Pathological optimism

Bush's Iraq War has demonstrated for anyone with eyes that hope is not an exit strategy. In the latest issue of Time, Michael Kinsley notes that it isn't much of an investment strategy either.

A man once described by shuddering Congressional Democrats as "the blow-dried grim reaper"--former Reagan budget director David Stockman--may be headed for the slammer.

According to prosecutors, Stockman lied to banks about the firm's financial condition, inducing them to loan the company money it couldn't repay. He engaged in "round trip" transactions that involved masking loans--which were supposed to be repaid--as income. He exaggerated the manufacturer's prospects, knowing his claims were untrue, which led people to buy company securities that quickly became worthless. The firm filed for bankruptcy five days after Stockman was forced out in 2005. The government has taken over employee pension obligations. Just going bankrupt has cost the company more than $100 million so far. It is a magnificent debacle. The question is how much of it is Stockman's fault. He says none.

The charges are "really poppycock," says Stockman; he had been engaged in "an epic struggle for survival." Everything he told the public reflected "a realistic and balanced view of the facts as I understood them," he says, although they turned out to be wrong. He himself was buying shares throughout the period that the company was going down the toilet. He agreed with a friendly television interviewer who declared that "they"--meaning the government--"are criminalizing optimism." [...]

Stockman appears to be a serial book cooker. Even after he admitted during the Reagan Administration to playing games with how much came in and how much went out, he can't stop himself from doing it again. In The Triumph of Politics, he describes two tricks the Reaganites (including himself) used to deceive the public about the fiscal condition of the U.S. government. One was the "magic asterisk," used to bury wishful-thinking revenue assumptions in the footnotes, where it was hoped that nobody would discover them. This is essentially similar to the "round trip" loans described in Stockman's indictment last week. Then there is Rosy Scenario, a Cassandra in reverse, who gets carted out to proclaim that things are going to get better and better. Allegedly, false projections were also part of Stockman's arsenal of deceit in the auto-parts business, prosecutors charge.

The federal prosecutor who brought the charges seems to agree with Stockman that he truly believed that if he could buy a bit more time, he could turn things around. But that's no defense if you buy time by defrauding people. The pathological optimists who have controlled the federal Treasury for most of the past three decades may also be sincere, but that is also no excuse for the deficits they have produced.

(Emphasis added.)

Wishful thinking and false projections. Well, the acorn of Bush budget strategy didn't fall far from the oak tree of Reaganomics, did it?

Alas for Stockman, there won't be many people in the slammer with whom he can reminisce about the good old days: Most of the nearly two dozen Reagan Administration members who were convicted of crimes in US courts have long since served out their jail terms and/or died (or, in two cases, seen their convictions overturned on appeal). Most of the survivors now work in the Bush Administration or its client organizations.

Perhaps they'll visit Stockman on Tuesdays.