AMERICA.

PLEASE WELCOME TO THE PROGRAM DAVID STOCKMAN.

SIR.

( APPLAUSE )

>> Jon: THANK YOU FOR JOINING US THANK YOU Jon: THE BOOK IS CALLED THE GREAT DEFORMATION.

I READ THIS THIS WEEKEND ON THE PLANE.

I WAS GOING TO MARS.

HOLY SMOKES.

YOU BASICALLY TAKE US BACK.

THE PREMISE IS, IF I MAY AND CORRECT ME IF I'M WRONG, THAT THIS COUNTRY WENT OFF THE TRACK

IN SOME RESPECT WITH ROOSEVELT.

THAT THE IDEA OF THE FED AND MANAGING THE ECONOMY WAS KIND OF THE DEPARTURE POINT.

YES?

>> WELL IT'S LIKE A NARCOTIC.

FOR A WHILE THE BIG DEFICITS WE'VE HAD, ALL THE MONEY PRINTING FROM THE FED WORKED.

IT DID STIMULATE THE ECONOMY.

WE HAD SOME GROWTH.

OVER TIME IT BECOMES HABIT-FORMING.

THE POLITICIANS CAN'T LIVE WITHOUT IT.

VENT ALLY IT BEGINS TO...

>> Jon: GIVE ME SOME OF THAT.

IT THEN BECOMES DEBILITATING.

BY THEN -- AND THAT'S WHERE WE ARE WHEN WE'VE HAD THE SERIAL BUBBLES, THE DOT-COM TOTAL COLLAPSE.

THEY REFLAITED THE BUBBLE AND EVERYBODY GOT ON BOARD AND WE HAD THE HOUSING BOOM.

THAT WAS PHONY.

THE CREDIT BOOM AND FINALLY WALL STREET COLLAPSED IN 2008.

THEY BAILED IT OUT LIKE MAD.

THE MARKET COLLAPSED.

THE AVERAGE GUY LOST, YOU KNOW, 50, 60%, GOT REFRIED AFTER THE FIRST TIME BEING FRIED.

NOW THEY'VE REFLAITED IT A THIRD TIME.

GUESS WHAT?

>> Jon: ON WALL STREET THEY HAVE WE'RE BACK TO WHERE WE WERE 4,750 DAYS AGO.

IF YOU'RE DOING LONG DIVISION THAT'S 13 YEARS.

>> Jon: HOLD ON.

DIVIDE BY 365.

Jon: YOU KNEW THAT BEFORE YOU CAME ON HERE THOUGH, RIGHT?

YOU DID THAT IN YOUR HEAD THAT'S IMPRESSIVE

>> SO THE POINT IS, WE'RE AT TODAY THE SAME POINT WE WERE AT 13 YEARS AGO.

MAIN STREET ECONOMY HAS BEEN FLOUNDERING AND DETERIORATING.

THESE ARE SERIAL BUBBLES THAT BASICALLY THE FAST-MONEY, THE TRADERS, THE HEDGE FUNDS CAN

RIDE UNTIL THEY THINK THE TOP IS COMING.

THEY GET OUT.

THEY INVITE YOU TO GET IN, COME ON BACK.

THIS TIME IS DIFFERENT.

GET ON BOARD.

AND FRANKLY I THINK WE'RE IN FOR THE SAME KIND OF BUBBLE THAT WE'VE HAD THREE TIMES ALREADY.

>> Jon: WHEN I HEAR YOU DESCRIBE THE SYMPTOMS OF A CORRUPT ECONOMY, I FIND MYSELF NODDING

MY HEAD AND HALLELUJAH, I SAY, OUT LOUD.

RIGHT?

>> OKAY Jon: ON THE SUBWAY.

BUT THEN WHEN I GET TO SOME OF YOUR PRESCRIPTIONS I THINK I DON'T SEE HOW THAT WOULD BE ANY BETTER.

I THINK YOU'RE A NONINTERVENTIONIST.

WOULD THAT BE THE PROPER WAY TO DESCRIBE?

>> THAT WOULD BE TRUE, BUT I'M ALSO FOR FREE MARKETS, NOT PHONY CAPITALISM.

THE WHOLE MELTDOWN IN SEPTEMBER, 2008, THAT WAS A MELTDOWN IN THE VERTICAL CANYONS OF WALL STREET.

THAT WAS WHERE THESE HUGE GAMBLING HOUSES THAT HAVE GOTTEN LEVERAGED 30 TO 1, USED

OVERNIGHT MONEY TO FINANCE ALL THIS TOXIC WASTE WOULD BE TAKEN TO THE CLEANERS TO BE CLEANED OUT.

REMEMBER, BEAR STEARNS WAS DOWN.

WE CAN LIVE WITHOUT BEAR STEARNS.

LEHMAN WAS DOWN.

THERE WERE TWO LEFT.

GOLDMAN AND MORGAN STANLEY.

THEY WERE RUNNING THE TREASURY.

THIS WAS BASICALLY A...

>> Jon: THAT WAS A TOO BIG TO FAIL.

THEY GOT BAILED OUT.

>> AND IT WOULDN'T HAVE SPREAD TO MAIN STREET.

THAT'S THE BIG ARGUMENT.

I CALL IT THE BLACK BERRY PANIC.

EVERYBODY IN THE TREASURY BUILDING RUNNING AROUND LOOKING FOR BLACK BERRIES.

MY GOD THE PRICE OF GOLDMAN IS DROPPING BY THE HOUR.

MUST BE THE WORLD...

>> Jon: THE PILLAR OF OUR ECONOMY, A FOUNDATION.

>> THE WORLD HAS FUNCTIONED JUST FINE WITHOUT GOLDMAN SACHS.

THAT'S THE BOTTOM LINE.

>> Jon: I REALLY WISH YOU HAD PUT THAT IN THE BEGINNING.

BECAUSE BY THE TIME I GOT THERE, I WAS HALLUCINATING.

>> OKAY.

Jon: BUT...

THE SOLUTION...

Jon: THE WHOLE PREMISE OF THE BAILOUT WAS FLAWED IN THAT THIS CRISIS WAS NOT THE WIDESPREAD CRISIS.

IT WAS A CONTAGION THAT WOULD NOT HAVE SPREAD AND WE SHOULD HAVE LET IT FAIL.

THAT WOULD HAVE SENT A MESSAGE TO THOSE INVESTORS AND THEY WOULD HAVE WISED UP...

>> THEY WOULDN'T HAVE DONE IT AGAIN AND AGAIN.

THERE WERE TWO INVESTMENT BANKERS

>> Jon: YOU'RE SAYING IT'S A MORAL HAZARD WE BAILED THEM OUT

>> IT'S AN OUTRAGE ACTUALLY.

Jon: I AGREE WITH YOU BUT I THINK WHERE I WOULD DEPART IS COULDN'T EFFECTIVE MANAGEMENT OF

AN ECONOMY, WOULDN'T SIMPLE REGULATION HAVE PREVENTED 0-TO-1 LEVERAGING IN THE FIRST PLACE

AND WHY IS THAT SOMETHING THAT A FREE MARKET... THAT, YOU KNOW, THIS SORT OF BUST AND BUBBLE

CYCLE CAN BE MANAGED?

I DON'T UNDERSTAND

>> RECOMMENDATION NUMBER 2.

REINSTALL.

IT WAS A HUGE MISTAKE TO REPEAL IT.

THE POINT I MAKE IS THE BANKS ARE NOT FREE ENTERPRISES.

THEY'RE WARDS OF THE STATE WITHOUT DEPOSIT INSURANCE, WITHOUT THE ABILITY TO GET FREE MONEY.

NOW REMEMBER THAT'S SUPPOSED TO HELP BAIL OUT THE WHOLE ECONOMY, RECOVER THE ECONOMY.

>> Jon: THEY'RE STILL DOING IT THE NEWS FLASH IS THE FREE STUFF IS ONLY AVAILABLE TO WALL STREET.

OKAY.

THE AVERAGE GUY ON MAIN STREET CAN'T GO TO THE FED AND GET 0% MONEY.

>> Jon: WHY DOESN'T THE FED DO THIS?

OKAY.

WE'RE GOING TO MAKE THESE BILLIONS OF DOLLARS AVAILABLE TO THESE BANKS.

WE'RE GOING TO DO IT AT LOW INTEREST BUT WITH A PRECONDITION.

50% OF IT HAS TO GO TO BUSINESSES UNDER $10 MILLION, WHATEVER.

IT'S GOT TO GO TO SMALL BUSINESSES.

IF YOU DON'T LOAN THAT OUT, YOU CAN'T JUST TURN IT OVER, IF YOU DON'T LOAN IT OUT, YOU DON'T GET

THE REST OF IT?

WHY NOT PLACE THAT CONDITION ON THEM AND GET THAT LIQUIDITY BACK INTO THE SMALL MAIN STREET

BUSINESS ECONOMY.

I MEAN, I'M LEGITIMATELY CURIOUS AS TO WHY THEY CAN'T DO THAT

>> GO BACK TO THE SUPER GLASS EAGLE.

I'M SAYING THAT BANKS WHO WANT THE PRIVILEGE OF DEPOSIT INSURANCE AND WANT THE PRIVILEGE

OF THE FED WINDOW CAN'T BE IN TRADING.

THEY CAN'T BE IN SPECULATION.

THEY CAN'T BE MONEY MANAGERS.

THEY NEED TO TAKE DEPOSITS AND MAKE LOANS.

IF WE GO...

>> Jon: WE HAVE BANKS THAT DO THAT

>> AND THOSE BANKS ARE DOING OKAY FRANKLY.

AND PEOPLE WHO ARE CREDIT WORTHY ARE GETTING LOANS TODAY.

FRANKLY ONE OF THE REASONS OUR ECONOMY IS GROWING SO SLOW IS THAT WE HAD A 30-YEAR DEBT BUBBLE.

EVERYBODY GOT UP TO THEIR EYEBALLS IN DEBT.

HOUSEHOLDS DID.

BUSINESSES DID.

SO WE'RE NOT GOING TO GET OUT OF THIS WITH CHEAP INTEREST RATES AND MORE BORROWING.

WE'RE GOING TO HAVE TO WORK OUR WAY OUT OF THIS.

WHILE WE'RE AT IT, WE SHOULDN'T BE ALLOWING THE BANKS TO TAKE THE HUGE EARNINGS THEY'RE NOW

MAKING -- WHY?

BECAUSE THE FED HAS...

>> Jon: 0%.

THEY'RE FLOATING THEM

>> THE FED ON ITS FOOT ON THE NECK OF MILLIONS OF SLAVERS IN AMERICA TODAY.

YOU GET HALF A PERCENT IF YOU HAVE A SAVINGS ACCOUNT.

THE DEPOSITS COST NOTHING.

THEY GO OUT AND THEY BUY...

>> Jon: OUR ECONOMY IS FLIPPED IN THAT THEY NOW VALUE THE INVESTMENT CLASS OVER WORK.

INVESTMENT NOW IS... I MEAN THAT'S BEEN 40 YEARS, CAPITAL GAINS THE WHOLE THING.

WE HAVE TO TAKE A BREAK.

WE'RE GOING TO DISCUSS PAGE BY PAGE THE GREAT DEFORMATION.

IT'S ON THE BOOK SHELVES NOW.

YOU STICK AROUND AND WE'LL TALK A LITTLE...

>> CAN WE GET TO CHAPTER 2 THEN.

Jon: BELIEVE ME.

THIS IS NO BIG FUN.

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