David Stockman: We've Been Lied To, Robbed, and Misled

Then, when the Fed’s fire hoses started spraying an elephant soup of liquidity injections in every direction and its balance sheet grew by $1.3 trillion in just thirteen weeks compared to $850 billion during its first ninety-four years, I became convinced that the Fed was flying by the seat of its pants, making it up as it went along. It was evident that its aim was to stop the hissy fit on Wall Street and that the thread of a Great Depression 2.0 was just a cover story for a panicked spree of money printing that exceeded any other episode in recorded human history.

David Stockman, The Great Deformation

David Stockman, former director of the OMB under President Reagan, former US Representative, and veteran financier is an insider's insider. Few people understand the ways in which both Washington DC and Wall Street work and intersect better than he does.

In his upcoming book, The Great Deformation: The Corruption of Capitalism in America, Stockman lays out how we have devolved from a free market economy into a managed one that operates for the benefit of a privileged few. And when trouble arises, these few are bailed out at the expense of the public good.

By manipulating the price of money through sustained and historically low interest rates, Greenspan and Bernanke created an era of asset mis-pricing that inevitably would need to correct.  And when market forces attempted to do so in 2008, Paulson et al hoodwinked the world into believing the repercussions would be so calamitous for all that the institutions responsible for the bad actions that instigated the problem needed to be rescued -- in full -- at all costs. 

Of course, history shows that our markets and economy would have been better off had the system been allowed to correct. Most of the "too big to fail" institutions would have survived or been broken into smaller, more resilient, entities. For those that would have failed, smaller, more responsible banks would have stepped up to replace them - as happens as part of the natural course of a free market system:

Essentially there was a cleansing run on the wholesale funding market in the canyons of Wall Street going on. It would have worked its will, just like JP Morgan allowed it to happen in 1907 when we did not have the Fed getting in the way. Because they stopped it in its tracks after the AIG bailout and then all the alphabet soup of different lines that the Fed threw out, and then the enactment of TARP, the last two investment banks standing were rescued, Goldman and Morgan [Stanley], and they should not have been. As a result of being rescued and having the cleansing liquidation of rotten balance sheets stopped, within a few weeks and certainly months they were back to the same old games, such that Goldman Sachs got $10 billion dollars for the fiscal year that started three months later after that check went out, which was October 2008. For the fiscal 2009 year, Goldman Sachs generated what I call a $29 billion surplus – $13 billion of net income after tax, and on top of that $16 billion of salaries and bonuses, 95% of it which was bonuses.

Therefore, the idea that they were on death’s door does not stack up. Even if they had been, it would not make any difference to the health of the financial system. These firms are supposed to come and go, and if people make really bad bets, if they have a trillion dollar balance sheet with six, seven, eight hundred billion dollars worth of hot-money short-term funding, then they ought to take their just reward, because it would create lessons, it would create discipline. So all the new firms that would have been formed out of the remnants of Goldman Sachs where everybody lost their stock values – which for most of these partners is tens of millions, hundreds of millions – when they formed a new firm, I doubt whether they would have gone back to the old game. What happened was the Fed stopped everything in its tracks, kept Goldman Sachs intact, the reckless Goldman Sachs and the reckless Morgan Stanley, everyone quickly recovered their stock value and the game continues. This is one of the evils that comes from this kind of deep intervention in the capital and money markets.

Stockman's anger at the unnecessary and unfair capital transfer from taxpayer to TBTF bank is matched only by his concern that, even with those bailouts, the banking system is still unacceptably vulnerable to a repeat of the same crime:

The banks quickly worked out their solvency issues because the Fed basically took it out of the hides of Main Street savers and depositors throughout America. When the Fed panicked, it basically destroyed the free-market interest rate – you cannot have capitalism, you cannot have healthy financial markets without an interest rate, which is the price of money, the price of capital that can freely measure and reflect risk and true economic prospects.

Well, once you basically unplug the pricing mechanism of a capital market and make it entirely an administered rate by the Fed, you are going to cause all kinds of deformations as I call them, or mal-investments as some of the Austrians used to call them, that basically pollutes and corrupts the system. Look at the deposit rate right now, it is 50 basis points, maybe 40, for six months. As a result of that, probably $400-500 billion a year is being transferred as a fiscal maneuver by the Fed from savers to the banks. They are collecting the spread, they've then booked the profits, they've rebuilt their book net worth, and they paid back the TARP basically out of what was thieved from the savers of America.

Now they go down and pound the table and whine and pout like JP Morgan and the rest of them, you have to let us do stock buy backs, you have to let us pay out dividends so we can ramp our stock and collect our stock option winnings. It is outrageous that the authorities, after the so-called “near death experience" of 2008 and this massive fiscal safety net and monetary safety net was put out there, is allowing them to pay dividends and to go into the market and buy back their stock. They should be under house arrest in a sense that every dime they are making from this artificial yield group being delivered by the Fed out of the hides of savers should be put on their balance sheet to build up retained earnings, to build up a cushion. I do not care whether it is fifteen or twenty or twenty-five percent common equity and retained earnings-to-assets or not, that is what we should be doing if we are going to protect the system from another raid by these people the next time we get a meltdown, which can happen at any time.

You can see why I talk about corruption, why crony capitalism is so bad. I mean, the Basel capital standards, they are a joke. We are just allowing the banks to go back into the same old game they were playing before. Everybody said the banks in late 2007 were the greatest thing since sliced bread. The market cap of the ten largest banks in America, including from Bear Stearns all the way to Citibank and JP Morgan and Goldman and so forth, was $1.25 trillion. That was up thirty times from where the predecessors of those institutions had been. Only in 1987, when Greenspan took over and began the era of bubble finance – slowly at first then rapidly, eventually, to have the market cap grow thirty times – and then on the eve of the great meltdown see the $1.25 trillion to market cap disappear, vanish, vaporize in panic in September 2008. Only a few months later, $1 trillion of that market cap disappeared in to the abyss and panic, and Bear Stearns is going down, and all the rest.

This tells you the system is dramatically unstable. In a healthy financial system and a free capital market, if I can put it that way, you are not going to have stuff going from nowhere to @1.2 trillion and then back to a trillion practically at the drop of a hat. That is instability; that is a case of a medicated market that is essentially very dangerous and is one of the many adverse consequences and deformations that result from the central-bank dominated, corrupt monetary system that has slowly built up ever since Nixon closed the gold window, but really as I say in my book, going back to 1933 in April when Roosevelt took all the private gold. So we are in a big dead-end trap, and they are digging deeper every time you get a new maneuver.

Click the play button below to listen to Chris' interview with David Stockman (56m:33s):

This is a companion discussion topic for the original entry at https://peakprosperity.com/david-stockman-weve-been-lied-to-robbed-and-misled/

That's all I can say.
Congrats on the interview.

Somehow i get the feeling that confidence loss in the banking system is completely on purpose (since it originated from the world bank/IMF).  Theyll steal all they can with their current truely derivative bankrupted outlets, while the central banks buy up all the gold they can. They will run off the remaining stable governments and bring them to their knees with targeted economic terrorism like they have done with so many others before them, making them dependant on the IMF.Then they will come out with a world currency (Hinted by the IMF a little while back) which will be backed by all the gold they stole and expect everyone to "trust them" with promises of unlimited insurance and stability.
Taking that offer, you might as well put the chains on yourself.

Thank you David Stockman for the clear summary and bold insight.  Chris:  Great interview.  I am encouraged to see the real story surfacing in the mainstream media.  It's a good sign.



chris, great interview. however, im surprised you didnt ask the questions many of us wanted to hear…where should we be putting our money? does stockman believe a bond collapse would reset all prices, including that of gold? what does he think of keeping physical cash outside the system in the event of a bond collapse? how does he see the reset affecting the banking system? what desperate measures does he anticipate congress taking, and how should americans be preparing for it??

I find this all very upsetting. Now I have been hearing the latest meme shoved out in front of us by the main stream media.  SIFI Systemically important financial institutions! Systemically important to who…LLoyd Blankfien, Jamie Dimon? Bought off politicians!
How about they mention these memes


GATO   Government assisted theft operations

BCGP   Banks causing global poverty

EBFD   Enslavement by frauduland debt.

WSYM  Were stealing your money

Oh and this one…Which is troubling me the most.

NYDA  Nothing you can do about it


I'm just wondering if there ever is going to be a line in the sand for many of us.

This was an excellent interview that brought many things into good focus.  I was so amazed to read the similar Sunday New York-Krugman Times editorial by Mr. Stockman today and the horrible comments engendered.  Lol.  It really is hopeless because most people seem unwilling to accept the obvious.  Everything financial will melt/dissolve/oxidize/vaporize, which leads to the Very Important Question Left Out presented by the comment above:  But this question is answered often and clearly already in CM's peak prosperity site and other places such as Chris Duane's site:
ANSWER:  Forget anything paper (if its not for your butt!) and trade it all for PM, tools, skill sets, etc  for the new paradigm.  Each person should learn to generate wealth on the local level and get with it by developing strong skills while we have time.  At Chris Duane's silver shield site, we have itemized these areas and have initially tried to take the next step as a larger group (didnt work).  Instead we realized to focus on local communities, the new paradigm… and everything we can do with our cash to produce vibrant local communities that generate their own energy and food and something else to trade, is the answer to the Very Important Question Left Out. 
Specifics to the Answer to the VIQLO will vary with each individual because each person's immediate surroundings and talent for skills will vary.  We need to spend more time with our local friends and in preparation and less time in the seductive wasteland of internet chit chat crap.   The new paradigm is waiting and we should apply our paper wealth, our time and energy to building our wealth producing communities now.

In the end there will only be one currency: Energy.
backed up by Real KWH from renewable sources like solar panels, hydroelectric, wind turbines and good old people power.

Gold is only useful when energy is plentiful. Gold isnt even in yet and already its doomed to fail, just like all banks, bitcoin and everything else they dream up so they can steal what they really want.

your land.


Chris, what an extraordinary interview with David Stockman!  Congratulations to you and Adam for both the interview, and for helping to "up" the national level of dialogue and awareness.
David, great interview!  I can't wait to check out your book.  

Also, thank you for your contribution.  There are not many people with your level of insight and knowledge into these issues, who also have your credentials and high-level of name-recognition. Because of that, I think your book has huge potential to help awareness and understanding of these issues "cross over"  into mainstream discussion.   Well done!


This article was linked to from Drudge Report via Business Insider:


A very well educated friend has known my position on Precious Metals and my Austrian views for the last 5 years, and has never seen the light until he read the Stockman article yesterday. He emailed me saying that he cashed out some of his IRA today. Also my wife who indulges me by listening to podcasts while we drive, was totally captivated by Chris's interview. She mentioned how she has always respected David Stockman. This is going to wake up lots of folks.
Great interview Chris. Thanks 

S&P 500 lifetime chart 
This is the S&P chart that'll keep you up at night.  The dot com bubble (DCB), the housing bubble (HB), and the sovereign bond bubble (MOAB)…

[quote=goldrunner1]I find this all very upsetting. Now I have been hearing the latest meme shoved out in front of us by the main stream media.  SIFI Systemically important financial institutions! Systemically important to who…LLoyd Blankfien, Jamie Dimon? Bought off politicians!
How about they mention these memes
GATO   Government assisted theft operations
BCGP   Banks causing global poverty
EBFD   Enslavement by frauduland debt.
WSYM  Were stealing your money
Oh and this one…Which is troubling me the most.
NYDA  Nothing you can do about it
I'm just wondering if there ever is going to be a line in the sand for many of us.
Don't forget MOAB - the Mother Of All Bubbles being inflated…

Chris, David Stockman,
Thank you for my nomination for "Best Podcast of the Year".  David Stockman demonstrates deep knowledge about how the present financial mess came to be and is being propagated.  He speaks clearly and directly about the problems and root causes.  I am grateful for his plain-speaking, harsh though it may be.  I will be buying and reading the book (I don't buy many).

There are so many clearly disasterous paths Mr. Obama and elected representatives in America are pursuing.   Healthcare disasters, education disasters, small business disasters.  Why we seem to elect some of the worst people in our country, is hard to explain.

I had a brief moment of clarity while listening to Mr. Stockman and Chris.  Maybe some of the PPers have had the same thoughts.

 It came on the heels of reading a watershed article by Jim Willie (AKA the Golden Jackass) about the demise of the USD as world reserve currency entitled "USDollar: Ring-Fenced and Checkmate (provocative reading- http://news.goldseek.com/GoldenJackass/1364601600.php), David Morgan (among other precious metals trader) at TFMetals report, and several recent haunting zerohedge articles by Cognitive Dissonance about thecollective social psychological 'disease' that we are experiencing ("Not a Collapse, But a Crumble").

The Great Global Dysfunction is like the story of the blind men and the camel (or elephant according to some texts http://en.wikipedia.org/wiki/Blind_men_and_an_elephant).  Let me preface that I don't intend to analagize these very thoughtful posters with blind men.  If you remember, The analogy is that the Great Dysfunction is so big and multi-faceted that in order to fully comprehend it, we need to integrate the descriptions from several experts on specific areas.  David Stockman- banking and money supply, Jim Willie- USD dynamics from a world perspectives, David Morgan- Precious Metals market, for starters.  Each expert is giving us their view of how the camel "feels", with great accuracy. 

But the reality is that each part of the camel is connected to the whole, and plays into how the camel functions.  The hope is that putting the pieces together provides a functional view that is greater than the sum of the parts, to make better investment and family decisions.



I think you got it.

Hrunner, thanks for pointing out the Jim Willie article and linking to it.  I find his articles interesting, and had not yet spotted this one.  It is hard to know how well-grounded some of his opinions are because we don't know all his sources (understandably) or how reliable they are.  But even taking that into account, and treating his views as "potentially true"  vs facts, I find the perspectives and insights he provides…well, interesting!  If nothing else, they provide a "theory" for what may be going on, that we can then assess for ourselves.

And just to clarify, I take things Jim Willie says "under advisement", just like all information, which needs to be vetted, tested, confirmed, poked and prodded at a bit.However eccentric Jim Willie sounds at times (and I do have trouble with several of his side alleys of constructs), some things I think are are true- 1) he is extremely bright and has a mathematical-analytical type of mind that is seemingly always computing ways to connect dots- see recent discussions about the exclusion of the US in a Eurasian trade zone and new BRICS Development Bank as an example,  2) he does seem to have well-placed sources- though we should be careful here, going back to my camel analogy in that his source are giving us just their anatomical part to the camel.
I find his thoughts more than 'interesting' in that he is putting meat on the bones of a future that makes sense based on current facts on the ground and logic.  To wit:
Fact- The U.S. has badly managed their fiduciary duty to maintain the stability of the world's reserve currency, for the purposes of mainly running up huge government debts and unfunded liabilities.
Fact-  The export of USD and money supply is increasing inflation for ex-US countries and causing big headaches for officials and citizens in the form of inflation, not to mention giving said countries a reason to be angry for an unfair advantage of being able to print thin air dollars to buy real goods and services.
Fact- It is totally logical for countries with human capital, natural resources, manufacturing capabilities among other positives to want to foster a system that they deem more fair.
These facts and logic I could come to on my own research, without Jim Willie.  Jim Willie is proposing an actual mechanism based on sources and information I don't have, and I appreciate having a bit of lead time and a concrete proposal to chew on.


I really enjoyed reading the Schiff article that you linked.  I didn't enjoy everything about Schiff's latest book, but I really respect him for being one of the highest profile critics of the housing bubble and one of the few who called the crash.


Instead, America, according to Stockman, is in "end-stage metastasis." The nation "is broke -- fiscally, morally, intellectually."-article


 Reagan's boy wonder was at a book signing in Aspen this week and many people there were in agreement with Stockman.   He railed against the war economy and the MIC.


 It was ironic that it was Aspen since the billionaire Chicago family that owns the company that owns the company town and the Aspen Institute are  heavily invested in General Dynamics.   


I hope David talks some sense into our local warlords, otherwise the result will be more bullying of our town by the billionaire mafiosa familia de Crown:  http://www.aspentimes.com/article/20121213/NEWS/121219954&mode=comments