Greg Ip Reads the Mind of the Fed
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David Stockman in the News

A lawsuit against former Reagan OMB head David Stockman. Mitchell Pacelle reports: - Heard on the Street: [A]n institutional investor that met with Mr. Stockman in the weeks before the Chapter 11 filing has accused the onetime Reagan administration budget director and his partners of deception... contends Mr. Stockman induced it to buy debt by providing "materially false and misleading documents and information." The suit alleges that Mr. Stockman played a variety of games with the financial reports of the Troy, Mich., auto-parts giant in an effort to conceal the company's problems.

Mr. Stockman, who had remained publicly silent about the company since his May 12 resignation, denies the allegations as "unfounded and frequently irresponsible." In a written statement, he said he intends "to contest them vigorously."... Although Collins & Aikman was known earlier this year to be struggling, investors and customers alike were surprised by its rapid-fire Chapter 11 filing. As recently as mid-April, Mr. Stockman said in an interview with The Wall Street Journal that "the company has no intention of restructuring, nor do we see the need."

Between August 2004 and May 2005, MacKay Shields, which managed more than $39 billion in assets at the end of 2004, bought Collins & Aikman debt with a face value of about $153 million, the lawsuit said.... Mr. Stockman met with representatives of MacKay Shields... [on] March 23 to discuss the company's prospects. When the company sought bankruptcy protection, MacKay Shields lost "tens of millions of dollars overnight," the lawsuit said.

Mr. Stockman denies concealing the firm's woes.... He attributed the "unfortunate losses" suffered by stock and bond holders -- himself included -- to an "industry meltdown" caused by soaring raw-materials prices and the refusal of car makers to offer relief.

The lawsuit accuses Mr. Stockman of manipulating Collins & Aikman's results in four ways: improperly categorizing tens of millions of dollars of operating expenses as restructuring and impairment charges; inflating revenue by accelerating recognition of supplier rebates; creating false documentation to support phony receivables; and improperly inflating carrying values for goodwill.... The Troy manager said Mr. Stockman "improperly manipulated all of the accurate data that plant management provided to him to achieve whatever results he wanted to show to outsiders," according to the suit...

I have no information about the validity of these charges, but ""improperly manipulated all of the accurate data... to achieve whatever results he wanted to show to outsiders" is a very good description of Stockman's practice as head of OMB--and of the practice of his successors Mitch Daniels and Josh Bolten.