David Stockman On "The Great Deformation" And The US Treasury As "The M&A Department Of Goldman Sachs"

Tyler Durden's picture

From David Stockman's upcoming book The Great Deformation: The Corruption Of Capitalism In America

The Great Deformation

The fiscal cliff is permanent and insurmountable. It stands at the edge of a $20 trillion abyss of deficits over the next decade. And this estimation is conservative, based on sober economic assumptions and the dug-in tax and spending positions of the two parties, both powerfully abetted by lobbies and special interests which fight for every paragraph of loophole ridden tax code and each line of a grossly bloated budget.

Fiscal cliffs as far as the eye can see are the deeply troubling outcome of the Great Deformation. They are the result of capture of the state, especially its central bank, the Federal Reserve, by crony capitalist forces deeply inimical to free markets and democracy.

Why we are mired in this virtually unsolvable problem is the reason I wrote this book. It originated in my being flabbergasted when the Republican White House in September 2008 proposed the $700 billion TARP bailout of Wall Street. When the courageous House Republicans who voted it down were forced to walk the plank a second time in betrayal of their principled stand, my sense of disbelief turned into a not-inconsiderable outrage. Likewise, I was shocked to read of the blatant deal making, bribing, and bullying of the troubled big banks being conducted out of the treasury secretary’s office, as if it were the M&A department of Goldman Sachs.

By the end of the Bush administration it was starkly apparent that a Republican White House had wantonly trashed all the old-time fiscal rules, and it had been done by political neophytes: Hank Paulson and his posse of eager-beaver Goldman bankers. But I had been at the center of the most intense fiscal battle of modern times during the early Reagan era and had learned something they apparently hadn’t: that the Congress is made up of representatives from 435 mini-principalities and duchies, and they reason by precedent above all else. Once Wall Street, AIG, and GM were bailed out, the state would have no boundaries: the public purse would be fair game for all.

I found this alarming in view of the long ago Reagan-era battle of the budget that had ended in dismal failure. Notwithstanding decades of Republican speech making about Ronald Reagan’s rebuke to “big government,” it never happened. In the interim, Republican administrations whose mantra was “smaller government” only made Big Government more corpulent, so plainly by 2008 there was no fiscal headroom left at all to plunge into “bailout nation.”

After I left the White House in 1985 I wrote a youthful screed, The Triumph of Politics, decrying Republican hypocrisy about the evils of deficit finance. But I had also tried to accomplish something more constructive: to systematically call the roll of the spending cuts not made by Ronald Reagan, and thereby document that almost nobody was willing to challenge the core components that comprise Big Government.

Thus, the giant social insurance programs of Medicare and Social Security had barely been scratched; means-tested entitlements had been modestly
reformed but had saved only small change because there weren’t so many welfare queens after all; farm subsidies and veterans’ benefits had not been cut because these were GOP constituencies; and the Education Department had emerged standing tall because middle-class families demanded their student loans and grants. In all, Ronald Reagan had left the “welfare state” barely one-half of 1 percent of GDP smaller than Jimmy Carter’s, and added a massive structural deficit to boot.

But that was twenty-five years ago, and whatever fiscal rectitude had existed among the Republican congressional elders at the time had long since disappeared. During the eight years of George W. Bush, the GOP had pivoted from spending cuts not made to a spending spree not seen since the presidency of Lyndon Baines Johnson—adopting Medicare prescription drug benefits, massive growth in education spending, the monstrosity of the Homeland Security Department, sky-high farm subsidies, and pork-barrel excess everywhere. Worse still, the defense budget had doubled and the so-called Republican brand had been reduced to tax cutting for any reason and in whatever form the lobbies of K Street could concoct. George W. Bush thus left the White House trailed by previously unthinkable bailouts and a deluge of red ink which would reach $1.2 trillion and 10 percent of GDP, even before the Obama stimulus. What was truly galling, however, was that the Wall Street satrap occupying the third floor of the Treasury Building had talked the hapless Bush into a $150 billion one-time tax rebate to “stimulate” the economy.

I had long since parted ways with the supply-siders and had left the White House with my admiration for President Reagan considerably dulled by his obdurate inflexibility on the runaway defense buildup, and his refusal to acknowledge that the giant deficits which emerged in the 1980s were his responsibility, not Jimmy Carter’s. But despite all this, I thought that the Paulson tax rebate was a sharp slap in the Gipper’s face. President Reagan’s great accomplishment had been the burial of the Keynesian predicate: the notion that Washington could create economic growth and wealth by borrowing money and passing it out to consumers so they would buy more shoes and soda pop.

Now Paulson was throwing even that overboard. Didn’t the whirling dervish from Goldman know that once upon a time all the young men and women in Ronald Reagan’s crusade, and most especially the father of supply side, Jack Kemp, had ridiculed the very tax rebate that he peddled to Nancy Pelosi in February 2008 as Jimmy Carter’s $50 per family folly? At length, I saw the light, and it had nothing to do with Paulson’s apparent illiteracy on the precepts of sound fiscal policy. The bailouts, the Fed’s frenzied money printing, the embrace of primitive Keynesian tax stimulus by a Republican White House amounted to something terrible: a de facto coup d’état by Wall Street, resulting in Washington’s embrace of any expedient necessary to keep the financial bubble going—and no matter how offensive it was to every historic principle of free markets, sound money, and fiscal rectitude.

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BaBaBouy's picture

It's Pretty Simple...

SackMan GOLD Runs The Whole Fecking Show ...

NotApplicable's picture

Hey don't blame Reagan! He was tired of getting shot.

redpill's picture

"Likewise, I was shocked to read of the blatant deal making, bribing, and bullying of the troubled big banks being conducted out of the treasury secretary’s office, as if it were the M&A department of Goldman Sachs."

Really??  Were you really shocked?  Because if so, you might be in the wrong line of work!

cougar_w's picture

Shocking that it was done in so public a fashion. There was once a time when these things were managed over drinks down at the Skull and Bones.

SafelyGraze's picture

" I was shocked -- SHOCKED -- to read of the blatant deal making, bribing, and bullying of the troubled big banks being conducted out of the treasury secretary’s office"


Economy (noun): the system by which the banks of the federal reserve corporation lend to governments, corporations, and homeowners whose defaults are paid from taxes collected elsewhere

markmotive's picture

Ever-expanding debt is required to keep the system from imploding. We must destroy ourselves in order to save ourselves.


Herodotus's picture

Bush told him...."I've got plenty of other buddies with crazy sons, so why don't you just take the hint and go along with the program?"

Panafrican Funktron Robot's picture

"a de facto coup d’état by Wall Street"

This is the distilled essence.

DoChenRollingBearing's picture

Since virtually none of us here at ZH can change DC, I would suggest buying:


gold, gold, gold, gold, gold, gold,

gold, gold, gold, gold, gold, gold,

gold, gold, gold, gold, gold, gold,

(a Bearing´s vocab can be very limited...)

ZerOhead's picture

But first pick up some cheap environmentally protected wetlands (@$200-500/ acre) ...

You get fresh fish, ducks, frogs legs and turtle soup a la carte with a side helping of rich organic and totally irrigated soil for your veggies. Personally I find that endangered species taste the best... nothing can beat a nice bald eagle or whooping crane on the rotisserie.

Don't get me wrong... gold is great and fun to play with down by the dock when it absolutely gleams in the late afternoon sun... but food supply is going to be even more important because when the music stops the ponziconomy with it's global supply chain comes to a grinding halt.

css1971's picture

Isn't "wetland" the politically correct name for "swamp".

orez65's picture

... and silver, silver, silver, silver, silver, silver, silver, silver, silver, silver, silver, silver, silver, silver, silver, silver, silver, silver, silver, silver, silver, silver, silver, silver ...

Kirk2NCC1701's picture

But a bearing would more likely make the following sounds:

au,au,au,au,au...   and

ag,ag,ag,ag,ag,ag,ag...  Occasionaly even


TomJoad's picture

Okay, but now what?

knukles's picture

Declare Victory and go home to watch a couple Three Stooges movies?

cougar_w's picture

I'm down with that. I'll bring a 12-pack.

bank guy in Brussels's picture

Funny how David Stockman still hasn't digested what happened to him 30 years ago under Reagan, as his idealism about cutting budget fat got destroyed by the oligarch owners of American politics ... who have been running things ever since

And an older guy now, Stockman still thinks 'writing a book' will make a difference

Stockman was 'powerful' once upon a time, as long as he appeared to serve his masters

But now he is on the margin, like another Reagan appointee, Paul Craig Roberts, relegated to a 'conspiracy' and 'fringe' role ... Tho Roberts is better at going all the way to truth on what a fascist shite-pile the USA has become

Stockman now on the edge, with fringe ZeroHedge

David Stockman's 'new book', ha! ... Like the book Karl Denninger has tried to sell as one of his several failed political efforts ... or the books marketed by Mr Testicle Pit, er Testosterone Pit, on Zero Hedge

One thing for sure, it is far too late for a 'book for sale' to change anything

Darkdoc's picture

I count at least 5 ad hominem attacks in there, but no one actually making a point.

Got any?

imaginalis's picture

"When the courageous House Republicans....."???



NotApplicable's picture

Well, they were courageous. They looked Wall St. in the eye and said no (like "we the people" directed them to). It's one of the few times in my life I've actually seen this happen.

Then Wall St. played the trump card, trashed the Dow, looked over at these "Mr. Smiths" and calmly asked...

"Double or nothing?"

James_Cole's picture

Well, they were courageous. They looked Wall St. in the eye and said no (like "we the people" directed them to). It's one of the few times in my life I've actually seen this happen.

The Republicans were "courageous" for all of ten mins, the initial vote was 140–95 Dems (for), 133-65 Repubs (against).

After the stock market meltdown this was quickly fixed with bipartisan support of the new bill. Interestingly, Paul Ryan who is oh-so-important in the congress now voted for Tarp both times. Big time deficit hawk there!


And after the first "bill" was accepted, George W. used executive authority to completely change the whole deal anyway, which was the icing on the cake. 

mick_richfield's picture

They also had the 4th-ever closed door session in the House, and told the Republicans that there would be blood in the streets and martial law if they did not vote for the bailout.  And they rolled over.


Redhotfill's picture

" Courageous House Republicans "  Found in dictionary next to definition of Oxymoron

MiltonFriedmansNightmare's picture

"They (fiscal cliffs) are the result of capture of the state, especially its central bankl..."  OK David, you lost me there with a reference to the state (as in the American public) owned FED. You of all people should know who owns the FED....it sure as hell isn't the American people.

orez65's picture

The Fed is owned by the Too Big To Fail Banks.

They run the US.

They just let us play with social issues like gay rights and abortion.

They don't care about those because there is no money to be made there.

MiltonFriedmansNightmare's picture


TBTFBs run the world....gots to get me some Beppe, I just love that guy.

Tinky's picture

I find these sort of attacks to be quite odd. It's as if those who actually do awaken and reform their views are to be reflexively ridiculed because they didn't wake up (or act) early enough.

Stockman and PC Roberts are laudable in that they are at least trying to sound warnings. And while no one would suggest that they will make a decisive difference in how the awful drama plays out, there is little doubt that their writings will have helped to awaken other individuals who, as a result, will be better positioned to weather the storm.

James_Cole's picture

I find these sort of attacks to be quite odd. It's as if those who actually do awaken and reform their views are to be reflexively ridiculed because they didn't wake up (or act) early enough.

Yeah, especially for people like Stockman who could've easily towed the party line and done really well. It's easy to complain about the establishment on anonymous websites with nothing to lose, for a guy like Stockman it takes real courage. 

Charles Nelson Reilly's picture

sooooo, you liked your pre-released copy or no?

Would you recommend I read Krugman instead?

Panafrican Funktron Robot's picture

I agree, "Stockman gets it!  He's gonna write a book and stuff!  See!  See!  Stockman, he was an insider that has "seen the light"!"  As if he'll get fucking anywhere with this.  THE OWNERS DON'T GIVE A FUCK.  THEY ARE NOT GOING TO CHANGE THEIR WAYS.  THERE IS NO "FREEDOM" OR "DEMOCRACY".  YOU ARE A SLAVE.

Please, for fucks sake, let's move beyond the "what can we do within the current paradigm to fix what ails us" bullshit.  The current paradigm is two things:

1.  A giant force, who's direction we cannot stop.

2.  Highly unstable, and near the end of its life.   

As noted by many others here, there is only the following:

1.  Become self-sustaining to the greatest degree possible.

2.  Teach others to do the same.

Yet another book explaining how "Goldman runs the world", which isn't even technically correct (they are still relatively small players), has no bearing on our preparations.  I could write a book about the various things I've done incorrectly in attempting to grow vegetables in my backyard, and I would be more useful than Stockman here.  

Cdad's picture

There really is no need for it.  All folks need to do, from today and until such time as the Federal Reserve is shuttered, is to simply not spend money on anything that is not necessary.  Needs only.

The Revolution of the Closed Wallet, folks.

McMolotov's picture

I agree there's no need for it, but I think it will happen anyway. I've cut back to only the essentials myself, but people around me think it's "weird." They're conditioned to spend, and old habits die hard. There are also too many people dependent on the system now, and they won't go quietly when the spigot is turned off.

The government will solve this problem the way most governments have throughout history: war. Find a scapegoat and cause a distraction. It's the coward's way out — and to be sure, we are dealing with cowards.

Panafrican Funktron Robot's picture

"They're conditioned to spend, and old habits die hard."

Indeed.  Everytime I see your sig picture, I want McDonald's fries.  Even though I am aware that they're not food.

Yeah, if you're not seeing the steady drumbeat of an Asia-Pacific + M.E. theatre war, you're living in a cave.  Who knows when the heck it will happen, but I personally don't see where we're going to get out of Q1 earnings season without at least the first live fire flareups.  "Stocks are down over jitters that xyz is happening" to mask total shit earnings numbers.  Playbook getting old.  

shovelhead's picture

And 150 million Americans filing tax exempt...

Tell em to come and get it.

Let's see how efficient .Gov. really is.

whatsinaname's picture

Are you kidding ? Did you watch the Schiff - Mauldin gymboree ? Did you get the remark that Schiff made about folks at the DMV ? 

Professorlocknload's picture

Damned thing about purchasing only essentials is, it seems only the prices of necessities are rising? I think we're being end run, maybe?

Water, power, food, gas all up in my neighborhood. (Won't mention health care)

Something tells me the statists have that one dialed. Soon won't be optional, it'll be the only (un?) affordable choice.


chubbar's picture

If you need an example of what happens to folks who ask the wrong questions or try to stand up for their rights, here's an example of our new US of A and the titheads that run it.


"Eileen Hart and her husband, Keith, are property owners in Newfield, New Jersey.

On Saturday, March 9 there was an informal meeting at the Gloucester Community Center, to discuss the findings on "revaluations" by Appraisal Systems, Inc.- a company which has been contracted by the state of New Jersey- to assess the fair market property values for each county or borough- for the tax assessor's offices.

There has been much derision caused by these "revaluations" by homeowners, because property values have fallen dramatically- and the real estate market has been hit very hard . There is nothing "fair" about the market or the home values that have been assessed, according to many New Jersey families.

Ms. Hart attended the meeting, armed with- as she said "her Constitution and the facts."

Said Hart "I tried to express my opinion and tell them that my Constitutional rights had been violated. I began quoting the Constitution, line by line.

Ms. Hart tried to explain, that Appraisal Systems, Inc. was attempting to inspect her property without her husband being present. As an Orthodox Jew, this is against the tenets of her religion. Her husband had to be present. According to Ms. Hart, she was unable to express this concern.

A representative of Appraisal Systems, Inc. -(<List of Appraisal System Employees at this link) apparently took offense to her objections and brought in Robyn Glocker-Hammond, the Tax Assessor - who stated that her job was to "enforce the law."

(This writer was under the impression that Tax Collectors collected taxes. They are NOT "law enforcement." But then, I am not a Tax Collector in New Jersey. )

Relates Hart: "She also wouldn't let me speak and told me to sit down and shut up and listen as well. That's when the young man came toward me. I knew he was going to put his hands on me. I saw him out of the corner of my eye. I said to him "Don't you dare touch me." Then they threw us out of the auditorium. The young man from Appraisal Systems, Inc. was the one going postal, and I believe if HE HAD A GUN, he would have shot me, Keith and Khloe on the spot. I was calm the entire time."

When the Harts left the gathering, they were followed into the parking lot of the community center, and the same young man who had been so upset by Ms. Hart's comments in the community center, started screaming and shouting at her, took down the license plate number of her vehicle and said - "See if you are able to pay your property taxes NOW!"

Eileen didn't understand what that shouted threat meant, until she returned to her home with her family.

When they arrived, there were 5 police cars from the Franklinville Police Department. They advised her that the Clayton Police wanted to talk to her about the allegations.

States Hart "For the record, both the police officers DID acknowledge that it was "an allegation."

Her purse was taken from her and she was put into a "paddy wagon," transported to the police station-

Her young daughter witnessed the events and was traumatized to see her mother being treated like a common criminal.

She was arrested and booked for "terroristic threats" and "contempt."

At the police station, she was handcuffed to a chair.

The cops ran a background check- and it revealed that she had absolutely NO criminal record. It also showed that she was the lawful owner of two hand guns. She was advised to turn in the guns over to the court (surrendered or confiscated) - and they would be held for "safe keeping." If she did not- she was told by the police- her bail would be VERY high. And- if she could not make the bail- she would sit in the county jail until an unknown date.

The complaint (in part) states: The State of New Jersey vs. Eileen B. Hart -"The Defendant was yelling and screaming and making the threatening comment. "If the door is locked. I'll be back with a gun."

Ms. Hart denies she ever made this statement, as does her husband, Keith. However, this is how the complaint was written up by Clayton County Sergeant J. Dick- who, it may be noted, was not present during the meeting.

She surrendered her guns and was released on her own recognizance."

McMolotov's picture

Sick. Not much else to say but that.

koncaswatch's picture

Notice the booking for "terroristic threats".... here we go; anything they don't like is terrorism.

McMolotov's picture

She was probably "combative," too...

mkhs's picture

Clearly resisting arrest, too.  She is lucky she was not shot.  I know I was in fear of my life reading that.

Panafrican Funktron Robot's picture

Ah, I see the issue here.  She was an Orthodox Jew.  Better get in line, lady.  Only "Reform Zionists" allowed.

H E D G E H O G's picture

should've GLOCKED ms. GLOCKER..................fucking bitchrat.............

azzhatter's picture

We all know where we are but how do we stop it?

Professorlocknload's picture

We can't stop it.

"When the Elephants wrestle, the grass suffers." 

Just don't be the grass.



Kirk2NCC1701's picture

"Okay, but now what?"

Now we wait and see if his book (a cogent cohesion of the many ZH articles and blogs?) actually makes a difference, even if he makes a guest appearance on Jon Stewart's Daily Show.  Hopefully the book will do well enough to encourage more such books, and to give these issues visibility and consciousness with the general public.

Worst case:  Stockman hopefully made a bit of money and got the issues a bit wider audience, into which to plant the ZH seed.  Time, rain & sunshine will hopefully do the rest. 

My bet -- if I had a website to bet it on ;-)  ;-) -- would be:  'No discernible difference' to the Kool Aid masses, and the dumb, fat, grain-fed sheep.