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

Berenson, Alex

Softcover

ISBN 10: 0812966252 ISBN 13: 9780812966251

Verlag: Random House Publishing Group, 2004

Inhaltsangabe

With a new Afterword by the author and a new Foreword by Mark Cuban

In this commanding big-picture analysis of what went wrong in corporate America, Alex Berenson, a top financial investigative reporter for The New York Times, examines the common thread connecting Enron, Worldcom, Halliburton, Computer Associates, Tyco, and other recent corporate scandals: the cult of the number.

Every three months, 14,000 publicly traded companies report sales and profits to their shareholders. Nothing is more important in these quarterly announcements than earnings per share, the lodestar that investors—and these days, that’s most of us—use to judge the health of corporate America. earnings per share is the number for which all other numbers are sacrificed. It is the distilled truth of a company’s health.

Too bad it’s often a lie.

Alex Berenson’s The Number provides a comprehensiv, brutally factual overview of how Wall Street and corporate America lost their way during the great bull market that began in 1982. With wit and a broad historical perspective, Berenson puts recent corporate accounting (or accountability) disasters in their proper context. He explains how the wheels came off the wagon, giving readers the information and analysis they need to understand Enron, Tyco, WorldCom, Halliburton, and the rest of the corporate calamities of our times.

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Über die Autorin bzw. den Autor

Alex Berenson graduated from Yale University in 1994, with degrees in history and economics. After working at The Denver Post and TheStreet.com, he joined The New York Times in 1999 as a business reporter specializing in financial investigative reporting. He has three times been named one of the top thirty business reporters under the age of thirty. He lives in New York City.

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Chapter 1

BOOM AND BUST

It had been a very long week for J. P. Morgan Jr.

Morgan--the world's leading financier, the personification of Wall Street--had endured days of testimony before the Senate Banking and Currency Committee about his firm's misbehavior during the 1920s boom and the crash that followed. Under pointed questioning by Ferdinand Pecora, a hard-charging New York prosecutor who was the committee's chief counsel, Morgan admitted that he and many of his partners had not paid any taxes in 1931 and 1932, with the Depression at its worst. He acknowledged that earlier, at the height of the bubble, his firm had offered government officials the chance to buy shares in a hot new company at a below-market price. With 25 percent of all Americans unemployed, with banks failing and farmers starving, these revelations did not elicit great warmth. A generation later, The New York Times would call the inquiry "remarkable for its unfriendliness even in that year of bankers' general unpopularity." [1]

That year was 1933. And on the first day of its sixth month--Friday, June 1--at 10 A.M., in a Senate hearing room crowded with reporters and photographers, Morgan and his aides waited for another difficult day to begin.

Then the midget showed up.

The reason Lya Graf came to the Senate that day has been lost to history. Her employer, the Ringling Brothers and Barnum & Bailey Circus, was in town, but Graf had no obvious reason to make her way to the Capitol. Perhaps Ringling was looking for some easy publicity; a Ringling press agent named Charles Leef had accompanied her. Perhaps she just wanted to see Morgan in the flesh. If so, both circus and midget got their wishes. Ray Tucker, a reporter for the Scripps-Howard news service, saw Graf in the crowd outside the hearing room and pulled her in. "I'm going to introduce you to J. P. Morgan," Tucker said. And he did. Photographers swarmed and reporters rushed to capture every word of the not-very-interesting conversation between Morgan and Graf (Morgan: "I have a grandson bigger than you." Graf: "But I'm older.") Then Leef, the press agent, picked up Graf and popped her onto Morgan's lap.

In pictures of the incident, Morgan looks stunned and Graf amused, her arms spread wide [2]. Richard Whitney, the president of the New York Stock Exchange and a Morgan flunky, quickly sent Graf off, and Morgan recovered his composure.

But he could not recover his reputation. In a moment he was transformed from a powerful plutocrat to a confused old man. It is impossible to imagine Morgan's father, the original J.P., who had been America's central banker before America had a central bank, being caught in a similar indignity. Morgan Sr. ended market panics, steadied the economy, and saved Wall Street from itself; he did not truck with midgets, or senators. Morgan Jr. could not stop the crash of 1929 or end the Depression. He had tried and failed. For that Morgan might have been forgiven--the economic crisis was too big for any private citizen to fix--but he and his well-paid factotums had failed in a second, inexcusable way. They had failed to understand how serious the Depression had become and how much America now distrusted financiers and big business. And so Morgan and the rest of Wall Street's Old Guard had become nearly irrelevant to the bitter national debate over how to save capitalism from itself. Commentators wrote later that the incident had "humanized" Morgan, as if a man who treasured power and discretion, whose firm did not advertise or even put its name on its front door, wanted to be humanized. As if humanization was not the ultimate embarrassment.

A midget sat on J. P. Morgan's lap. It would be two generations before Wall Street and corporate America again ran so far amok during a boom or were so badly humiliated in the bust that followed.

A few years before that Friday morning, the nation's attitude toward Wall Street had been very different. In Once in Golconda, John Brooks summed up the peak of the frenzy as well as anyone ever has, in words eerily familiar today:

Let us try, as best we can, to look at Wall Street as it was in August 1929, to catch its essentials....Newcomers have arrived in great numbers. They are men and women who are sacrificing their own vacations, or else have simply chucked their jobs, to spend their days sitting, or more likely standing, in the brokerage customers' rooms watching the quotation board report the glorious news....

Many of those now crowding Wall Street have burned their bridges. They have thrown over their jobs on reaching some predetermined goal, a paper net worth of $50,000 or $100,000 or $200,000; they have bought expensive houses and mink coats for themselves or their wives, and look forward to lives of leisure and affluence....

All through the days, and long into the evenings, the talk, talk, talk goes on. There are tales of fortunes just made and of fortunes about to be made--above all, talk of fortunes.... There is talk about John J. Raskob's article in that month's Ladies' Home Journal entitled "Everybody Ought to Be Rich...."

On the seventeenth the Ile de France and the Berengaria depart on transatlantic trips, the former eastward and the latter westward, each fully equipped for speculation with floating brokerage offices; when the Berengaria arrives in New York six days later, passengers tell of how every day the office on the promenade deck has been so mobbed that quotations had to be passed by word of mouth to passengers who couldn't get near enough....

The madness had been a decade in the making. From a low of 63.90 in 1921, in the deep recession that followed the Great War, the Dow Jones industrial average had climbed steadily higher. By 1925 the Dow had more than doubled. After a pause in 1926, it leaped ahead again, finally reaching 381.17 on September 3, 1929. In eight years the Dow rose sixfold, by far the greatest gain in the history of the index up to that point.

In the generations since, economists and financial historians have exhaustively parsed the boom. Most have agreed broadly on its causes, from easy margin requirements that encouraged speculation to technological advances that spurred economic growth and brought electricity and cars to millions of Americans.* [*Essentially, an investor who buys on margin is borrowing part of the purchase price from his broker. If the stock rises, the investor's gains are multiplied, but if it falls even a little, the investor can face a "margin call" and be forced to put up more cash as collateral. If he can't, the broker can sell the stock--without the investor's consent--and use the proceeds to repay the loan. As a result, heavy margin borrowing can worsen market crashes, because it can result in forced selling at times when stocks are already falling.] But there was at least one more factor in the decade-long rally, one less widely discussed. When the bull market began, stocks were cheap.

In the early 1920s, prudent investors usually stayed away from stocks, buying bonds instead. Many investors viewed the New York Stock Exchange and its weaker cousin, the Curb Exchange, as little more than casinos. And they were right to be cynical. Trading on inside information was common, and stock manipulation widespread; stock prices would swing wildly on rumors of "bear raids" and "short squeezes."*[ *Short-sellers borrow stock and sell it, hoping to buy it back later for a lower price and profit from the decline. A short squeeze occurs when many shorts are simultaneously forced to return the stock they have borrowed, or "cover" their short positions. If there are not enough shares outstanding for the shorts to close out their positions, they can be forced into a ruinous bidding war for...

Details zur Ausgabe

• Verlag: Random House Publishing Group
• Erscheinungsdatum: 2004
• Sprache: Englisch
• ISBN 10: 0812966252
• ISBN 13: 9780812966251
• Einband: Taschenbuch
• Anzahl der Seiten: 328
• Kontakt zum Hersteller: Nicht verfügbar
• Verantwortliche Person: GPSR Kontakt; gpsr@libri.de; ; Europaallee 1; Bad Hersfeld; 36244; Deutschland