The Great Deformation: The Corruption of Capitalism in America
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The Great Deformation is a searing look at Washington’s craven response to the recent myriad of financial crises and fiscal cliffs. It counters conventional wisdom with an eighty-year revisionist history of how the American state—especially the Federal Reserve—has fallen prey to the politics of crony capitalism and the ideologies of fiscal stimulus, monetary central planning, and financial bailouts. These forces have left the public sector teetering on the edge of political dysfunction and fiscal collapse and have caused America’s private enterprise foundation to morph into a speculative casino that swindles the masses and enriches the few.
Defying right- and left-wing boxes, David Stockman provides a catalogue of corrupters and defenders of sound money, fiscal rectitude, and free markets. The former includes Franklin Roosevelt, who fathered crony capitalism; Richard Nixon, who destroyed national financial discipline and the Bretton Woods gold-backed dollar; Fed chairmen Greenspan and Bernanke, who fostered our present scourge of bubble finance and addiction to debt and speculation; George W. Bush, who repudiated fiscal rectitude and ballooned the warfare state via senseless wars; and Barack Obama, who revived failed Keynesian “borrow and spend” policies that have driven 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 Glass, Harry Truman, Dwight Eisenhower, Bill Simon, Paul Volcker, Bill Clinton, and Sheila Bair.
Stockman’s analysis skewers Keynesian spenders and GOP tax-cutters alike, showing how they converged to bloat the welfare state, perpetuate the military-industrial complex, and deplete the revenue base—even as the Fed’s massive money printing allowed politicians to enjoy “deficits without tears.” 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 punishing family budgets with soaring food and energy costs. The Great Deformation explains how we got here and why these warped, crony capitalist policies are an epochal threat to free market prosperity and American political democracy.
Ronald Reagan, who had mistakenly thought Greenspan was a hardmoney gold standard advocate, the Fed panicked after the stock market crash in October 1987 and flooded Wall Street with money. For the first time in its history, therefore, the Fed embraced the level of the S&P 500 as an objective of monetary policy. Worse still, as the massive Greenspan stock market bubble gathered force during the 1990s it had gone even further, embracing the dangerous notion that the central bank could spur
stand exactly still for thirteen weeks. Then, during the standstill, an even more implausible scenario would unfold. A tripartite board of politicians would figure out new wage and price edicts, and also how to penalize any citizens who engaged in noncompliant acts of market capitalism. Never before had there been an act of peacetime economic governance so fatuous. Nor had there been one which had such predictable, calamitous results as did the freeze and the increasingly destructive and
best when he called it “gold standard on the booze.” Still, scientifically arrived at or not, Roosevelt’s gold buying did not levitate the price of wheat, industrial tallow, or anything else. The only discernible gain after several weeks of this routine was in the bank accounts of the London brokers who sold gold to the RFC each morning at a higher price than they had bought it the day before. In due course, FDR abruptly lost interest in fixing the price of gold and went on to the scheme of
upon and, if necessary, legally sequestered by their regulators in the states and foreign jurisdictions where they were domiciled. These protective actions, in turn, would have paved the way for policyholders of these quarantined units to satisfy their claims in the normal course or through an orderly judicial process. Furthermore, had they consulted knowledgeable Wall Street analysts they would have been quickly disabused of the simple-minded notion that an AIG corporate failure would trigger a
FAUSTIAN BARGAIN WHICH FAILED Another untoward legacy of the New Deal is the 1933 enactment of the great banking abomination known as “deposit insurance.” The keenest financial minds of the time vehemently opposed deposit insurance because they well understood the inherent dangers of fractional reserve banking, or what really amounts to borrowing short and lending long. Financial conservatives of that era believed that effective discipline on bankers had to come from the liability side of their