David Stockman Hammers Mitt Romney

Former Reagan budget director is no fan of the way Mitt Romney made money.

Except Mitt Romney was not a businessman; he was a master financial speculator who bought, sold, flipped, and stripped businesses. He did not build enterprises the old-fashioned way—out of inspiration, perspiration, and a long slog in the free market fostering a new product, service, or process of production. Instead, he spent his 15 years raising debt in prodigious amounts on Wall Street so that Bain could purchase the pots and pans and castoffs of corporate America, leverage them to the hilt, gussy them up as reborn “roll-ups,” and then deliver them back to Wall Street for resale—the faster the better.

There is a great scene in Wall Street where Gordon Gekko tells Budd Fox that he makes nothing. Yet is very rich.

Gordon Gekko: The Richest 1 percent of this country owns half our country's wealth. $5 trillion. one-third of that comes from hard work, two-thirds comes from inheritance, interest on interest accumulated, widows and idiot sons, and what I do, stock and real estate speculation. It's bullshit.

Gekko: You got 90 percent of the American public out there with little or no net worth. I create nothing. I own. We make the rules pal.

Stockman says the system that Gekko talks about and Romney profits from is corrupt. Stockman should know because he was in the leverage buyout business.

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.

Don't believe Mitt Romney's campaign rhetoric about him being a job creator.