Stockman on crony capitalism: "It is not a free market system. It is a system run by powerful, political and corporate forces."
He was recently interviewed by Bill Moyers on the latter's new Moyers & Company Show, along with New York Times writer Gretchen Morgenson, co-author of Reckless Endangerment.
Moyers & Company Show 102: On Crony Capitalism from BillMoyers.com on Vimeo.
Excerpts from the transcript
BILL MOYERS: What do you mean by crony capitalism?
DAVID STOCKMAN: Crony capitalism is about the aggressive and proactive use of political resources, lobbying, campaign contributions, influence-peddling of one type or another to gain something from the governmental process that wouldn't otherwise be achievable in the market. And as the time has progressed over the last two or three decades, I think it's gotten much worse. Money dominates politics.
And as a result, we have neither capitalism or democracy. We have some kind of --
BILL MOYERS: What do we have?
DAVID STOCKMAN: We have crony capitalism, which is the worst. It's not a free market. There isn't risk taking in the sense that if you succeed, you keep your rewards, if you fail, you accept the consequences. Look what the bailout was in 2008.
There was clearly reckless, speculative behavior going on for years on Wall Street. And then when the consequence finally came, the Treasury stepped in and the Fed stepped in. Everything was bailed out and the game was restarted. And I think that was a huge mistake.
...BILL MOYERS: You name names in your writing. You identify several people as the embodiment of crony capitalism. Tell me about Jeffrey Immelt.
DAVID STOCKMAN: He is the poster boy for crony capitalism. Here is GE, one of the six triple-A companies left in the United Sates, a massive, half-trillion dollar company, massive market capitalization. I'm talking about the eve of the crisis now, in September, 2008.
Suddenly, when the commercial paper market starts to destabilize and short-term rates went up. He calls up the Treasury secretary with an S.O.S., "I'm in trouble here. I need a lifeline." He had recklessly funded a lot of assets at General Electric Capital in the overnight commercial paper market. And suddenly needed a bailout from the Treasury. Within days, that bailout was granted.
And therefore, General Electric was able to avoid the consequence of its foolish lend long and borrow short policy. What they should have been required to do when the commercial paper market dried up -- that was the excuse. They should've been required to offer equity, sell stock at a highly discounted rate, dilute their shareholders, and raise the cash they need to pay off their commercial paper.
That would've been the capitalist way. That would've been the free market way of doing things. And in the future they would've been less likely to go back into this speculative mode of borrowing short and lending long. But when we get to the point where the one triple-A, a multi-hundred billion dollar company gets to call up the secretary, issue the S.O.S. sign and get $60 billion worth of guaranteed Federal Reserve and Treasury backup lines, then we are, you know, our system has been totally transformed. It is not a free market system. It is a system run by powerful, political and corporate forces.
BILL MOYERS: So when you saw that President Obama had appointed Jeffrey Immelt, as the head of his Council on Jobs and Competitiveness, what went through your mind?
DAVID STOCKMAN: Well, I was in the middle of being very disgusted with what my own Republican Party had done and what Bush had done and the Paulson Treasury. And then when I saw this, I got the title for my book, “The Triumph of Crony Capitalism.”
...BILL MOYERS: Where is the shame? Shouldn't these people have been at least a little ashamed of running the economy and the financial system into the ditch and then saying, "Come lift me out?"
DAVID STOCKMAN: Yes. You know, I think that's part of the problem. I started on Capitol Hill in 1970s. And as I can vividly recall, corporate leaders then at least were consistent. They might've complained about big government, or they might've complained about the tax system.
But there wasn't an entitlement expectation that if financial turmoil or upheaval came along, that the Treasury, or the Federal Reserve, or the FDIC or someone would be there to back them up. That would've been considered, you know, it would've been considered, as you say, shameful. And somehow, over the last 30 years, the corporate leadership of America has gotten so addicted to their stock price by the hour, by the day, by the week, that they're willing to support anything that might keep the game going and help the system in the short run avoid a hit to their stock price and to the value of their options. That's the real problem today. And as a result, there is no real political doctrine ideology left in the corporate community. They are simply pragmatists who will take anything they can find, and run with it.
...BILL MOYERS: No one I know has a better understanding of the see-saw tension in our history between democracy and capitalism.
Capitalism, you accumulate wealth and make it available. Democracy being a brake, B-R-A-K-E, on the unbridled greed of capitalists. It seems to me that democracy has lost and that capitalism is triumphant -- crony capitalism in this case.
DAVID STOCKMAN: And I think it's important to put the word crony capitalism on there. Because free-market capitalism is a different thing. True free-market capitalists never go to Washington with their hand out. True free-market capitalists running a bank do not expect that every time they make a foolish mistake or they get themselves too leveraged or they end up with too many risky assets that don't work out, they don't expect to go to the Federal Reserve and get some cheap or free money and go on as before.
They expect consequences, maybe even failure of their firm, certainly loss of their bonuses, maybe the loss of their jobs. So we don't have free-market capitalism left in this country anymore. We have everyone believing that if they can hire the right lobbyist, raise enough political action committee money, spend enough time prowling the halls of the Senate and the House and the office buildings, arguing for their parochial narrow interest -- that that is the way that will work out. And that is crony capitalism. It’s very dangerous and it seems to be becoming more embedded in our system.
[HIS SOLUTION] Ban corporations from campaign contributions or attempting to influence elections. Now, I know that runs into current free speech. So the only way around it is a constitutional amendment to cleanse our political system on a one-time basis from this enormously corrupting influence that has built up. And I think nothing is really going to change until we get money out of politics and do some radical things to change the way elections are financed and the way the process is influenced by organized money. If we don’t address that, then crony capitalism is here for the duration.
...BILL MOYERS: Since you've been covering capitalism, business and finance what's been the biggest change you've seen?
GRETCHEN MORGENSON: Previously I believed that bankers that presided over this kind of a train wreck would have wandered away from the scene, tail between their legs, ashamed, or the regulators would have cleaned house, fired the management, clawed back their compensation.
We've seen none of that in 2008. Did the U.S. government replace any of these managements? No. Did the U.S. government claw back any of the money that these people made when the boom was going on which we now all know was a phony boom and so therefore that was phony money that they earned during those years.
We also didn't have a penalty, there were no penalties paid except by the innocent taxpayers. There were no penalties paid by the people who created the crisis.