Like Bruce Bartlett, David Stockman is another Reagan administration vet redressing the financial excesses of his boss’ team, a Good Republican feted by the Sunday morning talk show hosts whose predecessors thirty years ago regarded the wunderkind as the Rasputin behind the tax cuts and budget that decimated social services and reduced federal spending in every area unrelated to defense. He earned the wrath of movement conservatives early in his tenure as budget director when in a long interview with The Atlantic Monthly‘s William Greider he revealed that the administration not only cooked the books but didn’t believe its own budget. “Kemp-Roth was always a Trojan horse to bring down the top rate,” he admitted (Brad DeLong unraveled choice bits four year ago).
Stockman, who’s in a position to know these things, wrote a Newsweek article revealing once again the rapaciousness of Mitt Romney’s tenure at Bain Capital:
That is the modus operandi of the leveraged-buyout business, and in an honest free-market economy, there wouldn’t be much scope for it because it creates little of economic value. But 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.
So the vast outpouring of LBOs in recent decades has been the consequence of bad policy, not the product of capitalist enterprise. I know this from 17 years of experience doing leveraged buyouts at one of the pioneering private-equity houses, Blackstone, and then my own firm. I know the pitfalls of private equity. The whole business was about maximizing debt, extracting cash, cutting head counts, skimping on capital spending, outsourcing production, and dressing up the deal for the earliest, highest-profit exit possible. Occasionally, we did invest in genuine growth companies, but without cheap debt and deep tax subsidies, most deals would not make economic sense.
Rolling Stone‘s Matt Taibbi wrote a more thorough essay on the history of Bain Capital but both are essential.