Davin Stockman on Crony Capitalism

[Musburger]

Just finished watching the Stockman interview on Crony Capitalism. Stockman gave the most lucid description of Crony Capitalism I've heard to date.

I'd highly recommend the viewing as Crony Capitalism, in David Stockman's opinion (and I agree with him) is now the dominant force in America's economic system. Stockman briefly takes us through the origins of Crony Capitalism citing the Mexican bailout in '94, the LTCM bailout in '98, the Treasury bailout of 2008, Obama's selection of the architects to retain key roles, including players Geithner, Summers, and GE's Imelt.

Below is the link if interested. It's a 33 minute interview. Stockman begins 4 minutes into the interview after the introduction.

billmoyers.com/segment/david-stockman-on-crony-capitalism/

 

[Monahorns]

Great interview. Wish more people would listen to David Stockman.

 

[Crockett]

Stockman is not a "team player" meaning that if the established party dogma is looks and smells like ********, he'll call it ********. A guy like that has a future as a writer, but not much of one in politics.

 

[UT1986]

Thanks for the post Musburger. Candid interview there. I guess the trillion dollar question is how do we remove the "crony" out of capitalism and move back in the direction to which the Founding Fathers envisioned for the US? What we have now certainly isn't it.

 

[huisache]

The capitalism we used to have or wished to have is long gone and not coming back. The globalisation of capital has rendered the old ways obsolete.

Governments no longer have much control over the markets and they are going to have less. Greece and the others are just the most obvious situations. We can't devise protectionist tools to insulate ourselves because others will step into the markets we cut ourselves off from when we do. China is doing that bigtime and that is only the most obvious example.

The ability of any nation's government to actually control anything is diminishing. That is not to say that they cannot mess up their own economies or others in attempting to do so, merely that they cannot do so effectively to the extent they could formerly.

AIG got bailed out because every other business in the country might have been left bare if their insurance policies were in the hands of a receiver of some sort.. Talk about messing up your planning. AIG is all over the world but too big in the US to allow to fail. Sooooo...........

There is a prof at the UT law school who wrote a very long and very interesting book about the emerging world a few years back that resonates louder and louder with every headline. I think his name was Bobbitt or Babbitt and while his prose style was dense as kelp, his thinking was pretty astute.

 

[UT1986]

"AIG got bailed out because every other business in the country might have been left bare if their insurance policies were in the hands of a receiver of some sort.. Talk about messing up your planning. AIG is all over the world but too big in the US to allow to fail." <<<This is a myth perpetuated by Hank Paulson, the investment banking community, and convinced Congress to believe this to be the case also, when in fact it wasn't true. I'll respond at a later time to show why this is the case.

 

[Musburger]

The majority of the bailout paid to AIG was then back-doored to banking creditors such as Goldman and Deutsche Bank that purchased CDS through AIG. Treasury tried to keep that part secret but failed. Treasury should have told AIG to go to hell, but instead took the money from the public to payoff the banks using AIG as a conduit. This of course was one of many gifts to the banks which enabled them to pay back the TARP loans.

 

[huisache]

look forward to UT's explanation but while waiting I would suggest that while the beneficiaries may have been others, the losers would have been all over the place.

I used to handle cases for AIG and know a bit about them. They are international and have an enormous book of business in the US. Scores of thousands of companies are insured by them. Try to imagine the havoc if all of a sudden they are in receivership. None of those scores of thousands of companies have coverage under their business liability policies. They are all bare in those circumstances. That is a disaster for the companies because all of a sudden their assets are at risk in lawsuits they are involved in. Their credit worthiness is in doubt. They can't borrow money. They can't plan for expansion or take on new business that requires putting money on the table, etc. It is a giant CF.

The court which gets them in receivership is inundated with cases it cannot possibly understand.

The disaster that ensues for all these companies is beyond dealing with.

I am not a fan of AIG. But there was no way that company could be allowed to go into receivership. It was too big to fail not because of its own existance but because of the tsunami such a collapse would cause for its thousands of insureds.

Corporations and partnerships and other business entities cannot as a rule self insure; that is why insurance companies assume risks and the danger is spread around.

A company which is covering so many risks at such a volume cannot just disappear or you get chaos.

If there is anybody from the risk industry who disagrees with my reading of the situation I would like to hear their opinions.

 

[Bronco]

Huisache is pretty spot on in his analysis. In addition to liability issues that he addressed, there was actually greater risk from the propoerty/casualty and work comp side of things. Hundreds of thousands of busineses are insured through AIG. Thousands of businesses have loans with thousands of financial institutions with their buildings/plants/equipment/inventory/vehicles etc as collateral. Imagine the chaos if their insurance was insolvenet and the losses keep coming. AIG probably gets over a thousand claims a day filed in the US in some capacity. It would take many, many months to figure out the ramifications of an AIG insolvency and that would mean potentially hundreds of thousands of claims that would go potentially unpaid.

Further, if the banks could not collect on the insurance vehicles that AIG was wrirting, the banks would sue all of the various entities that owed them money. They would have bankrupted a ton of businesses in the process.

For certain, AIG was involved in some legal but increadibly risky positions. They should have been scrutinized much more closely.

The real sinister factor in all of this that the article doesnt really get into is the role of the Freddies. Ultimatel all of the risk makes it way back to them. They would be insolvent, almost over night and they hold trillions of debt. I think the govt would rather bail out AIG on the front end so that they had a bogey man to lash out at and they could continue to deflect blame from the Freddies.

In any event, the govt waseither going to bail out the Freddies or bail out AIG. They chose AIG for a lot of reasons but the money was going to be the same either way. At least with AIG, there is still a chance that the money gets repaid.

 

[boon]

capitalism, like any economic system, is inherently cronyistic. it is a matter of degree, and the degree of the cronyism is inversely proportional to the integrity of those who govern and the authority they possess.