Former Reagan Budget Director David Stockman...

How Politics Caused Fiscal Disaster!

So now there are no fiscal rules. None. Cash for clunkers -- and for pig farmers, homebuilders, real estate speculators, and GE’s (GE) green machines, too -- will never stop flowing. Eventually -- perhaps soon -- there will be more Treasury bonds to sell than the world’s shrinking base of dollar holders can possibly absorb.

Then the Big Panic will come. In the event, some will look back and wonder why we destroyed our capacity for fiscal governance in order to save the likes of AIG (AIG), Citibank (C), and especially Goldman during the comparatively minor disorder of September ’08. Certainly, the so-called “systemic risk” will have been exposed for the cover story it was.

None of AIG’s alleged CDS time bomb, for example, really mattered. The European banks who were wrapping dodgy assets with AIG’s bogus AAA cover would have gotten bailed out by their own socialist governments, anyway. For Goldman, the loss would have meant six months of bonus accruals. For the big insured US depositories, losses would have meant their Sheila-gram would have come sooner, rather than later....

Thus, “systemic risk” was but a fig leaf for aggrandizement of the state, and especially its central banking branch. The resulting waste of resources and ballooning of moral hazard was palpable. But the real cost was in the final destruction of political discipline which resulted from the mad rush to TARP.

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