David Stockman isn't right about everything (he wants to raise taxes, for example) but he's still worth paying some attention to. The Von Mises Institute recently posted his 2011 Henry Hazlitt Memorial Lecture, titled, "The End of Sound Money and the Triumph of Crony Capitalism." The full text is here. Highlights: "the carnage on Wall Street in September 2008 was the inevitable crash of a 40-year financial bubble spawned by the Fed after Nixon closed the gold window in August 1971....faced with the collapse of their own handiwork, Washington panicked and joined the Fed in unleashing an indiscriminate bailout capitalism that has now thoroughly corrupted the halls of government, even as it has become a debilitating blight on the free market."
He's got a whole section in there on GE Capital's role in the financial crisis, including a reference to GE CEO Jeffrey Immelt as "the nation's number one crony capitalist."
Mr. Stockman, who was President Reagan's budget director, also gave an interview to Nick Gillespie for the April 2011 issue of Reason magazine:
Stockman: ...Paulson frankly is the most incompetent, reckless secretary of the treasury that we've had in modern history, if ever. He had no schooling in public policy, he had no schooling in the longer-term issues of fiscal management, or even what sound money is all about, for crying out loud! And as a result, as the crisis metastasized in September and October 2008 and he got all these panicked calls from his buddies on Wall Street who were seeing their pyramids of debt coming crashing down, and particularly when the stock of Goldman Sachs started to plunge, he panicked. There was no philosophy behind it; there was never an analysis done. This whole idea that there was systemic risk was purely made up by people who were looking for ways to meddle in the economy.
reason: Should the Fed—or the feds, or any portion of the federal government—have bailed out Bear Stearns, Lehman Brothers, Goldman Sachs, or GM? Do bailouts at any point make sense?
Stockman: No. I think absolutely not. The fundamental principle of free market capitalism is that you have to be free to succeed as well as fail. That when you go in the opposite direction and socialize losses and privatize gains, you will destroy the system because of moral hazard and the encouragement of reckless risk taking, misallocation of capital.
You can't say enough about it in terms of the harm that it would do economically. But there is a bigger harm, and it's the harm politically. Once the broader public sees that the cronies of capitalism are bailed out by their friends in Washington or the Fed, why should they believe that the system we have is fair or is working in their interest? It's just politicizing even further the economy and suffocating the only hope that we have for real prosperity, which is free enterprise, neither supported nor hindered by the government and its central banking branch.
