- The Washington Times - Friday, July 19, 2002

Lawrence Lindsey, the director of President Bush's National Economic Council, was routinely mocked for the skepticism he expressed during the late 1990s and in 2000 as the stock market soared to unprecedented heights. With the Dow Jones Industrial Average closing last week more than 25 percent below its January 2000 peak (reflecting a loss of more than 3,000 points), the Nasdaq closing nearly 75 percent below its March 2000 peak and the S&P; 500 closing 40 percent below its March 2000 peak, it is safe to say that Mr. Lindsey's skepticism was well-placed. Having incurred steady ridicule for perceiving the stock market's expanding bubble long before it burst, Mr. Lindsey has surely earned the right to be heard now.

"Today, in retrospect," Mr. Lindsey understatedly observed in a recent speech, "the 1990s seem clearly to have been a time of financial excess." Implicitly referring to the recession that began less than six weeks after Mr. Bush became president, Mr. Lindsey compared the current economic and financial turmoil to a "hangover from those excesses, some [of which] is macroeconomic in nature." Mr. Bush built upon Mr. Lindsey's "hangover" metaphor in a speech he delivered Monday in Birmingham, Ala. "There was endless profit, there was no tomorrow when it came to the stock markets and corporate profits," Mr. Bush recalled. "And now we're suffering a hangover for that binge."

In his speech, Mr. Lindsey, a mild-mannered economist not given to hyperbole, laid it on the line. Even "excesses," he asserted, was too kind a word for what occurred; "abuses" would be more appropriate. As these abuses such as insider trading, self-dealing and accounting fraud become what Mr. Lindsey calls "the stuff of daily headlines" today, it is worth noting that the vast majority of this outrageous activity essentially coincided with the second term of the Clinton-Gore administration "1997, 1998, 1999, 2000 [when] there was a widespread suspension of disbelief, a generalized lack of skepticism, among those who should have been asking tough questions." Those groups included regulatory authorities, stock analysts and others e.g., journalists, though Mr. Lindsey did not specifically mention the fourth estate "who should have been more diligent in the conduct of their jobs."

In a recent interview with Donald Lambro of The Washington Times, Mr. Lindsey uncharacteristically took off the gloves. "What we know is that the abuses we are now talking about overwhelmingly occurred in 1998 and 1999 and 2000," Mr. Lindsey told Mr. Lambro. "Now, some of those practices continued; but when they began, they were not caught."

The excesses and abuses of the 1990s "represented a breakdown in the basic ethics of the individuals involved" who, as leaders in business and finance, failed in their "special obligation to exercise particular care and uphold the highest standards of conduct," Mr. Lindsey charged. Having inherited the consequences of this conduct, the Bush administration during the current fiscal year has produced a 30 percent increase in the number of disclosure enforcement actions and a 50 percent increase in the pace of subpoena enforcements than in the previous year, as well as 40 percent more court proceedings to bar directors and officers than were brought during all of 2000.

The record supports Mr. Lindsey across the board. Recently, the Economist reported that corporate earnings restatements (required to correct accounting errors), which averaged about 50 per year from 1993 through 1997, exploded to 100 in 1998 and exceeded 200 in 1999 and 150 in 2000. According to Lynn E. Turner, who was chief accountant for the Securities and Exchange Commission (SEC) from 1998 until 2001, "270 public companies restated the numbers in their financial statements" in 2001 to correct accounting errors of previous years "a recod high, the peak of a trend." Moreover, as Mr. Turner recently noted in an essay in The Washington Post, "Former SEC chairman Richard Breeden warned Congress about financial fraud in early 1993," when Democrats controlled both bodies of Congress and the White House.

Larry Lindsey, who was somewhat lonely in understanding the real-time dynamics of the mania that overwhelmed the stock markets through most of the second term of the Clinton-Gore administration, isn't the kind of guy who would gloat about being right about the stock market bubble. So, we are happy to let the record speak for itself. However, when it comes to cleaning up the mess the Bush administration inherited from the Clinton-Gore administration, the nation is well-served by having Mr. Lindsey at Mr. Bush's side.

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