David Stockman on Predatory "capitalism"

David Stockman shares may things in common with Paul Ryan.  He was a rising Republican star from the USA midwest.  He was considered a serious numbers guy—so serious he was made director of Reagan's Office of Management and Budget.  It did not take him very long to realize that the vast majority of the people around Reagan were crooks.  But since they said many of the same things he passionately believed, he had a hard time grasping why the crooks didn't want the same outcomes he did.

Stockman grew up on a farm in Michigan.  19th century farmers invented Producer-Predator class analysis while Michigan industrialists like Henry Ford perfected the idea in the process of creating modern economic thinking.  One can only imagine how far advanced Stockman's thinking would have been if he had been exposed to Producer-Predator class analysis in his youth.  Instead, he was forced to re-invent the wheel.  So now in his 60s, he finally does understand why Mitt Romney is NOT an example of the Platonic ideal capitalism he holds in his head.

So he finally gets it—but it took him far too long and he still is missing subtle nuances. I'd give him at best a C+.  He's still blaming the wrong things like cheap money—see first boldface below.  But because he gets that Mitt Romney the thief does not possess the vision necessary to revive the USA economy—he's made a damn fine start.

Mitt Romney: The Great Deformer

Oct 15, 2012
Is Romney really a job creator? Ronald Reagan’s budget director, David Stockman, takes a scalpel to the claims.

Bain Capital is a product of the Great Deformation. It has garnered fabulous winnings through leveraged speculation in financial markets that have been perverted and deformed by decades of money printing and Wall Street coddling by the Fed. So Bain’s billions of profits were not rewards for capitalist creation; they were mainly windfalls collected from gambling in markets that were rigged to rise.

Nevertheless, Mitt Romney claims that his essential qualification to be president is grounded in his 15 years as head of Bain Capital, from 1984 through early 1999. According to the campaign’s narrative, it was then that he became immersed in the toils of business enterprise, learning along the way the true secrets of how to grow the economy and create jobs. The fact that Bain’s returns reputedly averaged more than 50 percent annually during this period is purportedly proof of the case—real-world validation that Romney not only was a striking business success but also has been uniquely trained and seasoned for the task of restarting the nation’s sputtering engines of capitalism.

Except Mitt Romney was not a businessman; he was a master financial speculator who bought, sold, flipped, and stripped businesses. He did not build enterprises the old-fashioned way—out of inspiration, perspiration, and a long slog in the free market fostering a new product, service, or process of production. Instead, he spent his 15 years raising debt in prodigious amounts on Wall Street so that Bain could purchase the pots and pans and castoffs of corporate America, leverage them to the hilt, gussy them up as reborn “roll-ups,” and then deliver them back to Wall Street for resale—the faster the better.

That is the modus operandi of the leveraged-buyout business, and in an honest free-market economy, there wouldn’t be much scope for it because it creates little of economic value. But we have a rigged system—a regime of crony capitalism—where the tax code heavily favors debt and capital gains, and the central bank purposefully enables rampant speculation by propping up the price of financial assets and battering down the cost of leveraged finance.

So the vast outpouring of LBOs in recent decades has been the consequence of bad policy, not the product of capitalist enterprise. I know this from 17 years of experience doing leveraged buyouts at one of the pioneering private-equity houses, Blackstone, and then my own firm. I know the pitfalls of private equity. The whole business was about maximizing debt, extracting cash, cutting head counts, skimping on capital spending, outsourcing production, and dressing up the deal for the earliest, highest-profit exit possible. Occasionally, we did invest in genuine growth companies, but without cheap debt and deep tax subsidies, most deals would not make economic sense.

In truth, LBOs are capitalism’s natural undertakers—vulture investors who feed on failing businesses. Due to bad policy, however, they have now become monsters of the financial midway that strip-mine cash from healthy businesses and recycle it mostly to the top 1 percent. more