Trashing Obama's Economic Team

by Lloyd Grove

Reagan White House budget guru David Stockman talks to Lloyd Grove about the dangers of ignoring the deficit, why Bernanke, Geithner and Summers must be fired ASAP – and his support for Ron Paul.

Federal Reserve Chairman Ben Bernanke “is a math teacher, he’s not a central banker,” former White House Budget Director David Stockman scoffs. “He is so caught up in his equations that I think he’s extremely dangerous – the worst Fed chairman we’ve ever had.”

In the flat, dry accents of the Michigan farm boy he once was, Stockman tells me: “How can he believe that stimulating more credit creation and more borrowing can possibly solve the problem of a housing sector that’s drowning in debt and a federal government that’s on the edge of insolvency?…

“He is the greatest enabler of Wall Street speculation and of the disasters that brewed both before the financial crisis of 2008 and are brewing again, and I would blame the Bush White House. I would lay this right at the doorstep of Karl Rove. How did they vet the appointment of a new Fed chairman and not even read the black-and-white writings of this Bernanke fellow who said, ‘If push comes to shove, I’ll print money until the cows come home. I’ll drop it out of helicopters!’ This is Republican doctrine? This is sound money?” Stockman concludes: “The Wall Street casino is simply a consequence of what Bernanke is doing, and for that alone, he should be removed from office.”

As Stockman explains why Bernanke should be fired immediately – along with Treasury Secretary Timothy Geithner and President Obama’s chief economic adviser, Larry Summers – he sips a cappuccino at The Little Nell bar in Aspen, Colorado, site of the Aspen Institute’s weeklong Ideas Festival, which ended on Sunday.

“Summers,” Stockman continues, dispatching his next victim, “has had in his whole life only one idea – and it’s wrong. The idea is: No matter what state we are in the cycle – you’re entering a recession, coming out of the recession or facing one down the road – stimulate the economy, add to the federal debt, basically borrow from the future in order to create false gains today.”

As for Geithner, “he has basically been a bag carrier for Wall Street – in fact, his shoulders are a little stooped,” Stockman says. “I don’t think he’s really fit to occupy the office he’s in. He has no real philosophy. I don’t see any evidence that he’s understood financial history or public policy going back decades and decades. It’s all seat-of-the-pants, make judgments on the fly: Try something, and if it doesn’t work, try something else…He might make a third-rate investment banker, but he certainly shouldn’t be Secretary of the Treasury.”

The other patrons pay no attention to the silver-haired gadfly at the corner table who’s making smart remarks about the powers that be. At 63 – casually dressed in a dark patterned shirt that is draped over his belt to conceal his spreading belly – Stockman looks like any of the other wealthy senior citizens who populate this posh resort town.

But he was, in his day, President Reagan’s “boy wonder” and fiscal hatchet man, the most famous (or infamous, depending on your outlook) budget director in American history. In the notorious episode that prompted an angry Reagan to “take him to the woodshed,” as the encounter was spun at the time, Stockman confided his misgivings about an intellectually dishonest, politically corrupt federal budget process to William Greider in The Atlantic Monthly. "None of us really understands what's going on with all these numbers," Stockman told Greider in 1981 – an utterance so refreshing and unprecedented, coming as it did from a top government official, that a Washington, D.C., dance company presented an avant-garde ballet inspired by Stockman’s truth-telling.

Since leaving government and politics in the mid-1980s, he has made millions as an investment banker – he was a founding partner, with Steve Schwartzman and Pete Peterson, of the Blackstone Group – and later became the target of Justice Department and Securities and Exchange Commission investigations into what the government alleged was his fraudulent stewardship of a failed auto parts company. Criminal charges were dropped last year for lack of evidence, and a few months ago Stockman settled the SEC’s civil suit by paying $7.19 million in penalties and fines.

“It wasn’t a pleasant experience, but I also knew what the facts were,” Stockman tells me.

Does he believe he was targeted because of his celebrity?

“It’s very hard to figure out how they pick and choose their cases,” he answers. “I’m just glad to have all this over – to have the Justice Department drop the case because they realized they couldn’t defend it, and to have the SEC drop most of the charges they made. I’m not going to second-guess why they got involved, but after tens of millions of pages of documents and two or three years of investigation and millions of dollars of legal expenses, both the SEC and the Justice Department ended up dropping the case. That says something.”

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July 13, 2010

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