Unlike mortgage equity withdrawal by households, where the cash windfall was distributed across the middle class, corporate equity withdrawal through buybacks, buyouts, and takeovers resulted in cash distributions to the very top of the economic ladder. Financial engineering: the ATM of the prosperous classes!
“The Fed should have been embarrassed by the M&A frenzy,” writes David Stockman. Tyco CEO Dennis Kozlowski, Wall Street’s favorite deal maker, put “the rest of the corporate deal junkies to shame.” But “the poster boy for Greenspan’s first stock market bubble and its sudden, violent demise was a wake-up call that was wholly ignored.”
“The Wall Street coddling monetary régime” that Greenspan institutionalized “deeply transformed M&A,” writes David Stockman. It turned a corporate business strategy into “an all-encompassing mechanism for speculative finance” that executives used to build “empires with apparent, if unsustainable, earnings growth” that ended in “spectacular crash landings.”
“One of the great ironies of the Greenspan bubbles” was that his free market convictions enabled the Fed to drift “irreversibly into its eventual submission to the Cramerite intimidation,” wrote David Stockman. It turned “a blind eye to lunatic speculations in the stock market, dismissing them as the exuberances of capitalist boys and girls playing too hard.
“All of the checks and balances which ordinarily discipline the free market in money instruments and capital securities were being eviscerated by the Fed’s actions,” wrote David Stockman. “This kind of central bank action has pernicious consequences, however.”
“The market had been taken over by white-collar financial hoodlums who needed a trading fix every day,” writes David Stockman, Director of the OMB under President Reagan. “These punters and speculators were asserting an entitlement to any and all government policy actions which might be needed to keep the casino running at full tilt.”