“At junctures of extreme financial stress, the high level of carry trade funding” that hedge funds use during bubbles “results in violent market reversals,” David Stockman writes. “Wholesale funding evaporates and involuntary asset sales cascade into a bidless abyss.” Hence the collapse of 2000–2003 (45%) and 2008–2009 (55%). Now they’re doing it again.

“As the Fed transformed Wall Street into a casino,” wrote David Stockman, “arrangements for insider speculation took on massive size,” with “hedge fund footings” soaring from $150 billion in 1990 to $3 trillion by the 2007–2008 peak. Trading books of Wall Street banks grew even more explosively. Together, they formed “the fast money complex.”

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.”