Bill Moyers and David Stockman Talk about the Problem of Crony Capitalism and the Folly of Anti-Tax Crusades in the United States

By Elaine Magliaro

Back in 2012, David Stockman sat down with Bill Moyers on Moyers & Company and discussed crony capitalism in the United States. The two men talked about “the tight connection between Wall Street and the White House…” Stockman served as the Director of the Office of Management and Budget under President Ronald Reagan from 1981-1985 and is most well-known for being the chief architect of Reagan’s supply-side, or “trickle-down” economic policies.

In the following video clip from the Moyers and Company program, Stockman says that today’s Republicans have taken their anti-tax campaign too far, explains why he believes that capital gains/carried interest taxes are too low, and that crony capitalism is the ethos that dominates both of the major political parties.

Excerpt from the transcript of the program:

BILL MOYERS: The Bush administration leaped to the rescue of some of the county’s largest financial institutions, to the tune of 700 billion tax-payer dollars.

DAVID STOCKMAN: We elect a new government because the public said, you know, “We’re scared. We want a change.” And who did we get? We got Larry Summers. We got the same guy who had been one of the original architects of the policy in the 1990s, the financialization policy, the too big to fail policy.

Who else did we get? We got Geithner as Secretary of the Treasury. He had been at the Fed in New York in October 2008 bailing out everybody in sight. General Electric got bailed out. Morgan Stanley, Goldman Sachs, all of the banks got bailed out, and the architect of that bailout then becomes the Secretary of the Treasury. So it’s another signal to the financial markets that nothing ever changes. The cronies of capitalism are in charge of policy.

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 needed 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.

BARACK OBAMA: Thank you. Thank you.

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.”

 SOURCES

David Stockman on Crony Capitalism (Bill Moyers)

David Stockman (Bill Moyers)

 

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3 Responses to Bill Moyers and David Stockman Talk about the Problem of Crony Capitalism and the Folly of Anti-Tax Crusades in the United States

  1. bigfatmike says:

    Another aspect of crony capitalism is the control that CEOs have over boards of directors, in particular compensation committees. Some claim the scratch-my-back culture contributes greatly to income inequality by giving CEOs and other corporate executives compensation far beyond their productivity.

    Dean Baker at:

    http://www.cepr.net/index.php/blogs/beat-the-press/if-shareholders-stopped-letting-ceos-rip-them-off-it-would-reduce-inequality

    suggests that returning power to shareholders to influence management might have beneficial effects: management couldn’t rip off as much and inequality might be reduced.

    “There is considerable research showing that CEOs and other top management essentially ripoff shareholders, taking advantage of their insider power to give themselves pay that has little to do with their productivity, measured as the return they give to shareholders. … If shareholders can better gain control of their companies, they might cut pay by 50 percent or more, bringing CEO pay in the United States in line with pay in other wealthy countries.

    BTW, at a time that nearly 80% of the population has not shared in the economic recovery since the recession that ended in 2009, CEO’s have been doing pretty good.

    EPI tells us “Average CEO compensation was $15.2 million in 2013, using a comprehensive measure of CEO pay that covers CEOs of the top 350 U.S. firms and includes the value of stock options exercised in a given year, up 2.8 percent since 2012 and 21.7 percent since 2010.”

    Did you catch that? By some measures mean household income is down by as much as 3% in recent years. Census bureau reports that median HHI down nearly 7% from 2000 thru 2012. But CEO compensation is up 21.7% since 2010.

  2. Yup, crony is as crony does and the real hope for middle America never was.

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