The Number: How the Drive for Quarterly Earnings Corrupted Wall Street and Corporate America

By Alex Berenson

With a brand new Afterword through the writer and a brand new Foreword via Mark Cuban

In this commanding big-picture research of what went mistaken in company the US, Alex Berenson, a best monetary investigative reporter for The long island Times, examines the typical thread connecting Enron, Worldcom, Halliburton, laptop affiliates, Tyco, and different fresh company scandals: the cult of the number.

Every 3 months, 14,000 publicly traded businesses record revenues and gains to their shareholders. not anything is extra very important in those quarterly bulletins than profits consistent with proportion, the lodestar that investors—and nowadays, that’s such a lot of us—use to pass judgement on the overall healthiness of company the USA. gains in step with proportion is the quantity for which all different numbers are sacrificed. it's the distilled fact of a company’s health.

Too undesirable it’s usually a lie.

Alex Berenson’s The Number offers a comprehensiv, brutally genuine evaluation of ways Wall highway and company the US misplaced their manner in the course of the nice bull industry that started in 1982. With wit and a extensive ancient viewpoint, Berenson places contemporary company accounting (or responsibility) failures of their right context. He explains how the wheels got here off the wagon, giving readers the knowledge and research they should comprehend Enron, Tyco, WorldCom, Halliburton, and the remainder of the company calamities of our instances.

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The entire company’s 1999 development had come from Singapore and South Korea, the place revenues had risen from nearly not anything in 1998 to $150 million in 1999. for the reason that Lernout’s most crucial items have been English-based, the explosion in Asian profit appeared strange. Cohodes and several shorts started to examine. sooner than lengthy that they had came across adequate to pique The Wall road Journal’s awareness. In a chain of articles that started in August 2000, the magazine published the key of Lernout’s good fortune.

The reply depends upon what number stocks it and its executives, have offered within the earlier months and years, and at what rate they have been offered. The $55 million Silverman raised through promoting Cendant inventory in February 1998 used to be funds that got here out of unsuspecting traders’ wallet, no methods approximately it. yet $55 million is some distance from $14 billion. I don’t suggest to assert that paper loss figures are absolutely beside the point. they're the best strategy to examine the scope of losses at various businesses. yet bear in mind that evaluating, say, the $150 billion loss suffered by means of WorldCom’s shareholders to the $150 billion federal price range deficit is deceptive.

Even though there has been no bubble, the Sixties confirmed that one was once greater than attainable. yet absent a crash, the general public didn't a lot care. Accountants, mutual fund managers, funding bankers, and company executives persisted on their merry manner. bankruptcy four The dying of Equities a few towns and states and cities simply appear to have greater than their percentage of fraud. manhattan is infamous for penny inventory swindles. Biotechnology and machine scams have flourished in Utah, of all areas. and through the Eighties Colorado used to be fertile soil for boiler rooms—high-pressure brokerage organisations that promote valueless inventory over the telephone.

This type of lesson, in spite of the fact that, units a nasty precedent, for there’s a much worse form of profits administration that’s frequently tolerated in addition. this can be the type of profits administration produced through the planned tweaking of accounting assumptions, or the penning of a deceptive magazine access. 22 the concerns weren’t restrained to expert cynics like Ciesielski and the shorts. Arthur Levitt’s “Numbers online game” speech in September published the S. E. C. ’s anxiousness concerning the nation of monetary reporting. Even a few company executives and accountants admitted that criteria have been slipping.

Institutional traders not even pretended to care approximately examine. So analysts’ most vital task grew to become touring with funding bankers to “bake-offs”—the contests that businesses held to select underwriters—and begging that their enterprises be selected. rather than score businesses, analysts have been being rated by means of them. no matter if that they had been loose to jot down target studies, analysts hardly ever had time to place them jointly, among bake-offs and buying and selling guidance with agents and institutional traders. “There is an inverse dating among occupation luck and the time spent on basic research,” Michelle Clayman, a onetime Salomon Brothers analyst who had develop into a hedge fund supervisor, stated in 1996.

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