Secular Café: David Stockman vs. Bain Capital (Cannibal?)

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David Stockman vs. Bain Capital (Cannibal?) Oct 19th 2012, 21:21 Republican Blows Whistle on Bain Cannibal, errr, Capital | Dispatches from the Culture Wars Quote: Growing up in the late 70s and early 80s, I remember David Stockman well. He came from very near where I lived at the time in Southwest Michigan, was our local congressman, and when he was named budget director for Ronald Reagan, he came in promising a supply side revolution. After four years on the job, he resigned and wrote a book about why the whole thing didn't work as promised. After that, he went in to private equity, the same thing Mitt Romney did, and he's now explaining why Bain Capital was a destroyer of companies rather than a saver of them... He then quoted from David Stockman: Mitt Romney and the Bain Drain - Newsweek and The Daily Beast Quote: Is Romney really a job creator? Ronald Reagan's budget director, David Stockman, takes a scalpel to the claims. Bain Capital is a product of the Great Deformation. It has garnered fabulous winnings through leveraged speculation in financial markets that have been perverted and deformed by decades of money printing and Wall Street coddling by the Fed. So Bain's billions of profits were not rewards for capitalist creation; they were mainly windfalls collected from gambling in markets that were rigged to rise. ... Except Mitt Romney was not a businessman; he was a master financial speculator who bought, sold, flipped, and stripped businesses. He did not build enterprises the old-fashioned way—out of inspiration, perspiration, and a long slog in the free market fostering a new product, service, or process of production. Instead, he spent his 15 years raising debt in prodigious amounts on Wall Street so that Bain could purchase the pots and pans and castoffs of corporate America, leverage them to the hilt, gussy them up as reborn "roll-ups," and then deliver them back to Wall Street for resale—the faster the better. Why David Stockman isn't buying it - CBS News Quote: Bernard Condon: Why are you so down on the U.S. economy? David Stockman: It's become super-saturated with debt. Typically the private and public sectors would borrow $1.50 or $1.60 each year for every $1 of GDP growth. That was the golden constant. It had been at that ratio for 100 years save for some minor squiggles during the bottom of the Depression. By the time we got to the mid-'90s, we were borrowing $3 for every $1 of GDP growth. And by the time we got to the peak in 2006 or 2007, we were actually taking on $6 of new debt to grind out $1 of new GDP. People were taking $25,000, $50,000 out of their home for the fourth refinancing. That's what was keeping the economy going, creating jobs in restaurants, creating jobs in retail, creating jobs as gardeners, creating jobs as Pilates instructors that were not supportable with organic earnings and income. It wasn't sustainable. It wasn't real consumption or real income. It was bubble economics. Then, Quote: Condon: Give me your prescription to fix the economy. Stockman: We have to eat our broccoli for a good period of time. And that means our taxes are going to go up on everybody, not just the rich. It means that we have to stop subsidizing debt by getting a sane set of people back in charge of the Fed, getting interest rates back to some kind of level that reflects the risk of holding debt over time. I think the federal funds rate ought to be 3 percent or 4 percent. (It is zero to 0.25 percent.) I mean, that's normal in an economy with inflation at 2 percent or 3 percent. Condon: Social Security? Stockman: It has to be means-tested. And Medicare needs to be means-tested. If you're a more affluent retiree, you should have your benefits cut back, pay a higher premium for Medicare. Condon: Taxes? Stockman: Let the Bush tax cuts expire. Let the capital gains go back to the same rate as ordinary income. (Capital gains are taxed at 15 percent, while ordinary income is taxed at marginal rates up to 35 percent.) Condon: Why? Stockman: Why not? I mean, is return on capital any more virtuous than some guy who's driving a bus all day and working hard and trying to support his family? You know, with capital gains, they give you this mythology. You're going to encourage a bunch of more jobs to appear. No, most of capital gains goes to speculators in real estate and other assets who basically lever up companies, lever up buildings, use the current income to pay the interest and after a holding period then sell the residual, the equity, and get it taxed at 15 percent. What's so brilliant about that?

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