David Stockman on Crony Capitalism
Friday, January 27, 2012 at 6:00AM David Stockman on Crony Capitalism from BillMoyers.com on Vimeo.
Moyers is inaccurate in his introduction. He confuses tax rates with taxes. This is a common error. The amount of taxes that the wealthy paid went up even though the marginal tax rate went down. Taxes rates went down for everyone, not just the wealthy.
Here is an excerpt from the interview:
BILL MOYERS: What do you mean by the free money that banks are using overnight?
Well, by that we mean when the Fed, the Federal Reserve sets the so-called federal funds rate at ten basis points, where it is today, that more or less guarantees banks can go into the Fed window, the discount window, and borrow at ten basis points.
And then you take that money and you buy a government bond that is yielding two percent or three percent. Or buy some corporate bonds that are yielding five percent. Or if you want to really get aggressive, buy some Australian dollars that have been going up. Or buy some cotton futures. And this is really what has been going on in our markets.
The cheap funding, which is guaranteed by the Fed, the investment of that cheap funding into speculative assets and then pocketing the spread. And you can make huge amounts of money as long as the music doesn't stop. And when the music stops then all of a sudden, the cheap, overnight money dries up. This is what's happening in Europe today. This is what happened in 2008.
And then people are stuck with all these risky assets, and they can't fund them. They owe cash to the people they borrowed overnight from or on a weekly basis. That's what creates the so-called contagion. That's what creates the downward spiral. Now, unless we let those burn out, it'll be done over and over. In other words, if, you know, if a lesson isn't learned, then the error will be repeated over and over.
Reader Comments (1)
The only thing worse than crony capitalism is crony communism.
Eddie H. Nessul
Amboy , California
(Read Names Backwards!)