Friday, May 10, 2013

The Most Important Book Coming Out of the Financial Crisis

Well, I have never done this before, stopped to post and call a book must reading after just reading two chapters in a book. Chapters which I have read many weeks apart.

During my speech on the true causes of the collapse of the Soviet Union,  I mentioned Chapter 5, The Triumph of the Warfare State,  in David Stockman's new book, The Great Deformation: The Corruption of Capitalism in America.

Before the speech, I read that chapter of the book, but only that chapter. I thought the chapter was very important in presenting what was really going on during the Reagan defense build-up. Stockman correctly pointed out that a burgeoning Soviet threat was a myth and that the U.S. military build-up was not in any way a challenge to the Soviet Union. Stockman wrote:
What got built with the $1,46 trillion Reagan budget was a conventional war-making capacity and force projection ability that the only military expert to occupy the White House in the twentieth century, Dewight Eisenhower, had rejected as of marginal  value against a nuclear adversary.[...]Yet that's exactly what the Reagan top line bought: an occupation force which would have left General Eisenhower rolling in his grave.
It's a great chapter, but only now have I had a chance to sit down and begin to read the entire book. I have only read the introduction and the first chapter, but I must put out this post and declare that the book appears to be the most important book coming out of the financial crisis. In that first chapter, Stockman totally demolishes the myth that, if the big Wall Street banks were not saved, systemic risk would have taken down the entire U.S. economy.

He goes in detail explaining why the collapse of AIG would not have resulted in the collapse of the insurance companies held by the AIG holding company. And, he blows to pieces the earlier Alan Greenspan panicked cutting of interest rates and arrangement for a Wall Street subscribed bailout of Long Term Capital Management. Stockman slices and dices the crony parts of Wall Street and its connections to crony government in a manner, and with details, that I have not seen done before.

Read the first chapter of Stockman's book and you will understand more about recent Wall Street bailouts, than pretty much anyone else. I'll have a full review of the 743 page book when I finish reading it. But Stockman has hit the ball out of the park with that first chapter. At a minimum that chapter and chapter 5 are must reading.


Okay, I am now into chapter 2. Get a load of this. Stockman correctly writes, and I have not seen it written anywhere before, that if Morgan Stanley and Goldman Sachs had gone bankrupt:
Their bankruptcy would have resulted in no measurable harm to the Main Street economy, and possibly some gain. It would have brought the curtains down on a generation of Wall Street speculators and sent them packing in disgrace and amid massive personal losses---the only possible way to end the current repugnant regime of crony capitalist domination of the nation's central bank.[...] The preponderance of their fabled profitability[...]was generated by massive trading operations which scalped spreads from elephantine balance sheets that were preposterously leveraged (30 to 1) but also dangerously dependent upon volatile short-term funding to carry their assets. Indeed, perched on a foundation of several hundreds of billions in debt and equity capital, those firms had become voracious consumers of "wholesale" money market funds, mainly short-term "repo" loans and unsecured commercial paper. From these sources, they had erected trillion-dollar financial towers of hot-money speculation.   
It is no wonder mainstream establishment is only giving this book lukewarm coverage. It is speaking truth to the establishment and the banksters who control it.



  1. You just convinced me to buy the book.

  2. Yeah, I've only read, so far, the intro and 1st chapter. It's a big book! The downside of this book is that it will be read little. The upside it's cheap to buy, considering how valuable it is.

    I'm not a very economically savvy person nor did I go to school for economics or financial stuff. I'm not knowledgeable like the experts about the inner workings of finance or economics. However, after reading the first chapter of this book, I do feel way more informed (and smarter, I felt brain cells multiplying). Beyond just the basic libertarian principles and the fiscal-conservative mantras, I understand now why the bailouts are significant to the taxpayers, and that the banks and Wallstreet's actions and need for reconciliation was not all that significant. Mr. Wenzel is right the first chapter is a load of information, and I agree that I already know more than most. 700 pages to go - I just wonder how much more information there is.

    Of course it will help to look up terms while reading the book. Doing so will better help to understand what Stockman is talking about. This is not just an important book for the economic information but historically important. For the historical information alone is an important reason to read this book. With its great details, it should be a staple to what has happened here. Don't let the liars take over history. Never forget.

  3. I agree. my opinion Great book. I especially like his chapter CEW. Using low-cost debt, companies increased earnings per share through LBO, M&A and stock but backs. The new treasury stock was then issued as stock options and the increased stock price due to p/e multiples allowed execs to move shareholder equity on to there own balance sheet by exercising the options.

  4. You make me willing to buy this book..!
    Yeah, the features you defines are great and i hope it will help me alot..!
    Thanks for giving this wonderful idea.