The Great Deformation: The Corruption of Capitalism in America

by David A. Stockman

A New York Times bestseller

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.

Genres: Economics, Politics, Nonfiction, History, Business, Finance, Philosophy

743 pages, Hardcover

First published January 1, 2013

About the author

David Alan Stockman is a former U.S. politician and businessman, serving as a Republican U.S. Representative from the state of Michigan (1977–1981) and as the Director of the Office of Management and Budget (1981–1985).

Reviews

[Athan Tolis · Rating 5 out of 5]

This is the most significant book of 2013.

It's rambling and endless. 700 pages feel like 1,700. Frankly, it's a bad read. Halfway through, you can already complete every sentence yourself, that's how bad Stockman repeats himself. I'm not sure all numbers check out. No editor ever got near this manuscript.

Before I continue with why this is the most significant book of 2013, some more bad news: The author's unifying theory is in my view quaint and irrelevant. For completeness allow me to rearrange what he believes the Great Deformation to be. It's spelled out on page 691: "In trying to improve upon the people's work on the free market, Keynesian professors from Heller to Laffer introduced the nations' politicians to the witch's brew of deficit finance, unleashing a great deformation; that is, a state which lacked any reason to stop the larceny of the K Street lobbies and the plunder of crony capitalist raiders from General Electric to Goldman Sachs, the cotton growers, the UAW, the timber barons, the ethanol distillers, the venture capital industry, the Medicaid mills, and the scooter chair manufacturers too."

The story he weaves is a dirge, a lament about loss of innocence. In his ideal world we'd still worship the lost religion of the gold standard and the US would be run by Ike Eisenhower. Ideally there would be no Fed at all, but if there was a Fed it would be busy undermining every economic recovery. There would be no financial futures exchanges and very little trading of any sort.

Don't let that put you off.

Despite doing his best to sound like Will Bonner sans the writing skills, despite himself, really, Stockman, has penned the only book currently in print that explains in plain English what's happened from 1992 to present, rather than 1913 to present. If you persevere till page 560, you will come across the following gem:

"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."

This is the unwitting, true thesis of the book. Its contribution, if you will. The problem he sets up is threefold

1. There is a large tax advantage to financing with debt rather than equity, because the cost of servicing debt can be carved out of your bottom line, reducing the tax a firm owes to the government. Modigliani and Miller are wrong, basically. Exactly the same holds for home ownership.
2. Tax on regular income (be it from dividends or from going to work every day) is much higher than tax on capital gains
3. The Fed perceives GDP growth to be its chief mandate and its only tool to achieve this is cheap money, which was duly delivered, and especially so when asset prices were endangered.

These three factors have unleashed the four horses of the last 20 years' financial apocalypse

1. 1992-2000 Tyco-style LBO acquisition bubble that aided and abetted but also fed off of the Internet bubble
2. The 1992-2008 private equity bubble that toward the end was 100% about Corporate Equity Withdrawal
3. The 2000-2008 GSE / mortgage broker / subprime / Wall Street / CDO housing bubble
4. The 1992- present corporate bond cum stock repurchase bubble to support stock option prices for CEOs and upper management.

Stockman describes these four bubbles from page 404 to 576. These 173 pages of the book are fact-packed, well-written, fast-paced, gripping, revealing and downright forensic in their description. They are almost a handbook for how to use debt financing, the tax regime and the Greenspan / Bernanke put to your advantage. As an added bonus, they provide a solid explanation for the soaring inequality in America: only a small fraction of the population is positioned to properly ride the four bubbles, via earning fees and rents rather than via actual exposure to the bubbles themselves.

I was like "what happened to the rambling old man from the first 400 pages" and then, on page 571, all was revealed: Stockman himself used to be a champion of Corporate Equity Withdrawal. A brush with bankruptcy, however, followed by a brush with the law, brought to a screeching halt his career that had weaved its way through Harvard, the US House of Representatives, the Reagan administration, Salomon Brothers, Blackstone and finally his own private equity shop. At that point he had the epiphany that he had sleepwalked to the dark side. Having been a practitioner of leveraging companies to within an inch of their existence, he is as good an author you could hope for to explain the financial deformation of the last 20 years.

He dedicates a full chapter to tearing Mitt Romney apart. He describes Romney's six biggest private equity deals, shows how every single one of them, while good for Bain capital, was actually a disaster for all other stakeholders and for the American economy and proceeds for the kill: his beef with Romney is not that he had acted in self-interest, pretty much like he himself had done. Rather, Stockman has pity for Romney because neither Romney nor the Republican party that nominated him as its presidential candidate ever understood that Romney did not make his money the old-fashioned capitalist way, using capital to build companies. The man made his money tearing them apart, very much at the expense of the American economy.

The evidence presented in favor is bulletproof, but like any "reformed sinner" Stockman does not want that to be his main thesis. He needs it to be part of a bigger, all-encompassing scheme. And that's why he does not get to the truly innovative part of his book till page 404. He wants you to hear his whole story first, the one about how the US government is the deformation. In his chosen order, here's a list of his major bullet points. While often controversial, and in my view more often than not wrong, they all made me think. The book starts from the very end, with three views on the "Blackberry Panic of 2008":

1. AIG needn't have been saved. As discussed, Stockman himself used to work for Blackstone and they looked very seriously into asset stripping a large insurer and the legal advice they got was that it could not be done. Insurance is regulated on a state by state basis. Just because the holding company needed help, the states were not about to allow the assets to be released that were backing up locally issued insurance contracts. Ergo, nobody was going to get hurt if AIG was let go other than Goldman, Deutsche and co.

MY VIEW: I only buy his argument outside the context of general meltdown. It's one thing to say "everybody would be getting their just desserts" which is a philosophical view and quite another to say "AIG was safe enough to fail" and to suggest that officials who had been in office for three to five years had a mandate to undo a system (love it or hate it) with a good 60 years of history behind it.

2. Main street banks would have survived the AIG / Wall Street meltdown because their books were clean.

MY VIEW: Again, unlikely. People would have pulled all their deposits from the main street banks (since all their other sources of liquidity would have dried up) who in turn would all be lining up at the Fed hoping it does a Bagehot and lends them money against their loan portfolios. The ATMs would indeed have gone dark. Hell, they were hours from going dark at my employer, RBS, when the UK government intervened in October of 2008. There must be many other examples.

3. Jeff Immelt was saved, not General Electric, when the Fed stepped in and guaranteed all Money Market funds and all commercial paper.

MY VIEW: Stockman's right about that one, no doubt. And the French banking system too, how did that escape Stockman? Money Market funds are still stuffed full of their paper. But he does get the story in about John Mack's wife getting a 200 million dollar assist from the US government on some silly venture of hers. Nice one.

Then Stockman travels back in time to take us to the origins of the "Great Deformation"

4. The Great Depression of the thirties had little to do with the gold standard and little to do with insufficient accommodation from the Fed that Bernanke apologized about in the famous speech to Friedman and Schwartz and everything to do with a collapse of US goods exports to overleveraged Europeans. A bit how China would suffer today if the world stopped buying cheap toys, expensive iPhones and everything in between, with the added kicker that when things went wrong 1. tariffs went up around the world that made it even harder for Americans to export and 2. the market stopped lending to Europeans anyway. As for the Friedman / Bernanke theory, he has the following to say: "The monetary populists of the 1920s and 1930s, including professor Fischer, had "cause and effect" backward. The sharp reduction after 1929 in the money supply was an inexorable consequence of the liquidation of bad debt, not an avoidable cause of the depression."

MY VIEW: I don't know enough, but I'm startled that this view is not discussed more widely. I read and thoroughly enjoyed "Lords of Finance" as well as Bernanke's papers and no mention is made of the collapse of European demand for American-manufactured products. "Wow" is all I have to say. I'm inclined to believe Stockman here when he says the lack of liquidity was a symptom rather than a cause. "Lack of demand," for sure, but quite impossible to fix if the demand used to come from abroad.

5. FDR wasted everybody's time with the New Deal because he was trying to address an exogenous problem domestically.

MY VIEW: blah. What do you want him to do? Germany is currently paying companies up to 20% of workers' salaries to keep them employed. What's the alternative? Why pay them 100% to stay at home? Yes, I know. Creative destruction. But with some type of time limit (much like unemployment insurance) it all makes sense.

6. FDR put in place the foundations for crony capitalism. By establishing Fannie Mae he put in the foundations of the "Housing Complex" that begat the housing crash of 2008. By establishing Social Security he put in place the first of many government-sponsored Ponzi schemes, a job that was finished for him by President Johnson with Medicare and Medicaid.

MY VIEW: We're talking some serious lead times there, no? A good 70 years. And how was FDR to guess what would happen to fertility rates, which are the true problem with Social Security (along with our general unwillingness to give up on stuff we feel entitled to)? This is ideology here, not economics. With all countries on the planet featuring some type of state retirement scheme and state-sponsored health service, the onus of proof here is with those who don't want Social Security, Medicare and Medicaid. Why should the US be the exception?

7. Bernanke had a predecessor in messing with market prices and toying with wealth effects. Under the tutelage of Irving Fischer, FDR had messed with the price of gold on a daily basis to support the prices of agricultural products. One of the main American exports to Europe had been grain. Grain prices during WWI had been in a bubble that makes anything we've seen since look tame. Farm income soared from $3.5 billion in 1913 to $9 billion in 1919. This, in turn, begat a bubble in land prices, which benefited from a positive feedback loop with the arrival of the tractor (15,000 in 1914 to 1 million in 1930) and inevitably a collapse when Europe could no longer import. Farm mortgage debts, however, still had to be serviced. If you substitute the farming lobby of 1930 for the banking lobby in 2008 and FDR himself for Bernanke you get the picture. FDR confiscated private gold and personally participated in the London fixing for the price of gold on a daily basis with a view to propping up the prices of agricultural products, presaging today's buying of bonds to support the housing market. For the record, FDR abandoned this effort within less than two years, while Bernanke is carrying on, almost five years since starting his bond-buying spree.

MY COMMENT: Wow. Why had I not read this anywhere else? I knew about the gold thing, but I have never seen it attributed to an attempt to support the price of agricultural goods. Is it true? It's perhaps not directly relevant to what's going on in the world, but I'm fascinated nonetheless.

8. Bernanke also had a predecessor in buying Treasuries. You guessed it, it was FDR. The US financed its wartime effort through Fed purchases of US Treasuries. The Fed carried on owning Treasuries until the early sixties, and in the necessary amount to cap interest rates. Capped interest rates (thanks to Fed-engineered rates repression), balanced budgets and inflation worked together to bring down the debt to GDP ratio from 125% to 30% over time.

MY COMMENT: I did not realise the Fed was buying Treasuries into the sixties. Hell, I was born in the sixties

9. Eisenhower was the last president who systematically balanced the budget and the last president who actively chopped the defence budget. What money he did spend on defence he spent very judiciously, on nuclear arms, which in Stockman's view won the cold war some thirty years later.

MY VIEW: Boring. Also, I'm reading "Balance" by Hubbard and Kane and their numbers highlight that as a percent of GDP defence actually has shrunk a fair bit since Ike was president.

10. Nixon ended the gold standard because he did not want to lose the 1972 election same way he'd lost to Kennedy in 1960.

MY VIEW: Perhaps. However, the gold standard was but a very useful sharia law of the market. Much like sharia law, once upon a time, and for the standard of its day, it had once been extremely effective and quite fair, if a bit harsh. But gold, like, sharia law, requires everybody to buy into the religion. By 1970 there just wasn't enough gold to go around to sensibly provide a backbone for the financial system of the world economy, while still trading at a price retaining some type of relation to its commercial value. Nixon was the president whose fate it was to break that link while doing what every politician in the history has done, which is to buy the public's approval with tax dollars. Dunno, maybe one day we'll do a monetary standard with fresh water or something. But the "T-bill standard" Stockman hates is the only game in town. Dollars backed by future tax receipts. Not sharia law, but American law. Go find me better.

11. Reagan (for whom Stockman was budget director, so he should know) did not much cut spending. Moreover, he did not have it in him to cut defence spending and actually left the US with twice the defence budget as Eisenhower in inflation-adjusted dollars, and the military spent that money on conventional military power, planting the seeds of the two gulf wars.

MY VIEW: Boring. Everybody knows Reagan is the father of the bond market. Hell, we shut down the day he died, to honor him. He probably borrowed a bit of money, then. But I do like the point that Bush 41 and 43 would not have been able to conduct their wars of choice without Reagan's re-armament campaign.

12. Cheap printed money from Greenspan and Bernanke's Fed, along with Friedmanesque freshwater free-market ideology fuelled speculative finance. Futures trading, which should have been used only to hedge the risks of agricultural producers, strayed into financial futures, allowed the financial sector to multiply exponentially in size, enabled the Salomon Brothers "bond arb" and led to the LTCM disaster and bailout of 1998. In turn, Greenspan's response to the 1998 debacle guaranteed the final blowup of the NASDAQ.

MY VIEW: Futures are margined. Even if all collateral is pledged, say, three times (and even today it isn't) it is unthinkable that financial futures can be anything but part of the solution, rather than the problem. Nul points, monsieur Stockman. The idea, furthermore, that speculators in New York hold an advantage over a guy who has access to physical assets, is ridiculous. Last I checked, the biggest grain traders on earth were Cargill, and God knows they trade the physical. Last I checked, the biggest oil traders on earth all own refineries and pipelines. I cannot stress how utterly wrong these arguments are. As recently as 1990, investment banking was very much a cottage industry and its participants were regularly allowed to go bust. Lehman, Shearson, Drexel spring to mind. More to the point, there's nothing wrong with trading, shorting and betting, provided there is no safety net for losers.

Frankly, I think in this instance Stockman is merely demonstrating a bias I recognise from my 20+ years in finance: he comes from the banking side of finance and he hates traders. This can be the only explanation for some of the worst points he makes in the whole book.

And he totally misses the biggest banking deformation of all: when Glass Steagall was repealed, it was not the banks that became investment banks, it was the opposite. The investment banks went into the business of giving loans, with the added kicker that they were all booked as swaps and other derivatives, allowing the profit (the NPV of years of Net Interest Margin) to be booked upfront and immediately turned into bonus. That is how come their balance sheets increased tenfold. Not because of cheap money. The entire derivatives thing goes over Stockman's head, frankly.

Finally, like all commentators, he has a fixation with the twentieth century concept of the balance sheet. Open your Bloomberg and look at Barclays. Balance Sheet is 1.5 trillion Sterling (roughly one UK GDP). Derivatives exposure is 80 trillion Sterling. More than fifty times UK GDP. The interconnectedness is the monster. The collateral to back up all these deals (and Barclays is but one player, by no means the largest) simply does not exist. Unfortunately Goldman don't publish the equivalent number, but I'd love to see what it is. Stockman is too old to appreciate any of this. It's in reading these chapters that you appreciate the book is largely historical, rather than current.

13. Two factors allowed the Greenspan Fed to carry this policy to its illogical conclusion. The fig leaf of its inflation mandate and the battering the price of manufactured goods took when China entered the world arena. Under the cover of constantly falling prices for manufactured goods, Greenspan could keep interest rates impossibly low and still meet his inflation target, when he had the option of higher interest rates and benign deflation. This road not taken represents one of the biggest deformations.

MY VIEW: Bang on

14. The Fed is a Keynesian agent, a "prosperity-oriented politburo." Printing money is no different than digging holes and filling them back up again, but it benefits the top 1% more than anybody else. And it's about as effective. Cheap financing has landed America, which accounts for 4% of the world's population with 40% of hotel rooms. QE has done nothing for middle America, with grocery sales still 10% lower than they were in 2007.

MY VIEW: Yes, yes, yes, but you need to be more nuanced. In moderation, all of the above is good. If your argument is that you will never achieve this moderation because the "politburo" is a branch of government and will be "captured" in a quest to borrow prosperity from the future at all costs, that's another story. In principle, however, why would you not want to have the instruments to control disasters? Why is it wrong to have policy?

20k limit stopping my review short, but this is by a country mile THE BEST book currently in print if you want to understand what happened from 1992 to 2012. It's also the worst book. There is no other.

Merged review:

This is the most significant book of 2013.

It's rambling and endle

[Rich · Rating 5 out of 5]

The book The Great Deformation is amazing. I just finished it this morning and now I want to go out and hang myself. Stockman made me angry at nearly everyone, but mostly at the US Government for creating the Federal Reserve in the first place. The most important good that exists in the world is money. The most important thing to price correctly is capital. But both money and capital have been so deformed since 1913 and particularly in the past 30 years, that we now sit on the verge of the biggest financial calamity in history! In 1913 the Federal Government gave the Federal Reserve the cartel power to manage the financial system, giving it special privileges and protections that have become a total moral hazard for those of us living today. Because money and capital have been so distorted and so completely separated from any semblance of a free market, the country now faces the biggest financial mess in history. Stockman picks a fight with everyone. Nixon, Reagan, Clinton, Obama, Romney, Paulson, Bernanke, Greenspan. The list goes on and on. This guy has to have a price on his head. I liked the book a lot. I have the unabridged audible version and it is well narrated. I probably will listen to it again. It would be nice to stop and carefully study some of the figures and graphs that are hard to narrate. Stockman has a very appealing satirical writing style that sits well with me. He may be Chicken Little crying that the sky is falling but he convinced me and I'm ducking for shelter!

[Jose · Rating 3 out of 5]

Listened to David Stockman give his premiere book presentation at the Greenwich Library 10 days ago and short of buying the book, i checked it out from the library, this 700+ page brick.

The author is certainly a highly intelligent individual with sharp argumentation skills, but he comes across as a doomsday machine. I agree with many of his observations although I don't accept all his conclusions or recipes for the cure of the fiscal and political illnesses of this country. He does contribute to a sorely needed educated debate about our political options ahead, a debate that is fundamentally absent from the presidential campaigns and dumbed down TV election debates.

Listening to Stockman, a cornerstone of the Reagan adminstration, I was surprised to hear his critical review of the Reagan presidency (insane increase in military spending and government debt) and conversely his praise of Clinton for his fiscal policy. He blasts FDR, Nixon, both Bushes and both Fed chairmen Bernanke and Greenspan. His hero was Eisenhower, the only president that curbed military spending, and warned about the military industrial complex taking over the US economy.

It occurs to me that the only candidate in 2012 that came close to Stockman's thesis was Ron Paul, yes, the unelectable Ron Paul.

[John Boettcher · Rating 5 out of 5]

This is one of the greatest economic books to be published this year. It gives an absolutely SCATHING report on what actually happened between Wall Street and the Federal Government with the help of the Federal Reserve.

The amount of corruption and back door dealing that took place during the crisis of 2008-2009 was nothing short of jaw-dropping. Stockman makes that absolutely CRUCIAL point that it wasn't Capitalism that failed us, it was CRONY capitalism that ran rampant throughout the streets of Washington and New York City.

Capitalism in itself is good. Corrupt people will use whatever tools they can to gain their own ends. This does not mean that capitalism is evil. Correlation does not mean causation.

However, the causation that DID take place was the Federal Government placing Moral Hazards all over the place for lenders and borrowers alike to take advantage of. Those hazards ended up being one big house of cards that the sub-prime market had no hard time blowing over.

Stockman also makes the good point that with help of TARP, and all the other Quantitative Easings that have gone on since then with the help of the Federal Reserve, the fear mongering could take root in Washington and revive all the old Keynesian arguments that have failed time and time again, and give an excuse to not only have the Federal Reserve print more money, but also create basically the 2nd New Deal. Creating make work projects just to spend money without any thought as to what that huge influx of additional money was going to have on the prices of everything.

This book should be embraced by anyone who doesn't like interventionism or was upset by the transpirations of the crash and everything that has happened after it.

I mean, come on, we are currently $16 Trillion dollars in debt as a nation. Obviously, the only way out of debt is to take on more debt, right?

[Yuri Zbitnoff · Rating 5 out of 5]

This book is absolutely, positively essential for anyone who's even remotely interested in economics, finance or American history.

I'm going to go out on a limb and say that this is one of the most important political and economic books ever written.

Yes, it's that good.

As a libertarian and as someone who's worked in banking and finance my entire adult life, I'm accustomed to hearing antipathy toward Wall Street and the financial complex. After the 2008 collapse and bailout, I empathize with those who regard the system as predatory.

Unfortunately, the current state of affairs makes it difficult for those of us advocating for free markets to make the case for freedom when people generally perceive "free markets" not only to be the source of everything that caused the collapse, but pretty much anything else that adversely affects humanity. From climate change to racism to income inequality to rape, capitalism gets the finger of blame for every malady that plagues society. Since the time Marx enshrined whinging about the bourgeoisie as a virtuous guiding principle, the very notion of "capitalism" has become freighted with increasingly negative connotations.  

Well, socialists, Occupiers and capitalism haters everywhere, it's time to set the record straight. David Stockman has laid down a devastating and record settling case against the mutant strain of state capitalism that is infecting the world today.

If you are really interested in learning about how the state corporate financial complex came to be the reviled beast that it is, this is the book to read. Put down Piketty and open your mind, because Stockman lays down a century's worth of narrative busting truth in this book.

From the New Deal up to the housing collapse of 2008, Stockman dissects and disassembles one narrative after another in painstaking detail. No administration or monetary authority is spared.

In opposition to virtually all of the received wisdom, Stockman takes FDR's New Deal out for a thorough demolition. From the Thomas Amendment's destruction of hard currency to the ad hoc grab bag of bureaucratic agencies which bloated the administrative state to the origins of farm belt cronyism, no doubt remains that FDR's true legacy is "the patron saint of crony capitalism."

A final attempt at fiscal and monetary restraint was achieved in the Eisenhower administration. Between Ike's budget discipline and the steady hand of Fed Chairman William McChesney Martin, the "old time fiscal religion" that now lives as GOP rhetoric more than reality was an actual phenomenon for a couple short years.

It proved to be a short lived victory. The Kennedy administration was the beginning of the end of fiscal and monetary restraint. After an initial promise to maintain the stability of the price of gold and the convertibility of the dollar under the Bretton Woods framework, Kennedy eventually succumbed to the ascendant gospel of Keynesian "full employment" budgets and tax cuts paid for on federal credit.

After the JFK administration's capitulation to Keynesian dogma and the combined profligacy Johnson's domestic spending expansion and war largesse, America's fiscal house took a turn towards permanent deformation.

The only person whose legacy receives an even more punishing rebuke than FDR is Tricky Dick Nixon. Richard Milhous Nixon was solely responsible for the complete and total degeneration of American fiscal and monetary discipline. Between price and wage controls and the closing of the gold window, Nixon all but assured the rise of a permanent regime of statist economics. Financial markets would be the province of debt fueled speculation and bubble finance while giving rise to budget deficits without pain. The most eye opening of Stockman's Nixon era claims are twofold: the silent destruction of Glass-Steagall through floating the dollar and the flagrant error of indexing Social Security to inflation in 1972.

Sadly, the progenitor of this deformation is none other than Milton Friedman. Starting with his misdiagnosis of the Great Depression, the flawed theory of a controlled expansion of the money supply took root amongst the political class. From this deeply flawed thesis, the FOMC committee transformed into an unelected politburo of central economic planning which heavily favored the financial class over the real economy.

It is supremely ironic that one of the 20th century's greatest libertarian intellectuals laid the foundation for what Stockman argues is the mother of all deformations: central economic planning by fiat currency. A form of socialism that is perhaps more insidious than the more overt manifestation since its effects are invisible to most citizens and the blame ends up being assigned to capitalism itself.

From this single act of ultimate political hubris and ignorance, the Pandora's Box of financial engineering was unleashed.

He delves into the history of Leo Melamed, the Chicago Mercantile Exchange, and the rise of currency and T-Bill futures; innovations that carried an aura of free market ingenuity, but ushered in a new era of speculative finance which added nothing to the real task of capital formation or job creation. Once the world shifted to a regime of floating currency, the genie was out of the bottle. Central bankers were in a perpetual battle with market forces that were made volatile by their own policy decisions. Exchange rates were subject to wild and unpredictable fluctuations, central bankers stumbled and bumbled through phenomena they could never truly manage while Wall Street gorged on the elixirs of leverage and easy credit.

Despite Paul Volcker's final attempt to restore a semblance of sound monetary policy, Alan Greenspan abandoned his Objectivist roots and embraced the power of the Federal Reserve to propel stock prices and speculation. Between the Keynesian defense buildup and loose monetary policy enabled by the Greenspan Fed, the mythology of pain free deficit driven prosperity which ultimately defined the Reagan era was enshrined.

By the end of the Reagan era, the three dogmas of statist economics, Keynesianism, supply-side and monetarism, were accorded unquestioned deference.

From these central deformations, Stockman skillfully traces the ascent of the Wall Street financial complex that we have come to know.  Originating at the at the Salomon Brothers trading desks, the model of "long and leveraged" became the template that would be replicated in every investment bank on Wall Street.

While I empathize with those who regard our brand of state capitalism with cynicism and contempt, I genuinely hope that skeptics and cynics will take the time to read this book to understand that the myth of casino style easy money from the stock market is a phenomenon made possible because of central bankers.

Stockman addresses three phenomena of contemporary finance that should be of interest to progressives or anyone who regards the outsize gains of the Wall Street complex with suspicion or disdain: the hedge fund and private equity complex, the entire panoply of leveraged speculation on which it's built, and financial bubbles which feed them.

In all three cases, Stockman argues that the Greenspan/Bernanke Put, the Fed's implicit guarantee of lowering the funds rate into negative yield if stock prices dip below a certain threshold, is the lynchpin behind an entire host of speculative deformations.  Primary among these  phenomena are stock buybacks, M&A, and LBO'S.

The phenomenon that may hold the greatest interest to people is Stockman's detailed but imminently readable analysis of the housing bubble. Contrary to the standard wisdom, this was not in any way a natural phenomenon of the free market. Warehouse credit lines, GSE's, a legislative agenda and an accommodating Fed all conspired to create a speculative feeding frenzy which met an inevitable unhappy ending.

Perhaps the most provocative claim is his argument that the 2008 collapse was an artificially ginned up panic that was confined to Wall Street and should have run its course. Even more provocative is his claim that AIG did not need a bailout. It's radical shit and it flies in the face of virtually all conventional wisdom, but his case is very persuasively argued.

The so-called green energy "investments" of the Obama administration are hauled out into the daylight for a righteous thrashing.  Little did I know that even America's Tony Stark, Elon Musk, fed at the government trough.  The colossal waste of Solyndra debacle is laid bare in fair detail and the elitist hubris behind it will make your blood boil.  I'm completely in favor of the evolution of new technology, but the insistence on government support has turned this effort into yet another denomination in the Cult of the State which has little regard for whether the Green Revolution reality is anywhere near the rhetoric.

Stockman rounds out the book with a tour through the various failures and deformations of the market and the sycophants, parasites and opportunists who profited from them. This cesspool of corruption was made possible because of the abandonment of fiscal and monetary discipline and made worse by a class of political hacks who shamelessly feed off peddling the delusion of a free lunch. Among these deformations and predators are the subprime auto loan complex, the crony capitalist parasites who feed at the federal trough, the unsustainable welfare state, and the swarm of vulture capitalists who gorge on state-enabled windfall profits.

Stylistically speaking, Stockman is biting and acerbic throughout. My kind of guy. The sobering bluntness of his message is leavened by some healthy sarcasm and contempt.

The book is chock full of meme-worthy quotes and turns of phrase that can only be described as Stockmanisms.  For example:

Full-Retard Antediluvian: The Forgotten Standard of Honest Public Finance

And many, many more.

He's a bit repetitive, but I don't begrudge him on this point because I feel that it ultimately gives an accretive power to the core themes.

Make no mistake, Stockman's prognosis for the state is bleak. This is a pessimistic view of the deterioration of public finance in the years to come.  Stockman predicts an unpleasant day of reckoning for all of us.

This doesn't mean that he's unwilling to proffer solutions. He has many, but they're so radical that he admits their inherent impossibility in the current political climate right off the bat.

Stockman's programme for reform is similar to the one proffered by Ron Paul; a radical separation of market and state, a full throated call for a rollback of the warfare/welfare state, and a return to sound money.

Though I applaud his sincere attempt to lay out a course of action, my concern (aside from the fact that it's a form of political suicide in and of itself) is the same one that lies at the heart of all minarchist arguments. Even if this agenda were to be fulfilled, what would prevent the state from engaging in monetary and fiscal profligacy recidivism?

Regardless, this book is nothing short of a tour de force.  It has my highest recommendation.

[Michelle · Rating 5 out of 5]

Whew. I hardly know where to start on this massive book. I had NO idea when I requested it at the library that it was over 700 pages and would take over my life for three weeks. :-) This book is a real investment of time, but it is worth it. This book is a very long but vigorous deconstruction of "what went wrong" with the economy, starting way back with FDR and continuing on until today--and Stockman finds plenty of blame to pass around, from FDR and Nixon killing sound money by taking us off the gold standard, to Stockman's former employer Ronald Reagan for busting the budget wide open and creating a standing "invasion force", to the Bush/Obama disastrous stimulus/bailouts, to the bankers/businessmen/speculators who took advantage of federal policies by overleveraging companies while reaping enormous profits for themselves, thereby weakening our businesses and industries. Few, indeed, escape Stockman's scorn. He doesn't even spare his own adventures on Wall Street nor his own contribution to Reagan's budgets. His intimate, insider knowledge of the politics and economics, especially of the past thirty years, is immense and detailed, and if you want to know the turning points, the steps where we went wrong, and why nothing the government is trying today is working, this is the place to go for the answers, because they are all in here. He lists almost more turning-point moments than I could list here, but finds especial vitriol to fling at FDR's dislodging of the gold standard and Nixon's finishing of it; Reagan's large deficits and the "deficits are OK" thinking, floating currency arbitrage, huge defense spending, the Fed's decision to try to micromanage the economy rather than simply serving as a banker's bank; the cutting of capital gains taxes lower than income taxes; the ridiculous interest rate manipulation of the Greenspan/Bernanke era; open-market actions; of course TARP and Too Big to Fail and the massive stimulus spending--on and on and on. Both parties, many industries, all eating away at our economy from above and from within. The few weaknesses in the book include some small editing failures, a little repetitiveness, a lot of jargon/acronym use (which would make the book very difficult reading for anyone without at least superficial knowledge of economics, banking or investing), and a very very depressing take--essentially Stockman believes that we are pretty much permanently screwed and doomed to massive debt defaulting and weak economy for the foreseeable future, since the only possible remedies are extreme restructuring of our entire economic and political life, and he believes that they are completely politically impossible anyway. Whew. Do you suppose someone is going to convince Krugman to read this? THAT would be an interesting reaction to see.

[Ray · Rating 4 out of 5]

I couldn't possibly provide an effective summary of David Stockman's very lengthy polemic on the state of the U.S. Economy. Probably the best I can offer is to repeat an advertisement I noticed for a Seattle TownHall meeting on Stockman's book which states: "Today’s national debt stands at nearly $16 trillion—divided equally among taxpayers, that means each of us owes $52,000. David Stockman, author of The Great Deformation, explains how we got here—and how warped “crony capitalism” has betrayed so many of our hopes and dreams. Describing how the working of free markets and democracy has long been under threat in America, Stockman, budget director under President Ronald Reagan and architect of the Reagan Revolution, provides a nonpartisan catalog of the corrupters and defenders, showing how “liberal” and “neo-conservative” interference in markets has proved damaging and often dangerous. Over time, he says, crony capitalism has made fools of us all, transforming Republican treasury secretaries into big-government interventionists, and populist Democrat presidents into industry-wrecking internationalists."

Beyond that above attempt at a summary, a few other things struck me about "The Great Deformation". For example, Stockman, a long-time Republican, decries the policies and direction of his Party, as well as the policies and direction of the Democratic Party. In his view, we now have two (2) "free lunch" parties. Republicans saw that the initial Reagan fiscal deficits didn't lead to any obvious (immediate) economic issues, so that evolved to "deficits don't matter" thinking in the GOP. So they became the party of tax cuts, and Keynesians for the prosperous class. Meanwhile, Democrats tend to support social spending initiatives without reforms, so he points out that the deficit grows under either party.

Over and above his criticism of today's Political Parties, Stockman is especially critical of the printing-press policies of the Fed. He's also got plenty of criticism for others, particularly, but not limited to, Presidents Bush and Obama, Fed Chairman Bernanke, past Treasury Secretary Hank Paulson, financial columnist Paul Krugman, and many others.

Stockman's writing is clear, and understandable, but the subject matter covered is extensive and complex. Arguments about the budget, and what the results will be as policies change, reminds me of arguments about climate change or other complex issues. There are so many variables, and so many experts on both sides of the issue, it's just so hard to come up with a single fool-proof approach to any of these complex issues. Similar to economic concerns, we've got climate scientists telling us that man-made effects are causing climate change, and there are others who will argue passionately in the opposite. And the reasons global temperatures aren't always following predictions gets re-explained after the fact time and again. To me, the same seems to hold true with economic projections, causes and effects. Stockman's economic arguments seem reasoned, yet other experts continue to dismiss his reasoned approach. So determining what other variables are at play, just makes the modeling mind boggling. With so many possible variables all in play, and the effects of some offsetting the others, how does the layman, who has no PhD in the science behind the claims, and who has to rely on the experts, ever decide which is right?

I don't have the answer to that question, but will say that Stockman does offer a detailed explanation of his beliefs, and while to book is long, his reasoning is presented in clear and persuasive language. And while much of what he's predicting is gloomy, he does offer a number or recommendations going forward, a few of them, such as term limits, election campaign limits, and lobbying limits, I do find compelling.

[Clif · Rating 5 out of 5]

(update from the original review of 2016).

David Stockman as a young man was Ronald Reagan's budget director. A proponent of the free market, he became disillusioned with the behavior of the Reagan administration in contrast to the pledges that were made before the Gipper came into office. He then wrote a book, The Triumph of Politics", about the experience relating how all the fine words went out the window while government grew, subsidies were given to all the big lobbies and in the end things were worse at the end of the 1980's than before.

The Great Deformation is Stockman's comprehensive account within which Reagan's days in office are only a chapter. This book illustrates how the United States arrived at our current predicament, of a strangled economy the result of government that could not leave the economy to function on its own, believing it must intervene to improve it. The United States has become the welfare state and the warfare state, spending beyond all restraint, allowed to do so by American debt being eagerly consumed by foreign countries who want the US consumer to continue spending on their exports. Thus arises the appearance, but an appearance only, that deficits don't matter.

This gives rise to ever increasing debt. At one time, the amount of money that could be issued was limited by gold being used as a standard. Paper money could be exchanged for gold. If more paper money was issued, inflation would cause rising interest rates that would, in turn, act as a brake on lending. But one could always trade in dollars for gold. The desire to spend without limit meant this system had to end.

The U.S. at one time was the creditor/exporter to the world. The Eisenhower years were exemplary in Stockman's view because Ike refused to allow deficit financing, while the Federal Reserve was held tightly to the task of funding banks in trouble, charging them an interest premium for the service. The military was cut to the bone and taxes were raised as necessary to finance what Ike viewed as the limited functions government could provide.

The crunch came with the Vietnam War. LBJ would not raise taxes to support the war while the huge amount of U.S. spending overseas to run the war resulted in a demand by those receiving the dollars, concerned about the increase in dollars circulating, to get gold in exchange at the then fixed amount of $35 per ounce. Gold began flooding out of the U.S. and to stop it Richard Nixon ended the gold standard, allowing the dollar to float against other currencies, and opening up currency speculation as a game that would earn billions for speculators while producing nothing of value. This end to the gold standard, in Stockman's view, was the Great Crime that doomed fiscal responsibility, setting the country and the world up for the relentless rise in debt and the accompanying flood of wealth to the very rich (who increase that wealth by lending it) that has now overwhelmed us.

The Federal Reserve became the agent of fiscal (budgetary) and monetary destruction beginning with the term of Alan Greenspan as Fed chairman. Though Greenspan had originally been a strong defender of the free market, he turned entirely around and became fearful of any drops in the stock market, believing the Fed should step in to support any market weakness; this being the famous "Greenspan Put". Realizing the Fed was standing ready to catch them if they fell, speculators could run wild without fear of financial disaster, so the riskiest bets could be placed.

Thus are asset bubbles inflated. First it was the "Dot Com" bubble that collapsed in 2000 and then it was the housing bubble that collapsed in 2008/9. Each time, Greenspan and then his successor Ben Bernanke, lowered interest rates to prop up the economy when that, as Stockman rightly points out, was exactly the wrong thing to do because it avoided the necessary business failures that would have warned speculators of the damage they could suffer from foolish investment decisions.

Interest rates indicate risk. If there is a risk of losing money, the interest rate charged to borrow money for a venture should be proportional to that risk. In a free market, the price of borrowing money will be discovered through this process. Lenders, fearing loss, will charge a high rate of interest and foolish ventures will be restrained as a result. If interest rates are forced down, as the Fed can do by flooding the banks with reserves, then money is effectively free to use regardless of risk and there is no proper evaluation of risk. Anyone can try anything, as long as they have the connections, as the big banks and hedge funds do, to get the millions and billions of dollars on loan they need to place their casino bets. This is exactly what happened in the housing bubble and when it all fell to earth, Uncle Sam was waiting with a huge bailout for the biggest gamblers, the banks. This was proof that the free market is long gone.

But that's not all. If the Fed will buy Uncle Sam's debt without limit and at no interest, then what is to keep Congress from believing that anything can be afforded because there is no penalty for running a deficit? Dick Cheney even said "deficits don't matter". It would seem the free lunch has arrived. Spend all you like, don't raise taxes, in fact, lower them and everyone is happy. Run a huge trade deficit, importing far more than you export. Like magic, to keep their exports flowing to Americans, foreign countries will rush right back to Uncle Sam with the dollars that are flooding to them and buy more of Uncle Sam's debt. Dollars that pour out of the country to buy stuff, pour right back in to buy Uncle Sam's debt and inflation appears to be tamed.

What's the fly in the ointment? Suppose you want to borrow a million dollars and there is zero interest. You get the money, you spend it and you pay nothing for having taken the loan. So why not borrow another million, or even a billion dollars? With no interest you have unlimited money at no charge! But wait - suppose the interest then goes up to just one quarter of one percent. You haven't paid any of the money back, it's locked into your investments, so when the debt comes due, you "roll over" your million dollar loan into a new one at one quarter of one percent. You now owe $2500 in interest. Did you take out a billion? Then you owe $2.5 million. Uh-oh, the free lunch is over and your budget can't even handle the interest payments. You are bankrupt.

Uncle Sam must continually roll over a monstrous debt even as he runs up more. Do you understand now why the Fed talks and talks about how it should raise interest rates but doesn't? With astronomical debt, even a tiny increase in interest on it is terrifying. The value of bonds being held will dive as interest goes up on newly issued bonds. Foreign countries hold large quantities of U.S. bonds. We're talking potential worldwide economic collapse if interest rates go up.

We are running on empty. We've spent not only present income (taxes) but future income. Though the national economy has been doing fairly well, the Fed is still afraid to raise the interest rate at exactly the time that it should to start easing out of the interest rate bind. The Fed has juiced the economy when it should have left it alone and as a result we got momentary, illusory growth that then disappeared in a flash (as in the housing bust) while we've mortgaged our future far beyond the ability to repay. The end is nigh and there is no avoiding it. The United States is a deadbeat, and if interest rates should rise would quickly be a zombie economy (definition - one able only to pay debt service with present income) and the clock is ticking.

This book is Stockman's lament, his detailed account of every aspect of the descent into financial madness, as surely a recipe for disaster as anything, in its own way, the long gone USSR did. Carefully defining all his terms for the layman, he will take you for a fascinating look at all of the events you have heard of such as the GM and Chrysler bailouts, the big bank bailouts, the activities of hedge funds, the currency markets, the operation of the Fed, Obamacare, Fannie and Freddie, hedge funds, the Reagan arms build-up, the supposed "business expertise" of Mitt Romney at Bain Capital, how the bulk of the nation's income is funneled to the top and so very much more in a whopping 700 pages. It's a masterpiece from a man who knows what he is talking about and takes pains to make it understandable to the layman.

I was never bored, continually enlightened, went through three highlighting crayons and am convinced that Stockman has it right. The book was written in 2013 and now, six years later, we are still hovering on the edge with nothing done about the problems he cites. His vast account connects the dots in a devastating indictment of mismanagement of the economy from the top in the service of Wall Street, while the 99% falls further behind the 1% without the citizenry knowing why. The whole sorry story is here, carefully and clearly explained, but I doubt many will take the time to read it.

(Reader please note that nothing of significance has been done to restrain the bad actors of the housing bubble, that housing prices and the stock market have inflated again, that the Fed has nothing left to give in the next crash, that the stock market is higher than ever)

[Marks54 · Rating 1 out of 5]

I have to admit it. I had to give up on this after getting about a quarter of the way through. In a 700 page book, that is about 175 pages.

Why did I quit on this? To start with, it is hugely overwritten and poorly edited. So even if I had liked it, I would have been spending about twice the time than would be the case for a good book. But there is much more to it than that.

Second, it is clearly revisionist history -- an attempt to go back to the onset of the financial crisis and claim that there really was not much of a crisis and that everything would have been fine had the market been allowed to work its wonders in a correction. I just don't accept this as a worthwhile intellectual enterprise, whether the topic is the financial crisis of 2008, the start of World War I, or some other topic. We don't get to do a replay and "what if history" can easily slide into lazy and bad history.

Third, the overarching argument has major inconsistencies. For example, one of the premises of the book is that Wall Street took over the Fed and the Treasury Department, which enabled the massive bailout of the banks through TARP and other programs. At the same time, however, the actions of Paulson and his cronies were inept, paranoid, panic-stricken and unnecessary. The clear impression is that Wall Street had engineered the takeover of the US Government by an inept panic-monger and his crew of young I-bank hangers on -- or something like that. One cannot have it both ways. Either Paulson was incompetent or he was the former head of Goldman Sachs and anything but incompetent.

Fourth, and more generally, the tone of the book is akin to the claim that "everything you have read about the financial crisis up until now has been wrong - read my book and I will set you right." Mr. Stockman did not say that, but that was clearly the tone. The problem with such a claim is that it is very difficult to separate a situation where only you are correct from one in which you are crazy.

I strongly believe that once a stinker has been identified, it is best to move on. That is what I have chosen to do here.

[DROPPING OUT · Rating 5 out of 5]

This 700+ page door-stop is a no-holds-barred polemical indictment of our government's fiscal ignorance that has led to what might bring down the United States.But we are not alone. Similar policies pursued by the European Union, Japan, and others make this a global problem. The United States might still be high in the saddle had people truly knowledgable of economics and fiscal policy been running the store. But "crony capitalism" and the arrogance of the likes of Rubin, Greenspan and Bernanke have crippled our economy, almost guaranteeing it can never recover.

Many people might be intimidated by the book's sheer size and subject matter, but Stockman writes Ina clear (albeit colorful) prose accessible to all.

[Usman Chohan · Rating 5 out of 5]

As a former OMB official, Stockman has firsthand insights about the fiscal quagmire besetting budgetary indiscipline in the United States. But this book is unique in that it proffers the middle finger both to Keynesianism and monetarism, to left-wing and right-wing economists alike. The contention of this book is that, so long as the country doesn't live within its means, squanders money on morally dubious enterprises abroad, and lacks farsighted leadership, it really doesn't matter what mantle is adopted by the powers that be, because the financial system will persist in creating great fiscal deformations.

[David · Rating 5 out of 5]

This is one of those kind of books that I decided to read the last chapter first, knowing that 700 pages of analysis would lead to some likely solutions. So glad I did. Having spent the last three months reading everything I can get my hands on, this is an awesome book. Read the first chapter this morning and heading deep into the rest. This is more than a book this is a landmark and a call for real change. The pen is mightier than the sword.

[Mike Fendrich · Rating 4 out of 5]

What an exhausting read. 700+ pages of national fiscal and economic data sifted, resorted and explained. In a style that is technical, wooden and snarky.

However that does not make this book an unimportant read. The basic premise is that the Treasury Department and the Federal Reserve (staffed generally by Goldman Sachs executives on loan) is so tightly in bed with Wall Street (crony capitalism) that there is now no external safeguard to the excesses dreamed up by the gamblers on Wall Street. The Fed has open its checkbook to cover whatever disaster is concocted to insure there are no losses there with the burden borne by Main Street. The disastrous combination of spending and tax reductions have created a cycle of deficit and debt that can no no longer stop.

This book was written in 2013, I read this in September 2021. So I did a little research drawn from the Department of Treasury website.

12/31/2000 12/31/2020
GDP $10,252,347,000 $20,936,559,000 an increase of $10,684,212,000
Fed Debt $ 5,776,091,000 $27,747,798,000 an increase of $21,971,707,000

We went from our debt being 56.4% of GDP to 132.5% of GDP. I know we all hear these debts don't matter (from both parties) but seriously, how long can this last. Is it going to continue to require $2 in debt to achieve a $1 increase in GDP? Absolutely unsustainable (as our present Congress is trying to get a $3.5 trillion infrastructure bill through).

We are not Iceland, we are not Greece or Italy but seriously - how long can this go on.

[Henry Mishkoff · Rating 2 out of 5]

The longest, angriest rant, ever.

Densely packed with data, but with surprisingly little information. It's as if Stockman assumes that we understand all of the esoteric concepts he throws around, so he doesn't have to bother to explain them -- but if we really understood them, we wouldn't have to read his book in the first place. He obviously knows a lot, but he either doesn't know how to explain things to people who know less than he does, or he just wants to vent and doesn't particularly care whether anyone can follow him or not.

I read maybe 20% of the book, then I just turned the pages, read the section headings (which still took a while), and read a few paragraphs if a section heading caught my eye. If you decide to read this book and your eyes start to glaze over after a while, try my technique -- you'll get the gist of what Stockman's trying to say, and it won't take you nearly as long.

On the other hand, if you're really into righteous indignation, then you should start at the beginning and read every single word, this is definitely your kind of book.

[Kit · Rating 2 out of 5]

FDR: bad, Truman: good, Eisenhower: great, Kennedy: ok, Johnson: horrible, Nixon: the main cause of our problems, Ford: good but ineffective, Bush I: bad, Clinton: ok, Bush II: very bad, Obama: bad, and Krugman and Friedman: both bad. (Oh, and Carter and Reagan: little to no comment). This book's premise, as outlined above, promises a unique and informative analysis of why our country is teetering on the brink of bankruptcy. However Stockman does not deliver on this promise in over 700 pages of insufficiently edited rants and repetition. Too bad, because his thesis that the US economy is in a positive feedback loop of crony capitalism that is spiraling out of control as the government oscillates between the Rs and the Ds is probably correct. It is important for us to understand what is happening and how we got here if we are to change course. Unfortunately, this book does not contribute to that understanding.

[Maggie Hedrick · Rating 3 out of 5]

Overall an interesting read. For someone without a strong economics background I found it a bit dense at times. He is an engaging writer, although at times his descriptive language makes it difficult to see the facts.

[Kurt Jensen · Rating 4 out of 5]

This review might seem aggressive and rambling, but I'm inspired by the sensational tone of this 700 page redundant rant that clearly no editor or critic approached with a ten foot pole. (The quotations on the dust cover aren't spectacular reviews—they're spectacular and outrageous quotations from the book itself, lmao.) I couldn't possibly recommend any one read this absolutely insane chore of a book, which is a shame - because the ideas and connections raised by his thesis are extremely important, and I haven't seen them so comprehensively addressed anywhere else.

Stockman is the rare fiscal conservative who remembers that fiscal conservatism is about a balanced budget and right-sized taxation, NOT effective sub-zero tax rates for the wealthy and deficit spending on imperial expansion. Of course, the writing of this literary "Gong Show" (Stockman's favorite turn of phrase) is plenty evidence that Stockman himself is extremely unlikable and hard to swallow, so that might explain why no one listened to him in the Reagan administration. Note: the GOP has not been run by fiscal conservatives since Eisenhower, so if you consider yourself a fiscal conservative, this isn't the party for you! The idea of "starving the beast" of big government by constantly slashing taxes would be extremely short-sighted and irresponsible *if it worked,* the fact that it doesn't work means it's downright stupid and clear crony-capitalist pandering to the extremely wealthy. And that's not just me - that's Stockman's argument.

Even in extensively attacking the modern GOP like a lover scorned, Stockman ultimately believes that the Democratic Party is the root of all true evil in the world—that's why he goes all the way back to The New Deal, in this "brief" political and economic history of the United States. Sure, there's rhetorical precedent there, but it has very little to do with the reality of his central thesis that free market manipulations by the Fed are what's gotten us to where we are - a very bad, no good place to be. BUT FOR the artificial market manipulations of the Fed, the U.S. government would not be able to spend debt into deficits with impunity and an essentially 0% interest rate. BUT FOR President Nixon, the Fed might still be constrained by the Bretton Woods agreement, sound international monetary policy and not be an overtly politicized institution designed to prop up the stock market on behalf of the incumbent party. BUT FOR President Reagan's nonsensical blank check policy for the Pentagon, the nation might have learned its lesson from Vietnam and political pressure might have controlled imperial wars of choice. This is a connection Stockman draws that I haven't seen anywhere else - that Reagan's blank check made possible wars of choice in the Gulf, Iraq, Afghanistan - because the mechanisms of the warfare state were already so large, presidents could go to war without asking Congress for money - completely eliminating that crucial check/balance in the American political system.

Again, BUT FOR the GOP continually upping the ante on unprecedented levels of deficits, perhaps we wouldn't have leaders with the current line of thinking that, actually, deficits don't matter at all. He attacks Carter, despite Carter doing a much better job than the Republicans of keeping the deficit to a reasonable level despite stagflation and recession, and despite the fact that he appointed Stockman's hero Paul Volcker to the Fed - plus, Stockman acknowledges rightly that he's skipping over Clinton - the only president to run a consistently balanced budget since Eisenhower. This is all overtly political stuff, again tangential to the critical thesis regarding the Federal Reserve, so it kind of doesn't matter at all - I'm just calling out Stockman for believing in his heart of hearts that the Republican party is the party of Eisenhower, rather than the party of Nixon. Nixon was a criminal who did lasting damage to our political institutions - and the GOP has been his party ever since.

Perhaps shockingly, in his heart of hearts, Stockman occasionally comes across as quite genuinely progressive. Despite it being kind of obvious that he sees poor people as statistics rather than actual human beings, he believes in an efficient and comprehensive means-tested social safety net. He understands, at least in theory if not truly being able to empathize, the societal harm of so many people living pay check to pay check. He understands and acknowledges that our current system is "socialism for the rich and capitalism for the poor." He sees that wealth inequality HURTS the American economy - it doesn't help it - in direct defiance of the "Wealth Effect" doctrine encoded into the Federal Reserve bank and the modern GOP since Reagan. He's proposed a wealth tax larger than the one proposed by Elizabeth Warren (not in this book, but elsewhere). And that's because Stockman is a reformed crony capitalist, himself - a former Gordon Gecko-type having seen the light - having renounced his former career built on cheap debt, leveraged buyouts and slashing jobs and expenses in industries he didn't even really understand.

It's easy for all of us to get lost in the politics of it all - petty arguments and character assassinations with which this book is RIFE - I can't resist throwing it back at him.

But Stockman's central argument remains, quite coherent. None of this bullshit could've happened if we had sound money rather than a rogue Federal Reserve bank with a self-appointed mandate to cure the natural fluctuations of the business cycle by effectively printing money to manipulate and artificially repress interest rates.

See, the political system has become addicted to jobs and the economy as a sort of welfare, and a quid-pro-quo for votes, rather than just providing an adequate safety net in the case of economic downturn. Politics kind of figured out that the economy has a lot to do with the incumbent party's success in office, so politics became more economically charged when, really, governance should be largely indifferent to the free market. But in this political framework, government needs to bailout companies because we have to to save jobs and government needs to repress interest rates because we have to to save jobs and government needs to continue to spend on defense because we have to to save jobs and government needs to continue to deficit spend because we have to to save jobs and re-stimulate investment. As Stockman argues, they're all just wrong. Firstly, it just doesn't work. And secondly, it's responsible for extreme wealth inequality that is NOT inherent to free market capitalism.

In this prevailing framework, the benefits of low interest rates from the Fed are supposedly for everyone - to kick-start investment and create new jobs in the future, but in reality, the benefits of low interest rates accrue exclusively to the already wealthy. An increasing amount of this cheap debt investment hasn't gone to real investment in jobs but rather more leveraged buyouts and mergers and acquisitions which often destroy jobs. It also allows regular people to be more leveraged than they've ever been, before. Your credit card debt doesn't get much cheaper if at all, but your parents can refinance their mortgage and landlords/developers can refinance their massively leveraged portfolios (in aggregate) and make out like gangbusters. That ranges from massive real estate interests and regular people who own two homes and rent one out or have an AirBnB financed by a mortgage. It's a wash for new homebuyers - their decisions are based on monthly payments, anyway, not on rate terms, and low rates artificially raise the prices of houses and rents, so whatever you gain for having a low mortgage rate, you lose in needing to pony up a much larger down payment and overpay for the house you're buying. More and more multi-home-owners and speculative landlords means, renters, you're obviously fucking screwed, because higher housing prices and more free money for developers means your rent will keep going up as a percentage of your income, making it harder and harder to save for the larger and larger down payments required to purchase a house.

I mean, fuck reading the book - if you can understand my convoluted rant, here, you've got the point.

It's the Fed's ability to fuck with interest rates that has directly caused the broadening wealth inequality in America. Its continuous Zero Interest Rate Policy (ZIRP) allows speculators and the already wealthy to spend well beyond their means to accrue more wealth to the detriment of everyone else. It's flooded the market with risk-on consumer debt, allowing for massive credit card debt that isn't the personal failing of a generation but rather a systemic failing of extremely cheap debt for corporations. The market never has to go risk-off, because the Fed will bail them out. All these machinations don't eliminate the business cycle but rather just makes for larger and larger and more common financial calamities *cough* 2000 *cough* 2008 - that, who cares if they're actually contagious or not, result in bailouts which again accrue benefits almost exclusively to the already wealthy.

And the political bickering that even Stockman gets caught up in has nothing, really, to do with it. It all stems from the Fed.

I might try to repackage this thesis to make it penetrable.

[Christoph · Rating 1 out of 5]

It is very important to remember that economics is not a science. Although the discipline couches itself in much of the language such as developing theories, and quantifying statistics or distributions, performing analyses of all kinds, we must remember its based on a social process of (currently) fiat symbol exchange. Nothing in that base understanding lends itself to hard science. You can take any economic model you want and essentially try to gloss over the fact that this is the case, but this essential description is still the basic form. Still it is important to remember that its not a science because many of the practitioners of this art will make all the motions alluding to it being so if not outright claiming so. But again, I repeat, economics is not a science.

This doesn't by any means suggest that there is no ways to accurately model this symbol exchange and anticipate certain functions of how this process will behave given certain conditions, an accurate assessment of data, as well as the proper gathering of said data or evidence. But since its not a science, there is no golden rule or magic scroll that will work every time in every scenario.

All this is to say that David Stockman is full of shit. This former Reagan Office of Management and Budget head, and subsequent 1%'er in the quasi-hedge fund world exemplifies a very ghastly and sadly common emerging economic perspective amongst the elite: the libertarian economist. This strain of economics owing from the Austrian School married with ultra-right wing ideology has formulated a market perspective that essentially says that neo-liberalism just aint liberal enough. It really doesn't matter which economic calamity you speak of since the depression (and before, but presumably Stockman's target audience cant quite recall that far back), every single one of them leads to the Fed, or the congressional money policy, or Executive policy, or whatever you want to wrap-up in that turd burrito right-wingers call "Big Government".

If only the state didn't regulate the economy; if only they didn't collect taxes and then spend that tax money on social services and other statist policies; if only the government would stay out of the way of monied interests and corporations; if only we should be so lucky. The targets of Stockman's ire are almost innumberable: Keynes, Bretton Woods, the Fed, poor people buying homes, the SEC, JFK, Berneke, Mitt Romney, the tech industry, the Clinton Administration, the auto industry, and on and on.

This book is excruciating. For over 700 pages, we are bombarded with esoteric economic indicators in a jargonized language specifically dog-whistling a certain group using such terms as MEW/CEW (types of equity withdrawals), LBOs (Mitt Romney and Bain Capital recently made this one famous during the last election), CLO/CMOs (types of credit obligations used in swaps), to name just a few. Meanwhile Stockman's vernacular is extremely and purposefully dismissive, pompous, self-important, and antagonistic.

The real ingenuity here is taking unarguable actual events in our recent economic history and crafting nuanced narratives of them built on mostly accepted ones, or at least controversially accepted ones. Spoiler alert: it turns out that all our economic woes are the fault of poor people (but he does have such sincere pity on them), the government, the greedy middle-class, and i sense even those 1%'ers who don't tow his line (which there are probably a few, Bill Gates and Warren Buffett being two notable ones).

The bottom line is Stockman is peddling an extremist, reckless, and bleak economic message that ultimately benefits a few and suffers the masses. Mostly because this message is what many are working towards and each step contributes to all the wreckage Stockman comments on.

[Lisa Cindrich]

700+ pages...somehow I doubt strongly that I will have time for the whole thing. But so far I really am enjoying how Stockman is willing to toss well-deserved grenades in both political directions--right and left--and his very entertaining way with invective, especially toward the Federal Reserve. Suits my (sour) political mood these days.

The chapter and subheading titles have me salivating: "Days of Crony Capitalist Plunder", "The Fed's Horrid Bailout of LTCM", "Goldman and Morgan Stanley: The Last Two Predators Standing", "Willard M. Romney and the Truman Show of Bubble Finance", "The Obama Money Drop: Keynesian Folly", "The Greenspan Axion: How the Fed Gifts the 1 Percent", "Sundown in America: The State-Wreck Ahead." Looks like only Eisenhower and Ford are going to come out untarred and unfeathered from this one.

I probably need to create a new Goodreads shelf: Financial Apocalypse

[Kevin · Rating 4 out of 5]

This really is an excellent book and an amazing feat of writing in history and current events. Stockman skewers everyone - conservatives, liberals,Congress, the Fed, green energy subsidies, the auto bailout, you name it. Hit hardest are Bush, Greenspan, Bernanke, and Paulson. Only Eisenhower and a few others get praise. The book makes a compelling case that Keynesian economics and supply-side are two sides of same coin and both are killing us. Also interesting was the explanation of how the current recovery is skewed toward the wealthiest. Some scary stats. While I thought this book was great, it really needed an editor. It was 712 pages and could have been cut down to 300-400. He repeats himself too often and goes into too much detail on some specific companies who received bailouts or stimulus money.

[Kaberoi Rua · Rating 4 out of 5]

Great fiscal analysis! This book should be read by all students studying economics! A historical display on the failures of Keynesian policy and state intervention in the free market. The book is wonderful proof we should abolish the fed, restore the gold standard, and embrace Austrian Economics (https://mises.org/mises-academy)

The book exhibits crystal clear evidence that Keynesian policy and the Fed are the economics of robbers and criminals. Institutionalized plunder according Frederic Bastiat. Bernanke and Greenspan should be in prison along with the rest of the crooks in the Washington/Wall Street establishment. Greenspan an old defender of gold standard shows how easily economists/politicians are quickly bought-out and forced not to disturb the status quo.

"The state is nothing but a gang of thieves writ large" - Murray Rothbard

[Jim · Rating 1 out of 5]

I did not finish this book. I couldn't imagine a reason why I should. Author Stockman chose to not provide any footnotes, but rather mentions partial citations on the fly. He justifies this by saying, "... that is not the kind of book I was intending." Unfortunately for the reader, this gives the impression of "Thus spake Stockman". Author Stockman apparently felt no need for an editor, and as a result, he uses an abundance of polysyllabic adjectives that most of us would have to look up. Worse, he repeats this problem from paragraph A again in paragraph C, a form of redundancy that appears in this book often. Another form of redundancy is repetition of concepts, which makes the book much longer than necessary. This low rating is unusual for me, and most other reviewers rated it more highly. Perhaps it's just me. Caveat emptor, but you be the judge!

[Tim · Rating 4 out of 5]

The great Ponzi scheme a.k.a. the greed of the wealthy. Capitalism is being ruined by government bailouts of Wall St, bankers, automobile companies and at the expense of the shrinking middle class taxpayers. Mr. Stockman confirms this through his historical analytical description of the corruption of capitalism since the 1980s. Capitalism is unsustainable long term in the U.S. Its demise is inevitable and only a matter of time. I strongly recommend you read for yourself. 8 of 10 stars

[Jonathan · Rating 4 out of 5]

Never mind whether he's a gold bug. He offers a strong counter narrative, born of wide statistical command and seasoned policy experience. Ignore if you know it all.

I wish that someone with better economics knowledge than I would see how Stockman's critique of post-Bretton Woods monetary policy and the boon it has been to capital contributes or relates to Thomas Piketty's work in Capital. Perhaps there's something there.

[Mary Hartshorn · Rating 4 out of 5]

Pretty informative, and something that I had to read in increments.

[Chris Elkjar · Rating 5 out of 5]

Excellent polemic covering the history of the current US economic situation it's causes and suggested solutions. Stockman pulls no punches and doesn't hesitate to place blame on either side of the isle. This book is quite a brick and definitely lags at a few points but his overall point of promoting sound money and removing the crony capitalism epidemic sound true.

[Ryan Nunley · Rating 5 out of 5]

Amazing historical perspective of the financial history of US monetary policy. Insider view from the world of high finance.

[Tresuiri · Rating 4 out of 5]

This is an amazing book. For all the hot rhetoric in today's sharply partisan divide, it seems to me that republicans no longer hold the will or ability to govern in any effective way. This is of course, a broad high level characterization wherein there will be those who do care and can govern. I see the author in this light, he is intelligent, articulate, and has the personal history to provide us perspective. I am very grateful that he wrote this book, and has chosen to share it with us all.

Some of the most important passages in this book deal with how the top 1% of households gain their wealth, and how our democracy is failing all of us through the abuses of our government's budgets. This book doesn't deal with electoral failures, or election interference, but does deal with the financial raids on our country from crony capitalists. In the past I have wondered what this meant exactly, I appreciated the examples the author took us through in the car and medical industries. I also now have an understanding of how the voucher system is captured for crony capitalists.
I have recommended this book to everyone who will listen to me because it explains a great many things that both sides of the isle need to hear. There are a couple of suppositions that I disagree with, but one shouldn't disregard the rest of this work because of republican dogmatic positions.
There are a couple of parts of this book that I enjoyed a lot:
1) when I was reading Elizabeth Warren's books, she did not address how we as a country have come to be where we are today with the 1% getting all or most of the gains from the last recession.
2) I knew that China was pumping value out of the US economy, but I did not know how this was happening.
3) The Federal Reserve system is instituting policies that are pro financial institutions and are anti-small business and anti-labor.
4) The author levels the accusation that the destruction the value of our dollar and the abandonment of the balanced budget in favor of the pro-tax cuts at the expense of everything else is an indicator that republicans no longer are able or willing to govern the country.
This last point hits home for me because the author is writing this book not because he is a die hard republican trying to peddle dogma, but an earnest citizen alarmed by the destructive policy decisions that the party has embraced over the decades.

- Destroying the value of the dollar by abandoning the Bretton woods agreement 1971.
- Dick Cheney and the Bush administrations insistence that deficits don't matter.
- Neo Cons conducting war without paying for them out of taxes.
- When China and other Asian countries started pegging their currencies, we did nothing to counter act this.
For this last point, China has been pumping economic value out of our country for many years, and I find it very disturbing that our politicians know exactly what the problem is but are not willing take the necessary actions to rectify the problem. This country's economic woes will continue indefinitely until the China issue is addressed. This point also make a mockery of "going to war" with China. By allowing China to buy up so much of our debt, they could destroy our economy with out lifting a finger for war.

[Paul · Rating 4 out of 5]

A massive, undocumented polemic that nonetheless tells it like it is.

I hadn't heard of David Stockman until I came across an article by him on LewRockwell.com discussing American Middle East policy and actions. I was struck by his blunt, caustic, and seemingly well-informed criticism of the imperialist bungling of successive administrations. When I noted that Stockman had written a book on the history of the current economic crisis, and when I noted further that his credentials included service as a U.S. congressman and budget director in the Reagan White House, followed by a career on Wall Street, I immediately bought the book.

Now I've read it. Well, most of it: by the time I got to page 459 I was more than ready to accept that a great number of economic absurdities and injustices had resulted from misguided government policies, and skipped to the final chapter to see how it might all play out. But Stockman does not make many specific predictions about exactly what "Sundown in America" (the final chapter) will look like; rather, he alludes to "collapse," and proposes a number of steps to get America back on a financially and economically healthy course.

In essence, his book answers the question, "How did we get into this mess?" As he sees it, the roots of the problem extend back at least to 1913 with the creation of the Federal Reserve system, America's central bank. Stockman seems to have nothing against the existence of a central bank in the context of a sound-money economy, but he finds that it did not take long for the soundness of the dollar to degrade in the wake of World War I, prompting a credit boom that led to the stock-market crash of 1929. In a truly free-market economy, that crash would have been a mere blip; but in the event, the federal government under Franklin Roosevelt effectively created the Great Depression by devaluing the dollar, canceling its redeemability for gold by American citizens, and launching the behemoth of statist enterprises known as the New Deal.

Thereafter, except for a few periods of attempts at fiscal responsibility by principled leaders such as Dwight Eisenhower, the levers of power over economic policy came ever more into the hands of misguided ideologues who regarded Keynes's ideas as valid, and self-serving cynics such as Richard Nixon, willing to sacrifice everything on the altar of reelection. It was on his watch in 1971 that the system became unhinged, when the final link between the dollar and gold was severed. Since then, the American state, and along with it American society, has entered on a parabolic path of reckless borrowing and spending, a path whose final stages are playing out even now, as I type.

The dark heart of this evil system, according to the author, is the Federal Reserve, especially as it has been run by Alan Greenspan and Ben Bernanke. According to Stockman, the reckless, persistent, and unjustifiable policy of holding interest rates at close to zero has wreaked enormous damage on the American economy and on American society. And he spends hundreds of pages showing the reader exactly what this damage has been, from the dot.com bubble and collapse of the 1990s to the ensuing bubbles in capital markets and housing.

It's not a pretty picture, but it is, I'm convinced, an accurate one. The beneficiaries of these policies are not Main Street America; they are, rather, the rapacious "one percent" of Wall Street and the other crony capitalists who have a privileged relationship with lawmakers and above all with the Fed. The Fed, by reassuring "markets" that they will keep interest rates low, provide a low-risk means for Wall Street to skim enormous profits on an endless "carry trade" of borrowing cheap and lending dear. When their speculative orgy led to the crash of 2008, the Fed stepped in and bailed them out. According to Stockman, many billions of that bailout money went into the pockets of the principals of Wall Street firms.

Stockman writes with passion and authority, but his writing is too undisciplined to make the impact it should. Even though he himself describes the book as a polemic, his argument would be much stronger if it were not so larded with sarcasm, sneer-words, and hyperbole. Flipping open a page at random:

Nixon was listening almost exclusively to Connally, whose ignorance of economic history exceeded even Nixon's meager grasp.

Or how about:

In a state of feverish panic which made the Greenspan Fed after Black Monday seem like a model of deliberation, the Bernanke Fed expanded its balance sheet at a pace which sober historians someday will describe as simply berserk.

Or how about this heading in chapter 13:

Implicit Rule by Monetary Eunuchs

You get the flavor. It is candid and, to begin with, refreshing, but after a while I found it wearing on me.

Stockman's prose is also filled with economic and business jargon and slang, which means it's really only aimed at those who have a deep understanding of high finance. Few fit into that category. Worst of all for me was the author's continual use of weasel words: words and expressions intended to create the impression that proof or demonstration of the point at hand is unnecessary. If I had a dollar for every "needless to say," "it goes without saying," "most certainly," "clearly," "undoubtedly," and "self-evidently" I found in the text, I would have a tidy sum. In short, if writing style is important to you, you'll find this book to be tough sledding.

Also, there are no footnotes, although Stockman names many of his sources in a final Note on Sources at the back of the book. Admittedly, footnotes or end notes would have made this big book a lot bigger.

Those reservations aside, I'm persuaded that David Stockman has got his story right. For excellent reasons, he believes in the importance of sound (that is, gold-backed) money and is ferociously critical of Keynesian economics. But, although he was a high-ranking member of Ronald Reagan's team, he favors neither Republicans and Democrats; he feels that both parties have lost their soul in the orgy of deficit budgets and money-printing, and thinks that salvation can be found only in a constitutionally changed nonpartisan future.

For some years now I've been trying to piece together what's happened to American and world finance, why we're in this ongoing fiscal and monetary "crisis." I've read quite a few books and articles. With Stockman's book I feel I have answered that question. I know what has happened, and what is unfolding around me. It's vicious and it's sickening, but I know. For that knowledge, I'm willing to excuse Mr. Stockman's liberties of style and tone.

The author offers 13 specific policy reforms to get America out of its mess. They are sensible, and some of them will require constitutional amendments. Probably any one of them would be regarded as a political impossibility in today's climate. For that reason, I sadly conclude that the American ship of state will not make it to any riverbank before it goes over the falls.

[Joe Gangstad · Rating 5 out of 5]

Just finished ‘The Great Deformation’ by David Stockman, synthesizing his thoughts: US has undergone equivalent of LBO last 30+ yrs, outsourcing 20% of economy for $Ts of debt & windfall profits for top 1% of US, which has been masked by growth of mil-ind. complex & healthcare/Pharma via US gov. Side effects: near zero interest rates (cheap debt maintenance) have destroyed saving, no resetting of Wall St. because interest rates frozen- bubbles have to be maintained because Main St. is intertwined with it- gamblers & swindlers aren’t burnt/jailed... zombie corporations continue with massive debt that is ‘extend & pretend’ policy. Huge standing armies have enabled global US occupations (1/2 $B a day keeping LOS over Hindu Kush open). When will peak debt occur? What does the US sundown economy look like?

I had read about the Texas utility TXU & it’s LBO in ~2008 in a book by David Stockman re: corporate raid & replacement of credit with debt, & I followed its tortured financial history since. Easy to see how last winter in TX occurred.

https://www.newstatesman.com/world/20...

Looks as if they are partly now known as Oncor and the "Nebraska Cavalry" is on its way to save Texas!
https://www.texastribune.org/2021/03/...

https://en.wikipedia.org/wiki/TXU_Energy

TXU Energy..."In 2007, through a private-equity acquisition led by KKR, TPG Capital and Goldman Sachs, TXU Corporation was acquired by Energy Future Holdings Corp. (EFH).[8] TXU Energy retained its name, while TXU Power was renamed Luminant, and TXU Electric Delivery was renamed Oncor.
On April 29, 2014, Energy Future Holdings (EFH), TXU Energy’s parent company at the time, entered bankruptcy.[9] In October 2016, certain subsidiaries of EFH, including TXU Energy, Luminant and EFH’s corporate services department, emerged from reorganization in a court-approved spin-off under parent company Texas Competitive Electric Holdings (TCEH), and a new CEO, Curt Morgan, was announced. Later in 2016, TCEH changed its name to Vistra Energy.[10]"