accounting loophole / creative accounting

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Global Financial Crisis by Noah Berlatsky

accounting loophole / creative accounting, asset-backed security, banking crisis, Bretton Woods, capital controls, Celtic Tiger, centre right, circulation of elites, collapse of Lehman Brothers, collateralized debt obligation, corporate raider, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, deindustrialization, Doha Development Round, energy security, eurozone crisis, financial innovation, Food sovereignty, George Akerlof, God and Mammon, Gordon Gekko, housing crisis, illegal immigration, income inequality, market bubble, market fundamentalism, mass immigration, Money creation, moral hazard, new economy, Northern Rock, purchasing power parity, quantitative easing, race to the bottom, regulatory arbitrage, reserve currency, Robert Shiller, Robert Shiller, Ronald Reagan, Savings and loan crisis, shareholder value, South China Sea, structural adjustment programs, too big to fail, trade liberalization, transfer pricing, working poor

It doles out grants to airports for building runways and to fishing companies to help them wipe out endangered stocks. But the Cato Institute’s report has exposed only part of the corporate welfare scandal. A new paper by the US Institute for Policy Studies shows that, through a series of cunning tax and accounting loopholes, the US spends $20bn a year subsidising executive pay. By disguising their professional fees as 203 The Global Financial Crisis capital gains rather than income for example, the managers of hedge funds and private equity companies pay lower rates of tax than the people who clean their offices.


pages: 301 words: 88,082

The Great Tax Robbery: How Britain Became a Tax Haven for Fat Cats and Big Business by Richard Brooks

accounting loophole / creative accounting, bank run, Big bang: deregulation of the City of London, bonus culture, Bretton Woods, carried interest, Celtic Tiger, collateralized debt obligation, commoditize, Corn Laws, corporate social responsibility, crony capitalism, Double Irish / Dutch Sandwich, financial deregulation, haute couture, intangible asset, interest rate swap, Jarndyce and Jarndyce, mega-rich, Northern Rock, offshore financial centre, race to the bottom, shareholder value, short selling, supply-chain management, The Chicago School, The Wealth of Nations by Adam Smith, transfer pricing, two and twenty

But to suggest that all taxpayers should stop trying to reduce bills – I’m sorry, that’s not how things operate.’‌6 Indeed it wasn’t how things operated in a world where salaries for Big 4 accountancy firm tax partners were now hitting the high hundreds of thousands on the back of tax avoidance. No area of the tax code was safe from the accountants’ loophole-detectors. So it was no surprise when the same firms that were picking apart corporate tax laws spotted the booming bonus culture as another fat meal ticket. Rich pickings Just as with corporate taxation in the 1990s, employment tax laws had been put at the service of free market capitalism.


pages: 423 words: 118,002

The Boom: How Fracking Ignited the American Energy Revolution and Changed the World by Russell Gold

accounting loophole / creative accounting, activist fund / activist shareholder / activist investor, activist lawyer, addicted to oil, American energy revolution, Bakken shale, Bernie Sanders, Buckminster Fuller, clean water, corporate governance, corporate raider, energy security, energy transition, hydraulic fracturing, Intergovernmental Panel on Climate Change (IPCC), margin call, market fundamentalism, Mason jar, North Sea oil, oil shale / tar sands, oil shock, peak oil, Project Plowshare, risk tolerance, Ronald Reagan, shareholder value, Silicon Valley, Upton Sinclair

One exception was Pawel Rajszel, a young security analyst in Toronto, who issued a scathing report to his clients in April 2010, arguing that these deals put the company in significantly more debt than it cared to acknowledge. Pointing out that Enron had pioneered the VPPs a decade earlier, he wrote, “Due to what we consider an accounting loophole, Chesapeake is effectively able to hide its VPP liabilities from its balance sheet—something even Enron Oil and Gas Company did not do.” While investment professionals didn’t pay much attention to Rajszel’s prescient warning, Chesapeake’s debt-rating agencies agreed these deals should be accounted for as debt.


pages: 492 words: 118,882

The Blockchain Alternative: Rethinking Macroeconomic Policy and Economic Theory by Kariappa Bheemaiah

accounting loophole / creative accounting, Ada Lovelace, Airbnb, algorithmic trading, asset allocation, autonomous vehicles, balance sheet recession, bank run, banks create money, Basel III, basic income, Ben Bernanke: helicopter money, bitcoin, blockchain, Bretton Woods, business cycle, business process, call centre, capital controls, Capital in the Twenty-First Century by Thomas Piketty, cashless society, cellular automata, central bank independence, Claude Shannon: information theory, cloud computing, cognitive dissonance, collateralized debt obligation, commoditize, complexity theory, constrained optimization, corporate governance, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crowdsourcing, cryptocurrency, David Graeber, deskilling, Diane Coyle, discrete time, disruptive innovation, distributed ledger, diversification, double entry bookkeeping, Ethereum, ethereum blockchain, fiat currency, financial innovation, financial intermediation, Flash crash, floating exchange rates, Fractional reserve banking, full employment, George Akerlof, illegal immigration, income inequality, income per capita, inflation targeting, information asymmetry, interest rate derivative, inventory management, invisible hand, John Maynard Keynes: technological unemployment, John von Neumann, joint-stock company, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, Kevin Kelly, knowledge economy, large denomination, liquidity trap, London Whale, low skilled workers, M-Pesa, Marc Andreessen, market bubble, market fundamentalism, Mexican peso crisis / tequila crisis, MITM: man-in-the-middle, Money creation, money market fund, money: store of value / unit of account / medium of exchange, mortgage debt, natural language processing, Network effects, new economy, Nikolai Kondratiev, offshore financial centre, packet switching, Pareto efficiency, pattern recognition, peer-to-peer lending, Ponzi scheme, precariat, pre–internet, price mechanism, price stability, private sector deleveraging, profit maximization, QR code, quantitative easing, quantitative trading / quantitative finance, Ray Kurzweil, Real Time Gross Settlement, rent control, rent-seeking, Satoshi Nakamoto, Satyajit Das, Savings and loan crisis, savings glut, seigniorage, Silicon Valley, Skype, smart contracts, software as a service, software is eating the world, speech recognition, statistical model, Stephen Hawking, supply-chain management, technology bubble, The Chicago School, The Future of Employment, The Great Moderation, the market place, The Nature of the Firm, the payments system, the scientific method, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, too big to fail, trade liberalization, transaction costs, Turing machine, Turing test, universal basic income, Von Neumann architecture, Washington Consensus

Accounting Jiggery Pokery Recent times have been peppered with a number of financial scandals caused by “cooking the books” and inefficient business control systems. A prime example of this was the 2001 Enron scandal, where company executives and managers, in a blatant display of rule-flouting, used accounting loopholes, special purpose entities, and false financial reporting to hide billions of dollars of debt incurred by botched deals and projects. The Enron scandal had two primary outcomes. First, it led to the passing of the Sarbanes Oxley Act (refer to Notes at the end of this chapter). Second, it showed us the difference between the reliability and the relevance of financial data.


pages: 823 words: 206,070

The Making of Global Capitalism by Leo Panitch, Sam Gindin

accounting loophole / creative accounting, active measures, airline deregulation, anti-communist, Asian financial crisis, asset-backed security, bank run, banking crisis, barriers to entry, Basel III, Big bang: deregulation of the City of London, bilateral investment treaty, Branko Milanovic, Bretton Woods, BRICs, British Empire, business cycle, call centre, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, central bank independence, collective bargaining, continuous integration, corporate governance, creative destruction, Credit Default Swap, crony capitalism, currency manipulation / currency intervention, currency peg, dark matter, Deng Xiaoping, disintermediation, ending welfare as we know it, eurozone crisis, facts on the ground, financial deregulation, financial innovation, Financial Instability Hypothesis, financial intermediation, floating exchange rates, foreign exchange controls, full employment, Gini coefficient, global value chain, guest worker program, Hyman Minsky, imperial preference, income inequality, inflation targeting, interchangeable parts, interest rate swap, Kenneth Rogoff, Kickstarter, land reform, late capitalism, liberal capitalism, liquidity trap, London Interbank Offered Rate, Long Term Capital Management, manufacturing employment, market bubble, market fundamentalism, Martin Wolf, means of production, money market fund, money: store of value / unit of account / medium of exchange, Monroe Doctrine, moral hazard, mortgage debt, mortgage tax deduction, Myron Scholes, new economy, Nixon triggered the end of the Bretton Woods system, non-tariff barriers, Northern Rock, oil shock, precariat, price stability, quantitative easing, Ralph Nader, RAND corporation, regulatory arbitrage, reserve currency, risk tolerance, Ronald Reagan, Savings and loan crisis, seigniorage, shareholder value, short selling, Silicon Valley, sovereign wealth fund, special drawing rights, special economic zone, structural adjustment programs, Tax Reform Act of 1986, The Chicago School, The Great Moderation, the payments system, The Wealth of Nations by Adam Smith, too big to fail, trade liberalization, transcontinental railway, trickle-down economics, union organizing, very high income, Washington Consensus, Works Progress Administration, zero-coupon bond, zero-sum game

“investment”) bankers that the Keynesian commitment to full employment had “prevented London from re-establishing its position as the world’s international financial centre.”17 But when sterling was made convertible in the mid 1950s, and its weakness was fully exposed after the Suez debacle (a run on the British pound was aggravated by the US preventing the IMF from lending to the UK, leading to the temporary closure of the City’s external sterling loan market), London’s merchant bankers—the financial praetorian guard of the old empire—made a bold move to switch allegiance to the US dollar. Employing an accounting loophole in the exchange control regulations, and facilitated by the Bank of England without either approval or oversight by the UK Treasury, the City created a completely unregulated international market for the dollar.18 London’s Eurodollar market exploded at a time when capital controls were being eased in Western Europe, when the need for financing of increased trade and FDI was becoming pressing, and when the dollar famine in Europe was turning into a dollar glut.19 For its part, the US government, in the face of its new balance-of-payments problem, was increasingly reluctant to accept the massive outflow of dollars that resulted from foreigners borrowing on Wall Street.


pages: 840 words: 202,245

Age of Greed: The Triumph of Finance and the Decline of America, 1970 to the Present by Jeff Madrick

accounting loophole / creative accounting, Asian financial crisis, bank run, Bretton Woods, business cycle, capital controls, collapse of Lehman Brothers, collateralized debt obligation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, desegregation, disintermediation, diversified portfolio, Donald Trump, financial deregulation, fixed income, floating exchange rates, Frederick Winslow Taylor, full employment, George Akerlof, Hyman Minsky, income inequality, index fund, inflation targeting, inventory management, invisible hand, John Meriwether, Kitchen Debate, laissez-faire capitalism, locking in a profit, Long Term Capital Management, market bubble, minimum wage unemployment, MITM: man-in-the-middle, Money creation, money market fund, Mont Pelerin Society, moral hazard, mortgage debt, Myron Scholes, new economy, Nixon triggered the end of the Bretton Woods system, North Sea oil, Northern Rock, oil shock, Paul Samuelson, Philip Mirowski, price stability, quantitative easing, Ralph Nader, rent control, road to serfdom, Robert Bork, Robert Shiller, Robert Shiller, Ronald Coase, Ronald Reagan, Ronald Reagan: Tear down this wall, shareholder value, short selling, Silicon Valley, Simon Kuznets, tail risk, Tax Reform Act of 1986, technology bubble, Telecommunications Act of 1996, The Chicago School, The Great Moderation, too big to fail, union organizing, V2 rocket, value at risk, Vanguard fund, War on Poverty, Washington Consensus, Y2K, Yom Kippur War

Fastow’s job at first was to find new ways to finance these investments, but then he was forced to find ways to plug the holes as these companies ate up cash, produced business losses, and created rising, unsustainable levels of debt. At this task, Fastow was a charming wizard. He established partnerships (special purpose entities) with outside investors, which, through accounting loopholes, enabled Enron to sell bad assets into these partnerships. The partners participated only because their investments were collateralized by soaring Enron stock. Legally, the partnerships were supposed to be managed independently of Enron, but Fastow often ran them. The sales to the partnerships were recorded as Enron profits, even though it controlled the partnerships and determined what they would buy.


pages: 482 words: 121,672

A Random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing (Eleventh Edition) by Burton G. Malkiel

accounting loophole / creative accounting, Albert Einstein, asset allocation, asset-backed security, beat the dealer, Bernie Madoff, bitcoin, butter production in bangladesh, buttonwood tree, buy and hold, capital asset pricing model, compound rate of return, correlation coefficient, Credit Default Swap, Daniel Kahneman / Amos Tversky, Detroit bankruptcy, diversification, diversified portfolio, dogs of the Dow, Edward Thorp, Elliott wave, Eugene Fama: efficient market hypothesis, experimental subject, feminist movement, financial innovation, financial repression, fixed income, framing effect, George Santayana, hindsight bias, Home mortgage interest deduction, index fund, invisible hand, Isaac Newton, Long Term Capital Management, loss aversion, margin call, market bubble, money market fund, mortgage tax deduction, new economy, Own Your Own Home, passive investing, Paul Samuelson, pets.com, Ponzi scheme, price stability, profit maximization, publish or perish, purchasing power parity, RAND corporation, random walk, Richard Thaler, risk free rate, risk tolerance, risk-adjusted returns, risk/return, Robert Shiller, Robert Shiller, short selling, Silicon Valley, South Sea Bubble, stocks for the long run, survivorship bias, the rule of 72, The Wisdom of Crowds, transaction costs, Vanguard fund, zero-coupon bond, zero-sum game

Appraising the Counterattack Implications for Investors 7. HOW GOOD IS FUNDAMENTAL ANALYSIS? THE EFFICIENT-MARKET HYPOTHESIS The Views from Wall Street and Academia Are Security Analysts Fundamentally Clairvoyant? Why the Crystal Ball Is Clouded 1. The Influence of Random Events 2. The Production of Dubious Reported Earnings through “Creative” Accounting Procedures 3. Errors Made by the Analysts Themselves 4. The Loss of the Best Analysts to the Sales Desk, to Portfolio Management, or to Hedge Funds 5. The Conflicts of Interest between Research and Investment Banking Departments Do Security Analysts Pick Winners? The Performance of the Mutual Funds The Semi-Strong and Strong Forms of the Efficient-Market Hypothesis (EMH) A Note on High-Frequency Trading (HFT) Part Three THE NEW INVESTMENT TECHNOLOGY 8.

Many businesses were managed not for the creation of long-run value but for the immediate gratification of speculators. When Wall Street’s conflicted sell-side analysts looked for high short-term forecasted earnings to justify outlandishly high stock prices, many corporate managers willingly obliged. And if aggressive earnings targets proved hard to meet, “creative accounting” could be used so that not only the published street estimates but even the “whisper numbers” could be surpassed. One spectacular example was the rise and subsequent bankruptcy of Enron—at one time the seventh-largest corporation in America. The collapse of Enron, where over $65 billion of market value was wiped out, can be understood only in the context of the enormous bubble in the New Economy part of the stock market.

There were many villains in this morality tale: the fee-obsessed underwriters who should have known better than to peddle all of the crap they brought to market; the research analysts who were the cheerleaders for the banking departments and who were eager to recommend Net stocks that could be pushed by commission-hungry brokers; corporate executives using “creative accounting” to inflate their profits. But it was the infectious greed of individual investors and their susceptibility to get-rich-quick schemes that allowed the bubble to expand. And yet the melody lingers on. I have a friend who built a modest investment stake into a small fortune with a diversified portfolio of bonds, real estate funds, and stock funds that owned a broad selection of blue-chip companies.


pages: 515 words: 132,295

Makers and Takers: The Rise of Finance and the Fall of American Business by Rana Foroohar

accounting loophole / creative accounting, activist fund / activist shareholder / activist investor, additive manufacturing, Airbnb, algorithmic trading, Alvin Roth, Asian financial crisis, asset allocation, bank run, Basel III, bonus culture, Bretton Woods, British Empire, business cycle, buy and hold, call centre, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, carried interest, centralized clearinghouse, clean water, collateralized debt obligation, commoditize, computerized trading, corporate governance, corporate raider, corporate social responsibility, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, crowdsourcing, David Graeber, deskilling, Detroit bankruptcy, diversification, Double Irish / Dutch Sandwich, Emanuel Derman, Eugene Fama: efficient market hypothesis, financial deregulation, financial intermediation, Frederick Winslow Taylor, George Akerlof, gig economy, Goldman Sachs: Vampire Squid, Gordon Gekko, greed is good, High speed trading, Home mortgage interest deduction, housing crisis, Howard Rheingold, Hyman Minsky, income inequality, index fund, information asymmetry, interest rate derivative, interest rate swap, Internet of things, invisible hand, James Carville said: "I would like to be reincarnated as the bond market. You can intimidate everybody.", John Markoff, joint-stock company, joint-stock limited liability company, Kenneth Rogoff, Kickstarter, knowledge economy, labor-force participation, London Whale, Long Term Capital Management, manufacturing employment, market design, Martin Wolf, money market fund, moral hazard, mortgage debt, mortgage tax deduction, new economy, non-tariff barriers, offshore financial centre, oil shock, passive investing, Paul Samuelson, pensions crisis, Ponzi scheme, principal–agent problem, quantitative easing, quantitative trading / quantitative finance, race to the bottom, Ralph Nader, Rana Plaza, RAND corporation, random walk, rent control, Robert Shiller, Robert Shiller, Ronald Reagan, Satyajit Das, Savings and loan crisis, Second Machine Age, shareholder value, sharing economy, Silicon Valley, Silicon Valley startup, Snapchat, Social Responsibility of Business Is to Increase Its Profits, sovereign wealth fund, Steve Jobs, technology bubble, The Chicago School, the new new thing, The Spirit Level, The Wealth of Nations by Adam Smith, Tim Cook: Apple, Tobin tax, too big to fail, Tragedy of the Commons, trickle-down economics, Tyler Cowen: Great Stagnation, Vanguard fund, zero-sum game

“It just opened up this huge span of bonus pay which was not for performance. I had written a lot about this before, that it was largely phony,” Stiglitz says. “I argued very strongly during the 1990s that the whole stock option pay trend caused a lot of incentives for nontransparency, and that it was directly responsible for what I call creative accounting. The financial sector used this creative accounting not just to deceive the market but also to avoid paying the taxes that they should have paid.” This view is backed by economists like Thomas Piketty and Emmanuel Saez, who’ve tallied the massive increase in pretax personal income claimed by the top 1 percent since then.44 That increase, their research shows, is linked to growing inequality (which requires greater government payouts to the poor) and slower economic growth, thanks to flat salaries for the majority of Americans.

Buoyed by his successes, Wriston told the Street that he wanted his bank’s earnings to grow at 15 percent a year, rather than the usual single digits; this would necessitate keeping less capital on hand and taking on more leverage.46 To encourage employees to do whatever it took to hit that target, Citi also changed its compensation structure and began awarding stock options based on the value of its shares (which of course encouraged even greater risk taking and creative accounting to hide bad assets on income statements).47 None of it worried Wall Street’s million-dollar banker. Wriston had a dream—one that Sandy Weill would realize many years later. He wanted his institution to become a one-stop shop that would supply any financial product—from mortgages to securities to deposit accounts to trading platforms—to businesses and individuals.

“Financialization has polluted the entire physical investment process, the labor markets, and the innovation cycle of firms,” says Andrew Haldane, the chief economist of the Bank of England and one of the deepest thinkers on the topic of financialization today. “The damage it inflicts on investments in physical and human capital [meaning factories and workers] is hugely important, because that’s what slows down growth.”14 THE RISE OF CREATIVE ACCOUNTING Shareholder activism by people like Carl Icahn and the sort of buybacks being done by Apple and other large public firms are currently one of the best windows into the rise of finance. Back in the 1960s and ’70s, companies invested about 40 percent of each additional earned or borrowed dollar into the real economy.15 All that changed in the Reagan era.


pages: 416 words: 118,592

A Random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing by Burton G. Malkiel

accounting loophole / creative accounting, Albert Einstein, asset allocation, asset-backed security, backtesting, beat the dealer, Bernie Madoff, BRICs, butter production in bangladesh, buy and hold, capital asset pricing model, compound rate of return, correlation coefficient, Credit Default Swap, Daniel Kahneman / Amos Tversky, diversification, diversified portfolio, dogs of the Dow, Edward Thorp, Elliott wave, Eugene Fama: efficient market hypothesis, experimental subject, feminist movement, financial innovation, fixed income, framing effect, hindsight bias, Home mortgage interest deduction, index fund, invisible hand, Isaac Newton, Long Term Capital Management, loss aversion, margin call, market bubble, money market fund, mortgage tax deduction, new economy, Own Your Own Home, passive investing, Paul Samuelson, pets.com, Ponzi scheme, price stability, profit maximization, publish or perish, purchasing power parity, RAND corporation, random walk, Richard Thaler, risk free rate, risk tolerance, risk-adjusted returns, risk/return, Robert Shiller, Robert Shiller, short selling, Silicon Valley, South Sea Bubble, stocks for the long run, survivorship bias, The Myth of the Rational Market, the rule of 72, The Wisdom of Crowds, transaction costs, Vanguard fund, zero-coupon bond

Appraising the Counterattack Implications for Investors 7. HOW GOOD IS FUNDAMENTAL ANALYSIS? The Views from Wall Street and Academia Are Security Analysts Fundamentally Clairvoyant? Why the Crystal Ball Is Clouded 1. The Influence of Random Events 2. The Production of Dubious Reported Earnings through “Creative” Accounting Procedures 3. Errors Made by the Analysts Themselves 4. The Loss of the Best Analysts to the Sales Desk, to Portfolio Management, or to Hedge Funds 5. The Conflicts of Interest between Research and Investment Banking Departments Do Security Analysts Pick Winners?—The Performance of the Mutual Funds Can Any Fundamental System Pick Winners?

Many businesses were managed not for the creation of long-run value but for the immediate gratification of speculators. When Wall Street’s conflicted sell-side analysts looked for high short-term forecasted earnings to justify outlandishly high stock prices, many corporate managers willingly obliged. And if aggressive earnings targets proved hard to meet, “creative accounting” could be used so that not only the published street estimates but even the “whisper numbers” could be surpassed. One spectacular example was the rise and subsequent bankruptcy of Enron—at one time the seventh-largest corporation in America. The collapse of Enron, where over $65 billion of market value was wiped out, can be understood only in the context of the enormous bubble in the New Economy part of the stock market.

There were many villains in this morality tale: the fee-obsessed underwriters who should have known better than to peddle all of the crap they brought to market; the research analysts who were the cheerleaders for the banking departments and who were eager to recommend Net stocks that could be pushed by commission-hungry brokers; corporate executives using “creative accounting” to inflate their profits. But it was the infectious greed of individual investors and their susceptibility to get-rich-quick schemes that allowed the bubble to expand. And yet the melody lingers on. I have a friend who built a modest investment stake into a small fortune with a diversified portfolio of bonds, real estate funds, and stock funds that owned a broad selection of blue-chip companies.


pages: 302 words: 87,776

Dollars and Sense: How We Misthink Money and How to Spend Smarter by Dr. Dan Ariely, Jeff Kreisler

accounting loophole / creative accounting, Airbnb, Albert Einstein, bitcoin, Burning Man, collateralized debt obligation, Daniel Kahneman / Amos Tversky, delayed gratification, endowment effect, experimental economics, hedonic treadmill, IKEA effect, impact investing, invisible hand, loss aversion, mental accounting, mobile money, placebo effect, price anchoring, Richard Thaler, sharing economy, Silicon Valley, Snapchat, Stanford marshmallow experiment, Steve Jobs, TaskRabbit, the payments system, Uber for X, ultimatum game, Walter Mischel, winner-take-all economy

Even though it is irrational, mental accounting, just like corporate accounting, can be useful if used judiciously. Budget categories can help us plan our finances and control our spending. But, just like corporate accounting, mental accounting is not a panacea, because it still offers a lot of gray area. Just as some companies exploit loopholes with “creative accounting,” so do we with our flexible spending logic. We mismanage our money when we don’t use any categories, but even when we do use them, we then tweak the classification of our expenditures. We change the rules and we make up stories that fit our whims. Mark Twain describes one such instance of creative manipulation of rules.

When this happens—which isn’t all the time, but often enough—we’re rewarding good behavior with bad behavior that directly undermines the good. Saving an extra $100 one week is a good start, but celebrating the saving by spending $50 on something we wouldn’t have purchased otherwise—like a dinner or a gift—doesn’t help our overall finances. Another way we engage in creative accounting is known as INTEGRATION. This is when we rationalize that two different expenses are actually one by basically assigning the smaller expense to the same category as the larger one. This way, we can fool ourselves into believing we’re suffering just one big purchase, which is less psychologically draining than one large and one small purchase.

., 47–48 responses to perceived unfairness, 131–34, 135–39 Ten Financial Sins, 52 tunnel vision, 11–12 See also feelings and emotions human resources (HR) office, 228–29 Ikea effect, 116 illusion of wealth, 249–51 I’m Telling You for the Last Time (Seinfeld), 68–69 infomercials, 126 integrative creative accounting, 55–56 internal vs. external anchors, 106 investments bonds, 125 dilution of pain of paying management fees, 83 ignoring your portfolio, 249 and loss aversion, 123–25 stock market, 123–25, 169 sunk costs, 126–30 wine as investment, 57–58 iPad pricing, 104 irrational valuations, 16–18 Ivester, Douglas, 137 JC Penney “sales” on high priced items, 21–24 Jobs, Steve, 104 Johnson, Ron, 22–23 Jones, George, 3–6, 84 Karlan, Dean, 232 Kayak.com, 145 Kenya, mobile money-saving system experiments in, 242–44 King, Cheryl, 149–52 Kreisler, Jeff and artisanal moonshine, 159–60 benefits of Princeton education, 176 campaign speech for fifth-grade student council, 256 and consumption vocabulary, 157–58 Dr.


pages: 267 words: 72,552

Reinventing Capitalism in the Age of Big Data by Viktor Mayer-Schönberger, Thomas Ramge

accounting loophole / creative accounting, Air France Flight 447, Airbnb, Alvin Roth, Atul Gawande, augmented reality, banking crisis, basic income, Bayesian statistics, bitcoin, blockchain, Capital in the Twenty-First Century by Thomas Piketty, carbon footprint, Cass Sunstein, centralized clearinghouse, Checklist Manifesto, cloud computing, cognitive bias, conceptual framework, creative destruction, Daniel Kahneman / Amos Tversky, disruptive innovation, Donald Trump, double entry bookkeeping, Elon Musk, en.wikipedia.org, Erik Brynjolfsson, Ford paid five dollars a day, Frederick Winslow Taylor, fundamental attribution error, George Akerlof, gig economy, Google Glasses, information asymmetry, interchangeable parts, invention of the telegraph, inventory management, invisible hand, James Watt: steam engine, Jeff Bezos, job automation, job satisfaction, joint-stock company, Joseph Schumpeter, Kickstarter, knowledge worker, labor-force participation, land reform, lone genius, low cost airline, low cost carrier, Marc Andreessen, market bubble, market design, market fundamentalism, means of production, meta-analysis, Moneyball by Michael Lewis explains big data, multi-sided market, natural language processing, Network effects, Norbert Wiener, offshore financial centre, Parag Khanna, payday loans, peer-to-peer lending, Peter Thiel, Ponzi scheme, prediction markets, price anchoring, price mechanism, purchasing power parity, random walk, recommendation engine, Richard Thaler, ride hailing / ride sharing, Sam Altman, Second Machine Age, self-driving car, Silicon Valley, Silicon Valley startup, six sigma, smart grid, smart meter, Snapchat, statistical model, Steve Jobs, technoutopianism, The Future of Employment, The Market for Lemons, The Nature of the Firm, transaction costs, universal basic income, William Langewiesche, Y Combinator

., History of Accounting: An International Encyclopedia [New York: Garland Publishing, 1996], 409–410) in the twentieth century to a string of high-profile cases at the turn of the millennium, including those of WorldCom (see Justin Kuepper, “Spotting Creative Accounting on the Balance Sheet,” Forbes, March 25, 2010, http://www.forbes.com/2010/03/25/balance-sheet-tricks-personal-finance-accounting.html), Chiquita Brands, HealthSouth (see Michael J. Jones, Creative Accounting, Fraud and International Accounting Scandals [Chichester, England: John Wiley, 2011]), Enron (David Teather, “Billions Still Hidden in Enron Pyramid,” Guardian, January 30, 2002, https://www.theguardian.com/business/2002/jan/30/corporatefraud.enron2; Malcolm S.

merchants in Florence were required to maintain: Ibid., 35. annual audit, conducted by Cosimo himself: Ibid., 37–38. trying to embezzle monies: See Crosby, The Measure of Reality, 204; Soll, The Reckoning, 37–38. Wedgwood transformed the information flows: Soll, The Reckoning, 117–131. when bookkeepers get creative: “Creative” accounting has been associated with spectacular bankruptcies and scandals, ranging from those befalling National City Bank (now Citibank, see “Stock Exchange Practices: Report of the Committee on Banking and Currency” [the Pecora Commission Report], 73rd Congress, 2nd Session, report no. 1455, June 6, 1934, https://www.senate.gov/artandhistory/history/common/investigations/pdf/Pecora _FinalReport.pdf; for further details, see http://www.senate.gov/artandhistory/history/common/investigations/Pecora.htm) and drug company McKesson & Robbins (which faked purchase orders and inflated inventory, see Michael Chatfield, “McKesson & Robbins Case,” in Michael Chatfield and Richard Vangermeersch, eds., History of Accounting: An International Encyclopedia [New York: Garland Publishing, 1996], 409–410) in the twentieth century to a string of high-profile cases at the turn of the millennium, including those of WorldCom (see Justin Kuepper, “Spotting Creative Accounting on the Balance Sheet,” Forbes, March 25, 2010, http://www.forbes.com/2010/03/25/balance-sheet-tricks-personal-finance-accounting.html), Chiquita Brands, HealthSouth (see Michael J.


pages: 270 words: 75,803

Wall Street Meat by Andy Kessler

accounting loophole / creative accounting, Andy Kessler, automated trading system, banking crisis, Bob Noyce, George Gilder, index fund, Jeff Bezos, market bubble, Menlo Park, Pepto Bismol, pets.com, Robert Metcalfe, rolodex, Sand Hill Road, Silicon Valley, Small Order Execution System, Steve Jobs, technology bubble, undersea cable, Y2K

Worldcom, Global Crossing, and Qwest kept reporting decent revenues, and met analyst expectations. Their stocks were dropping, but not as fast as dotcoms, as telecom revenues provided a cushion to the downdraft. It turned out that many telecom companies were just lying through their teeth. They employed the worst form of creative accounting—they were just swapping revenues with each other. “I’ll buy $300 million of capacity from you if you buy $299 mil- Wall Street Meat lion of capacity from me. Investors will never know.” Despite a fancy name, Indefeasible Rights of Use or IRUs, they were pure bullshit. These swaps were fluff used to distract investors from what was really going on: prices were collapsing and analyst expectations were way too high.

Gary Pilgrim showed the way, but the momo virus infected the entire market. Al Harrison, the “state your conclusions upfront” portfolio manager at Alliance Capital in Minneapolis, was someone whom I respected a lot. He fell under the spell and chased Enron shares, another company employing creative accounting, all the way down. Anyone who bought Global Crossing, or Drugstore.com, or Excite@Home, or Enron had a gambling problem. They were quacking, too. Investors Anonymous for everybody. 224 Spitzer Fixer · · · What was billed as the “Great Wall Street rip off” became big news. Investors saw their 401K retirement plans wiped out.

., 206 Beard, Anson, 89, 109 Bell Labs, 7 Berens, Rod, 84–87 Berkowitz, Jeff, 202–3 Bezos, Jeff, 174 Biggs, Barton, 24–25, 92, 123–24, 125, 126, 127, 129, 145, 152–53 Blodget, Henry, 181–85, 214–16, 218, 225–26, 231 Blum, Scott, 207 Boesky, Ivan, 56 Bogle, John, 172 bonus pool, 90 Boston Company, 103 Boucher, David, 141–42, 243 boutique analyst, 109 Boutros, George, 170 Brady, Bill, 139–40, 157, 170, 223 Bright Lights, Big City (McInerney), 39–40 248 Broadcast.com, 177–78 Brooke, Paul, 129, 143 bulge bracket firms, 108, 221 bull market(s), 50–69 takeovers, buyouts and, 53 Burroughs Corporation, 56 Business Week, 216 Buy.com, 180, 207–8 “buying it off the box,” 196–97 buy-side firms, 25 Callahan, Dennis, 73, 150, 215 Cantor Fitzgerald, 67 capital, allocating, 90 Carroll, Jim, 72 Carroll, Paul, 67 Case, Steve, 156 Cashin, Art, 42 C-Cube Microsystem, 165 CDMA, 204–5 Chinese Wall, 94, 216, 221 chip industry, 26–27 CIBC Oppenheimer, 182 Cirrus Logic, 93 Cisco, 102, 105, 126 Citigroup, 216 Citron, Jeff, 197–98, 199 Clark, Jim, 156, 165–67 Clark, Mayree, 226 CMGI, 168 CNBC, 64, 181 Colonna, Jerry, 203–4 commissions, 72, 90 compensation, on Wall Street, 90 Index Compuserve, 36 conference calls, 37 conferences, 119 Contel, 39 convertible bonds, 91 Cordial, Steve, 126 Cornell, Robert (Bob), 5–16, 20, 26–30, 72, 79, 85, 155, 167 Cowan, Ollie, 31, 53 Cramer, Jim, 182, 183, 200, 202–3 crash of October 1987, 71 creative accounting, 219 CS First Boston, 1, 179–80, 190, 223 Cuban, Mark, 178 Cuhney, Adam, 79–80 Curley, Jack, 129–30, 140, 156 Cushman, Jay, 129–30, 132 Dale, Peter, 85, 92, 96, 108, 110 Data Resource Inc. (DRI), 39 D’Auria, Henry, 65 day traders, 198 Dean Witter, 174 derivatives, 91 Deutsche Bank, 169–70, 174, 178–79 “dialing for dollars,” 47 Dickey, Richard, 95, 100, 102, 112, 135, 141–42, 230 Digital Equipment, 67 Diller, Barry, 154 Diller, Jim, 83–84, 126–27 discount rate, 20–21 Doerr, John, 109, 174 Doherty, Matt, 67–68 dotcom companies, 173–74, 180 meltdown of, 213–14 Drexel Burnham, 53, 104 Drugstore.com, 180, 224 earnings, future, 20–21 earnings reports, 92, 124 Ebbers, Bernie, 38, 212, 220, 226, 227 Eddy, Tom, 137–38 Eisenstat, Al, 158 Electronic Communications Networks (ECNs), 72, 198 Enron, 224, 229 equity salesmen, 50 Erickson, Stein, 131 Esber, Ed, 82 Excite, 168 Excite@Home, 224 Exodus Communications, 175–76 Fidelity Magellan fund, 59 fighting, on Wall Street, 68 First Jersey Securities, 82 Fisher, Dick, 101, 130 Flatiron Partners, 203 FNN (Financial News Network), 64 Foremost-Knudsen, 15 249 Index 401K retirement plans, 225 Fram, Jonathon, 11 Gams, Ed, 36–37 Gassee, Jean-Louis, 17, 206 gate arrays, 19 Gates, Bill, 100–101, 128 Gaudette, Frank, 128 General Electric, 81, 173 GeoCities, 178, 203 Gerhardt, Clark, 126 Gilder, George, 204–6 Glaser, Rob, 156, 175 Global Crossing, 219, 220, 224 Goldman Sachs, 101, 109, 130, 139, 175–77 Broadcast.com and, 177–78 IPOs and, 168–69 TheStreet.com and, 201–2 Yahoo!


pages: 306 words: 78,893

After the New Economy: The Binge . . . And the Hangover That Won't Go Away by Doug Henwood

"Robert Solow", accounting loophole / creative accounting, affirmative action, Asian financial crisis, barriers to entry, borderless world, Branko Milanovic, Bretton Woods, business cycle, capital controls, corporate governance, corporate raider, correlation coefficient, credit crunch, deindustrialization, dematerialisation, deskilling, ending welfare as we know it, feminist movement, full employment, gender pay gap, George Gilder, glass ceiling, Gordon Gekko, greed is good, half of the world's population has never made a phone call, income inequality, indoor plumbing, intangible asset, Internet Archive, job satisfaction, joint-stock company, Kevin Kelly, labor-force participation, liquidationism / Banker’s doctrine / the Treasury view, manufacturing employment, means of production, minimum wage unemployment, Naomi Klein, new economy, occupational segregation, pets.com, post-work, profit maximization, purchasing power parity, race to the bottom, Ralph Nader, Robert Gordon, Robert Shiller, Robert Shiller, Ronald Reagan, shareholder value, Silicon Valley, Simon Kuznets, statistical model, structural adjustment programs, Telecommunications Act of 1996, telemarketer, The Bell Curve by Richard Herrnstein and Charles Murray, The Wealth of Nations by Adam Smith, total factor productivity, union organizing, War on Poverty, women in the workforce, working poor, zero-sum game

But from the point of view of the consumer, the $100 premium, say, over the price of a modest unbranded shoe is money that could have been spent on other goods or services. It seems like a massive waste of money, but any beHever in freedom of reHgion wouldn't want to gainsay the spiritual experience of purchasing and wearing cleverly branded footwear. Lev's point 3 is almost too insubstantial to refrite; how can even the most creative accountant put a monetary value on a "smarter" way of doing business? But point 4 is a beaut: monopoly is spun as something to celebrate, at least by the accountant's concept of celebration. No longer 20 After the New Economy would the claim of monopoly position attract the interest of regulators or the antitrust division of the Justice Department: it'd be something to boast about on the balance sheet.

But, fantasy aside, all the exotic instruments and strategies still depended on a troublesome physical world; to have the telecoms bandwidth to trade, Enron also built a big network to fulfill demand that was never demanded. It's not easy to overthrow matter if you're trying to make a profit. You can turn to creative accountants to help you out, but not forever. Almost the only real money Enron ever made was by manipulating California's electricity market during that state's 2001 blackout crisis, but that didn't last very long, and it wouldn't be a very inspiring case study for the Harvard Business School. Enron is also a fine illustration of the transformation over the last twenty years in how corporations are run.

Business Week's annual surveys of executive pay prove year after year that there's no relation at all between compensation and corporate performance. And in seriously troubled companies, where profits were invented by clever accountants, there was no incentive to blow the whistle. Instead, the incentive was the opposite, to experiment more aggressively with creative accounting and keep it quiet. Not that the options game was wholly without payoff. For companies, options have several charms: they substitute for cash salaries, offer big tax deductions, and allow heavy users to overstate their profits, since options need not be accounted for as an expense. Such 1990s highfliers as AOL, Viacom, Lucent, and Cisco would have reported earnings 25-75% lower than they did in the late 1990s had accounting standards required honesty And options helped reduce the IRS bill: Microsoft saved more than $2 billion on taxes in 2000 thanks to options; Cisco, $1.4 billion; Enron, $390 million (Henry and Conlin 2002).


pages: 350 words: 103,988

Reinventing the Bazaar: A Natural History of Markets by John McMillan

"Robert Solow", accounting loophole / creative accounting, Albert Einstein, Alvin Roth, Andrei Shleifer, Anton Chekhov, Asian financial crisis, congestion charging, corporate governance, corporate raider, crony capitalism, Dava Sobel, Deng Xiaoping, experimental economics, experimental subject, fear of failure, first-price auction, frictionless, frictionless market, George Akerlof, George Gilder, global village, Hernando de Soto, I think there is a world market for maybe five computers, income inequality, income per capita, independent contractor, informal economy, information asymmetry, invisible hand, Isaac Newton, job-hopping, John Harrison: Longitude, John von Neumann, Kenneth Arrow, land reform, lone genius, manufacturing employment, market clearing, market design, market friction, market microstructure, means of production, Network effects, new economy, offshore financial centre, ought to be enough for anybody, pez dispenser, pre–internet, price mechanism, profit maximization, profit motive, proxy bid, purchasing power parity, Ronald Coase, Ronald Reagan, sealed-bid auction, second-price auction, Silicon Valley, spectrum auction, Stewart Brand, The Market for Lemons, The Nature of the Firm, The Wealth of Nations by Adam Smith, trade liberalization, transaction costs, War on Poverty, Xiaogang Anhui farmers, yield management

In 1997–1998, the Chicago Bulls and the New York Knicks had payrolls 2.5 times larger than those of the Los Angeles Clippers and the Milwaukee Bucks.22 This variation occurred because of exemptions: for example, a team may match outside offers made to its players. The true gap, however, is probably much larger than published salaries indicate, because of creative accounting, deferred payments, and unreported payments. “We have spent substantial hundreds of thousands of dollars of the owners’ money,” said NBA commissioner David Stern, “to make sure that the agreement is lived up to by the owners themselves.”23 The salary cap means that small-market teams can, and do, win the basketball championship.

“I don’t think so, but it’s very strange, isn’t it, very mysterious that such discrepancies in cost would arise, considering there were so many smart people here working on the bidding.”13 Why does dango persist, and why is the construction industry so hard to reform? Reported profit data provide no evidence that the firms involved benefit greatly. Doubtless some of the profits from dango make their way into the pockets of the firms’ owners and are hidden by creative accounting, but most do not. The firms must try so hard to earn the monopoly profits that they end up with little net gain. Firms use up resources in competing for monopoly profits. Much of the excess profits that dango’s high prices generate are bid away in the competition for political favor; they end up in the hands of the politicians.

Without rules designed to give shareholders reliable information about a company, investors would be reluctant to hand over their money to firms. Even with rules in place things can go awry. The Enron scandal of 2001–2 underlined the need for mechanisms to constrain managers from abusing their trust. Hiding behind creative accounting, Enron’s executives enriched themselves at their shareholders’ expense. A modern economy is almost incomprehensibly complex. Transactions require the cooperation of large numbers of people and may take years to come to fruition. Markets need a well-designed superstructure to enable them to handle such complexity.


pages: 297 words: 108,353

Boom and Bust: A Global History of Financial Bubbles by William Quinn, John D. Turner

accounting loophole / creative accounting, algorithmic trading, bank run, banking crisis, barriers to entry, Big bang: deregulation of the City of London, bitcoin, blockchain, Bretton Woods, business cycle, buy and hold, capital controls, Celtic Tiger, collapse of Lehman Brothers, Corn Laws, corporate governance, creative destruction, credit crunch, Credit Default Swap, cryptocurrency, debt deflation, deglobalization, Deng Xiaoping, different worldview, discounted cash flows, Donald Trump, Ethereum, ethereum blockchain, eurozone crisis, financial deregulation, financial intermediation, Flash crash, Francis Fukuyama: the end of history, George Akerlof, information asymmetry, intangible asset, Irish property bubble, Isaac Newton, joint-stock company, Joseph Schumpeter, light touch regulation, margin call, market bubble, market fundamentalism, Martin Wolf, money: store of value / unit of account / medium of exchange, moral hazard, mortgage debt, negative equity, Network effects, new economy, Northern Rock, oil shock, Ponzi scheme, quantitative easing, quantitative trading / quantitative finance, railway mania, Right to Buy, Robert Shiller, Robert Shiller, Shenzhen special economic zone , short selling, Silicon Valley, smart contracts, South Sea Bubble, special economic zone, technology bubble, the built environment, total factor productivity, transaction costs, tulip mania, urban planning

Simultaneously, an emerging culture of tying executive pay to a company’s share price created an incentive for companies to overstate earnings, often through the use of creative accounting.58 Before 1998, there had never been more than 60 earnings restatements in a single year in the United States; in 164 THE DOT-COM BUBBLE 1998 there were 96, in 1999, 204, and in 2000, 163. As a result, investors were led to believe in the 1998–2000 period that profits were rising, but when future revisions were taken into account, they had in fact been steady or falling.59 This practice culminated in the collapse of Enron in 2001, when it emerged that the $60 billion energy firm had used creative accounting to fraudulently hide substantial losses.

For example, in September 1889 the Victoria Freehold Bank changed its name to the British Bank of Australia.44 Scottish newspapers teemed with advertisements from these companies, offering unusually high interest on deposits.45 But these deposits were being used merely to pay off other maturing debts.46 This ultimately turned these land-boom companies into Ponzi schemes. Several companies, such as those associated with Sir Matthew Davies, the speaker of the Victorian Parliament, engaged in creative accounting practices, paid dividends out of capital or borrowed funds, and used company funds to keep their share price from falling.47 Of course, these zombie banks could only survive for so long. Between 1889 and mid-1891, the only major institution to fail was the Premier Permanent Building Association of Melbourne.


pages: 193 words: 11,060

Ethics in Investment Banking by John N. Reynolds, Edmund Newell

accounting loophole / creative accounting, activist fund / activist shareholder / activist investor, banking crisis, collapse of Lehman Brothers, corporate governance, corporate social responsibility, credit crunch, Credit Default Swap, discounted cash flows, financial independence, index fund, invisible hand, light touch regulation, margin call, moral hazard, Nick Leeson, Northern Rock, quantitative easing, shareholder value, short selling, South Sea Bubble, stem cell, the market place, The Wealth of Nations by Adam Smith, too big to fail, two and twenty, zero-sum game

Since then a number of high-profile and highly damaging incidents have also raised ethical concerns over finance. These include the liquidation of the Bank of Credit and Commerce International (BCCI) amid allegations of fraud; the bankruptcies of Enron and WorldCom, which were associated with “creative accounting” – the deliberate manipulation of accounts to obscure the true financial position of these firms – and also with fraud; the activities of rogue trader Nick Leeson, which brought about the collapse of Barings Bank, the UK’s oldest merchant bank; Robert Maxwell’s alleged misappropriation of the Mirror Newspaper Group’s pension fund; the German FlowTex scandal, where non-existent machinery had been sold; and the Credit Lyonnais crisis in the early 1990s, following a disastrous expansion strategy and a failure of risk controls.

., 73 conflicts of interest in, 112–14 cardinal virtues, 37 Caritas in Veritate (Benedict), 6, 52 cash compensation, 132, 134 casino capitalism emergence of, 43 in investment banking, 3 speculative, 16, 93 categorical imperative, 34, 59, 69 Caterpillar, 48 Central Finance Board of the Methodist Church (CFB), 54, 59 chief executive officer (CEO), 116 Christianity, 52–4 Anglican Communion, 53 Methodist Church, 53 Roman Catholic Church, 53 Christian Old Testament, 34 Church Investors’ Group (CIG), 135 Church of England, 9, 53, 58 Citigroup, 19, 112 claiming credit, 134 clients confidential information, 120 conflicts of interest, 105–10 171 duty of care, 105 engagement letters, 122–3 fees, 115–18 financial restructuring, 119–20 hold-out value, 120–1 honesty, 101–5 margin-calls, 121 practical issues, 110–15 promises, 100–1 restructuring fees, 121–2 syndication, 118–22 truth, 101–5 Code of Ethics, 47–50, 147–51 for Goldman Sachs business principles, 46 in investment banking, 47–9 Revised, 47 collatoralised debt obligations (CDOs), 30, 42, 75 command economies, 13 commercial banking, 19–21, 25 communication within markets, 88 Companies Act 2006, 27 compensation cash, 132, 134 defined, 132 for employees, 135 internal issues on, 8 for junior bankers, 136 levels of, 132–3, 138 objectivity of, 144 political issues with, 6, 137 restrictions on, 10 competitors, 113 compliance corporate, 20 danger of, 20 frameworks for, 68, 146 regulatory, 18 requirements of, 6 confidential information, 120 conflicts of interest, 105–10, 158 with capital markets, 109–10 with corporate finance, 107–8 personal, 47 with pre-IPO financing, 110 with private equity, 110 172 Index conflicts of interest – continued reconciling, 68–70 of trusted advisers, 108–9 consequentialist ethics, 36–7, 42 corporate compliance, 20 Corporate/Compliance Social Responsibility (CSR), 7 corporate debt, 17 corporate entertainment, 128–9, 159 corporate finance, 107–8 Corporate Sustainability Committee, 152 Costa, Ken, 9 Cox, Christopher, 96–7 creative accounting, 12 credit crunch, 17 credit default swap (CDS), 71 credit downgrade, 17, 76 Credit Lyonnais, 12 creditors, restricted, 121 credit rating, 75–7 calculating, 76 inaccurate, 5 manipulating, 75, 156, 158 unreliability of, 17 credit rating agencies, 76 Crisis and Recovery (Williams), 53 culture, 46, 136, 151 customers, 69 Daily Telegraph, 84 Debtor in Possession finance (DIP finance), 80 debts bank, 82–3, 120 corporate, 17 junior, 118 rated, 77 senior, 118 sovereign, 17 deferred equity, 5 deferred shares, 133 Del Monte Foods Co., 107 deontological ethics, 34–6 stockholders, 41–2 trust, 40–1 derivative, 27, 30 dharma, 63–4 Dharma Indexes, 57 discounted cash flow (DCF), 27 discount rate, 27 discriminatory behaviour, 129–31 distribution, 15, 35, 66 Dodd–Frank Wall Street Reform and Consumer Protection Act, 25 dotcom crisis, 94 dotcom stocks, 17 Dow Jones, 55–6 downgrade credit, 17, 76 defined, 76 multi-notch, 17, 76 duties, see rights vs. duties duty-based ethics, 66–8 duty of care, 105 Dynegy, 8 Earnings Before Interest Tax Depreciation and Amortisation (EBITDA), 27 economic free-ride, 5, 21 economic reality, 137 effective tax rate (ETR), 140 emissions trading, 14 employees, compensation for, 135 Encyclical, 52 engagement letters, 122–3, 159 Enron, 8, 12, 17, 20, 76 enterprise value (EV), 27 entertainment adult, 56 corporate, 128–9, 159 sexist, 159 equity deferred, 5 private, 2–3, 12, 110 equity research, 88–9, 113–15 insider dealing and, 83–4 ethical behaviour, 38–9 Ethical Investment Advisory Group (EIAG), 53, 58 ethical investment banking, 145–7 ethical standards, 47 Index ethics consequentialist, 36–7, 42 deontological, 34–6 duty-based, 66–8 exceptions and, effects of, 89–90 financial crisis and, 4–8 in investment banking, 1 in moral philosophy, 1 performance and, 8–10 rights-based, 66–8 virtue, 37–8, 43–4 see also business ethics; Code of Ethics Ethics Helpline, 48 Ethics of Executive Remuneration: a Guide for Christian Investors, The, 135 European Commission, 89 European Exchange Rate Mechanism (ERM), 17 exceptions, 89 external regulations, 19, 31 fair dealing, 45 Fannie Mae, 43 Federal Home Loan Mortgage Corporation, 43 Federal National Mortgage Association, 43 fees, 115–18 advisory, 107, 116 restructuring of, 121–2 2 and 20, 13 fiduciary duties, 27–8 financial advisers, 109 Financial Conduct Authority (FCA), 26 financial crisis, business ethics during CDOs during, 90 CDSs during, 90 ethics during, 4–8, 12–34 investment banking and, necessity of, 14–15 market capitalism, 12–14 necessity of, 14–15 non-failure of, 21 positive impact of, 18 problems with, 15–17 reality of, 16 speculation in, 91 173 Financial Crisis Inquiry Commission, 76 Financial Policy Committee (FPC), 25 financial restructuring, 119–20 Financial Services Modernization Act, 19 Financial Stability Oversight Council, 25 firm price, 67 Four Noble Truths, 57 Freddie Mac, 43 free-ride defined, 26 economic, 5, 21 in investment banking, 24 FTSE, 55 Fuhs, William, 8 General Board of Pension and Health Benefits, 54, 59 German FlowTex, 12 Gift Aid, 141 Glass–Steagall Act, 19 Global Settlement, 113 golden parachute arrangements, 133 Golden Rule, 35, 150 Goldman Sachs, 7, 16, 45, 63 Business Principles, 45–6 charges against, 78 Code of Business Conduct and Ethics, 45, 68 Code of Ethics for, 47–8 Goldsmith, Lord, 27 government, 59 business ethics within, 60 guarantees of, 24 intervention by, 22–3 government bonds, 23 greed, 4–5 Green, Stephen, 8–9 gross revenues, 59 Hedge fund behaviour of, 12 failure of, 21 funds for, raising, 2 investment fund, as type of, 3 rules for, 133 174 Index Hennessy, Peter, 42 Her Majesty’s Revenue and Customs (HMRC), 140–1 high returns, 28, 110 Hinduism, 56–7 Hobbes, Thomas, 36 hold-out value, 120–1 honesty, see trust hospitality, 128–9 hot IPOs, 94 hot-stock IPOs, 94 HSBC, 9, 28, 152 Ijara, 55 implicit government guarantee, 22–3 Independent Commission on Banking, 25 inequitable rewards, 6 informal authorisation, 81, 98 Initial Public Offering (IPO), 7 of dotcom stocks, 17 hot, allocation of, 94 hot-stock, 94 insider dealings, 83–4, 155 equity research and, 83–4 ethics of, 66, 70 laws on, 84 legal prohibition on, 82 legal restrictions on, 10 legal status of, 82 legislation on, 74 restrictions on, 83 rules of, 82, 90 securities, 70 insider trading, 12 insolvency, 24–5 institutional greed, 4 integrated bank, 28 integrated investment banking, 2, 30, 67, 106, 108 interest payments, 59–60 interest rate, 60 internal ethical issues, 126–43 abuse of resources, 127–8 corporate entertainment, 128–9 discriminatory behaviour, 129–31 hospitality, 128–9 management behaviour, 131–2 remuneration, 132–9 tax, 139–41 internal review process, managing, 134 investment banking, 94 casino capitalism in, 3 Code of Ethics in, 47–9 commercial and, convergence of, 20–1 defined, 2 ethics in, 1 free-ride in, 24 integrated, 2, 30, 67, 108, 112 in market position, role of, 65–6 moral reasoning and, 38 necessity of, 14–15 non-failure of, 19–20 positive impact of, 18 recommendations in, 94–7 sector exclusions for, 58–9 investment banking adviser, 121 investment banking behaviours, 3 investment banking ethics committee, 151–3 investment bubbles, 95 investment fund, 3 investment grade bonds, 118 investment grade securities, 76 investment recommendations, 94 investments personal account, 128, 156 principal, 15, 28 proprietary, 29 IRS, 140 Islam, 54–5 Islamic banking, 6, 54–5 Jewish Scriptures, 34 Joint Advisory Committee on the Ethics of Investment (JACEI), 54 JP Morgan, 16 Judaism, 56 junior bankers, 139 junior debt, 118 junk bond, 118 “just war” approach, 38 Index Kant, Immanuel, 35, 69 karma, 57 Kerviel, Jérôme, 44, 80 Krishna, 57 Law Society, 19 Lazard International, 9 leading adviser, 41 Leeson, Nick, 12, 44, 81 legislative change, 25–6 Lehman Brothers, 5–6, 15, 21, 23, 31, 43, 76 lenders, 26, 131 lending, 59–60 leverage levels of, 25 over, 75, 80, 119 Levin, Carl, 17, 63–4, 68 light-touch regulations, 4 liquidity market, 95 orderly, 25 withdrawal of, 24 loan-to-own, 80 Locke, John, 34 London Inter-Bank Offered Rate (LIBOR), 23 London School of Economics, 43 London Stock Exchange, 65, 71, 84 long-term values, 147 Lords Grand Committee, 27 LTCM, 23 lying, 101 MacIntyre, Alasdair, 38 management behaviour, 131–2 margin-calls, 121 market abuse, 14, 70, 75, 86–8, 155 market announcements, 88 market behaviours, 74 market capitalism, 12–14 market communications, 88 market liquidity, 95 market maker defined, 65–7 investment bank as, 66 primary activities of, 65 175 market manipulation, 75 market position, role of, 104 market rate, 117 markets advisory, 73 capital, 73, 117–18, 158 communication within, 88 duties to support, 71–2 primary, 103 qualifying, 70, 82 secondary, 103 market trading, 41 Maxwell, Robert, 12 Meir, Asher, 56 mergers and acquisitions (M&As), 41, 79 Merkel, Angela, 93 Merrill Lynch, 8, 16 Methodism, 53 Methodist Central Finance Board, 59 Methodist Church, 54 Midrash, 56 Milken, Michael, 12 Mill, John Stuart, 36 Mirror Newspaper Group, 12 misleading behaviours, 86, 105 mis-selling of goods and services, 77–9, 155 modern capitalism, 54 moral-free zones, 31 moral hazard, 22, 70 moral philosophy, 1 moral reasoning, 38 moral relativism, 38–9, 49, 68 Morgan Stanley, 47 multi-notch downgrade, 17, 79 natural law, 34, 37 natural virtues, 37 necessity of investment banking, 14–15 New York Stock Exchange (NYSE), 65, 71 New York Times, 8 Noble Eightfold Path, 57 Nomura Group Code of Ethics, 47 normal market trading, 71 Northern Rock, 43 176 Index offer price, 64 off-market trading, 71–3, 90, 155 Olis, Jamie, 8 on-market trading, 70–1 oppressive regimes, 61 option value, 121 Orderly Liquidation Authority, 25 orderly liquidity, 25 out-of-pocket expenses, 127–8 over-leverage, 75, 80, 119, 158 overvalued securities, 155 patronage culture, 131, 142 Paulson, Henry M., 86 Paulson & Co., 78 “people-based” activity, 67 P:E ratio, 27 performance, 8–10 personal abuse, 159 personal account investments, 128, 156 personal account trading, 128 personal conflicts of interest, 45 pitching, 102, 159 Plato, 37 practical issues, 110–15 competitors, relationships with, 113 equity research, 113–15 pitching, 111 sell-side advisers, 111–13 pre-IPO financing, 110 prescriptive regulations, 31, 145 price tension, 79, 113 primary market, 103 prime-brokerage, 2 principal investment, 15, 28 private equity, 2–3, 12, 110 private trading, 94 Project Merlin, 133, 141 promises, 100–1 proprietary investment, 29 proprietary trading, 15, 25, 66, 150, 155 Prudential Regulation Authority (PRA), 26 public ownership, bonus pools in, 136–9 “pump and dump” strategy, 86 qualifying instruments, 70, 87 qualifying markets, 70, 82 quality-adjusted life year (QALY), 36 Quantitative Easing (QE), 23 Queen Elizabeth II, 42 Qu’ran, 54 rated debt, 77 rates attrition, 132 discount, 27 interest, 60 market, 117 tax, 140 rating agencies, 76 Rawls, John, 35, 136 recognised exchanges, 71 Regal Petroleum, 84 regulations banking, 16 compliance with, 28 external, 19, 31 light-touch, 4 prescriptive, 31, 145 regulatory changes and, 18–20 securities, 114 self, and impact on legislation, 19 regulatory compliance, 18 religion, business ethics in, 51–62 Buddhism, 56 Christianity, 52–4 Governments, 59 Hinduism, 56–7 interest payments, 59–60 Islam, 54–5 Judaism, 56 lending, 59–60 thresholds, 60 usury, 59–60 remuneration, 132–9 bonus pools in public ownership and, 136–9 claiming credit, 134 ethical issues with, 142–3 internal review process, managing, 134 1 Timothy 6:10, 135–6 Index research, 156 resources, abuse of, 127–8 restricted creditors, 120 restructuring of fees, 121–2 financial, 119–20 syndication and, 118–22 retail banks, 16 returns, 28, 156 Revised Code of Ethics, 47 right livelihood, 57 rights-based ethics, 66–8 rights vs. duties advisory vs. trading/capital markets, 73 conflict between, reconciling, 68–70 duty-based ethics, 66–8 off-market trading, ethical standards to, 71–2 on-market trading, ethical standards in, 70–1 opposing views of, 63–74 reconciling conflict between, 68–70 rights-based ethics, 66–8 Roman Catholic Church, 52 Royal Dutch Shell, 85 Sarbanes–Oxley Act, 20 Schwarzman, Stephen, 20 scope of ethical issues, 7–8 secondary market, 103 sector exclusions for investment banking, 58–9 securities investment grade, 76 issuing, 103–5 overvalued, 155 Securities and Exchange Commission (SEC), 7, 16 Goldman Sachs, charges against, 78 rating agencies, review by, 77 short-selling, review of, 96–7 securities insider dealing, 70 securities mis-selling, 77–9 securities regulations, 114 self-regulation, 19 sell recommendation, 115 177 sell-side advisers, 107, 111–13 Senate Permanent Subcommittee on Investigations, 46 senior debt, 118 sexist entertainment, 159 shareholders, 27–9 shares, deferred, 133 Shariah finance, 55 short-selling, 94–7, 154–5 Smith, Adam, 14, 35–6 social cohesion, 53 socially responsible investment (SRI), 56 Société Générale, 44, 80 solidarity, 53 Soros, George, 17 South Sea Bubble, 90 sovereign debt, 17 speculation, 91–4, 155 in financial crisis, 93 traditional views of, 91–3 speculative casino capitalism, 16, 91 spread, 21 stabilisation, 89 stock allocation, 94–7 stockholders, 41–2 stocks, dotcom, 17 Strange, Susan, 43 strategic issues with business ethics, 30–1 syndication, 119 and restructuring, 118–22 systemic risk, 24–5 Takeover Panel, 109 Talmud, 56 taxes, 139–41 tax optimisation, 158 tax rates, 140 tax structuring, 140 Terra Firma Capital Partners, 79, 112 Theory of Moral Sentiments, The (Smith), 14 3iG FCI Practitioners’ Report, 51 thresholds, 60 1 Timothy 6:10, 135–6 178 Index too big to fail concept, 21–7 ethical duties, and implicit Government guarantee, 22–3 ethical implications of, 26–7 in government, 22–3 insolvency, systemic risk and, 24–5 legislative change, 25–6 Lehman, failure of, 23 systemic risk, 24–5 toxic financial products, 5 trading abusive, 93 emissions, 14 insider, 12 market, 41 normal market, 71 off-market, 71–83, 90, 155 on-market, 70–1 personal account, 128 private, 94 proprietary, 15, 25, 66, 150, 155 unauthorised, 7 “trash and cash” strategy, 86 Travellers, 19 Treasury Select Committee, 26 Trinity Church, 53 Trouble with Markets, The (Bootle), 4 trust, 40, 53 trusted adviser, 108–9, 125 truth, 101–5 bait and switch, 102–3 misleading vs. lying, 101 securities, issuing, 103–5 2 and 20 fee, 13 UBS Investment Bank, 9 unauthorised trading, 7, 80–1, 155 unethical behaviour, 68 UK Alternative Investment Market, 89 UK Business Growth Fund, 133 UK Code of Practice, 141 UK Independent Banking Commission, 4, 22 United Methodist Church, 54, 59 United Methodist Investment Strategy Statement, 59 US Federal Reserve, 24, 25 US Financial Crisis Inquiry Commission, 4 US Open, 126 US Senate Permanent Subcommittee on Investigations, 64, 73 US Treasury Department, 132 universal banks, 2, 21, 28, 67 untoward movement, 85 usury, 59–60 utilitarian, 84 utilitarian ethics, 49, 84, 139 values, 9, 46, 119–21, 148 Vedanta, 57 victimless crime, 82 virtue ethics, 37–8, 43–4 virtues, 9, 34 virtuous behaviours, 37 Vishnu, 57 Volcker, Paul, 25 Volcker Rule, 2, 25 voting shareholders, 29 Wall Street, 12, 19, 53 Wall Street Journal, 20 Wealth of Nations, The (Smith), 14 Wesley, John, 53 Wharf, Canary, 18 Williams, Rowan, 53 Wimbledon, 127 WorldCom, 12, 17, 20, 76 write-off, 80 zakat, 55 zero-sum games, 118–22


pages: 260 words: 67,823

Always Day One: How the Tech Titans Plan to Stay on Top Forever by Alex Kantrowitz

accounting loophole / creative accounting, Albert Einstein, AltaVista, Amazon Web Services, augmented reality, Automated Insights, autonomous vehicles, Bernie Sanders, Clayton Christensen, cloud computing, collective bargaining, computer vision, Donald Trump, drone strike, Elon Musk, Firefox, Google Chrome, hive mind, income inequality, Infrastructure as a Service, inventory management, iterative process, Jeff Bezos, job automation, Jony Ive, knowledge economy, Lyft, Mark Zuckerberg, Menlo Park, new economy, Peter Thiel, QR code, ride hailing / ride sharing, robotic process automation, self-driving car, Silicon Valley, Skype, Snapchat, Steve Ballmer, Steve Jobs, Steve Wozniak, super pumped, Tim Cook: Apple, uber lyft, wealth creators, zero-sum game

In this new knowledge economy, companies hired people not simply for what they could do physically, but for what they knew. The transition to the knowledge economy caused managers to start rethinking the old factory approach. Striking fear into your employees, it turned out, wasn’t a great way to harness their brain power. Treating them with kindness and respect, however, could net smarter marketing plans, creative accounting solutions, and successful customer service interactions in return. In his 1960 book, The Human Side of Enterprise, MIT lecturer Douglas McGregor put his finger on this shift in philosophy, splitting the different management approaches into two categories: Theory X and Theory Y. Theory X, the old, factory style, starts with the belief that people are lazy, will do whatever they can not to work, and are best managed with constant supervision and unmerciful punishment.

Theory Y, the approach McGregor spotted as it came into focus in the 1960s, starts with the belief that people are self-motivated and will perform best when treated well. Theory Y is still religion inside many successful companies today, a guiding force in an era of workplace yoga and free snacks. In today’s economy, though, things are changing once again. Computers are starting to produce the marketing plans, creative accounting solutions, and customer service interactions Theory Y was meant to elicit. And they don’t care about perks. So it’s time to think about what’s next. I’m not going to propose a Theory Z. The last person who did, Dr. William Ouchi, developed a Theory Z to explain Japan’s economic success in the 1980s.


pages: 419 words: 119,476

Posh Boys: How English Public Schools Ruin Britain by Robert Verkaik

accounting loophole / creative accounting, Alistair Cooke, banking crisis, Berlin Wall, Boris Johnson, British Empire, Brixton riot, disinformation, Dominic Cummings, Donald Trump, Etonian, G4S, gender pay gap, God and Mammon, income inequality, Khartoum Gordon, Kickstarter, knowledge economy, Livingstone, I presume, loadsamoney, mega-rich, Neil Kinnock, offshore financial centre, old-boy network, place-making, Plutocrats, plutocrats, Robert Gordon, Robert Mercer, school vouchers, Steve Bannon, The Bell Curve by Richard Herrnstein and Charles Murray, trade route, traveling salesman, unpaid internship

So in 1980 the Conservative Party set about bringing back a form of direct grant under an initiative which would provide funding for the education of a few poor, bright students at the top public schools. Between 1980 and 1997, more than 75,000 children from state schools benefited from the assisted-places scheme (though some of the parents managed to overcome the means-testing barrier by creative accounting). Eighty per cent of these students went on to attend university, with 15.6 per cent ending up at an elite institution like Oxford or Cambridge. By 2012, four out of ten assisted-place pupils were earning £90,000 a year or more and even those who didn’t go to university were in solidly middle-class occupations with a good income.

Parents who are already paying inflation-busting fees don’t want to pay more, no matter how noble the cause. Funds for bursaries must come from endowments and donations. Lenon says it would be ‘quite dangerous to let too many unworthy parents through the net’ because fee-paying parents would feel they were subsidising the pupils whose families had the more creative accountants. This leaves many schools relying on donations, which have not been so generous in recent years. At Eton, annual donations have fallen by £600,000 in 2016–17, down to £5.2 million from £5.8 million. Many Old Etonians and public school alumni profess themselves fed up with the begging-bowl approach, feeling plagued by phone calls, emails and letters asking for cash to maintain buildings and subsidise pupils.

Private school fees might be paid by a big company on behalf of its senior executives, so that the schooling of the chief executive’s children becomes another perk, or benefit in kind, that escapes full taxation. And pension funds can be deployed to further cut the costs because parents can make use of their pension by taking a quarter tax free when they reach fifty-five. With all these charitable tax breaks and such creative accounting, rich families can hugely reduce the cost of their children’s school fees. The schools still get paid and the only person to take a hit is the taxman. For decades some of Britain’s wealthiest families have exploited these tax loopholes. The issue was first publicly called into question in 1969 by the Newsom Commission on private education reform.


pages: 241 words: 75,516

The Paradox of Choice: Why More Is Less by Barry Schwartz

accounting loophole / creative accounting, attribution theory, Atul Gawande, availability heuristic, Cass Sunstein, Daniel Kahneman / Amos Tversky, endowment effect, framing effect, hedonic treadmill, income per capita, job satisfaction, loss aversion, medical residency, mental accounting, Own Your Own Home, Pareto efficiency, positional goods, price anchoring, psychological pricing, RAND corporation, Richard Thaler, science of happiness, The Wealth of Nations by Adam Smith

Forty dollars may be a lot to spend for a way to fill Friday evening, but not much to spend to find a mate. In sum, just how well this $40 night at the concert satisfies you will depend on how you do your accounting. People often talk jokingly about how “creative” accountants can make a corporate balance sheet look as good or as bad as they want it to look. Well, the point here is that we are all creative accountants when it comes to keeping our own psychological balance sheet. Frames and Prospects KAHNEMAN AND TVERSKY HAVE USED THEIR RESEARCH ON FRAMING and its effects to construct a general explanation of how we go about evaluating options and making decisions.


pages: 349 words: 134,041

Traders, Guns & Money: Knowns and Unknowns in the Dazzling World of Derivatives by Satyajit Das

accounting loophole / creative accounting, Albert Einstein, Asian financial crisis, asset-backed security, beat the dealer, Black Swan, Black-Scholes formula, Bretton Woods, BRICs, Brownian motion, business process, buy and hold, buy low sell high, call centre, capital asset pricing model, collateralized debt obligation, commoditize, complexity theory, computerized trading, corporate governance, corporate raider, Credit Default Swap, credit default swaps / collateralized debt obligations, cuban missile crisis, currency peg, disinformation, disintermediation, diversification, diversified portfolio, Edward Thorp, Eugene Fama: efficient market hypothesis, Everything should be made as simple as possible, financial innovation, fixed income, Haight Ashbury, high net worth, implied volatility, index arbitrage, index card, index fund, interest rate derivative, interest rate swap, Isaac Newton, job satisfaction, John Meriwether, locking in a profit, Long Term Capital Management, mandelbrot fractal, margin call, market bubble, Marshall McLuhan, mass affluent, mega-rich, merger arbitrage, Mexican peso crisis / tequila crisis, money market fund, moral hazard, mutually assured destruction, Myron Scholes, new economy, New Journalism, Nick Leeson, Nixon triggered the end of the Bretton Woods system, offshore financial centre, oil shock, Parkinson's law, placebo effect, Ponzi scheme, purchasing power parity, quantitative trading / quantitative finance, random walk, regulatory arbitrage, Right to Buy, risk free rate, risk-adjusted returns, risk/return, Satyajit Das, shareholder value, short selling, South Sea Bubble, statistical model, technology bubble, the medium is the message, the new new thing, time value of money, too big to fail, transaction costs, value at risk, Vanguard fund, volatility smile, yield curve, Yogi Berra, zero-coupon bond

Rusnak even kept his forged documentation on his PC in a file called ‘Fake Docs’. 05_CH04.QXD 17/2/06 144 4:22 pm Page 144 Tr a d e r s , G u n s & M o n e y National Australia Bank In 2004, a group of currency option dealers lost $360 million. The traders used incorrect rates and false transactions to hide losses. These are only the known losses – the known knowns. There are losses that are never reported, hidden in reserves and by other creative accounting. In 1998, I was talking to the head of trading for a bank. ‘Thank God for the Asian You have no idea what we crisis,’ he said. I expressed surprise. The were able to write-off. bank had lost over $1 billion, blaming the collapse of Asian markets. ‘You have no idea what we were able to write-off,’ he said with a broad grin.

DAS_C10.QXD 5/3/07 7:59 PM Page 291 9 C re d i t w h e re c re d i t i s d u e – f u n w i t h C D S a n d C D O 291 Hangovers After a period of strong returns, the CDO market hit an iceberg around 2000/2001. The losses were huge – one investor lost a cool $1,000 million plus. The reasons were clear. It was the credit cycle, stupid! You were investing in credit, what did you expect? Defaults increased sharply as the US slipped into recession and creative accounting compounded the losses. CDOs are also massively leveraged: if you buy the 2% equity in a CDO, then you are 50 times leveraged, compared to the 10 to 12 times that a normal bank uses. Losses and leverage are not good bedfellows. Sound, highly-rated companies also found reefs. Asbestos liability and the Californian electricity deregulation claimed victims.

European bankers blushed: they muttered about ‘American influence’ and DAS_C10.QXD 5/3/07 7:59 PM Page 299 9 C re d i t w h e re c re d i t i s d u e – f u n w i t h C D S a n d C D O 299 ‘American investment banks’. A central player in the Parmalat road crash was a company – ‘Buconero’ (meaning ‘black hole’ in Italian). Buconero was used to conceal a spectacular piece of creative accounting. Parmalat had been a common firm in CDO portfolios. Diversification of credit risk demanded firms in different industries and from different countries, and Italian food companies were hard to find. The Parmalat default resulted in losses to many CDO investors. Many STCDO tranches were downgraded as investors and dealers struggled with ‘jump to default’.


pages: 369 words: 94,588

The Enigma of Capital: And the Crises of Capitalism by David Harvey

accounting loophole / creative accounting, anti-communist, Asian financial crisis, bank run, banking crisis, Bernie Madoff, Big bang: deregulation of the City of London, Bretton Woods, British Empire, business climate, call centre, capital controls, creative destruction, credit crunch, Credit Default Swap, David Ricardo: comparative advantage, deindustrialization, Deng Xiaoping, deskilling, equal pay for equal work, European colonialism, failed state, financial innovation, Frank Gehry, full employment, global reserve currency, Google Earth, Guggenheim Bilbao, Gunnar Myrdal, Herbert Marcuse, illegal immigration, indoor plumbing, interest rate swap, invention of the steam engine, Jane Jacobs, joint-stock company, Joseph Schumpeter, Just-in-time delivery, land reform, liquidity trap, Long Term Capital Management, market bubble, means of production, megacity, microcredit, Money creation, moral hazard, mortgage debt, Myron Scholes, new economy, New Urbanism, Northern Rock, oil shale / tar sands, peak oil, Pearl River Delta, place-making, Ponzi scheme, precariat, reserve currency, Ronald Reagan, Savings and loan crisis, sharing economy, Shenzhen special economic zone , Silicon Valley, special drawing rights, special economic zone, statistical arbitrage, structural adjustment programs, the built environment, the market place, The Theory of the Leisure Class by Thorstein Veblen, The Wealth of Nations by Adam Smith, Thomas L Friedman, Thomas Malthus, Thorstein Veblen, too big to fail, trickle-down economics, urban renewal, urban sprawl, white flight, women in the workforce

Krieger’s figures turned out to be faulty by $80 million but, rather than admit its profitability had disappeared, the bank tried all manner of ‘creative’ accounting practices to cover over the discrepancy before finally having to admit that it had been wrong. Notice the elements in this tale. First, unregulated over-the-counter trading permits all sorts of financial innovation and shady practices which nevertheless make a lot of money. Secondly, the bank supports such practices, even though they don’t understand them (the mathematics in particular), because they are often so profitable relative to their core business and hence improve share value. Third, creative accounting enters the picture, and fourth, the valuation of assets for accounting practices is extremely uncertain in volatile markets.


pages: 337 words: 89,075

Understanding Asset Allocation: An Intuitive Approach to Maximizing Your Portfolio by Victor A. Canto

accounting loophole / creative accounting, airline deregulation, Andrei Shleifer, asset allocation, Bretton Woods, business cycle, buy and hold, buy low sell high, capital asset pricing model, commodity trading advisor, corporate governance, discounted cash flows, diversification, diversified portfolio, fixed income, frictionless, high net worth, index fund, inflation targeting, invisible hand, John Meriwether, law of one price, liquidity trap, London Interbank Offered Rate, Long Term Capital Management, low cost airline, market bubble, merger arbitrage, money market fund, new economy, passive investing, Paul Samuelson, Performance of Mutual Funds in the Period, price mechanism, purchasing power parity, risk free rate, risk tolerance, risk-adjusted returns, risk/return, Ronald Reagan, Savings and loan crisis, selection bias, shareholder value, Sharpe ratio, short selling, statistical arbitrage, stocks for the long run, survivorship bias, Tax Reform Act of 1986, the market place, transaction costs, Y2K, yield curve, zero-sum game

The potential distorting economic effects of tax changes and their impact on the way investors, managers, and employees behave are numerous: • If changes in the tax structure produce an after-tax return ranking different from the before-tax ranking, the economy’s resources are allocated in a suboptimal way. • Tax changes alter the way returns are delivered to investors. For example, a financial manager would have an incentive to convert dividend returns into capital-gain returns if the tax on capital gains were reduced in a significant way. The incentive to do so would also generate some creative accounting behavior at the corporate level as well as an increase in resources devoted to the financial engineering of after-tax returns. • Altering the relative attractiveness of the way returns are delivered to investors also alters the investment composition of individual corporations. Changes in corporate and investor behavior are most likely noticeable during inflection points in the tax code.

The continued investment shifts away from dividends and toward capital gains during the 1990s, as well as the surge in corporate debt, are well documented today. But unlike most, I happen to think these shifts were in large part tax-induced—and this has far reaching implications. During the previous decade, corporate managers, as noted, had an incentive to convert dividends into capital gains. The incentive to do so generated some creative accounting behavior as well as an increase in resources 76 UNDERSTANDING ASSET ALLOCATION devoted to engineering after-tax returns rather than generating before-tax returns. In this environment, employers and employees at times found it worthwhile to develop “creative” compensation schemes. Not only were many contracts written in a way that generated capital gains, the contracts also rewarded managers for generating capital gains.


pages: 368 words: 32,950

How the City Really Works: The Definitive Guide to Money and Investing in London's Square Mile by Alexander Davidson

accounting loophole / creative accounting, algorithmic trading, asset allocation, asset-backed security, bank run, banking crisis, barriers to entry, Big bang: deregulation of the City of London, buy and hold, capital asset pricing model, central bank independence, corporate governance, Credit Default Swap, dematerialisation, discounted cash flows, diversified portfolio, double entry bookkeeping, Edward Lloyd's coffeehouse, Elliott wave, Exxon Valdez, foreign exchange controls, forensic accounting, global reserve currency, high net worth, index fund, inflation targeting, intangible asset, interest rate derivative, interest rate swap, John Meriwether, London Interbank Offered Rate, Long Term Capital Management, margin call, market fundamentalism, Nick Leeson, North Sea oil, Northern Rock, pension reform, Piper Alpha, price stability, purchasing power parity, Real Time Gross Settlement, reserve currency, Right to Buy, risk free rate, shareholder value, short selling, The Wealth of Nations by Adam Smith, transaction costs, value at risk, yield curve, zero-coupon bond

. ________________________________________ HOW TO VALUE SHARES 37  To compare cash flow with earnings, the ideal approach is to compare the cash flow statement with the income statement in the annual report and accounts, which is usually available on a listed company’s website. If net cash generated from operating activities on the cash flow statement is materially less than net operating profit on the income statement, there has been creative accounting at work, as Jim Slater put it in his book The Zulu Principle. Earnings per share divided by dividend per share provides dividend cover, a figure that you will be able to calculate from data provided on individual companies in the business section of Times Online. Dividend cover says how easily a company can pay a dividend from profits.

The Act met the recognised need for stricter auditing controls. At Enron, the Arthur Andersen team in charge of the company audit was found to have destroyed documents to conceal the truth, which showed a need for greater controls. Sarbanes–Oxley aims to reinforce the independent status of external auditors and requires procedures that stamp out creative accounting. Financial reports should be auditable and supported by data, as well as proof against alteration, with systems in place to detect this. Under Sarbanes–Oxley, accountants cannot mix auditing with certain activities, including actuarial or legal services, and bookkeeping. Auditors are supervised by a Public Company Accounting Oversight Board that is answerable to the Securities and Exchange Commission (SEC), the US regulator of financial markets.


pages: 382 words: 105,166

The Reckoning: Financial Accountability and the Rise and Fall of Nations by Jacob Soll

accounting loophole / creative accounting, bank run, Bonfire of the Vanities, British Empire, collapse of Lehman Brothers, computer age, corporate governance, creative destruction, Credit Default Swap, delayed gratification, demand response, discounted cash flows, double entry bookkeeping, financial independence, Frederick Winslow Taylor, God and Mammon, High speed trading, Honoré de Balzac, inventory management, invisible hand, Isaac Newton, James Watt: steam engine, joint-stock company, Joseph Schumpeter, new economy, New Urbanism, Nick Leeson, Ponzi scheme, Ralph Waldo Emerson, Scientific racism, South Sea Bubble, The Wealth of Nations by Adam Smith, Thomas Malthus, too big to fail, trade route

With rumors that Spain had given up its trade rights in South America and old stories about Drake and Raleigh finding an El Dorado in the New World catching the imagination of both the public and the political classes, Harley, together with John Blunt—director of another stock company and bank—created the South Sea Company. The crown would give the company a trade monopoly for the east coast of South America from the Orinoco River to the Terra del Fuego and for the entire west coast. In return, the company would offer all holders of government debt shares in the company. In other words, using creative accounting, government debt was magically turned into shares of the South Sea Company. The company agreed to assume around £31 million of government debt for a payment from the government of 4 percent interest and £1 million in cash for liquidity (cash so that it could operate). Once stocks were sold, the company would pay the government £4 million outright for monopoly rights.

., 147, 163–164 Contaduría de Cuentas, 63 Contaduría de Hacienda, 63 Convention Nationale, 145 Coolidge, Calvin, 192 Coopers & Lybrand, 196 Copying machine, Watt and, 124 Corruption Athenian, 4 Dutch, 82 English, 111–116, 166 French, 136 professional accountants and, 178–179, 195–200 railroads in the Gilded Age and, 168, 170–171, 176 Spanish, 68 Cost accounting Nazi Germany and, 187–188 railroads and, 169–170 scientific management and, 186–187 Wedgewood and, 122–126 Council of Finance (France), 94, 96 Council of Finance (Spain), 63–64 Council of Florence, 38 Courtier, The (Castiglione), 56–57 Covenants, 22 Creative accounting, 106–107 Credit and exchange, tools of, 17, 33 Credits and debits. See Double-entry accounting/bookkeeping Cultures of accountability, xvi–xvii, 207–208 British Protestantism and, 119–122 Christianity and, 22–28 in colonial America, 149–155 in England, 103–104, 107–108, 112–113, 119–122 French Revolution and, 133 in Holland, 80, 207 Jesuits and, 57 Medici family and, 35–47 Neo-Platonism and discrediting of, 55–59 republican, 52–54 Da Vinci, Leonardo, 50 Dante, 21, 25, 189 D’Artagnan, Charles Ogier de Batz-Castelmore, comte, 93 D’Artois, Charles-Philippe de France, comte, 143 Darwin, Charles, 183–185 Darwin, Emma, 184 Darwin, Erasmus, 129, 183 Darwin, Francis, 184 Darwin, William, 183–185 Datini, Francesco, 15–22, 25–28 Davenant, Charles, 103 David Copperfield (Dickens), 180 De Bonicha, Jacobus, 12 De Calonne, Vicomte, Charles Alexandre, 137 De Chabrol de Crouzol, Christophe, comte, 167 De Computis (Pacioli), 51, 54–55 De Créquy, Marquise, Renée-Caroline, 141–142 De Gournay, Vincent, 135 De la Court, Pieter, 84–85, 86 De Solórzano, Bartolomé Salvador, 67 De Witt, Cornelis, 86 De Witt, Johan, 85–86 Death and the Miser (art) (Provost), 208 Debits and credits.


pages: 380 words: 109,724

Don't Be Evil: How Big Tech Betrayed Its Founding Principles--And All of US by Rana Foroohar

"side hustle", accounting loophole / creative accounting, Airbnb, algorithmic bias, AltaVista, autonomous vehicles, banking crisis, barriers to entry, Bernie Madoff, Bernie Sanders, bitcoin, book scanning, Brewster Kahle, Burning Man, call centre, cashless society, cleantech, cloud computing, cognitive dissonance, Colonization of Mars, computer age, corporate governance, creative destruction, Credit Default Swap, cryptocurrency, data is the new oil, death of newspapers, Deng Xiaoping, disinformation, disintermediation, don't be evil, Donald Trump, drone strike, Edward Snowden, Elon Musk, en.wikipedia.org, Erik Brynjolfsson, Etonian, Filter Bubble, future of work, game design, gig economy, global supply chain, Gordon Gekko, greed is good, income inequality, independent contractor, informal economy, information asymmetry, intangible asset, Internet Archive, Internet of things, invisible hand, Jaron Lanier, Jeff Bezos, job automation, job satisfaction, Kenneth Rogoff, life extension, light touch regulation, Lyft, Mark Zuckerberg, Marshall McLuhan, Martin Wolf, Menlo Park, move fast and break things, move fast and break things, Network effects, new economy, offshore financial centre, PageRank, patent troll, paypal mafia, Peter Thiel, pets.com, price discrimination, profit maximization, race to the bottom, recommendation engine, ride hailing / ride sharing, Robert Bork, Sand Hill Road, search engine result page, self-driving car, shareholder value, sharing economy, Shoshana Zuboff, Silicon Valley, Silicon Valley startup, smart cities, Snapchat, South China Sea, sovereign wealth fund, Steve Bannon, Steve Jobs, Steven Levy, subscription business, supply-chain management, surveillance capitalism, TaskRabbit, Telecommunications Act of 1996, The Chicago School, the new new thing, Tim Cook: Apple, too big to fail, Travis Kalanick, trickle-down economics, Uber and Lyft, Uber for X, uber lyft, Upton Sinclair, WeWork, WikiLeaks, zero-sum game

The favorable treatment was granted whether the increase in stock prices was a result of the efforts of the manager or the result of a lowering of interest rates or a change in oil prices.”12 Making matters worse, the tax code, which was gradually relaxed to favor corporate debt over equity (corporate margin debt is today at record highs thanks to the tax benefits of borrowing), gave companies even more incentives to manipulate their share prices with buybacks. “The whole stock options boom caused so many incentives for bad behavior of all kinds, and for making each [corporation] look better than it was. It’s all directly responsible for what I’d term ‘creative accounting,’ which has had such a devastating effect on our economy,” says Stiglitz.13 The buyback issue would reemerge as an even bigger problem after the financial crisis of 2008 when companies like Apple and Google would take advantage of the ultralow interest rates (which themselves were a response to the crisis) to issue loads of bonds on the U.S. debt markets and then use the proceeds to pay back the richest shareholders in the form of buybacks and dividends, thus increasing the wealth divide.14 But back in early 2000, a different problem was emerging—the dot-com boom was turning to bust.

The value of the NASDAQ index peaked on March 10, 2000; three days later news that Japan had once again entered a recession triggered a global stock sell-off, which led to the usual “flight from risk,” in which investors start to dump fundamentally weak stocks whose problems had been previously masked by “creative accounting.” On March 20, Barron’s ran a cover story entitled “Burning Up: Warning—Internet Companies Are Running Out of Cash, Fast.” Companies were starting to issue reversals of revenue statements, and investors began to realize that many once-lauded start-ups were more style than substance. Once the Fed decided to raise interest rates, the die was cast.


Principles of Corporate Finance by Richard A. Brealey, Stewart C. Myers, Franklin Allen

3Com Palm IPO, accounting loophole / creative accounting, Airbus A320, Asian financial crisis, asset allocation, asset-backed security, banking crisis, Bernie Madoff, big-box store, Black-Scholes formula, break the buck, Brownian motion, business cycle, buy and hold, buy low sell high, capital asset pricing model, capital controls, Carmen Reinhart, carried interest, collateralized debt obligation, compound rate of return, computerized trading, conceptual framework, corporate governance, correlation coefficient, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, cross-subsidies, discounted cash flows, disintermediation, diversified portfolio, equity premium, eurozone crisis, financial innovation, financial intermediation, fixed income, frictionless, fudge factor, German hyperinflation, implied volatility, index fund, information asymmetry, intangible asset, interest rate swap, inventory management, Iridium satellite, Kenneth Rogoff, law of one price, linear programming, Livingstone, I presume, London Interbank Offered Rate, Long Term Capital Management, loss aversion, Louis Bachelier, market bubble, market friction, money market fund, moral hazard, Myron Scholes, new economy, Nick Leeson, Northern Rock, offshore financial centre, Ponzi scheme, prediction markets, price discrimination, principal–agent problem, profit maximization, purchasing power parity, QR code, quantitative trading / quantitative finance, random walk, Real Time Gross Settlement, risk free rate, risk tolerance, risk/return, Robert Shiller, Robert Shiller, shareholder value, Sharpe ratio, short selling, Silicon Valley, Skype, Steve Jobs, sunk-cost fallacy, Tax Reform Act of 1986, The Nature of the Firm, the payments system, the rule of 72, time value of money, too big to fail, transaction costs, University of East Anglia, urban renewal, VA Linux, value at risk, Vanguard fund, yield curve, zero-coupon bond, zero-sum game, Zipcar

This would avoid any systematic biases. It would break no law or accounting standard. This step seems so simple and effective that we are at a loss to explain why firms have not adopted it.20 Earnings and Earnings Targets The biases that we have just described do not come from creative accounting. They are built into GAAP. Of course we should worry about creative accounting also. We have already noted how stock options have tempted managers to fiddle with accounting choices to make reported earnings look good and prop up stock price. But perhaps there is a deeper problem. CEOs of public companies face constant scrutiny.

New projects may take several years to reach full profitability. In these cases book income is ______ than economic income early in the project’s life and ______ than economic income later in its life.” 7. Earnings targets How in practice do managers of public firms meet short-run earnings targets? By creative accounting? INTERMEDIATE 8. Incentives Compare typical compensation and incentive arrangements for (a) top management, for example, the CEO or CFO, and (b) plant or division managers. What are the chief differences? Can you explain them? 9. Incentives Suppose all plant and division managers were paid only a fixed salary—no other incentives or bonuses.

Patel, and R. Zeckhauser, “Earnings Management to Exceed Thresholds,” The Journal of Business 72 (January 1999), pp. 1–33. 24Sometimes, instead of adjusting their operations, companies meet their target earnings by bending the accounting rules. For example, in August 2009 GE was fined $50 million for creative accounting in earlier years. The SEC said that GE had met or exceeded analysts’ profit targets in every quarter from 1995 through 2004, but that its top accountants signed off on improper decisions to make its numbers look better and to avoid missing analysts’ earnings expectations. 25Graham, Harvey, and Rajgopal, op. cit., p. 29. © 2005, with permission from Elsevier. 26We are grateful to Mike Staunton for providing us with these estimates.


pages: 700 words: 201,953

The Social Life of Money by Nigel Dodd

accounting loophole / creative accounting, bank run, banking crisis, banks create money, Bernie Madoff, bitcoin, Bitcoin Ponzi scheme, blockchain, borderless world, Bretton Woods, BRICs, business cycle, capital controls, cashless society, central bank independence, collapse of Lehman Brothers, collateralized debt obligation, commoditize, computer age, conceptual framework, credit crunch, cross-subsidies, David Graeber, debt deflation, dematerialisation, disintermediation, Dogecoin, eurozone crisis, fiat currency, financial exclusion, financial innovation, Financial Instability Hypothesis, financial repression, floating exchange rates, Fractional reserve banking, German hyperinflation, Goldman Sachs: Vampire Squid, Herbert Marcuse, Hyman Minsky, illegal immigration, informal economy, interest rate swap, Isaac Newton, John Maynard Keynes: Economic Possibilities for our Grandchildren, joint-stock company, Joseph Schumpeter, Kickstarter, Kula ring, laissez-faire capitalism, land reform, late capitalism, liberal capitalism, liquidity trap, litecoin, London Interbank Offered Rate, M-Pesa, Marshall McLuhan, means of production, mental accounting, microcredit, mobile money, Modern Monetary Theory, Money creation, money market fund, money: store of value / unit of account / medium of exchange, mortgage debt, National Debt Clock, negative equity, new economy, Nixon shock, Nixon triggered the end of the Bretton Woods system, Occupy movement, offshore financial centre, paradox of thrift, payday loans, Peace of Westphalia, peer-to-peer, peer-to-peer lending, Ponzi scheme, post scarcity, Post-Keynesian economics, postnationalism / post nation state, predatory finance, price mechanism, price stability, quantitative easing, quantitative trading / quantitative finance, remote working, rent-seeking, reserve currency, Richard Thaler, risk free rate, Robert Shiller, Robert Shiller, Satoshi Nakamoto, Scientific racism, seigniorage, Skype, Slavoj Žižek, South Sea Bubble, sovereign wealth fund, special drawing rights, The Wealth of Nations by Adam Smith, too big to fail, trade liberalization, transaction costs, Veblen good, Wave and Pay, Westphalian system, WikiLeaks, Wolfgang Streeck, yield curve, zero-coupon bond

This is a crisis of legitimacy as much as economics, provoked by the contrast between the resources that governments have devoted to rescuing banks and on the other hand, their subsequent willingness to make dramatic and socially corrosive cuts in public expenditures. Many financial institutions have been saved from insolvency by a combination of public finds and creative accounting, but households and individuals tend to be granted no such leniency. The crisis has polarized every society that has been affected by it, giving birth to a meme—the 99 percent—that is inextricably tied to rising resentment and hostility toward Wall Street. Faced with these realities, it is little wonder that a war has been declared on the banking system through political protests that have embraced as wide a spectrum of society as the original crisis itself.

The euro convergence criteria (also known as the Maastricht criteria) based on Article 121(1) of the European Community Treaty, were designed to ensure that the Eurozone’s constituent national economies were sufficiently in line to prevent the single monetary policy from working in favor of some member states and not others. The criteria were the result of compromise between French and German negotiators (Eichengreen 2008: 220), and they were subject to creative accounting (Aldcroft 2001). Just before the euro’s launch in 1999 (as a virtual currency, with exchange rates fixed: notes and coins came three years later), the debt/GDP of Germany (61.3 percent) was too high, and in Belgium (122.2 percent) was more than twice as high as the entry criteria demanded, whereas that of the Netherlands ran at 70.4 percent.

From the neochartalist perspective, as discussed in Chapter 3, this means that any government spending not covered by taxes requires external financing (Wray 2006: 92–93). To some experts and political actors, this was (and remains) a virtue, preventing states from using lax monetary policy to fund excessive spending. Such an argument misses three important points, however. First, just as most governments engaged in creative accounting to meet the convergence criteria, some would continue to do so to disguise high levels of borrowing. This appears to be what happened with Greece, where the government consistently misrepresented the size of the public debt (Tsoukalis 2012). In October 2009, the incoming Papandreou government revised the country’s deficit figures, from 5.4 percent to around 12 percent of GDP.


pages: 138 words: 41,353

The Cosmopolites: The Coming of the Global Citizen by Atossa Araxia Abrahamian

accounting loophole / creative accounting, Albert Einstein, barriers to entry, bitcoin, blockchain, borderless world, Buckminster Fuller, call centre, Capital in the Twenty-First Century by Thomas Piketty, colonial rule, corporate social responsibility, cryptocurrency, Edward Snowden, high net worth, illegal immigration, Julian Assange, offshore financial centre, Peace of Westphalia, Peter Thiel, Satoshi Nakamoto, Skype, technoutopianism, Westphalian system, WikiLeaks

In a world governed by free trade, the fate of the stateless is largely dependent on whether the nation in which they were born will accept them. Edward Kleinbard, a tax law professor at the University of Southern California, has been studying the topic of stateless income: money generated by multinational companies which, thanks to loopholes and creative accounting, has no discernible country of origin. “Stateless persons wander a hostile globe, looking for asylum,” Kleinbard noted in a paper. “By contrast, stateless income takes a bearing for any of a number of zero or low-tax jurisdictions, where it finds a ready welcome.” Such are the paradoxical effects of globalization.


pages: 411 words: 127,755

Advertisers at Work by Tracy Tuten

accounting loophole / creative accounting, centre right, crowdsourcing, follow your passion, longitudinal study, Mark Zuckerberg, QR code, side project, Silicon Valley, Skype, Steve Jobs

I had to write this book—mostly to get it out of my system. I wrote it out of an obsession. Once I had the idea in my head, I literally could not stop working on it. After I had finished, I showed the first manuscript around to about forty people I admired. These were just folks in the business. I showed it to creatives, account folks, directors. Every one of them was kind enough to read the entire thing and give me criticism. I am still in debt to those people. After that, it was just a matter of getting it into the hands of the right publisher. Not knowing the first thing about the process, I just wandered over to the Barnes & Noble in downtown Minneapolis and bought some books on how to write book proposals and other how-to manuals.

I know you might not be able to given client confidentiality and things like that, but if you’ve got a story you can share, please do. Credle: Well, you know, there’s a brand that we all pushed together. It was M&Ms. In 1995, my partner Steve Rutter and I were told that we were going to run the M&Ms account. We were kind of bummed because it didn’t seem like a very creative account. We went out to talk to the client. At the time, the client was Paul Michaels, who’s now the CEO. In one conversation, we realized he was on our side. He was ready to go. He wanted to push this brand to a place that the company, quite frankly, probably wasn’t ready [to be in]. Or if they were ready to go, they hadn’t thought to go there.


pages: 442 words: 130,526

The Billionaire Raj: A Journey Through India's New Gilded Age by James Crabtree

accounting loophole / creative accounting, Asian financial crisis, Big bang: deregulation of the City of London, Branko Milanovic, business climate, call centre, Capital in the Twenty-First Century by Thomas Piketty, centre right, colonial rule, Commodity Super-Cycle, corporate raider, creative destruction, crony capitalism, Daniel Kahneman / Amos Tversky, Deng Xiaoping, Donald Trump, facts on the ground, failed state, Francis Fukuyama: the end of history, global supply chain, Gunnar Myrdal, income inequality, informal economy, Joseph Schumpeter, liberal capitalism, Mahatma Gandhi, McMansion, megacity, New Urbanism, offshore financial centre, open economy, Parag Khanna, Pearl River Delta, Plutocrats, plutocrats, Ponzi scheme, quantitative easing, rent-seeking, Rubik’s Cube, Shenzhen special economic zone , Silicon Valley, Simon Kuznets, smart cities, special economic zone, spectrum auction, The Great Moderation, Thomas L Friedman, transaction costs, trickle-down economics, Washington Consensus, WikiLeaks, yellow journalism, young professional

” But it was equally true that he was the beneficiary of generous loan restructurings which were hard to justify in retrospect given the state of his business—part of a pattern of what was known as “ever-greening,” in which Indian bankers often provided new money to borrowers who were unable to repay existing loans, in order to cover up problems at the banks themselves. Then there were allegations of creative accounting, which Mallya also strongly denied. Diageo, the company that had bought United Spirits, sued the tycoon in 2017, claiming that he had used money from his profitable liquor operations to prop up other parts of his empire.39 Earlier that year, accusations that he had diverted funds prompted a six-month stock trading ban from India’s securities regulator.40 Mallya had a point when he complained that cabals of politicians and bureaucrats would continue to funnel cash into state-backed Air India, despite its dismal financial reputation.

More generally, it was assumed that Indian growth would keep purring along, while any bureaucratic problems could be managed away. The tycoons grew giddy. “At the promoter level, there was just this sense of exuberance,” Gupta told me. “If the guy in the next bungalow to you on Altamount Road is building two new power plants, then you want to do it too.” At its worst, the tycoons’ creative accounting could stray into outright corruption. Indian promoters were known as masters of extracting cash from projects, even those that ended up losing money. The most common ruse was “gold-plating.” Here a business approached a bank with a proposal to build a project, say a steel mill, costing $2 billion.


pages: 234 words: 53,078

The Conservative Nanny State: How the Wealthy Use the Government to Stay Rich and Get Richer by Dean Baker

accounting loophole / creative accounting, affirmative action, Asian financial crisis, Bretton Woods, business cycle, corporate governance, declining real wages, full employment, index fund, Jeff Bezos, McDonald's hot coffee lawsuit, medical malpractice, medical residency, money market fund, offshore financial centre, price discrimination, risk tolerance, spread of share-ownership

Enforcing Tax Laws: Why the Rest of Us Should Care According to the IRS, in 2001 (the most recent year examined) the government lost more than $340 billion in uncollected taxes.2 This is money that is actually owed to the federal government – not money that taxpayers have been able to legally avoid paying through creative accounting or the clever use of loopholes. This is a substantial sum. It is approximately 20 times what the federal government spends on Temporary Assistance to Needy Families (TANF) each year, the main welfare program for poor families. It is 55 times 2 See “Tax Cheating Has Gone Up, Two Federal Studies Find,” New York Times, February 15, 2006. 84 what the federal government spends on Head Start and almost 100 times annual foreign aid spending for Sub-Saharan Africa.


Working the Street: What You Need to Know About Life on Wall Street by Erik Banks

accounting loophole / creative accounting, borderless world, business cycle, corporate governance, estate planning, fixed income, greed is good, old-boy network, risk/return, rolodex, Savings and loan crisis, telemarketer

The head of trading will make the case for trying to take 75 percent of X based on the same rationale, the head of retail sales will do the same, and so forth. In fact, it is well known that every executive manager always wants 75 percent of X for his or her division. During these intense shouting matches, creative accounting often surfaces—accounting in which the sum of each division’s earnings is far, far, far greater than the firm’s total earnings. It’s interesting how such numerate folks can come up with such silly figures. After shouting themselves to exhaustion, the executive managers each walk away with some portion of X (which we will term x).


pages: 504 words: 143,303

Why We Can't Afford the Rich by Andrew Sayer

accounting loophole / creative accounting, Albert Einstein, anti-globalists, asset-backed security, banking crisis, banks create money, basic income, bond market vigilante , Boris Johnson, Bretton Woods, British Empire, business cycle, call centre, capital controls, carbon footprint, collective bargaining, corporate raider, corporate social responsibility, creative destruction, credit crunch, Credit Default Swap, crony capitalism, David Graeber, David Ricardo: comparative advantage, debt deflation, decarbonisation, declining real wages, deglobalization, deindustrialization, delayed gratification, demand response, don't be evil, Double Irish / Dutch Sandwich, en.wikipedia.org, Etonian, financial innovation, financial intermediation, Fractional reserve banking, full employment, G4S, Goldman Sachs: Vampire Squid, high net worth, income inequality, information asymmetry, Intergovernmental Panel on Climate Change (IPCC), investor state dispute settlement, Isaac Newton, James Carville said: "I would like to be reincarnated as the bond market. You can intimidate everybody.", James Dyson, job automation, Julian Assange, Kickstarter, labour market flexibility, laissez-faire capitalism, land value tax, long term incentive plan, low skilled workers, Mark Zuckerberg, market fundamentalism, Martin Wolf, mass immigration, means of production, moral hazard, mortgage debt, negative equity, neoliberal agenda, new economy, New Urbanism, Northern Rock, Occupy movement, offshore financial centre, oil shale / tar sands, patent troll, payday loans, Philip Mirowski, Plutocrats, plutocrats, popular capitalism, predatory finance, price stability, pushing on a string, quantitative easing, race to the bottom, rent-seeking, Ronald Reagan, shareholder value, short selling, sovereign wealth fund, Steve Jobs, The Nature of the Firm, The Spirit Level, The Theory of the Leisure Class by Thorstein Veblen, The Wealth of Nations by Adam Smith, Thorstein Veblen, too big to fail, transfer pricing, trickle-down economics, universal basic income, unpaid internship, upwardly mobile, Washington Consensus, wealth creators, WikiLeaks, Winter of Discontent, working poor, Yom Kippur War, zero-sum game

Yet, in the new financialised capitalism, the creativity lay not in long-term investment in goods and services, as it had done in productionist capitalism, but in finding ways of outsourcing activities to cheap labour providers, in sweating existing assets for more income, speculating on price differences in different places and price movements and engaging in tax avoidance and creative accounting. Though finding cheaper labour is often claimed to increase efficiency, it just reduces the amount of demand in the economy because workers have less to spend. Efficiency increases require reorganisation of the ways of doing things so as to increase output per worker, and it is this that accounts for capitalism’s success, not cutting wage bills and making people poorer.

Vodafone’s takeover of Mannesman yielded $640 million in fees for intermediaries.87 These fee revenues are typically concentrated at the top. In Goldman Sachs, around 8% of net revenue was claimed by partners who made up about 1% of the firm’s 25,000 workforce, receiving bonuses of nearly $7 million in 2005. Then there is the support force of public relations people, consultants, marketing experts, lawyers, creative accountants and tax avoidance experts, all of whom are in a strong position to reap large rewards. In the financial sector in Britain, the number of intermediaries has been estimated at 15,000.88 These largely anonymous members of the so-called working rich far outnumber chief executive officers (CEOs) and senior executive directors (c.600), let alone footballers and celebrities.


pages: 306 words: 58,984

Mastering Spreadsheet Bookkeeping by Peter Marshall

accounting loophole / creative accounting, double entry bookkeeping

They also only have to file a modified version of their balance sheet and do not have to file a profit and loss account at all. Medium-sized companies also have some concessions, in that a modified form of profit and loss account and accompanying notes is allowed. Limitations of published accounts • Creative accounting can hide negative information. • Not all the relevant facts have to be disclosed. Internal accounts Internal accounts or management accounts are those prepared only for use within the company. Unlike published accounts, they are not required by law to be set out in a certain way. However, it pays to keep them as consistent as possible with the published accounts, so that the latter can be drawn up just by adapting the internal accounts slightly.


pages: 198 words: 57,703

The World According to Physics by Jim Al-Khalili

accounting loophole / creative accounting, Albert Einstein, butterfly effect, clockwork universe, cognitive dissonance, cosmic microwave background, cosmological constant, dark matter, double helix, Ernest Rutherford, Fellow of the Royal Society, germ theory of disease, gravity well, Internet of things, Isaac Newton, Murray Gell-Mann, publish or perish, Richard Feynman, Schrödinger's Cat, Stephen Hawking, supercomputer in your pocket, the scientific method

As they drift together they will gradually gain in gravitational attraction, but this gravitational energy is negative in the sense that you would need to put positive energy in to pull them apart again and get them back to the zero energy they started with. When inflation ended, the energy of the inflaton field decayed into normal energy, which condensed out into all the matter we have today. The stuff of the universe was created from energy borrowed from its own gravitational field—the ultimate in creative accounting. But just because inflation theory solves these problems in cosmology does not mean that it is correct. While most cosmologists subscribe to this theory, there are others who disagree, and there are indeed some subtle issues that have not yet been resolved. One critic is Stephen Hawking’s long-term collaborator Roger Penrose.


pages: 190 words: 61,970

Life You Can Save: Acting Now to End World Poverty by Peter Singer

accounting loophole / creative accounting, Branko Milanovic, Cass Sunstein, clean water, end world poverty, experimental economics, Garrett Hardin, illegal immigration, Martin Wolf, microcredit, Monkeys Reject Unequal Pay, Peter Singer: altruism, pre–internet, purchasing power parity, randomized controlled trial, Richard Thaler, Silicon Valley, Thomas Malthus, ultimatum game, union organizing

Yet Charity Navigator’s evaluations don’t answer Karnofsky and Hassenfeld’s key question: How do you know whether the charity is helping the people it’s intended to help? One reason the figures don’t necessarily tell the full story is that they are taken from forms the charities themselves complete and send to the tax authorities. No one checks the forms, and the breakdown between administrative and program expenses can be massaged with a little creative accounting. For example, staff working in an organization’s head office may do some administrative work on an aid program as well as performing more routine office tasks, and in that case their time may be assigned largely to the aid program, so that a high proportion of their salaries is itemized as part of the aid budget, rather than as office expenses.


Economic Gangsters: Corruption, Violence, and the Poverty of Nations by Raymond Fisman, Edward Miguel

accounting loophole / creative accounting, Andrei Shleifer, Asian financial crisis, barriers to entry, blood diamonds, clean water, colonial rule, congestion charging, crossover SUV, Donald Davies, European colonialism, failed state, feminist movement, George Akerlof, income inequality, income per capita, Intergovernmental Panel on Climate Change (IPCC), invisible hand, mass immigration, megacity, oil rush, prediction markets, random walk, Scramble for Africa, selection bias, Silicon Valley, South China Sea, unemployed young men

We would argue that this episode only reinforces our main point: not only did shady government deals come to light quickly (suggesting that Canada has effective civil institutions for catching this sort of thing), the scandal generated public outrage that helped to topple the Liberals. Corrupt Canadian officials are usually held accountable; corrupt Italians are not. One might make similar claims for the Jack Abramoff influence-peddling scandal in the U.S. Congress, or the creative accounting at Enron, for that matter. In fact, in the 2006 mid-term Congressional elections, a broad public backlash was already in evidence, as voters listed corruption and influence-peddling in government as one of their primary concerns. The fact that these abuses were discovered and justice was served is evidence of a healthy set of national norms and legal institutions. 95 CH A PTER F O U R Because diplomatic privileges are only relevant outside of the home country, the other way to collect evidence is to see how U.S. diplomats behave abroad.


pages: 192 words: 72,822

Freedom Without Borders by Hoyt L. Barber

accounting loophole / creative accounting, Affordable Care Act / Obamacare, Albert Einstein, banking crisis, diversification, El Camino Real, estate planning, fiat currency, financial independence, fixed income, high net worth, illegal immigration, interest rate swap, money market fund, obamacare, offshore financial centre, passive income, quantitative easing, reserve currency, road to serfdom, selective serotonin reuptake inhibitor (SSRI), too big to fail

The Economics of Sovereign Investing 39 We have a banking crisis in the United States and Europe that just doesn’t want to go away. Many of the financial institutions in these Western countries are bloated with toxic waste that’s listed as “assets” on their books. These outfits engage in creative accounting to disguise their true anemic financial state, including the reality that many are actually insolvent and others are posting multibillion-dollar losses. Putting these problems aside, the mother of all inventions is the derivative. The derivatives market was introduced by the Chicago Board of Trade in 1973, and it has rapidly grown to be a real ticking stink bomb.


pages: 224 words: 64,156

You Are Not a Gadget by Jaron Lanier

1960s counterculture, accounting loophole / creative accounting, additive manufacturing, Albert Einstein, call centre, cloud computing, commoditize, crowdsourcing, death of newspapers, different worldview, digital Maoism, Douglas Hofstadter, Extropian, follow your passion, hive mind, Internet Archive, Jaron Lanier, jimmy wales, John Conway, John von Neumann, Kevin Kelly, Long Term Capital Management, Network effects, new economy, packet switching, PageRank, pattern recognition, Ponzi scheme, Ray Kurzweil, Richard Stallman, Savings and loan crisis, Silicon Valley, Silicon Valley startup, slashdot, social graph, stem cell, Steve Jobs, Stewart Brand, Ted Nelson, telemarketer, telepresence, The Wisdom of Crowds, trickle-down economics, Turing test, Vernor Vinge, Whole Earth Catalog

If there is a trace of “slumming” in the way that many privileged young people embrace current online culture, it is perhaps an echo of 1960s counterculture. It’s true that the record companies have not helped themselves. They have made a public fuss about suing the most sympathetic people, snooped obnoxiously, and so on. Furthermore, there’s a long history of sleaze, corruption, creative accounting, and price fixing in the music business. Dreams Still Die Hard By 2008, some of the leading lights of the open culture movement started to acknowledge the obvious, which is that not everyone has benefited from the movement. A decade ago we all assumed, or at least hoped, that the net would bring so many benefits to so many people that those unfortunates who weren’t being paid for what they used to do would end up doing even better by finding new ways to get paid.


pages: 219 words: 67,173

Grand Central: How a Train Station Transformed America by Sam Roberts

accounting loophole / creative accounting, City Beautiful movement, clean water, collective bargaining, Donald Trump, Jane Jacobs, Joan Didion, Marshall McLuhan, New Urbanism, the High Line, transcontinental railway, transit-oriented development, urban planning, urban renewal, Y2K

In April 1990, Metro-North announced a $425 million master revitalization plan conceived by Beyer Blinder Belle and intended to transform Grand Central into, as Stangl described it, “a destination in its own right.” With the Metropolitan Transportation Authority perennially strapped for funds, the renovation budget was quickly pared, to about $240 million. But through creative accounting by visionary bureaucrats and a bond issue backed by retail revenue, the full $400 million and more (actually, closer to $800 million, including repairs, new passageways, and platforms, utilities, and other improvements) has been spent since 1983 on enhancing and ennobling Grand Central. “We figured out a scheme that allowed us to buy a building losing a fortune,” Susan Fine remembered, and ultimately redeemed “the value of public entrepreneurship—taking risks beyond the MTA’s core mission and trusting staff to get it done.”


Termites of the State: Why Complexity Leads to Inequality by Vito Tanzi

"Robert Solow", accounting loophole / creative accounting, Affordable Care Act / Obamacare, Andrei Shleifer, Andrew Keen, Asian financial crisis, asset allocation, barriers to entry, basic income, bitcoin, Black Swan, Bretton Woods, business cycle, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, Cass Sunstein, central bank independence, centre right, clean water, crony capitalism, David Graeber, David Ricardo: comparative advantage, deindustrialization, Donald Trump, Double Irish / Dutch Sandwich, experimental economics, financial repression, full employment, George Akerlof, Gini coefficient, Gunnar Myrdal, high net worth, hiring and firing, illegal immigration, income inequality, indoor plumbing, information asymmetry, Intergovernmental Panel on Climate Change (IPCC), invisible hand, Jean Tirole, John Maynard Keynes: Economic Possibilities for our Grandchildren, Kenneth Arrow, Kenneth Rogoff, knowledge economy, labor-force participation, libertarian paternalism, Long Term Capital Management, market fundamentalism, means of production, moral hazard, Naomi Klein, New Urbanism, obamacare, offshore financial centre, open economy, Pareto efficiency, Paul Samuelson, price stability, principal–agent problem, profit maximization, pushing on a string, quantitative easing, rent control, rent-seeking, Richard Thaler, road to serfdom, Robert Shiller, Robert Shiller, Ronald Coase, Ronald Reagan, Second Machine Age, secular stagnation, self-driving car, Silicon Valley, Simon Kuznets, The Chicago School, The Great Moderation, The Market for Lemons, The Rise and Fall of American Growth, The Wealth of Nations by Adam Smith, too big to fail, transaction costs, transfer pricing, Tyler Cowen: Great Stagnation, universal basic income, unorthodox policies, urban planning, very high income, Vilfredo Pareto, War on Poverty, Washington Consensus, women in the workforce

Many of these “mandated disclosures” were added after major abuses were revealed in past activities and after people were damaged, as happened after the Enron and the 128 Termites of the State subprime disasters. Within a few weeks, Enron went from being one of the most admired enterprises in America to declaring bankruptcy. Lack of transparency in its operations, assisted by highly creative accounting that had been validated by a major accounting firm, had played a major role in creating the perception of a highly successful enterprise. After that disaster, which cost billions of dollars for many citizens, laws were passed for enterprises to provide much more information, increasing the costs to the enterprises and their complaints.

The total earnings of this market and of some individuals operating in it have increased sharply over the decades, once again not necessarily because of higher efforts on the part of the individuals involved or because of higher genuine value contributed to the economy by them, but because of particular market situations and also because of increasingly creative accounting, which has increased the levels of total (private plus public) debt of many countries and the connected risks that, occasionally, have led to financial crises. See Mian and Sufi, 2014; Tanzi, 2016b. While some lucky individuals have seen their incomes grow and become very high, other individuals have not done so well.


Mastering Book-Keeping: A Complete Guide to the Principles and Practice of Business Accounting by Peter Marshall

accounting loophole / creative accounting, asset allocation, double entry bookkeeping, information retrieval, intangible asset, the market place

‘Small’ companies, however, are exempt from filing one with the Registrar of Companies; also they only have to file a modified version of their balance sheet, and do not have to file a profit and loss account at all. Medium-sized companies also have some concessions, in that a modified form of profit and loss account and accompanying notes is allowed. Limitations of published accounts . Creative accounting can hide negative information. . Not all the relevant facts have to be disclosed. Internal accounts Internal accounts or management accounts are those prepared only for use within the company. Unlike published accounts, they are not required by law to be set out in a certain way. However, it pays to keep them as consistent as possible with the published accounts, so that the latter can be drawn up just by adapting the internal accounts slightly. 136 55 Revenue accounts of limited companies A ledger account Remember, the trading, profit and loss account is first and foremost a ledger account, so we should begin by treating it as such.


pages: 258 words: 73,109

The (Honest) Truth About Dishonesty: How We Lie to Everyone, Especially Ourselves by Dan Ariely

accounting loophole / creative accounting, Albert Einstein, Bernie Madoff, Broken windows theory, cashless society, clean water, cognitive dissonance, Credit Default Swap, Donald Trump, fudge factor, new economy, Richard Feynman, Schrödinger's Cat, Shai Danziger, shareholder value, Steve Jobs, Tragedy of the Commons, Walter Mischel

I knew John as the erstwhile lyricist for the Grateful Dead, but during our chat I discovered that he had also been working as a consultant for a few companies—including Enron. In case you weren’t paying attention in 2001, the basic story of the fall of the Wall Street darling went something like this: Through a series of creative accounting tricks—helped along by the blind eye of consultants, rating agencies, the company’s board, and the now-defunct accounting firm Arthur Andersen, Enron rose to great financial heights only to come crashing down when its actions could no longer be concealed. Stockholders lost their investments, retirement plans evaporated, thousands of employees lost their jobs, and the company went bankrupt.


pages: 246 words: 74,341

Financial Fiasco: How America's Infatuation With Homeownership and Easy Money Created the Economic Crisis by Johan Norberg

accounting loophole / creative accounting, bank run, banking crisis, Bernie Madoff, Black Swan, business cycle, capital controls, central bank independence, collateralized debt obligation, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, David Brooks, diversification, financial deregulation, financial innovation, helicopter parent, Home mortgage interest deduction, housing crisis, Howard Zinn, Hyman Minsky, Isaac Newton, Joseph Schumpeter, Long Term Capital Management, market bubble, Martin Wolf, Mexican peso crisis / tequila crisis, millennium bug, money market fund, moral hazard, mortgage tax deduction, Naomi Klein, National Debt Clock, new economy, Northern Rock, Own Your Own Home, price stability, Ronald Reagan, savings glut, short selling, Silicon Valley, South Sea Bubble, The Wealth of Nations by Adam Smith, too big to fail

The idea, one must assume, was to ensure that no angry taxpayer would spot the executives and go punch them in the nose. Mark-to-Nothing One reason why mortgage-backed securities were written down so fast and by so much was that the accounting rules in force made the write-downs self-reinforcing. U.S. government agencies had long worried that the rules were too lax and facilitated creative accounting. During the dot-com bubble, many companies had used strange methods to calculate the value of their assets, and the energy-trading company Enron had managed to trick investors by entrusting that task to complex mathematical models. To address this situation, the U.S. financial authorities now required mark-to-market accounting.


pages: 267 words: 71,941

How to Predict the Unpredictable by William Poundstone

accounting loophole / creative accounting, Albert Einstein, Bernie Madoff, Brownian motion, business cycle, butter production in bangladesh, buy and hold, buy low sell high, call centre, centre right, Claude Shannon: information theory, computer age, crowdsourcing, Daniel Kahneman / Amos Tversky, Edward Thorp, Firefox, fixed income, forensic accounting, high net worth, index card, index fund, John von Neumann, market bubble, money market fund, pattern recognition, Paul Samuelson, Ponzi scheme, prediction markets, random walk, Richard Thaler, risk-adjusted returns, Robert Shiller, Robert Shiller, Rubik’s Cube, statistical model, Steven Pinker, transaction costs

Here are Enron’s: 1996 $1.08 1997 $0.16 1998 $1.01 1999 $1.10 2000 $1.12 Earnings were a lot less impressive than revenue. Enron was straining to make a dollar a share, and there’s scant indication of growth over five years. The outlier year was 1997. “Operating results” were said to be $.87 a share, but “items impacting comparability” whittled that down to $.16. Creative accounting allowed Enron to sweep expenses and markdowns into one big pile — the annus horribilis of 1997 — and keep the other years’ earnings above $1 a share. Enron’s pitch was that revenues mattered, not earnings. Revenues are easier to manipulate. In early 2001 Enron folk spoke of doubling revenue again, to the nice round figure of $200 billion.


The Code: Silicon Valley and the Remaking of America by Margaret O'Mara

"side hustle", A Declaration of the Independence of Cyberspace, accounting loophole / creative accounting, affirmative action, Airbnb, AltaVista, Amazon Web Services, Apple II, Apple's 1984 Super Bowl advert, autonomous vehicles, back-to-the-land, barriers to entry, Ben Horowitz, Berlin Wall, Bob Noyce, Buckminster Fuller, Burning Man, business climate, Byte Shop, California gold rush, carried interest, clean water, cleantech, cloud computing, cognitive dissonance, commoditize, computer age, continuous integration, cuban missile crisis, Danny Hillis, DARPA: Urban Challenge, deindustrialization, different worldview, don't be evil, Donald Trump, Doomsday Clock, Douglas Engelbart, Dynabook, Edward Snowden, El Camino Real, Elon Musk, en.wikipedia.org, Erik Brynjolfsson, Frank Gehry, George Gilder, gig economy, Googley, Hacker Ethic, high net worth, hockey-stick growth, Hush-A-Phone, immigration reform, income inequality, informal economy, information retrieval, invention of movable type, invisible hand, Isaac Newton, Jeff Bezos, Joan Didion, job automation, job-hopping, John Markoff, Julian Assange, Kitchen Debate, knowledge economy, knowledge worker, Lyft, Marc Andreessen, Mark Zuckerberg, market bubble, mass immigration, means of production, mega-rich, Menlo Park, Mikhail Gorbachev, millennium bug, Mitch Kapor, Mother of all demos, move fast and break things, move fast and break things, mutually assured destruction, new economy, Norbert Wiener, old-boy network, pattern recognition, Paul Graham, Paul Terrell, paypal mafia, Peter Thiel, pets.com, pirate software, popular electronics, pre–internet, Ralph Nader, RAND corporation, Richard Florida, ride hailing / ride sharing, risk tolerance, Robert Metcalfe, Ronald Reagan, Sand Hill Road, Second Machine Age, self-driving car, shareholder value, side project, Silicon Valley, Silicon Valley ideology, Silicon Valley startup, skunkworks, Snapchat, social graph, software is eating the world, speech recognition, Steve Ballmer, Steve Jobs, Steve Wozniak, Steven Levy, Stewart Brand, supercomputer in your pocket, technoutopianism, Ted Nelson, the market place, the new new thing, There's no reason for any individual to have a computer in his home - Ken Olsen, Thomas L Friedman, Tim Cook: Apple, transcontinental railway, Uber and Lyft, uber lyft, Unsafe at Any Speed, upwardly mobile, Vannevar Bush, War on Poverty, We wanted flying cars, instead we got 140 characters, Whole Earth Catalog, WikiLeaks, William Shockley: the traitorous eight, Y Combinator, Y2K

The Wall Street IPO became a rite of passage for nearly any Silicon Valley start-up, no matter how new or untested. “Why do they do IPOs?” parried one broker. “Why do rock stars marry models? In part, it’s because they can.” Wall Street was clamoring for all things Internet, Meeker observed. “These companies would be silly not to take access to capital.”30 CREATIVE ACCOUNTING The storming of Wall Street by new, mostly profitless dot-coms wasn’t embraced by everyone. Business columnists tut-tutted about “Netscape fever” as soon as Clark and Andreessen’s company shot out of the gate. “For someone who looks at the fundamentals, this really represents a dangerous sign of overspeculation,” warned one analyst.31 There was reason to be concerned if you knew much about the fundamentals underneath the dot-com flash and pop.

Washington made spasmodic efforts to change the system in the Obama years, but it was hard to cast beloved tech brands as tax-dodging fat cats. “I love Apple!” rhapsodized Missouri Democrat Claire McCaskill at a 2013 Senate hearing where Tim Cook was supposedly being called to account for his company’s creative accounting. Kentucky Republican Rand Paul berated his fellow Senators for “bullying” Cook and a company that was “one of America’s greatest success stories.”12 Facebook employees and alumni also joined the ranks of the breathtakingly wealthy. Napster co-founder and early Facebook leader Sean Parker became something of a latter-day Jerry Sanders, making headlines for the conspicuous consumption of the billions he had reaped from Facebook’s 2012 IPO.


pages: 310 words: 85,995

The Future of Capitalism: Facing the New Anxieties by Paul Collier

"Robert Solow", accounting loophole / creative accounting, Airbnb, assortative mating, bank run, Berlin Wall, Bernie Sanders, bitcoin, Bob Geldof, bonus culture, business cycle, call centre, central bank independence, centre right, Commodity Super-Cycle, computerized trading, corporate governance, creative destruction, cuban missile crisis, David Brooks, delayed gratification, deskilling, Donald Trump, eurozone crisis, financial deregulation, full employment, George Akerlof, Goldman Sachs: Vampire Squid, greed is good, income inequality, industrial cluster, information asymmetry, intangible asset, Jean Tirole, job satisfaction, Joseph Schumpeter, knowledge economy, late capitalism, loss aversion, Mark Zuckerberg, minimum wage unemployment, moral hazard, negative equity, New Urbanism, Northern Rock, offshore financial centre, out of africa, Peace of Westphalia, principal–agent problem, race to the bottom, rent control, rent-seeking, rising living standards, Robert Shiller, Robert Shiller, Ronald Reagan, shareholder value, Silicon Valley, Silicon Valley ideology, sovereign wealth fund, The Wealth of Nations by Adam Smith, theory of mind, too big to fail, trade liberalization, urban planning, web of trust, zero-sum game

Each of them stripped their company of its pension fund, leaving thousands of employees impoverished. Maxwell stepped off the back of his mega-yacht as the scam was about to be discovered; Green still has his mega-yacht, aptly renamed by his critics The BHS Destroyer. Perhaps mega-yachts should be considered leading indicators for ‘creative’ accounting? Options 2 and 3 each have consequences that are seriously damaging for society. Major companies are run without adequate attention to the longer term; and the reported accounts of companies become untrustworthy. It gets worse: so far, we have seen that CEOs are increasingly diverting their energies from the long-term process of building a great firm to short-term tricks.


pages: 276 words: 82,603

Birth of the Euro by Otmar Issing

"Robert Solow", accounting loophole / creative accounting, Bretton Woods, business climate, business cycle, capital controls, central bank independence, currency peg, financial innovation, floating exchange rates, full employment, inflation targeting, information asymmetry, labour market flexibility, labour mobility, market fundamentalism, money market fund, moral hazard, oil shock, open economy, price anchoring, price stability, purchasing power parity, reserve currency, Y2K, yield curve

AMECO data deficit class: data at current prices. Figure 2 General government deficit 1990–8 (percentages of GDP) – admittedly with grave exceptions as regards public debt levels. The 1990s saw often steep declines in budget deficits, albeit with the numbers massaged in certain instances by acts of ‘creative accounting’. Such a violation of the spirit of the Treaty provisions was more than regrettable in the run-up to monetary union. As later became clear, it created precedents that significantly weakened discipline in applying the rules of the Stability and Growth Pact. All of this should not, however, detract from the appreciable efforts that were made to improve budgetary positions before the start of monetary union.9 As figure 2 shows, the reductions in budget deficits achieved during 1990–98 were impressive.


pages: 269 words: 78,468

Kill Your Friends by John Niven

accounting loophole / creative accounting, Etonian, hiring and firing, illegal immigration, Kickstarter, nuclear winter, sensible shoes, Stephen Hawking

“Surely we want to be cashing in on all this?” Ross says. “A tribute LP? A charity thing?” Trellick thinks for a bit. “Nah,” he says finally, “too much scrutiny. It’d be impossible to skim any cash off. Maybe in a year. Anniversary thing…” He’s probably right, but it’s a pity because in the past, thanks to a little creative accounting, we’ve been very successful at skimming cash off of a couple of other charity records we’ve been involved in. “Yeah, not worth the grief,” I say. “I dunno,” Parker-Hall says, lighting a cigarette, “the sales would still count towards our market share, wouldn’t they?” “Good point,” Trellick admits, nodding.


pages: 823 words: 220,581

Debunking Economics - Revised, Expanded and Integrated Edition: The Naked Emperor Dethroned? by Steve Keen

"Robert Solow", accounting loophole / creative accounting, banking crisis, banks create money, barriers to entry, Benoit Mandelbrot, Big bang: deregulation of the City of London, Black Swan, Bonfire of the Vanities, business cycle, butterfly effect, capital asset pricing model, cellular automata, central bank independence, citizen journalism, clockwork universe, collective bargaining, complexity theory, correlation coefficient, creative destruction, credit crunch, David Ricardo: comparative advantage, debt deflation, diversification, double entry bookkeeping, en.wikipedia.org, Eugene Fama: efficient market hypothesis, experimental subject, Financial Instability Hypothesis, fixed income, Fractional reserve banking, full employment, Henri Poincaré, housing crisis, Hyman Minsky, income inequality, information asymmetry, invisible hand, iterative process, John von Neumann, Kickstarter, laissez-faire capitalism, liquidity trap, Long Term Capital Management, mandelbrot fractal, margin call, market bubble, market clearing, market microstructure, means of production, minimum wage unemployment, Money creation, money market fund, open economy, Pareto efficiency, Paul Samuelson, place-making, Ponzi scheme, Post-Keynesian economics, profit maximization, quantitative easing, RAND corporation, random walk, risk free rate, risk tolerance, risk/return, Robert Shiller, Robert Shiller, Ronald Coase, Savings and loan crisis, Schrödinger's Cat, scientific mainstream, seigniorage, six sigma, South Sea Bubble, stochastic process, The Great Moderation, The Wealth of Nations by Adam Smith, Thorstein Veblen, time value of money, total factor productivity, tulip mania, wage slave, zero-sum game

Rather than maximizing profits, as economists argue firms do, the additional output – that produced past the point where marginal revenue equals marginal cost at the industry level – must be produced at a loss. This paradox means that the individual firm and the market level aspects of the model of perfect competition are inconsistent. Creative accounting For the assertion that perfect competition results in a higher level of output at a lower price than monopoly to be correct, then in the aggregate, the individually rational profit-maximizing behavior of perfectly competitive firms must lead to a collectively irrational outcome. This would be OK if the theory actually admitted this – as do the theories of Cournot and Bertrand competition13 – but the Marshallian model taught to undergraduates claims instead that equating marginal cost and marginal revenue maximizes profits for the competitive firm.

commodity and commodity-power commodity production: mystery of; Marx’s analysis of; theories of comparative statics method competition see also perfect competition completeness complexity theory Computational Theory, laws of computers, training in conjectural variation conservation laws constant technology, assumption of constructionism consumer, individual, in economic theory consumer demand; theory of consumer sector, and debt consumption continuity conventions, formation of convexity Copenhagen school of quantum theory costs: fixed; variable Cotis, Jean-Philippe Cournot and Bertrand competition Cournot-Nash model creative accounting credit; analysis of; creation of; nature of; pure credit economy; role of credit crunch Credit Impulse curves see demand curves, Engel curves, indifference curves and supply curves cycles; cyclical nature of capitalism see also business cycle Davidson, Paul Debreu, Gerard; Theory of Value debt; absence of, from macroeconomic models; acceleration of; analysis of; and aggregate demand; banks profit from; correlated with unemployment; creation of; empirical dynamics of; further endebtment of debtors; growth of; limitation of; private (dominant role of); rate of change of; reduction of; relation to national income (GDP) see debt to GDP ratio; repayment of (non-repayment of); role of; zero target see also Jubilee policy debt bubble debt deflation; hypothesis; in USA; modeling of debt-financed speculation debt to GDP ratio Debtwatch deflation deleveraging demand, affected by rising income see also Law of Demand demand constraints demand curves; downward-sloping; for labor; Hicksian compensated; individual, determining of demand management Demiralp, S.


pages: 343 words: 89,057

Artemis by Andy Weir

accounting loophole / creative accounting, centre right, low earth orbit, orbital mechanics / astrodynamics, Ponzi scheme

Artemisian slugs are an unregulated, largely untracked quasi-currency and the city has iffy identity verification at best. We’re a perfect haven for money laundering.” “Oh God…” “You have one thing going for you: They don’t have a strong presence here. This isn’t an ‘operation’ to O Palácio. It’s just an avenue for creative accounting. But it would seem they do have at least one enforcer on-site.” “But…” I started. “Wait…let me think this through…” He rested his hands on the table and waited politely. “Okay,” I said. “Something doesn’t add up here. Did Trond know about O Palácio?” Rudy sipped his water. “I’m sure he did.


pages: 324 words: 92,805

The Impulse Society: America in the Age of Instant Gratification by Paul Roberts

2013 Report for America's Infrastructure - American Society of Civil Engineers - 19 March 2013, 3D printing, accounting loophole / creative accounting, activist fund / activist shareholder / activist investor, Affordable Care Act / Obamacare, American Society of Civil Engineers: Report Card, asset allocation, business cycle, business process, Cass Sunstein, centre right, choice architecture, collateralized debt obligation, collective bargaining, computerized trading, corporate governance, corporate raider, corporate social responsibility, creative destruction, crony capitalism, David Brooks, delayed gratification, disruptive innovation, double helix, factory automation, financial deregulation, financial innovation, fixed income, full employment, game design, greed is good, If something cannot go on forever, it will stop - Herbert Stein's Law, impulse control, income inequality, inflation targeting, invisible hand, job automation, John Markoff, Joseph Schumpeter, knowledge worker, late fees, Long Term Capital Management, loss aversion, low skilled workers, mass immigration, new economy, Nicholas Carr, obamacare, Occupy movement, oil shale / tar sands, performance metric, postindustrial economy, profit maximization, Report Card for America’s Infrastructure, reshoring, Richard Thaler, rising living standards, Robert Shiller, Robert Shiller, Rodney Brooks, Ronald Reagan, shareholder value, Silicon Valley, speech recognition, Steve Jobs, technoutopianism, the built environment, The Predators' Ball, the scientific method, The Wealth of Nations by Adam Smith, Thorstein Veblen, too big to fail, total factor productivity, Tyler Cowen: Great Stagnation, Walter Mischel, winner-take-all economy

It was, clearly, the obsession with share price that encouraged many companies to start inflating quarterly earnings. From 1992 to 2005 the number of firms issuing earnings “restatements”—essentially, admissions that previously reported earnings were bogus—jumped from six a year18 to nearly a hundred a month.19 And the term earnings fraud doesn’t do justice to creative accounting undertaken at firms such as WorldCom, which padded earnings by nine billion dollars, or Enron, which concealed twenty-three billion dollars in liabilities in “special purpose entities.” In hindsight, however, it’s plain that these scandals were only a prologue. The real catastrophe would come as Wall Street’s new mentality of capital efficiency—of delivering high returns by whatever means necessary—made the jump, like a virus, into the mind of the consumer.


pages: 327 words: 90,542

The Age of Stagnation: Why Perpetual Growth Is Unattainable and the Global Economy Is in Peril by Satyajit Das

"Robert Solow", 9 dash line, accounting loophole / creative accounting, additive manufacturing, Airbnb, Albert Einstein, Alfred Russel Wallace, Anton Chekhov, Asian financial crisis, banking crisis, Berlin Wall, bitcoin, bond market vigilante , Bretton Woods, BRICs, British Empire, business cycle, business process, business process outsourcing, call centre, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, Clayton Christensen, cloud computing, collaborative economy, colonial exploitation, computer age, creative destruction, cryptocurrency, currency manipulation / currency intervention, David Ricardo: comparative advantage, declining real wages, Deng Xiaoping, deskilling, disintermediation, disruptive innovation, Downton Abbey, Emanuel Derman, energy security, energy transition, eurozone crisis, financial innovation, financial repression, forward guidance, Francis Fukuyama: the end of history, full employment, gig economy, Gini coefficient, global reserve currency, global supply chain, Goldman Sachs: Vampire Squid, happiness index / gross national happiness, Honoré de Balzac, hydraulic fracturing, Hyman Minsky, illegal immigration, income inequality, income per capita, indoor plumbing, informal economy, Innovator's Dilemma, intangible asset, Intergovernmental Panel on Climate Change (IPCC), Jane Jacobs, John Maynard Keynes: technological unemployment, Kenneth Rogoff, knowledge economy, knowledge worker, light touch regulation, liquidity trap, Long Term Capital Management, low skilled workers, Lyft, Mahatma Gandhi, margin call, market design, Marshall McLuhan, Martin Wolf, Mikhail Gorbachev, mortgage debt, mortgage tax deduction, new economy, New Urbanism, offshore financial centre, oil shale / tar sands, oil shock, old age dependency ratio, open economy, passive income, peak oil, peer-to-peer lending, pension reform, Plutocrats, plutocrats, Ponzi scheme, Potemkin village, precariat, price stability, profit maximization, pushing on a string, quantitative easing, race to the bottom, Ralph Nader, Rana Plaza, rent control, rent-seeking, reserve currency, ride hailing / ride sharing, rising living standards, risk/return, Robert Gordon, Ronald Reagan, salary depends on his not understanding it, Satyajit Das, savings glut, secular stagnation, seigniorage, sharing economy, Silicon Valley, Simon Kuznets, Slavoj Žižek, South China Sea, sovereign wealth fund, TaskRabbit, The Chicago School, The Great Moderation, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, the market place, the payments system, The Spirit Level, Thorstein Veblen, Tim Cook: Apple, too big to fail, total factor productivity, trade route, transaction costs, uber lyft, unpaid internship, Unsafe at Any Speed, Upton Sinclair, Washington Consensus, We are the 99%, WikiLeaks, Y2K, Yom Kippur War, zero-coupon bond, zero-sum game

Since the crisis, governments too have resorted to financial engineering to deal with economic problems. The EU experimented with complex finance techniques, originally used for repackaging residential mortgages, to finance bailouts of troubled member countries and ambitious infrastructure investment programs. The aim was to overcome the lack of available funds. Governments use creative accounting. In the period prior to the introduction of the euro, Italy and Spain used derivative transactions, allegedly to understate their debt levels. Now, governments use off-balance sheet structures and often delayed payments to massage the level of borrowings. Governments have consistently understated liabilities, such as unfinanced commitments for future healthcare, aged care, and retirement benefits.


pages: 340 words: 91,387

Stealth of Nations by Robert Neuwirth

accounting loophole / creative accounting, big-box store, British Empire, call centre, collective bargaining, corporate governance, full employment, Hernando de Soto, illegal immigration, income inequality, independent contractor, informal economy, invisible hand, Jane Jacobs, jitney, Johannes Kepler, joint-stock company, Joseph Schumpeter, megacity, microcredit, New Urbanism, Pepto Bismol, pirate software, profit motive, Shenzhen special economic zone , Shenzhen was a fishing village, Simon Kuznets, special economic zone, The Wealth of Nations by Adam Smith, thinkpad, upwardly mobile, Vilfredo Pareto, yellow journalism

David had started in trade in the auto parts market in Nnewi, a city in the east of Nigeria. He knew nothing about clothes. But selling is selling and buying is buying, and he knew from experience that his profit would come from the increment between the two. Over time, he learned that, with a tiny bit of creative accounting, he could work in a little extra profit for himself on every deal. “If the factory gives you something for eight naira, you tell the person who hired you that it is nine,” he said, and you pocket the addition. At approximately a hundred and fifty naira to the dollar, this amounts to less than a penny on each item.


pages: 282 words: 89,266

Content Provider: Selected Short Prose Pieces, 2011–2016 by Stewart Lee

accounting loophole / creative accounting, Boris Johnson, call centre, centre right, David Attenborough, Etonian, James Dyson, Livingstone, I presume, Mark Zuckerberg, mass immigration, Nelson Mandela, offshore financial centre, Plutocrats, plutocrats, pre–internet, Right to Buy, Robert Gordon, Saturday Night Live, sensible shoes, Socratic dialogue, trickle-down economics, wage slave, young professional

The initial outlay of developing a system where the audience laughed into airtight, sound-proofed bags, which were then driven to Luxembourg in a van and opened noisily but harmlessly on an alpine meadow, to the bewilderment of billy goats and trolls, would be costly, but in the end I would be able to avoid paying tax on the vast majority of my income. It’s a system that Google’s creative accountants, Ernst & Young, could doubtless find a way of making legal, laughter being as invisible and slippery a commodity as the online transactions whose virtual existence they magically transport from one theoretical taxation zone to another, but would that make it moral, a distinction that seems to have been deliberately obscured this week?


The Internet Trap: How the Digital Economy Builds Monopolies and Undermines Democracy by Matthew Hindman

A Declaration of the Independence of Cyberspace, accounting loophole / creative accounting, activist fund / activist shareholder / activist investor, AltaVista, Amazon Web Services, barriers to entry, Benjamin Mako Hill, bounce rate, cloud computing, computer vision, creative destruction, crowdsourcing, David Ricardo: comparative advantage, death of newspapers, discovery of DNA, disinformation, Donald Trump, fault tolerance, Filter Bubble, Firefox, future of journalism, Ida Tarbell, informal economy, information retrieval, invention of the telescope, Jeff Bezos, John von Neumann, Joseph Schumpeter, lake wobegon effect, large denomination, longitudinal study, loose coupling, Marc Andreessen, Mark Zuckerberg, Metcalfe’s law, natural language processing, Netflix Prize, Network effects, New Economic Geography, New Journalism, pattern recognition, peer-to-peer, performance metric, price discrimination, recommendation engine, Robert Metcalfe, selection bias, Silicon Valley, Skype, speech recognition, Stewart Brand, surveillance capitalism, technoutopianism, Ted Nelson, The Chicago School, Thomas Malthus, web application, Whole Earth Catalog, Yochai Benkler

The myth of monetization is the central driver behind these digital-only fantasies. Even the New York Times as of this writing gets less than 40 percent of its total revenue from digital sources.15 Online-only proposals for local news depend on misleading figures about the amount of money raised by digital advertising. Some of the confusion comes from newspapers’ creative accounting of online ad revenue. In fact, a large fraction of digital advertising comes as a part of a joint print advertising buy.16 “Full price” digital ads are often sold only because they come with corresponding discounts on print advertising. If newspapers really did end their print editions, much of this joint digital revenue would quickly disappear too.


pages: 346 words: 101,763

Confessions of a Microfinance Heretic by Hugh Sinclair

accounting loophole / creative accounting, Bernie Madoff, colonial exploitation, en.wikipedia.org, end world poverty, financial innovation, financial intermediation, Gini coefficient, high net worth, illegal immigration, impact investing, inventory management, microcredit, Northern Rock, peer-to-peer lending, pirate software, Ponzi scheme, principal–agent problem, profit motive

The main sections “edited,” (that is, that were censored/omitted) were: Comments about the remaining high overhead costs (principally salaries) at head office, and the use of client savings being an illegal practice with no one accepting clear responsibility. Regarding self-sustainability: [World Relief] Baltimore is ultimately picking up the bill for the poor performance/excessive overhead of FCC, and that the cost management has been achieved with some creative accounting that shifted costs around rather than cutting them. The issue of wide salary discrepancies unrelated to productivity was also “omitted.” An entire paragraph from the original minutes was deleted, discussing the rather important issue of competition and fund raising. . . . I feel that our donors, largely [World Relief] Baltimore, have a right to hear of the reality of the company they have so diligently funded over the last decade.


Rockonomics: A Backstage Tour of What the Music Industry Can Teach Us About Economics and Life by Alan B. Krueger

accounting loophole / creative accounting, Affordable Care Act / Obamacare, Airbnb, autonomous vehicles, bank run, Berlin Wall, bitcoin, Bob Geldof, butterfly effect, buy and hold, creative destruction, crowdsourcing, disintermediation, diversified portfolio, Donald Trump, endogenous growth, George Akerlof, gig economy, income inequality, independent contractor, index fund, invisible hand, Jeff Bezos, John Maynard Keynes: Economic Possibilities for our Grandchildren, Kenneth Arrow, Kickstarter, Live Aid, Mark Zuckerberg, Moneyball by Michael Lewis explains big data, moral hazard, Network effects, obamacare, offshore financial centre, Paul Samuelson, personalized medicine, pre–internet, price discrimination, profit maximization, random walk, recommendation engine, rent-seeking, Richard Thaler, ride hailing / ride sharing, Saturday Night Live, Skype, Steve Jobs, The Wealth of Nations by Adam Smith, too big to fail, transaction costs, ultimatum game, winner-take-all economy, women in the workforce, Y Combinator, zero-sum game

The streaming service Tidal, for example, is under investigation for its business practices.11 Considering that many record companies used to underreport album sales in the 1960s and concert promoters used to underreport ticket sales and exaggerate expenses in the 1970s, I would not be surprised to learn that some streaming companies have used creative accounting practices to boost their profits and overstate their reach. The history of rockonomics teaches us to trust but verify. This analysis oversimplifies the revenue issues, however. In practice, more is negotiated between the streaming platforms and record labels than just the payout rate. A confidential and murky feature of the streaming business is that record labels sometimes implicitly compensate streaming platforms to undertake campaigns to promote their artists.


pages: 364 words: 101,193

Six Degrees: Our Future on a Hotter Planet by Mark Lynas

accounting loophole / creative accounting, Biosphere 2, Climatic Research Unit, Deng Xiaoping, failed state, Garrett Hardin, ice-free Arctic, Intergovernmental Panel on Climate Change (IPCC), Live Aid, nuclear winter, oil shale / tar sands, peak oil, price stability, South China Sea, supervolcano, Tragedy of the Commons

These ‘free goods’, which include all the ecosystem services which support the human species, are considered financially valueless and missed out from conventional economic accounting. The standard ‘gross domestic product’ (GDP) measuring stick of national economic success tots up the value of production and consumption without considering the sustainability of the process. In a master stroke of creative accounting, conventional economic theory therefore counts the depletion of resources as an accumulation of wealth. This is analogous to an individual spending all of the money in their current account and counting it as ‘income’-an absurdity, but one which underpins our entire economy. Bearing this societal dysfunction in mind, it is perhaps rather unfair to blame individuals for not facing up to climate change when the whole weight of economy and society works effectively in preventing them from doing so.


pages: 261 words: 103,244

Economists and the Powerful by Norbert Haring, Norbert H. Ring, Niall Douglas

"Robert Solow", accounting loophole / creative accounting, Affordable Care Act / Obamacare, Albert Einstein, asset allocation, bank run, barriers to entry, Basel III, Bernie Madoff, British Empire, buy and hold, central bank independence, collective bargaining, commodity trading advisor, compensation consultant, corporate governance, creative destruction, credit crunch, Credit Default Swap, David Ricardo: comparative advantage, diversified portfolio, financial deregulation, George Akerlof, illegal immigration, income inequality, inflation targeting, information asymmetry, Jean Tirole, job satisfaction, Joseph Schumpeter, Kenneth Arrow, knowledge worker, law of one price, light touch regulation, Long Term Capital Management, low skilled workers, mandatory minimum, market bubble, market clearing, market fundamentalism, means of production, minimum wage unemployment, Money creation, moral hazard, new economy, obamacare, old-boy network, open economy, Pareto efficiency, Paul Samuelson, pension reform, Ponzi scheme, price stability, principal–agent problem, profit maximization, purchasing power parity, Renaissance Technologies, rolodex, Savings and loan crisis, Sergey Aleynikov, shareholder value, short selling, Steve Jobs, The Chicago School, the payments system, The Wealth of Nations by Adam Smith, too big to fail, Tragedy of the Commons, transaction costs, ultimatum game, union organizing, Vilfredo Pareto, working-age population, World Values Survey

Mayew (2008) found that analysts who had recently issued a strong buy recommendation for a firm were more than twice as likely to be allowed to ask a conference call question as analysts with strong sell recommendations. Analysts who had given favorable assessments of the company were allowed to ask their questions earlier than those who had given unfavorable ones. THE POWER OF THE CORPORATE ELITE 131 Paying Well for Lies, Gambles and Creative Accounting Top executives will routinely and inevitably possess information not available to investors. In these situations, changes in short run share prices will not imply a similar change in long run shareholder value. —Michael Jensen and Kevin Murphy, 2004 The large amounts of stocks and stock options that top managers get, ostensibly to align their interests with those of shareholders, create a massive insider trading problem.


pages: 311 words: 99,699

Fool's Gold: How the Bold Dream of a Small Tribe at J.P. Morgan Was Corrupted by Wall Street Greed and Unleashed a Catastrophe by Gillian Tett

accounting loophole / creative accounting, asset-backed security, bank run, banking crisis, Black-Scholes formula, Blythe Masters, break the buck, Bretton Woods, business climate, business cycle, buy and hold, collateralized debt obligation, commoditize, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, diversification, easy for humans, difficult for computers, financial innovation, fixed income, housing crisis, interest rate derivative, interest rate swap, Kickstarter, locking in a profit, Long Term Capital Management, McMansion, money market fund, mortgage debt, North Sea oil, Northern Rock, Renaissance Technologies, risk free rate, risk tolerance, Robert Shiller, Robert Shiller, Satyajit Das, Savings and loan crisis, short selling, sovereign wealth fund, statistical model, tail risk, The Great Moderation, too big to fail, value at risk, yield curve

Enron had been a poster child for innovation and free-market competition. It employed 22,000, had reported revenues of $101 billion in 2000, and had been named as “America’s most innovative company” by Fortune magazine for six years in a row. However, in the autumn of 2001, it emerged that those stunning profits had been a mirage; the company had used creative accounting tricks to inflate its results, seemingly with the knowledge of its banks and accountants. When those schemes came to light, confidence in Enron collapsed, and the company filed for what was then the largest bankruptcy in American corporate history. The news delivered a shocking blow to JPMorgan Chase.


The Winner-Take-All Society: Why the Few at the Top Get So Much More Than the Rest of Us by Robert H. Frank, Philip J. Cook

accounting loophole / creative accounting, air freight, Alvin Roth, Apple's 1984 Super Bowl advert, business cycle, compensation consultant, Daniel Kahneman / Amos Tversky, delayed gratification, Garrett Hardin, global village, haute couture, income inequality, independent contractor, invisible hand, labor-force participation, longitudinal study, Marshall McLuhan, medical malpractice, Network effects, positional goods, prisoner's dilemma, rent-seeking, rising living standards, Ronald Reagan, school choice, Shoshana Zuboff, Stephen Hawking, Tragedy of the Commons, transaction costs, trickle-down economics, winner-take-all economy

We may thus be witnessing the emergence of a new class of winners on the industrial scene-the "symbolic analysts," to use Sec­ retary of Labor Robert Reich's term: Included in this category are the problem-solving, -identifying, and bro­ kering of many people who call themselves research scientists, design engineers, software engineers, civil engineers, biotechnology engineers, sound engineers, public relations executives, investment bankers, lawyers, real estate developers, and even a few creative accountants. Also included is much of the work done by management consultants, fi­ nancial consultants, tax consultants, energy consultants, agricultural consultants, armaments consultants, architectural consultants, manage­ ment information specialists, organization development specialists, strategic planners, corporate headhunters, and systems analysts.


pages: 479 words: 102,876

The King of Oil: The Secret Lives of Marc Rich by Daniel Ammann

accounting loophole / creative accounting, anti-communist, Ayatollah Khomeini, banking crisis, Berlin Wall, Boycotts of Israel, business intelligence, buy low sell high, energy security, family office, Johann Wolfgang von Goethe, Mikhail Gorbachev, Nelson Mandela, oil shock, peak oil, purchasing power parity, Ronald Reagan, trade liberalization, transaction costs, transfer pricing, Upton Sinclair, Yom Kippur War

Shortly after assuming office, Prime Minister Manley entered into talks with Clarendon’s managers.11 They explored the idea of Rich helping Jamaica with a loan— and discovered they were preaching to the converted. The IMF forbade countries from borrowing money to cover their currency reserves, so a normal loan was out of the question. Rich’s people, however, believed the problem could be solved with a bit of “creative accounting.” They offered to give Jamaica the desperately needed 45 million, but not as a loan. Instead, the money was intended as an advance payment on future aluminum oxide deliveries. Jamaica was saved; IMF officials accepted the government’s accounts and approved the new credit. Critics maintain that Rich was thus essentially able to buy Manley and effectively take Jamaica hostage.


pages: 352 words: 98,561

The City by Tony Norfield

accounting loophole / creative accounting, anti-communist, Asian financial crisis, asset-backed security, bank run, banks create money, Basel III, Berlin Wall, Big bang: deregulation of the City of London, Bretton Woods, BRICs, British Empire, capital controls, central bank independence, colonial exploitation, colonial rule, continuation of politics by other means, dark matter, Edward Snowden, Fall of the Berlin Wall, financial innovation, financial intermediation, foreign exchange controls, Francis Fukuyama: the end of history, G4S, global value chain, Goldman Sachs: Vampire Squid, interest rate derivative, interest rate swap, Irish property bubble, linked data, London Interbank Offered Rate, London Whale, Mark Zuckerberg, Martin Wolf, means of production, Money creation, money market fund, mortgage debt, North Sea oil, Northern Rock, Occupy movement, offshore financial centre, Plutocrats, plutocrats, purchasing power parity, quantitative easing, Real Time Gross Settlement, regulatory arbitrage, reserve currency, Ronald Reagan, seigniorage, Sharpe ratio, sovereign wealth fund, The Great Moderation, transaction costs, transfer pricing, zero-sum game

This is the reality behind so-called austerity policies today, to the extent that even the privileges of the middle-class professions, traditional bastions of support for established political parties in all countries, are coming under attack. Profits, financial and global developments Measuring the rate of profit on capitalist investment is complicated by many factors, not just companies hiding or boosting their profits with creative accounting tricks. Above all, it is difficult to pinpoint the location of the investment that generated the profit when giant corporations supply their own global networks with their own transfer prices, or when they get cheap inputs from other companies in low-wage countries. In addition, a key distinction in Marxist value theory, between operations that are productive and those that are unproductive, cannot easily be determined when using economic data.


pages: 358 words: 106,729

Fault Lines: How Hidden Fractures Still Threaten the World Economy by Raghuram Rajan

accounting loophole / creative accounting, Andrei Shleifer, Asian financial crisis, asset-backed security, assortative mating, bank run, barriers to entry, Bernie Madoff, Bretton Woods, business climate, business cycle, Clayton Christensen, clean water, collapse of Lehman Brothers, collateralized debt obligation, colonial rule, corporate governance, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, currency manipulation / currency intervention, diversification, Edward Glaeser, financial innovation, fixed income, floating exchange rates, full employment, global supply chain, Goldman Sachs: Vampire Squid, illegal immigration, implied volatility, income inequality, index fund, interest rate swap, Joseph Schumpeter, Kenneth Rogoff, knowledge worker, labor-force participation, Long Term Capital Management, longitudinal study, market bubble, Martin Wolf, medical malpractice, microcredit, money market fund, moral hazard, new economy, Northern Rock, offshore financial centre, open economy, price stability, profit motive, Real Time Gross Settlement, Richard Florida, Richard Thaler, risk tolerance, Robert Shiller, Robert Shiller, Ronald Reagan, Savings and loan crisis, school vouchers, short selling, sovereign wealth fund, tail risk, The Great Moderation, the payments system, The Wealth of Nations by Adam Smith, too big to fail, upwardly mobile, Vanguard fund, women in the workforce, World Values Survey

Essentially, Enron had set up off-balance sheet entities to which it “sold” its failing projects at a hefty profit, thus creating the appearance of both profitability and growth, even though the reality was just the opposite. It was the short sellers who made Enron’s stock price plummet and forced the company to shut down even while the firm’s traditional bankers supported its creative accounting with yet more creative loans. As Chanos later wrote, defending the short seller’s role as professional skeptic: “We spoke with a number of analysts at various Wall Street firms to discuss Enron and its valuation. We were struck by how many of them conceded that there was no way to analyze Enron, but that investing in Enron was instead a ‘trust me’ story.


pages: 398 words: 105,917

Bean Counters: The Triumph of the Accountants and How They Broke Capitalism by Richard Brooks

accounting loophole / creative accounting, asset-backed security, banking crisis, Big bang: deregulation of the City of London, blockchain, BRICs, British Empire, business process, cloud computing, collapse of Lehman Brothers, collateralized debt obligation, corporate governance, corporate raider, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, David Strachan, Deng Xiaoping, Donald Trump, double entry bookkeeping, Double Irish / Dutch Sandwich, energy security, Etonian, eurozone crisis, financial deregulation, forensic accounting, Frederick Winslow Taylor, G4S, intangible asset, Internet of things, James Watt: steam engine, joint-stock company, joint-stock limited liability company, Joseph Schumpeter, light touch regulation, Long Term Capital Management, low cost airline, new economy, Northern Rock, offshore financial centre, oil shale / tar sands, On the Economy of Machinery and Manufactures, Ponzi scheme, post-oil, principal–agent problem, profit motive, race to the bottom, railway mania, regulatory arbitrage, risk/return, Ronald Reagan, Savings and loan crisis, savings glut, short selling, Silicon Valley, South Sea Bubble, statistical model, supply-chain management, The Chicago School, too big to fail, transaction costs, transfer pricing, Upton Sinclair, WikiLeaks

It inspired a host of further ruses, given the predatory name ‘Raptors’, to magic away dubious investments while holding onto those that seemed safe. The LJM vehicles generated $2bn in cash flow in 1999 alone, while the Raptors were estimated to have artificially spared Enron $1bn in losses, half of that in 2000 when its reported profits were $979m. And these were just the two main strands of a huge web of creative accounting, stretching to more than 3,000 ‘special purpose entities’, on which the reported results depended. A new lead accountant at Andersen’s Professional Standards Group dealing with Enron was less biddable than Duncan. Carl Bass was an expert old-school bean counter who had worked as an audit manager on the company in Houston before joining the technical unit in 1999.


pages: 376 words: 109,092

Paper Promises by Philip Coggan

accounting loophole / creative accounting, activist fund / activist shareholder / activist investor, balance sheet recession, bank run, banking crisis, barriers to entry, Berlin Wall, Bernie Madoff, Black Swan, bond market vigilante , Bretton Woods, British Empire, business cycle, call centre, capital controls, Carmen Reinhart, carried interest, Celtic Tiger, central bank independence, collapse of Lehman Brothers, collateralized debt obligation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency manipulation / currency intervention, currency peg, debt deflation, delayed gratification, diversified portfolio, eurozone crisis, Fall of the Berlin Wall, falling living standards, fear of failure, financial innovation, financial repression, fixed income, floating exchange rates, full employment, German hyperinflation, global reserve currency, hiring and firing, Hyman Minsky, income inequality, inflation targeting, Isaac Newton, John Meriwether, joint-stock company, Kenneth Rogoff, Kickstarter, labour market flexibility, light touch regulation, Long Term Capital Management, manufacturing employment, market bubble, market clearing, Martin Wolf, Money creation, money market fund, money: store of value / unit of account / medium of exchange, moral hazard, mortgage debt, Myron Scholes, negative equity, Nick Leeson, Northern Rock, oil shale / tar sands, paradox of thrift, peak oil, pension reform, Plutocrats, plutocrats, Ponzi scheme, price stability, principal–agent problem, purchasing power parity, quantitative easing, QWERTY keyboard, railway mania, regulatory arbitrage, reserve currency, Robert Gordon, Robert Shiller, Robert Shiller, Ronald Reagan, savings glut, short selling, South Sea Bubble, sovereign wealth fund, special drawing rights, The Chicago School, The Great Moderation, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, The Wealth of Nations by Adam Smith, time value of money, too big to fail, trade route, tulip mania, value at risk, Washington Consensus, women in the workforce, zero-sum game

Greece was the first country to get into trouble. It had joined the euro in 2001, slightly after the other PIGS countries, thanks to its long history of higher-than-average inflation rates and large budget deficits. And although it appeared to qualify under the deficit rules, it has subsequently admitted that creative accounting had been used to massage the figures. The country may have hoped that joining the single currency would impose an external discipline. But it failed to knuckle down to the task of being competitive; by 2010, its costs had risen 25 per cent relative to the rest of the euro-zone.9 This had resulted in current-account deficits of more than 10 per cent of GDP in each of 2006, 2007 and 2008.


pages: 576 words: 105,655

Austerity: The History of a Dangerous Idea by Mark Blyth

"Robert Solow", accounting loophole / creative accounting, balance sheet recession, bank run, banking crisis, Black Swan, Bretton Woods, business cycle, buy and hold, capital controls, Carmen Reinhart, Celtic Tiger, central bank independence, centre right, collateralized debt obligation, correlation does not imply causation, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency peg, debt deflation, deindustrialization, disintermediation, diversification, en.wikipedia.org, ending welfare as we know it, Eugene Fama: efficient market hypothesis, eurozone crisis, financial repression, fixed income, floating exchange rates, Fractional reserve banking, full employment, German hyperinflation, Gini coefficient, global reserve currency, Growth in a Time of Debt, Hyman Minsky, income inequality, information asymmetry, interest rate swap, invisible hand, Irish property bubble, Joseph Schumpeter, Kenneth Rogoff, liberal capitalism, liquidationism / Banker’s doctrine / the Treasury view, Long Term Capital Management, market bubble, market clearing, Martin Wolf, money market fund, moral hazard, mortgage debt, mortgage tax deduction, Occupy movement, offshore financial centre, paradox of thrift, Philip Mirowski, Post-Keynesian economics, price stability, quantitative easing, rent-seeking, reserve currency, road to serfdom, savings glut, short selling, structural adjustment programs, tail risk, The Great Moderation, The Myth of the Rational Market, The Wealth of Nations by Adam Smith, Tobin tax, too big to fail, unorthodox policies, value at risk, Washington Consensus, zero-sum game

The end result of all this activity was a full guarantee of the assets of the entire banking system: a total bailout. NAMA bought the assets at above book value with taxpayer money, sold shares of NAMA back to the banks, and they, in turn, used these shares as collateral to get liquidity from the ECB. In short, creative accounting and a helpful government enabled the banks to walk away scot-free from the carnage they had caused. Ireland was now shut out of international markets and placed at the mercy of the IMF-ECB-EC troika. Since then, over 70 billion euros have been injected into its banking system—divided by a population of some 4.5 million.


file:///C:/Documents%20and%... by vpavan

accounting loophole / creative accounting, activist fund / activist shareholder / activist investor, asset allocation, Berlin Wall, business cycle, buttonwood tree, buy and hold, corporate governance, corporate raider, disintermediation, diversification, diversified portfolio, Donald Trump, estate planning, fixed income, index fund, intangible asset, interest rate swap, margin call, money market fund, Myron Scholes, new economy, price discovery process, profit motive, risk tolerance, shareholder value, short selling, Silicon Valley, Small Order Execution System, Steve Jobs, stocks for the long run, stocks for the long term, technology bubble, transaction costs, Vanguard fund, women in the workforce, zero-coupon bond, éminence grise

Subpoenaed documents and the internal investigation by a special committee of Enron's board show that Andersen played a major role in setting up some of the partnerships, and then blessed their accounting treatment. This is a conflict of interest for any auditor. In addition, internal documents show that Andersen officials held discussions as early as December 2000 about the risks entailed in allowing Enron's aggressive and creative accounting. Documents also show that Andersen knew as early as August 2001 about accounting irregularities at Enron, and while it consulted with its own legal counsel on what to do, it failed to let shareholders know. In fact, it stood by its client for another three months before forcing it to restate five years' worth of earnings.


pages: 374 words: 110,238

Fall: The Mysterious Life and Death of Robert Maxwell, Britain's Most Notorious Media Baron by John Preston

accounting loophole / creative accounting, Albert Einstein, Berlin Wall, computer age, Desert Island Discs, Donald Trump, Fall of the Berlin Wall, G4S, global village, intangible asset, invention of the wheel, Jeffrey Epstein, Mikhail Gorbachev, Neil Kinnock, Nelson Mandela, Ronald Reagan, Seymour Hersh, the market place

Owen car dealers, 147 Haines, Irene, 159 Haines, Joe: anecdotes related to him in course of writing RM’s biography, xxiii, 5–6, 33, 46; background, character and appearance, 116–17; attitude to RM taking over Mirror, 105; work for Mirror under RM’s ownership, 116–17, 121, 122–3; RM buys toy for his puppy, 122–3; attends lavish RM party, 159; watches Davies denounce RM, 179; interviews Davies about indiscretions and arms-dealing allegations, 222–3; last meeting with RM, 230; tribute to RM, 253 Hall, Julie, 161 Hambro, Sir Charles, 30–31, 38, 41, 68–9 Hambros Bank, 30–31, 68 Hamilton, John, 240 Harris, Sandra, 82–3 Hasty Heart, The (film), 287 Hattersley, Roy, 119 Headington Hill Hall: history, 42, 154; Maxwells move into, 42–3; parties at, 154–61, 209–10; décor, 160; contents sold, 268–70; current function, 275–6 Heath, Edward, 57 helicopters, 126 Hersh, Seymour, 219, 220–21 Herzog, Chaim, 199–200, 261 Heuvel, Count Vanden (‘Fanny the Fixer’), 31 Hill, Dave, 119 Hinsey, Caroline (‘Tiny’), 213, 227–8, 231–2 Hitler, Adolf, 19, 20–21 Hoch, Brana, 18, 21, 47 Hoch, Chanca: RM born to, 1; way of life and family, 2–3; relationship with RM, 3, 50; sends RM to school, 4; death, 13, 18 Hoch, Mehel, 1, 2–3, 18 Hoch, Shenya, 18 Hoch, Sylvia, 4, 18, 21, 47, 287–8 Hodson, Nigel, 235 Hoge, Jim, xv–xxi, xxiv–xxv, xxvii– xxviii, 202, 204, 213–14 Holocaust and Genocide Studies (journal), 150 Hoppit (chauffeur), 84 houses, prefabricated, 29 Howell, Grover, xxiii Hull, Brian, 240 Hult, Madeleine, 255 Hungary, 5–6 hunting, 152–3 Husák, Gustáv, 152, 153 ‘I’m Backing Britain’ campaign, 59–60 IBM, 76 ILSC see International Learning Systems Corporation India, 63, 76 Intelligence Corps, 20–21 International Learning Systems Corporation (ILSC), 75, 76–8 IPC, 64, 101–2 Iserlohn, 20 Israel: RM visits and forms links with, 148–50; RM helps restore links with Russia, 197; RM visits Yad Vashem Holocaust memorial, 215–16; Davies’s links with Mossad, 219, 220–21; and RM’s death, 276; sends guard of honour to accompany RM’s body on last part of flight, 257; RM’s second autopsy takes place in, 257–60; RM buried in, 246, 261–3 Israel Day Parade, 213 Jackson, Sir Charles, 65 Jackson, Professor Derek, 64–6, 74 Jackson, John, 242–4, 245, 247, 248, 251 James, Clive, 136 Jaruzelski, General Wojciech, 167–8 Jay, Margaret, 127–8 Jay, Peter: background, 127–8; hired by RM, 128; RM’s treatment of, 130–32; on RM’s relationship with Murdoch, 142; on RM’s parties, 159; tries to help Andrea Martin, 178; discusses Reagan with Molloy, 287; RM fires, 184 Jews and Judaism: RM’s attitude to, 10, 56, 148–50, 215–16, 281–2; life in Czechoslovakia, 2; fate of Czech Jews in Second World War, 17–18; Betty’s Holocaust work, 150, 281; RM watches newsreel of Jews arriving at Auschwitz, 218 Johannmeir, Major Willi, 20–21 joke books, 273 Jordan, David, 224 Kamienski, Tadeusz, 80 Kaufman, Ben, 220, 221, 222 Keating, Robert, 239 Kerley, Peter, 36 KGB, 128 Khashoggi, Adnan, 147 Kinnock, Glenys, 160–61 Kinnock, Neil, 156–7, 160–61, 229, 231, 252 Kipling, Rudyard, 221 Kissinger, Henry, 226 Klein, Edward, 284 Kohl, Helmut, 252 Kordalski, Liza, 238, 239–40 Korean War (1950–53), 28 Kosygin, Alexei, 54 Kroll, Jules, 226 Labour Party Conference (1991), 229–31 Lady Ghislaine (yacht): RM buys, 147–8; named for his favourite daughter, xix, 147–8; chartered out, 175; RM sails to New York on, xiii, xix; party on board, xxvi–xxviii; RM’s last cruise on, 233–40, 277–8; Betty arrives to take over, 244–7; Betty orders crew to shred everything, 251; renamed Lady Mona K and bought, unwittingly, by Anna Murdoch, 288 Langdon, Julia, 151–3, 160 Lange, Maxwell & Springer, 31 Le Ribault, Professor Loïc, 264 Leaders of the World series, 179–80, 216 Leasco, 76–81, 86–92 Lehman Brothers, 227, 232 Leigh, Wendy, 94–5, 266 Lemela, Dr Carlos, 250 Lennox, Ken: covers collapse of Soviet Union, 217; flies out to Canaries with Betty in wake of RM’s death, 242, 244, 245; formally identifies RM’s body, 242; coaches Ghislaine in speech to be given to press, 248; accompanies RM’s body to Israel, 250, 251, 256–7 Leonard, Graham, 238–9 Liechtenstein, 168, 169 Lindsay, John, xxvi Liverpool, 8 Lobl, Arnos, 30 Lonrho, 142, 144 Loss, Joe, 155 Low-Bell & Maxwell, 30 Lucas, Sir Colin, 281–2 Lukanov, Andrei, 179–80 McDonald, George, xvi–xvii Macdonald Futura, 206 Mackenzie, Miss (security guard), xxii–xxiii, xxv Macmillan publishers, xviii, 145–6, 169, 267 Madeira, 235 Mafia, xviii Major, John, 208, 252 Maloney, Mike, 115, 137, 170, 172, 215 Mandela, Nelson and Winnie, 199–200 Mandelson, Peter, 131, 160–61 Margaret, Princess, 108, 113, 149 Markham, Sir Frank, 55 Marseilles, 7 Marsh, Richard, 58 Martin, Andrea, 170–83, 185–7, 223, 255, 283 Maxwell, Anne (RM’s daughter), 44, 157, 284 Maxwell, Christine (RM’s daughter): contracts infantile cholera, 37; and Karine’s death, 38; and Michael’s serious car accident and death, 45; other children’s attitude to, 48; Ian joins in California, 99; at lavish RM party, 157; compiles Birthday Book for Betty’s seventieth birthday, 199; role at Pergamon, 205; on Pergamon sale, 206; tries, unsuccessfully, to see RM, 212; on his deterioration, 212–13; later life, 284 Maxwell, Deborah (no relation), 177, 212 Maxwell, Elisabeth (Betty; née Meynard; RM’s wife): RM meets and marries, 13–15; RM writes to from the front, 16; RM spends leave with, 16–17; RM writes to from Berlin, 19–20; Michael’s birth, 22; and RM’s lung cancer diagnosis, 35, 36; Karine’s death, 3–7, 38; fights against RM’s possible affair with Anne Dove, 38–9; married life, 40–41; trip to Auschwitz, 41–2; moves to Headington Hill Hall, 42–3; Ghislaine’s birth, 44; Michael’s serious car accident and death, 44–52; RM drifts apart from, 46–7, 50; helps RM with his MP work, 57; attitude to RM’s attempt to buy News of the World, 66, 74; on Steinberg, 78; on RM’s loss of control of Pergamon, 81; supports RM in 1970 General Election, 83, 84; on downturn in their fortunes, 86–7; takes children camping, 90; difficult married life, 93–8; studies for degree, 95; relationship with Greg, 95–6; typical Christmas, 97–8; photo on Christmas card, 100; and RM’s eating, 134, 135, 136; chooses RM’s Desert Island Discs, 141; attitude to Rothschild’s, 146; studies the Holocaust and her and RM’s family trees, 150, 281; visits RM’s home town, 150–51; parties thrown by, 154–61; wonders about RM’s feelings for Andrea Martin, 173, 174; stands in for RM at engagements, 174; RM threatens with legal separation, 188–91; seventieth birthday dinner, 199–202; meets RM for first time in two months, 214; RM visits in France, 216; and RM’s death, 241, 242–7, 249–50; last meal on Lady Ghislaine, 251; receives tributes to RM, 252, 253; continuing unease over cause of his death, 254; accompanies RM’s body to Israel, 256–7; and RM’s funeral, 260, 261–2; receives half of proceeds of sale of RM’s estate, 268–9; clears Headington Hill Hall, 269, 275; tries to buy back RM’s MC, 270; tries to raise money for Ian, 271; on cause of RM’s death, 277; later life and death, 281–2; writes book about her marriage, 281–2 Maxwell, Ghislaine (RM’s daughter): birth, 44; childhood neglect because of Michael’s serious car accident and death, 45, 47; becomes spoiled, 47; helps promote Who Dares Wins game, 116; yacht named after, xix, 147–8; at lavish RM party, 157; role at Pergamon, 206; appointed RM’s Emissary, xxv; deteriorating relationship with RM, 213; and RM’s death, 245, 251; gives speech to press about his death, 248; on cause of his death, 277; later life, 284–5; arrest, 285 Maxwell, Ian (RM’s son): on RM’s war service, 16; and Michael’s serious car accident and death, 45, 51; relationship with RM, 48–9, 49–50, 96; on downturn in family fortunes, 90; on family Christmases, 97, 98; fired by RM, then eventually rehired, 98–9; takes Sasakawa to Buckingham Palace garden party, 105–6, 107–8; chooses RM’s Desert Island Discs, 141; at lavish RM party, 157; appears in advert for MCC, 166–7; stands in for RM at engagements, 174, 188–9; made joint MD of MCC, 175; on sale of Pergamon, 205–6; on RM and fax machines, 211; on RM’s deterioration, 211–12; marries Laura, 214; on RM’s gambling, 215; party for those unable to attend wedding, 215; sees RM watching newsreel of Jews arriving at Auschwitz, 218; phones RM on yacht, 236, 238; and RM’s death, 241–2; appoints administrators, 265; tried for conspiracy to defraud, 271–2; later life, 284 Maxwell, Isabel (RM’s daughter): contracts infantile cholera, 37; and RM’s lung cancer diagnosis, 36; and Karine’s death, 38; and Michael’s serious car accident and death, 45–6, 47; other children’s attitude to, 48; relationship with RM, 49; on Steinberg, 78; and RM’s eating habits, 135; at lavish RM party, 157; compiles Birthday Book for Betty’s seventieth birthday, 199; career, 205; RM compliments for first and last time, 216; later life, 284 Maxwell, Karine (RM’s daughter), 37–8 Maxwell, Kevin (RM’s son): and anecdote about RM’s war service, 16; relationship with RM, 96, 122; at lavish RM party, 157; appears in advert for MCC, 166–7; made joint MD for MCC, 175; Betty consults about potential separation from RM, 189–90; handles Pergamon sale, 206; becomes MCC’s CEO, 206; and Mirror flotation, 210; morning meetings with RM, 211; discusses business problems with RM, 214; Swiss Bank visits to announce calling in MCC loan, 234–5; asks RM to return to London, 236; phones RM on yacht, 239; and RM’s death, 241; rumoured to have helped RM fake death, 255; insists companies’ finances are sound, 263; appoints administrators, 265; tried for conspiracy to defraud, 270–72; biggest bankrupt in history, 271; criticized in DTI report into MGN, 272–3; later life, 284 Maxwell, Laura (née Plumb; RM’s daughter-in-law), 214, 216 Maxwell, Michael (RM’s son), 22, 35, 44–52, 157 Maxwell, Pandora (RM’s daughter-in-law), 270 Maxwell, Philip (RM’s son): first words, 43; and Michael’s serious car accident and death, 44, 51; relationship with RM, 50; goes to live in Argentina, 99; at lavish RM party, 157; RM confides in, 282; and RM’s death, 242, 245, 248–9, 251; speaks at RM’s funeral, 261–2; later life, 284 Maxwell, Robert (RM) GENERAL: appearance, 14, 23, 110, 147, 176–7; awards, honours and medals, 11–13, 155, 157, 270; biographies, memoirs and fictional re-creations, xxiii, xxviii, 273–4, 281–3; character, xviii, xix, xxv, 4, 10, 13, 26, 37–8, 46–7, 61, 91, 96–7, 123–4, 130, 148, 282–3; charities supported, 149; and the Establishment, 34; food likes and dislikes, 133–7; fortune, xiii; and gambling, 215; handwriting, 4; identity formation, 286–8; and Judaism, 10, 56, 148–50, 215–16, 281–2; management style, 118; names, 1, 7, 9–11, 288; nickname, xv; political influence, xiii–xiv, 104, 196, 197; relationship with parents, 3, 50; voice and accent, 8 LIFE: background, xiii; childhood, 1–4; joins Hungarian underground, 5–6; joins French army, 7–8; joins British army, 8–17; wins MC, 11–13; death of mother and many of family in Auschwitz, 13, 18; meets and marries Betty, 13–15; dubious treatment of German civilians, 15–16; posted to Germany in immediate aftermath of war, 17, 19–26; becomes British citizen, 21; Michael born, 22; espionage work, 22–3; helps set up Der Telegraaf, his introduction to the world of newspapers, 24; acquires worldwide distribution rights to Springer-Verlag’s publications, 24–7; demobbed, 26; ongoing British Intelligence connection, 27, 31; ‘creative’ trade deals, 28–30; moves forward in publishing industry, 31–4; Pergamon established, 31; his impact on scientific publishing, 32–3; first instance of asset-stripping, 33–4; lung cancer, 35–6; Karine’s death leads to emotional reserve, 37–8; possible affair with Anne Dove, 38–9; gains key contracts for Pergamon, 39–40; work ethic at this time, 40–41; continuing Intelligence work, 41; trip to Auschwitz, 41–2; moves to Headington Hill Hall, 42–3; Michael’s serious car accident and death leads to profound change in attitude to his family, 44–52; drifts apart from Betty, 46–7, 50; becomes MP, 53–62; dangerous-driving conviction, 55–6; ‘reforms’ House of Commons catering, 58–9, 60–62; fails to secure partnership deal with Murdoch, 63–4; loses battle against Murdoch for ownership of News of the World, 66–74; loses control of Pergamon despite some creative accounting, 75–81; loses parliamentary seat, 82–3; DTI report into sale of Pergamon leads to downturn in fortunes, 86–7; regains control of Pergamon, 86–92; marriage problems and affairs, 93–8; typical Christmas, 97–8; fires then rehires Ian, 98–9; loses battle against Murdoch for ownership of Sun and Times, 102–3; wins back respect of City by transforming fortunes of MCC, 103; takes over MGN, 103–12; rivalry with Murdoch, 104, 110–11, 113, 116, 142–6; management of Mirror, 113–23, 125–7; Pitt-Atkins predicts dramatic fall, 123–4; treatment of employees at this time, 127–32; increasing weight problem, 133–7; appears on Desert Island Discs, 5, 138–41; loses battle against Murdoch for ownership of Today, 142–4; buys Macmillan and Official Aviation Guide, 145–6; buys Lady Ghislaine, 147–8; invests in Israel, 148–50; revisits home town, 150–51; ‘state’ visit to Czechoslovakia, 151–3; parties thrown by, 154–61; becomes increasingly suspicious of everyone and arranges for phones to be bugged, 162–4; starts to borrow from Mirror pension fund to prop up MCC, 167–9; becomes besotted with Andrea Martin, 170–83; increasingly disorganized, 173–4; trip to Bulgaria, 179–81; desperate to separate Davies and Martin, 185–7; threatens Betty with legal separation, 188–91; while serious money problems loom continues to try to play role in international relations, 192–8; buys New York Daily News, xiii–xxviii, 201; throws dinner for Betty’s seventieth birthday though still not reconciled with her, 199–202; attends Gridiron Dinner and has lunch with Bush Snr, 202–4; sells Pergamon, 205–6; props up MCC share price, 207–8; floats Mirror on Stock Exchange, 208–10; increasingly irrational behaviour and health deterioration, 210–13; sixty-eighth birthday party, 213; problems at New York Daily News, 213–14; attends Ian’s wedding, 214; uses Mirror funds to pay debts, 215; visits Betty in France, 216; deteriorating health, 216; Guest tries to track down Mirror funds, 217–18; difficult relationship with Davies because of Martin, 219; arms-dealing allegations, 219–23; business affairs spiral out of control and health worsens, 223–32; total debts, 227, 232; Hinsey tells him about yachting accident, 227–8; unexpectedly joins Lady Ghislaine for a sail amid deepening financial problems, 233–9; vanishes from yacht, 239–40; body found, 241; general unease over cause of death, 242–51, 253–4; first autopsy, 249–50; body flown to Israel, 250–51, 265–7; tributes, 252–3; rumour that faked own death, 254–5; second autopsy, 257–60; funeral, 261–3; photos of body published in Paris Match, 263–4; empire collapses, 263–7; estate sold, 268–70; public contempt grows, 272, 273; continued speculation about cause of death, 276–80; reasons for distancing from Betty, 281–2; author’s speculation about last hours in water, 288 Maxwell Charitable Trust, 168 Maxwell Communications Corporation (MCC; formerly British Printing Corporation): RM takes over, 103; Pole hired by, 162; advert for, 165–7; RM tries to prop up share price, 167–9; Ian and Kevin made joint MDs, 175; financial problems, 194–6; RM steps down as Chairman, 206; RM further props up share price, 207–8; Walker resigns as Chairman because of potential inflation of profits, 210; Stoney made Commercial Director, 214–15; and missing MGN funds, 214–15, 217–18, 224–5; accelerating slump in share price, 223; Finance Director threatens to resign over missing money, 226; banks sell off shares, 232; Swiss Bank calls in loan, 234–5; collapse, 263–7 Maxwell House (formerly Strand House), 125, 126, 132, 211, 268, 269 Me and My Girl (musical), 155–6 Meynard, Elisabeth see Maxwell, Elisabeth MGN see Daily Mirror and Mirror Group MI6, 27, 31 Miller, Peter, 118 Mincemeat operation (1943), 254–5 Miranda, Bob, 88–9, 90–91 Mirror Group see Daily Mirror and Mirror Group Molloy, Mike: appearance, 110; welcomes RM to Mirror, 110; RM talks to about past life, 16, 19; on eating with RM, 119; on Who Dares Wins prize presentation, 120; discusses RM with Pitt-Atkins, 123–4; on Mother Teresa, 126–7; on Maxwell House, 132; attends lavish RM party, 160; on Andrea Martin, 176; on RM’s background, 287–8 Mondale, Walter, 169 Monte Carlo, 39 Montgomery, Field-Marshal Bernard, 13 Moon, Anna, 205 Morgan, Sir John, 170, 172 Morrell family, 154 Mosley, Oswald, 65 Moss, Brian, 44, 46, 55 Mossad, 149, 219, 220–21, 276 Mother Teresa, 126–7 MTV, 195–6 Murdoch, Anna, 70–71, 288 Murdoch, Elisabeth, 70–71 Murdoch, James, 288 Murdoch, Sir Keith, 68 Murdoch, Rupert: background, 68; relationship with RM, xx–xxi; abandons partnership talks with RM, 63–4; wins battle against RM for ownership of News of the World, 64–74; wins battles against RM for ownership of Sun and Times, 102–3; influence in Conservative Party, 104; RM’s rivalry with, 104, 110–11, 113, 116, 142–6; on RM’s ego, 115; transfers production of papers to Wapping, 117–18; possible spy at Mirror, 119; wins battle against RM for ownership of Today, 142–4; quote about RM, 145; warned about RM’s increasingly irrational behaviour, 210; tribute to RM, 252–3; discusses RM with Black, 268; Archer novel about rivalry with RM, 273–4; on cause of RM’s death, 276–7; helps Betty publish book about her marriage, 281; see also Sun Nabarro, Sir Gerald, 57 Netherlands, 11–13, 28–9 New Caxton Encyclopedia, 75 New York: Fu’s restaurant, xxvi New York Daily News, xiii–xxviii, 201, 202, 213–14, 267 News (Adelaide), 68, 70 News International, 143 News of the World, 64–74 Noble, Kendrick, 166 novels, 273–4 O’Connor, Cardinal John, xvi, xx Official Aviation Guide, 146 Olmert, Ehoud, 262 Oxford United, 103 Paarlo, 11–13 Panorama (TV programme), 223–4 Paris, 10, 13–15 Paris Match, 263–4 Parkinson, Michael, 5, 138–41 Parliament: RM’s speeches, 53–4, 56–7; House of Commons food, 58–9, 60–62; Westminster wine cellar, 61–2 Pearl, Alex, 6 Peat Marwick, 33 People, 171; see also Daily Mirror and Mirror Group Perdoma, José Francisco, 241 Perera, Josef, 203–4 Peres, Shimon, 252, 261 Pergamon Australia, 63–4 Pergamon Press: established, 31; RM gains key contracts, 39–40; RM loses control, 75–81; DTI report into sale, 86; RM regains control, 86–92; publishes Betty’s Holocaust journal, 150; fortieth-anniversary party, 155–61; RM sells to Elsevier, 205–6 Pergamon Press Inc.


pages: 935 words: 267,358

Capital in the Twenty-First Century by Thomas Piketty

"Robert Solow", accounting loophole / creative accounting, Asian financial crisis, banking crisis, banks create money, Berlin Wall, Branko Milanovic, British Empire, business cycle, capital controls, Capital in the Twenty-First Century by Thomas Piketty, carbon footprint, central bank independence, centre right, circulation of elites, collapse of Lehman Brothers, conceptual framework, corporate governance, correlation coefficient, David Ricardo: comparative advantage, demographic transition, distributed generation, diversification, diversified portfolio, European colonialism, eurozone crisis, Fall of the Berlin Wall, financial intermediation, full employment, German hyperinflation, Gini coefficient, high net worth, Honoré de Balzac, immigration reform, income inequality, income per capita, index card, inflation targeting, informal economy, invention of the steam engine, invisible hand, joint-stock company, Joseph Schumpeter, Kenneth Arrow, market bubble, means of production, Money creation, mortgage debt, mortgage tax deduction, new economy, New Urbanism, offshore financial centre, open economy, Paul Samuelson, pension reform, purchasing power parity, race to the bottom, randomized controlled trial, refrigerator car, regulatory arbitrage, rent control, rent-seeking, Robert Gordon, Ronald Reagan, Simon Kuznets, sovereign wealth fund, Steve Jobs, The Nature of the Firm, the payments system, The Theory of the Leisure Class by Thorstein Veblen, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, trade liberalization, twin studies, very high income, Vilfredo Pareto, We are the 99%, zero-sum game

In practice, financial institutions and stock markets are generally a long way from achieving this ideal of perfection. They are often sources of chronic instability, waves of speculation, and bubbles. To be sure, it is not a simple task to find the best possible use for each unit of capital around the world, or even within the borders of a single country. What is more, “short-termism” and “creative accounting” are sometimes the shortest path to maximizing the immediate private return on capital. Whatever institutional imperfections may exist, however, it is clear that systems of financial intermediation have played a central and irreplaceable role in the history of economic development. The process has always involved a very large number of actors, not just banks and formal financial markets: for example, in the eighteenth and nineteenth centuries, notaries played a central role in bringing investors together with entrepreneurs in need of financing, such as Père Goriot with his pasta factories and César Birotteau with his desire to invest in real estate.14 It is important to state clearly that the notion of marginal productivity of capital is defined independently of the institutions and rules—or absence of rules—that define the capital-labor split in a given society.

., 600n29 Challenges wealth rankings, 442, 624n18 Charles X, 613n21 Chavagneux, Christian, 628n56 China: income and, 62–­64, 66; growth in, 82, 99, 329, 429; income in­e­qual­ity in, 326–­327, 610n27, 646n42; assets of, 463, 627–­628n50; taxes in, 491, 492; regulation in, 535–­536 Civil Code, 362–­366, 614n23 Clark, Gregory, 591n15 Class designations, 250–­252 Climate change, 567–­569 Clinton, Bill, 309 Cobb, Charles, 599n18 Cobb-­Douglas production function, 217–­220, 599n17, 600n25 Cole, Adam, 607n42 Colonial empires, 120–­121 Colonial era, 44–­45 Colqhoun, Patrick, 230 Colson, Clément, 57, 591n19, 617n10 Columbia, 327, 329 “Common utility,” 480, 630n20 Communist Manifesto, The (Marx), 8–­9, 225 Communist movements, 8, 10 Competition: pure and perfect, 30, 212, 214, 312–­313, 332, 639–­640n48; fiscal, 208, 221, 355–­356, 373, 375, 422, 496, 562; inheritance and unrestricted, 423–­424 Concentration effects vs. volume effects, 410 Condorcet, marquis de, 363, 654n56 Confiscatory tax rates, 473; executive income and, 505–­508; fiscal progressivity and, 512–­514 Conservative revolution, 98, 138–­139, 333, 511, 549 Consumption taxes, 494, 496, 651n37 Continental blocs, 59–­61, 68 Contributive justification, 524–­525 Convergence, 21–­22, 27, 571; forces favoring, 69–­71; global, 72 Corporations, 156, 203, 332; taxation on profits of, 560–­561, 650–­651n33, 651n36 Creative accounting, 214 Crédit Suisse, 437, 623n10 Cross-­investments, 194 Crouzet, François, 591n11 Cumulative growth, law of, 74–­77 Cumulative returns, law of, 75, 77 Cyprus banking crisis, 519, 553–­556 Damages (TV series), 419 Data: importance of, 2–­3; national income as, 11–­13, 56–­59, 584n18; on income, 16–­17; on wealth, 17–­20; geo­graph­i­cal and historical boundaries of, 27–­30; developing countries and, 58–­59 Daumond, Adeline, 582n33 Davies, James B., 638n8 Debreu, Claude, 654n56 Debt.


pages: 424 words: 115,035

How Will Capitalism End? by Wolfgang Streeck

accounting loophole / creative accounting, Airbnb, basic income, Ben Bernanke: helicopter money, Bretton Woods, business cycle, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, central bank independence, centre right, Clayton Christensen, collective bargaining, conceptual framework, corporate governance, creative destruction, credit crunch, David Brooks, David Graeber, debt deflation, deglobalization, deindustrialization, disruptive innovation, en.wikipedia.org, eurozone crisis, failed state, financial deregulation, financial innovation, first-past-the-post, fixed income, full employment, Gini coefficient, global reserve currency, Google Glasses, haute cuisine, income inequality, information asymmetry, invisible hand, John Maynard Keynes: Economic Possibilities for our Grandchildren, Kenneth Rogoff, labour market flexibility, labour mobility, late capitalism, liberal capitalism, market bubble, means of production, moral hazard, North Sea oil, offshore financial centre, open borders, pension reform, Plutocrats, plutocrats, Plutonomy: Buying Luxury, Explaining Global Imbalances, post-industrial society, private sector deleveraging, profit maximization, profit motive, quantitative easing, reserve currency, rising living standards, Robert Gordon, savings glut, secular stagnation, shareholder value, sharing economy, sovereign wealth fund, The Future of Employment, The Theory of the Leisure Class by Thorstein Veblen, The Wealth of Nations by Adam Smith, Thorstein Veblen, too big to fail, transaction costs, Uber for X, upwardly mobile, Vilfredo Pareto, winner-take-all economy, Wolfgang Streeck

When his Brussels tenure came to an end Monti earned his living as an advisor to, among others, Goldman Sachs, the greatest junk-bond producer of them all. Lukas Papademos, now prime minister of Greece, was president of the Greek Central Bank when the country secured, through falsified statistics, its access to the monetary union and thus to unlimited credit at German rates of interest. Help with the creative accounting of the Greek national balance sheet was provided by the European division of none other than Goldman Sachs – to be headed shortly thereafter by Mario Draghi, who is now of course president of the European Central Bank. The three of them should get along well. CONTINENTAL IMBALANCES Meanwhile, it is now quite clear that the democratic states of the capitalist world have not one sovereign, but two: their people, below, and the international ‘markets’ above.


pages: 389 words: 119,487

21 Lessons for the 21st Century by Yuval Noah Harari

1960s counterculture, accounting loophole / creative accounting, affirmative action, Affordable Care Act / Obamacare, agricultural Revolution, algorithmic trading, augmented reality, autonomous vehicles, Ayatollah Khomeini, basic income, Bernie Sanders, bitcoin, blockchain, Boris Johnson, call centre, Capital in the Twenty-First Century by Thomas Piketty, carbon-based life, cognitive dissonance, computer age, computer vision, cryptocurrency, cuban missile crisis, decarbonisation, deglobalization, disinformation, Donald Trump, failed state, Filter Bubble, Francis Fukuyama: the end of history, Freestyle chess, gig economy, glass ceiling, Google Glasses, illegal immigration, Intergovernmental Panel on Climate Change (IPCC), Internet of things, invisible hand, job automation, knowledge economy, liberation theology, Louis Pasteur, low skilled workers, Mahatma Gandhi, Mark Zuckerberg, mass immigration, means of production, Menlo Park, meta-analysis, Mohammed Bouazizi, mutually assured destruction, Naomi Klein, obamacare, pattern recognition, post-work, purchasing power parity, race to the bottom, RAND corporation, Ronald Reagan, Rosa Parks, Scramble for Africa, self-driving car, Silicon Valley, Silicon Valley startup, transatlantic slave trade, Tyler Cowen: Great Stagnation, universal basic income, uranium enrichment, Watson beat the top human players on Jeopardy!, zero-sum game

Devoting more attention to the offline world than to its quarterly reports also has a bearing on Facebook’s taxation policies. Like Amazon, Google, Apple and several other tech-giants, Facebook has been repeatedly accused of tax evasion.11 The difficulties inherent in taxing online activities make it easier for these global corporations to engage in all sorts of creative accounting. If you think that people live mainly online, and that you provide them with all the necessary tools for their online existence, you can view yourself as a beneficial social service even as you avoid paying taxes to offline governments. But once you remember that humans have bodies, and that they therefore still need roads, hospitals and sewage systems, it becomes far more difficult to justify tax evasion.


pages: 393 words: 115,217

Loonshots: How to Nurture the Crazy Ideas That Win Wars, Cure Diseases, and Transform Industries by Safi Bahcall

accounting loophole / creative accounting, Albert Einstein, Apple II, Apple's 1984 Super Bowl advert, Astronomia nova, British Empire, Cass Sunstein, Charles Lindbergh, Clayton Christensen, cognitive bias, creative destruction, disruptive innovation, diversified portfolio, double helix, Douglas Engelbart, Douglas Engelbart, Edmond Halley, Gary Taubes, hypertext link, invisible hand, Isaac Newton, Johannes Kepler, Jony Ive, knowledge economy, lone genius, Louis Pasteur, Mark Zuckerberg, Menlo Park, Mother of all demos, Murray Gell-Mann, PageRank, Peter Thiel, Philip Mirowski, Pierre-Simon Laplace, prediction markets, pre–internet, Ralph Waldo Emerson, RAND corporation, random walk, Richard Feynman, Richard Thaler, side project, Silicon Valley, six sigma, Solar eclipse in 1919, stem cell, Steve Jobs, Steve Wozniak, the scientific method, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Tim Cook: Apple, tulip mania, Wall-E, wikimedia commons, yield management

Mormon America. HarperCollins, 2007. Rajan, Raghuram G., and Julie Wulf. “The Flattening Firm.” Rev. Econ. Stat. 88 (2006): 759. Roberts, Brigham H. History of the Church of Jesus Christ of Latter-day Saints. Deseret News, Vol. III (1905); Vol. VI (1912); Vol. VII (1932). Sparviero, Sergio. “Hollywood Creative Accounting.” Media Ind. J. 2 (2015). Wicks, Robert Sigfrid, and Fred R. Foister. Junius and Joseph. Utah State, 2005. Wong, Chi H., et al. “Estimation of Clinical Trial Success Rates and Related Parameters.” Biostat (2018). Young, Brigham. The Complete Discourses of Brigham Young. Ed. R. S. Van Wagoner.


pages: 464 words: 116,945

Seventeen Contradictions and the End of Capitalism by David Harvey

accounting loophole / creative accounting, bitcoin, Branko Milanovic, Bretton Woods, BRICs, British Empire, business climate, California gold rush, call centre, central bank independence, clean water, cloud computing, collapse of Lehman Brothers, colonial rule, creative destruction, Credit Default Swap, David Ricardo: comparative advantage, deindustrialization, demographic dividend, Deng Xiaoping, deskilling, drone strike, end world poverty, falling living standards, fiat currency, first square of the chessboard, first square of the chessboard / second half of the chessboard, Food sovereignty, Frank Gehry, future of work, global reserve currency, Guggenheim Bilbao, Gunnar Myrdal, Herbert Marcuse, income inequality, informal economy, invention of the steam engine, invisible hand, Isaac Newton, Jane Jacobs, Jarndyce and Jarndyce, John Maynard Keynes: Economic Possibilities for our Grandchildren, Joseph Schumpeter, Just-in-time delivery, knowledge worker, low skilled workers, Mahatma Gandhi, market clearing, Martin Wolf, means of production, microcredit, Money creation, new economy, New Urbanism, Occupy movement, peak oil, phenotype, Plutocrats, plutocrats, Ponzi scheme, quantitative easing, rent-seeking, reserve currency, road to serfdom, Robert Gordon, Ronald Reagan, Savings and loan crisis, short selling, Silicon Valley, special economic zone, The Theory of the Leisure Class by Thorstein Veblen, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, transaction costs, Tyler Cowen: Great Stagnation, wages for housework, Wall-E, women in the workforce, working poor, working-age population

We see their representatives gliding through the streets in limousines and populating all the upmarket restaurants and penthouses in all the major global cities of the world – New York, London, Frankfurt, Tokyo, São Paulo, Sydney … These are the so-called creative cities, where creativity is measured by how successfully the ‘masters of the universe’ can suck the living life out of the global economy to support a class whose one aim is to compound its own already immense wealth and power. New York City has a huge concentration of creative talent – creative accountants and tax lawyers, creative financiers armed with glitteringly new financial instruments, creative manipulators of information, creative hustlers and sellers of snake oil, creative media consultants, all of which makes it a wondrous place to study every single fetish that capital can construct.


pages: 523 words: 111,615

The Economics of Enough: How to Run the Economy as if the Future Matters by Diane Coyle

"Robert Solow", accounting loophole / creative accounting, affirmative action, bank run, banking crisis, Berlin Wall, bonus culture, Branko Milanovic, BRICs, business cycle, call centre, Cass Sunstein, central bank independence, collapse of Lehman Brothers, conceptual framework, corporate governance, correlation does not imply causation, Credit Default Swap, deindustrialization, demographic transition, Diane Coyle, different worldview, disintermediation, Edward Glaeser, endogenous growth, Eugene Fama: efficient market hypothesis, experimental economics, Fall of the Berlin Wall, Financial Instability Hypothesis, Francis Fukuyama: the end of history, George Akerlof, Gini coefficient, global supply chain, Gordon Gekko, greed is good, happiness index / gross national happiness, hedonic treadmill, Hyman Minsky, If something cannot go on forever, it will stop - Herbert Stein's Law, illegal immigration, income inequality, income per capita, industrial cluster, information asymmetry, intangible asset, Intergovernmental Panel on Climate Change (IPCC), invisible hand, Jane Jacobs, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, knowledge economy, light touch regulation, low skilled workers, market bubble, market design, market fundamentalism, megacity, Network effects, new economy, night-watchman state, Northern Rock, oil shock, Pareto efficiency, principal–agent problem, profit motive, purchasing power parity, railway mania, rising living standards, Ronald Reagan, selective serotonin reuptake inhibitor (SSRI), Silicon Valley, South Sea Bubble, Steven Pinker, The Design of Experiments, The Fortune at the Bottom of the Pyramid, The Market for Lemons, The Myth of the Rational Market, The Spirit Level, the strength of weak ties, Tragedy of the Commons, transaction costs, transfer pricing, tulip mania, ultimatum game, University of East Anglia, web application, web of trust, winner-take-all economy, World Values Survey, zero-sum game

Even after people have a high enough income to meet their basic needs such as enough to eat and an adequate home, acquiring more goods but also importantly more services, more variety and greater quality, continues to increase well-being. The change in the character of the increases in GDP as economies grow rich is important—services of all kinds and features of products that depend on intellect or creativity account for a growing share of our increasingly weightless economies. People continue to want the economy to grow. No politicians will win elections by calling for the economy to shrink or even stand still. However, it’s widely believed that markets have made society worse, in a moral sense. What’s more, as the first part of this book set out, we face the acute dilemmas posed by the fact that we’ve not reached a clear threshold at which we can say people have Enough.


pages: 409 words: 125,611

The Great Divide: Unequal Societies and What We Can Do About Them by Joseph E. Stiglitz

"Robert Solow", accounting loophole / creative accounting, affirmative action, Affordable Care Act / Obamacare, agricultural Revolution, Asian financial crisis, banking crisis, Berlin Wall, Bernie Madoff, Branko Milanovic, Bretton Woods, business cycle, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, carried interest, clean water, collapse of Lehman Brothers, collective bargaining, computer age, corporate governance, credit crunch, Credit Default Swap, deindustrialization, Detroit bankruptcy, discovery of DNA, Doha Development Round, everywhere but in the productivity statistics, Fall of the Berlin Wall, financial deregulation, financial innovation, full employment, George Akerlof, ghettoisation, Gini coefficient, glass ceiling, global supply chain, Home mortgage interest deduction, housing crisis, income inequality, income per capita, information asymmetry, job automation, Kenneth Rogoff, Kickstarter, labor-force participation, light touch regulation, Long Term Capital Management, manufacturing employment, market fundamentalism, mass incarceration, moral hazard, mortgage debt, mortgage tax deduction, new economy, obamacare, offshore financial centre, oil shale / tar sands, Paul Samuelson, Plutocrats, plutocrats, purchasing power parity, quantitative easing, race to the bottom, rent-seeking, rising living standards, Ronald Reagan, Savings and loan crisis, school vouchers, secular stagnation, Silicon Valley, Simon Kuznets, The Chicago School, the payments system, Tim Cook: Apple, too big to fail, trade liberalization, transaction costs, transfer pricing, trickle-down economics, Turing machine, unpaid internship, upwardly mobile, urban renewal, urban sprawl, very high income, War on Poverty, Washington Consensus, We are the 99%, white flight, winner-take-all economy, working poor, working-age population

According to the advocates of an incentive-based culture, though, this would be akin to giving something for nothing. In practice, the right’s narrow focus on incentives has proved inimical to long-term thinking and so rife with opportunities for greed that it was bound to promote distrust, both in society and within companies. Bank managers and corporate executives search out creative accounting devices to make their enterprises look good in the short run, even if their long-run prospects are compromised. Of course, incentives are an important component of human behavior. But the incentive movement has made them into a sort of religion, blind to all the other factors—social ties, moral impulses, compassion—that influence our conduct.


pages: 602 words: 120,848

Winner-Take-All Politics: How Washington Made the Rich Richer-And Turned Its Back on the Middle Class by Paul Pierson, Jacob S. Hacker

accounting loophole / creative accounting, active measures, affirmative action, asset allocation, barriers to entry, Bonfire of the Vanities, business climate, business cycle, carried interest, Cass Sunstein, clean water, collective bargaining, corporate governance, Credit Default Swap, David Brooks, desegregation, employer provided health coverage, financial deregulation, financial innovation, financial intermediation, fixed income, full employment, Home mortgage interest deduction, Howard Zinn, income inequality, invisible hand, knowledge economy, laissez-faire capitalism, Martin Wolf, medical bankruptcy, moral hazard, Nate Silver, new economy, night-watchman state, offshore financial centre, oil shock, Powell Memorandum, Ralph Nader, Ronald Reagan, Savings and loan crisis, shareholder value, Silicon Valley, Tax Reform Act of 1986, The Wealth of Nations by Adam Smith, too big to fail, trickle-down economics, union organizing, very high income, War on Poverty, winner-take-all economy, women in the workforce

In the country with the second-highest CEO pay levels—Switzerland—CEOs are paid on average around three-fifths of what American executives earn.42 Pay is not only lower in other rich nations; it also takes different forms. American CEOs, for example, receive much of their pay in short-term stock options, which not only lack transparency for stockholders but are also highly lucrative for CEOs who can create quick stock market gains through job cuts, restructuring, or creative accounting. Stock options are used in other nations, too, but they are much more often linked to long-term rather than short-term performance, as well as to firm performance relative to industry norms.43 Thus, for instance, options can be designed so that when the rising price of oil drives up the share price of energy companies, CEOs receive extra compensation only if their firm’s performance exceeds industry averages.


pages: 418 words: 128,965

The Master Switch: The Rise and Fall of Information Empires by Tim Wu

accounting loophole / creative accounting, Alfred Russel Wallace, Apple II, barriers to entry, British Empire, Burning Man, business cycle, Cass Sunstein, Clayton Christensen, commoditize, corporate raider, creative destruction, disinformation, disruptive innovation, don't be evil, Douglas Engelbart, Douglas Engelbart, Howard Rheingold, Hush-A-Phone, informal economy, intermodal, Internet Archive, invention of movable type, invention of the telephone, invisible hand, Jane Jacobs, John Markoff, Joseph Schumpeter, Menlo Park, open economy, packet switching, PageRank, profit motive, road to serfdom, Robert Bork, Robert Metcalfe, Ronald Coase, sexual politics, shareholder value, Silicon Valley, Skype, Steve Jobs, Steve Wozniak, Telecommunications Act of 1996, The Chicago School, The Death and Life of Great American Cities, the market place, The Wisdom of Crowds, too big to fail, Upton Sinclair, urban planning, Yochai Benkler, zero-sum game

This vision would spread throughout the 1980s and 1990s to become the dominant industrial organization for movies, music, magazines, newspapers, book publishing—all forms of content once called “leisure.” There is no understanding communications, or the American and global culture industry, without understanding the conglomerate. Yet this industrial form, born originally to assist in creative accounting on the part of public corporations, remains surprisingly difficult to characterize, let alone justify. It is a hydra-headed creature whose operations and advantages have mystified lawyers and economists alike. As a 1981 paper in the Bell Journal of Economics put it: “Despite extensive research, the motives for conglomerate mergers are still largely unknown.”4 Nonetheless, the conglomerate is the dominant organizational form for information industries of the late twentieth and early twenty-first centuries; here and abroad it is inseparable from the production of the lion’s share of culture.


pages: 432 words: 127,985

The Best Way to Rob a Bank Is to Own One: How Corporate Executives and Politicians Looted the S&L Industry by William K. Black

accounting loophole / creative accounting, affirmative action, Andrei Shleifer, business climate, cognitive dissonance, corporate governance, corporate raider, Donald Trump, fear of failure, financial deregulation, friendly fire, George Akerlof, hiring and firing, margin call, market bubble, money market fund, moral hazard, offshore financial centre, Ponzi scheme, race to the bottom, Ronald Reagan, Savings and loan crisis, short selling, The Market for Lemons, transaction costs

Because Wall’s team viewed Gray and his people as the enemy and as vindictive, they believed control frauds’ claims about vindictive field regulators. The control frauds’ only expertise was in manipulating people. Wall’s team would be lambs to the slaughter if control frauds existed in huge numbers. Wall’s efforts at deregulation and creative accounting, like Pratt’s, improved the environment for control frauds and weakened the Bank Board’s ability to fight them. Wall’s actions exposed the nation and his reputation to two other risks. He weakened supervision by removing the nation’s top financial regulator (Selby) from the region that most needed tougher supervision and placing Barclay in charge.


pages: 493 words: 145,326

Fire and Steam: A New History of the Railways in Britain by Christian Wolmar

accounting loophole / creative accounting, Beeching cuts, carbon footprint, collective bargaining, computer age, Corn Laws, creative destruction, cross-subsidies, financial independence, hiring and firing, James Watt: steam engine, joint-stock company, low cost airline, railway mania, rising living standards, Silicon Valley, South Sea Bubble, strikebreaker, union organizing, upwardly mobile, working poor, yield management

He treated these businesses as his personal fiefdom and his ability to accumulate so much power so quickly within the railways demonstrated that the money men of the City, rather than local mercantile interests, were beginning to control the industry. It is unclear whether Hudson’s early success with the York & North Midland, where he quickly turned deficits into profits, was based on genuine commercial activity or whether it was merely his particular brand of ‘creative accounting’, a term that could have been invented for him. However, even if he did start off honestly, his modus operandi soon became utterly corrupt. His method was to put forward a range of proposals for new railways and amalgamations with the ultimate intention of creating a controlled monopoly. He was a wheeler-dealer sine qua non, who promoted new railways, bought out existing ones at bargain prices and, having become an MP, used his political position to push his interests and destroy those of his rivals.


pages: 607 words: 133,452

Against Intellectual Monopoly by Michele Boldrin, David K. Levine

"Robert Solow", accounting loophole / creative accounting, agricultural Revolution, barriers to entry, business cycle, cognitive bias, creative destruction, David Ricardo: comparative advantage, Dean Kamen, Donald Trump, double entry bookkeeping, en.wikipedia.org, endogenous growth, Ernest Rutherford, experimental economics, financial innovation, independent contractor, informal economy, interchangeable parts, invention of radio, invention of the printing press, invisible hand, James Watt: steam engine, Jean Tirole, John Harrison: Longitude, Joseph Schumpeter, Kenneth Arrow, linear programming, market bubble, market design, mutually assured destruction, Nash equilibrium, new economy, open economy, peer-to-peer, pirate software, placebo effect, price discrimination, profit maximization, rent-seeking, Richard Stallman, Silicon Valley, Skype, slashdot, software patent, the market place, total factor productivity, trade liberalization, Tragedy of the Commons, transaction costs, Y2K

We also know that its contract with the government called upon the publisher to donate its “profits” to charity – and we know that it did, in fact, “donate $600,000 to support the study of emergency preparedness and terrorism prevention.”19 Because the entire Hollywood movie industry has managed by creative accounting to avoid earning a profit during its entire history, we can be forgiven if we suspect that Norton earned a bit more than the $600,000 it admitted to. We have already mentioned that it took us a few years to revise this book for final publication. The delay was probably bad for our reputation as professional book writers, but the three years that passed between the first draft and the revised edition allowed for a number of our wild conjectures to be tested by facts.


pages: 565 words: 134,138

The World for Sale: Money, Power and the Traders Who Barter the Earth’s Resources by Javier Blas, Jack Farchy

accounting loophole / creative accounting, airport security, algorithmic trading, Asian financial crisis, Ayatollah Khomeini, banking crisis, BRICs, business climate, business cycle, collapse of Lehman Brothers, coronavirus, corporate raider, COVID-19, Deng Xiaoping, Donald Trump, energy security, European colonialism, failed state, financial innovation, foreign exchange controls, Great Grain Robbery, invisible hand, John Deuss, Kickstarter, light touch regulation, margin call, new economy, North Sea oil, offshore financial centre, oil shale / tar sands, oil shock, oil-for-food scandal, Oscar Wyatt, price anchoring, purchasing power parity, Ronald Reagan, Scramble for Africa, sovereign wealth fund, special economic zone, stakhanovite, trade route, WikiLeaks, Yom Kippur War, éminence grise

On one occasion, Hart recalls calling Strothotte and telling him the Jamaican government was desperate for $5 million to meet its IMF requirements. The German trader immediately delivered. Again, Marc Rich + Co had saved the skin of the Jamaican government; and again, it had done so without even signing a contract. Such deals required some creative accounting: to satisfy the IMF, the money the trading house deposited in the government’s accounts couldn’t be shown as a debt. ‘Of course it was a debt, but it was never shown as a debt,’ Hart says. ‘We didn’t owe them anything on the books.’ That was not all. When the Jamaican government wanted to buy the country’s oil refinery from an Exxon subsidiary, Marc Rich + Co lent it the money.


pages: 519 words: 148,131

An Empire of Wealth: Rise of American Economy Power 1607-2000 by John Steele Gordon

accounting loophole / creative accounting, bank run, banking crisis, Bretton Woods, British Empire, business cycle, buttonwood tree, California gold rush, clean water, collective bargaining, Corn Laws, corporate governance, cuban missile crisis, disintermediation, double entry bookkeeping, failed state, financial independence, Frederick Winslow Taylor, full employment, global village, Ida Tarbell, imperial preference, informal economy, interchangeable parts, invisible hand, Isaac Newton, Jacquard loom, James Hargreaves, James Watt: steam engine, joint-stock company, joint-stock limited liability company, lone genius, Louis Pasteur, margin call, Marshall McLuhan, means of production, Menlo Park, Mikhail Gorbachev, Money creation, money market fund, money: store of value / unit of account / medium of exchange, moral hazard, new economy, New Urbanism, postindustrial economy, price mechanism, Ralph Waldo Emerson, RAND corporation, rent control, rent-seeking, reserve currency, rolodex, Ronald Reagan, Savings and loan crisis, spinning jenny, The Wealth of Nations by Adam Smith, trade route, transaction costs, transcontinental railway, undersea cable, Yom Kippur War

The Erie Railway, because some of its many bond issues were backed by New York State, was required to file an annual report with Albany. But it could frame that report pretty much as it chose. The managers of the Erie—one of the most mismanaged railroads in history—had no hesitation in using very creative accounting indeed to hide their own shenanigans. Horace Greeley in 1870 harrumphed in the New York Tribune that if the new annual report of the Erie was accurate, then “Alaska has a tropical climate and strawberries in their season.” The weekly Commercial and Financial Chronicle put its finger on the problem and foretold its solution.


Principles of Protocol Design by Robin Sharp

accounting loophole / creative accounting, business process, discrete time, fault tolerance, finite state, functional programming, Gödel, Escher, Bach, information retrieval, loose coupling, MITM: man-in-the-middle, packet switching, RFC: Request For Comment, stochastic process

., CN=Ivor Fiddle} would uniquely identify the person known as Ivor Fiddle, and so in fact would the name: {C=GB, O=Slush Funding Ltd., CN=Ivor Fiddle} Of course, this only works if Slush Funding Ltd. have no Ivor Fiddles working for them at other localities than Cambridge or in other organisational units than the Creative Accounting department. A particular example of the use of X.500 names is in systems for handling electronic mail according to the ISO MOTIS and ITU-T MHS standards [191], where they are usually referred to as O/R names. O/R stands for Originator/Recipient, reflecting the fact that they identify the sender or receiver of the electronic mail. 7.1 General Principles of Naming and Addressing 197 req( nam ) Client entity Name server resp( addr ) Fig. 7.2 Obtaining an address from a name server.


pages: 632 words: 159,454

War and Gold: A Five-Hundred-Year History of Empires, Adventures, and Debt by Kwasi Kwarteng

accounting loophole / creative accounting, anti-communist, Asian financial crisis, asset-backed security, Atahualpa, balance sheet recession, bank run, banking crisis, Big bang: deregulation of the City of London, Bretton Woods, British Empire, business cycle, California gold rush, capital controls, Carmen Reinhart, central bank independence, centre right, collapse of Lehman Brothers, collateralized debt obligation, credit crunch, currency manipulation / currency intervention, Deng Xiaoping, discovery of the americas, Etonian, eurozone crisis, fiat currency, financial innovation, fixed income, floating exchange rates, foreign exchange controls, Francisco Pizarro, full employment, German hyperinflation, hiring and firing, income inequality, invisible hand, Isaac Newton, John Maynard Keynes: Economic Possibilities for our Grandchildren, joint-stock company, joint-stock limited liability company, Joseph Schumpeter, Kenneth Rogoff, labour market flexibility, liberal capitalism, market bubble, money: store of value / unit of account / medium of exchange, moral hazard, new economy, Nixon triggered the end of the Bretton Woods system, oil shock, Plutocrats, plutocrats, Ponzi scheme, price mechanism, quantitative easing, rolodex, Ronald Reagan, South Sea Bubble, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, the market place, The Wealth of Nations by Adam Smith, too big to fail, War on Poverty, Yom Kippur War

Issing admitted that as regards the criterion of public sector indebtedness – the ratio of government debt to GDP – ‘the progress made, if [there was any] at all, was much more modest’ than the figures governments announced relating to their budget deficits. Total national debt figures of the aspirant eurozone countries remained high, even though annual deficits seemed to be kept low, by official figures, in the 1990s. Rather ominously, he also admitted that the deficit figures had been ‘massaged in certain instances by acts of “creative accounting”’.38 Issing’s gravest fears about monetary union, however, were the lack of political union accompanying it, a reservation shared by many German technocrats and politicians during the 1990s. In two important areas, ‘regulation of the labour market, on the one hand, and government tax and spending, on the other’, national governments had been allowed sole discretion.


pages: 586 words: 159,901

Wall Street: How It Works And for Whom by Doug Henwood

accounting loophole / creative accounting, activist fund / activist shareholder / activist investor, affirmative action, Andrei Shleifer, asset allocation, asset-backed security, bank run, banking crisis, barriers to entry, bond market vigilante , borderless world, Bretton Woods, British Empire, business cycle, buy the rumour, sell the news, capital asset pricing model, capital controls, central bank independence, computerized trading, corporate governance, corporate raider, correlation coefficient, correlation does not imply causation, credit crunch, currency manipulation / currency intervention, David Ricardo: comparative advantage, debt deflation, declining real wages, deindustrialization, dematerialisation, disinformation, diversification, diversified portfolio, Donald Trump, equity premium, Eugene Fama: efficient market hypothesis, experimental subject, facts on the ground, financial deregulation, financial innovation, Financial Instability Hypothesis, floating exchange rates, full employment, George Akerlof, George Gilder, hiring and firing, Hyman Minsky, implied volatility, index arbitrage, index fund, information asymmetry, interest rate swap, Internet Archive, invisible hand, Irwin Jacobs, Isaac Newton, joint-stock company, Joseph Schumpeter, kremlinology, labor-force participation, late capitalism, law of one price, liberal capitalism, liquidationism / Banker’s doctrine / the Treasury view, London Interbank Offered Rate, Louis Bachelier, market bubble, Mexican peso crisis / tequila crisis, microcredit, minimum wage unemployment, money market fund, moral hazard, mortgage debt, mortgage tax deduction, Myron Scholes, oil shock, Paul Samuelson, payday loans, pension reform, Plutocrats, plutocrats, Post-Keynesian economics, price mechanism, price stability, prisoner's dilemma, profit maximization, publication bias, Ralph Nader, random walk, reserve currency, Richard Thaler, risk tolerance, Robert Gordon, Robert Shiller, Robert Shiller, Savings and loan crisis, selection bias, shareholder value, short selling, Slavoj Žižek, South Sea Bubble, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, The Market for Lemons, The Nature of the Firm, The Predators' Ball, The Wealth of Nations by Adam Smith, transaction costs, transcontinental railway, women in the workforce, yield curve, zero-coupon bond

Obviously, there isn't much time left over after the clients are serviced to do serious corporate and industry research. One thing analysts rarely do is second-guess the numbers that firms report to their shareholders, which are certified by outside auditors, typically a brand-name global accounting firm. Accountancy may have a reputation for dullness, but it can be the scene of great creativity. Accountants are notoriously eager to say kind things about the companies they audit; after all, the subject of the audit pays the fees. Notorious bankrupts of the PLAYERS 1980s, from Drexel Burnham Lambert to BCCI to several hundred S&Ls, were repeatedly given clean bills of health by prominent accounting firms — the very outside auditors who are supposed to provide an external check on a firm's numerical self-representation.


pages: 523 words: 159,884

The Great Railroad Revolution by Christian Wolmar

1919 Motor Transport Corps convoy, accounting loophole / creative accounting, banking crisis, Bay Area Rapid Transit, big-box store, Charles Lindbergh, collective bargaining, cross-subsidies, intermodal, James Watt: steam engine, Kickstarter, Ponzi scheme, quantitative easing, railway mania, Ralph Waldo Emerson, refrigerator car, Silicon Valley, strikebreaker, too big to fail, trade route, transcontinental railway, traveling salesman, union organizing, urban sprawl

Worse, the top three executives—Saunders; Alfred Perelman, his counterpart on the Central; and the finance director, David Bevan— spent more time plotting against each other than running the company. Possibly because he realized that the railroad business could not make any money, Saunders embarked on a massive round of acquisitions, resulting in the Penn Central owning an extraordinary 186 subsidiaries.17 Moreover, he ran the company on the basis of what was kindly described as “creative accountancy” but was really outright fraud. He consistently over-valued assets and undervalued liabilities and boosted profits through paper deals to convince Wall Street that the company was profitable. It was in fact losing $1 million per day and started borrowing money at 10 percent interest, when even in the good times it was earning 5 percent: “Never, in recent times, had the books of a large corporation been so thoroughly cooked.”18 It could not last and it didn’t.


pages: 518 words: 147,036

The Fissured Workplace by David Weil

accounting loophole / creative accounting, affirmative action, Affordable Care Act / Obamacare, banking crisis, barriers to entry, business cycle, business process, buy and hold, call centre, Carmen Reinhart, Cass Sunstein, Clayton Christensen, clean water, collective bargaining, commoditize, corporate governance, corporate raider, Corrections Corporation of America, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, declining real wages, employer provided health coverage, Frank Levy and Richard Murnane: The New Division of Labor, George Akerlof, global supply chain, global value chain, hiring and firing, income inequality, independent contractor, information asymmetry, intermodal, inventory management, Jane Jacobs, Kenneth Rogoff, law of one price, long term incentive plan, loss aversion, low skilled workers, minimum wage unemployment, moral hazard, Network effects, new economy, occupational segregation, Paul Samuelson, performance metric, pre–internet, price discrimination, principal–agent problem, Rana Plaza, Richard Florida, Richard Thaler, Ronald Coase, shareholder value, Silicon Valley, statistical model, Steve Jobs, supply-chain management, The Death and Life of Great American Cities, The Nature of the Firm, transaction costs, ultimatum game, union organizing, women in the workforce, yield management

Williamson (1985) notes: “Indeed, one would expect, and events have borne the expectation out, that the ‘go-go’ conglomerates would become unglued when adversity set in—as it did in the late 1960s. Those firms found it necessary to reorganize along M-form lines (divisional structures), to simplify their product lines, or to do both” (289). 31. The merger wave had been enhanced by creative accounting techniques that allowed companies to hide some of the costs associated with mergers and acquisitions activity, making the acquisitions look more attractive than they often were. This led to investigations by the Federal Trade Commission and the Securities and Exchange Commission (SEC). As a result of growing public and investor concern with the issue, Congress passed the Williams Act in 1968, requiring disclosure of cash tender offers resulting in changes of ownership of more than 10% (later lowered to greater than 5%).


pages: 579 words: 160,351

Breaking News: The Remaking of Journalism and Why It Matters Now by Alan Rusbridger

accounting loophole / creative accounting, Airbnb, Andy Carvin, banking crisis, Bernie Sanders, Boris Johnson, centre right, Chelsea Manning, citizen journalism, cross-subsidies, crowdsourcing, David Attenborough, David Brooks, death of newspapers, Donald Trump, Doomsday Book, Double Irish / Dutch Sandwich, Downton Abbey, Edward Snowden, Etonian, Filter Bubble, forensic accounting, Frank Gehry, future of journalism, G4S, high net worth, invention of movable type, invention of the printing press, Jeff Bezos, jimmy wales, Julian Assange, Mark Zuckerberg, Menlo Park, natural language processing, New Journalism, offshore financial centre, oil shale / tar sands, open borders, packet switching, Panopticon Jeremy Bentham, pre–internet, ransomware, recommendation engine, Ruby on Rails, sexual politics, Silicon Valley, Skype, Snapchat, social web, Socratic dialogue, sovereign wealth fund, speech recognition, Steve Bannon, Steve Jobs, The Wisdom of Crowds, Tim Cook: Apple, traveling salesman, upwardly mobile, WikiLeaks, Yochai Benkler

If you’re going to make a mistake of this sort, it’s probably best not to make it against a company with gross global income of more than £50 billion a year and profits before tax of £5 billion. They were Goliath; we were David. And they were a very cross Goliath. That was understandable. In common with most global organisations their financial structures were a complex maze of tax wizardry, havens, property unit trusts, intellectual property rights and creative accountancy. There was nothing improper or contrary to the law about all this. And, indeed, lawyers are kept very busy by the multinationals: one firm advising Tesco on a particular tax avoidance strategy employed no fewer than 90 lawyers on the project. The advanced tax planning undertaken today by most international companies is as intelligible to the average person as particle physics.


pages: 524 words: 155,947

More: The 10,000-Year Rise of the World Economy by Philip Coggan

"Robert Solow", accounting loophole / creative accounting, Ada Lovelace, agricultural Revolution, Airbnb, airline deregulation, Andrei Shleifer, anti-communist, assortative mating, autonomous vehicles, bank run, banking crisis, banks create money, basic income, Berlin Wall, Bob Noyce, bond market vigilante , Branko Milanovic, Bretton Woods, British Empire, business cycle, call centre, capital controls, carbon footprint, Carmen Reinhart, Celtic Tiger, central bank independence, Charles Lindbergh, clean water, collective bargaining, Columbian Exchange, Columbine, Corn Laws, credit crunch, Credit Default Swap, crony capitalism, currency peg, debt deflation, Deng Xiaoping, discovery of the americas, Donald Trump, Erik Brynjolfsson, European colonialism, eurozone crisis, falling living standards, financial innovation, financial intermediation, floating exchange rates, Fractional reserve banking, Frederick Winslow Taylor, full employment, germ theory of disease, German hyperinflation, gig economy, Gini coefficient, global supply chain, global value chain, Gordon Gekko, greed is good, Haber-Bosch Process, Hans Rosling, Hernando de Soto, hydraulic fracturing, Ignaz Semmelweis: hand washing, income inequality, income per capita, independent contractor, indoor plumbing, industrial robot, inflation targeting, Isaac Newton, James Watt: steam engine, job automation, John Snow's cholera map, joint-stock company, joint-stock limited liability company, Kenneth Arrow, Kula ring, labour market flexibility, land reform, land tenure, Lao Tzu, large denomination, liquidity trap, Long Term Capital Management, Louis Blériot, low cost airline, low skilled workers, lump of labour, M-Pesa, Malcom McLean invented shipping containers, manufacturing employment, Marc Andreessen, Mark Zuckerberg, Martin Wolf, McJob, means of production, Mikhail Gorbachev, mittelstand, Modern Monetary Theory, moral hazard, Murano, Venice glass, Myron Scholes, Nelson Mandela, Network effects, Northern Rock, oil shale / tar sands, oil shock, Paul Samuelson, popular capitalism, popular electronics, price stability, principal–agent problem, profit maximization, purchasing power parity, quantitative easing, railway mania, Ralph Nader, regulatory arbitrage, road to serfdom, Robert Gordon, Robert Shiller, Robert Shiller, Ronald Coase, Ronald Reagan, savings glut, Scramble for Africa, Second Machine Age, secular stagnation, Silicon Valley, Simon Kuznets, South China Sea, South Sea Bubble, special drawing rights, spice trade, spinning jenny, Steven Pinker, TaskRabbit, Thales and the olive presses, Thales of Miletus, The Great Moderation, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, The Rise and Fall of American Growth, The Theory of the Leisure Class by Thorstein Veblen, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Thomas Malthus, Thorstein Veblen, trade route, Tragedy of the Commons, transaction costs, transatlantic slave trade, transcontinental railway, Triangle Shirtwaist Factory, universal basic income, Unsafe at Any Speed, Upton Sinclair, V2 rocket, Veblen good, War on Poverty, Washington Consensus, Watson beat the top human players on Jeopardy!, women in the workforce, Yom Kippur War, you are the product, zero-sum game

And countries could only qualify for the euro if they passed financial tests, limiting their budget deficits to 3% of GDP. In technical terms, the creation of the euro was a success. Exchange rates were tied together from 1999 and the new notes and coins were introduced in 2002, without real problems. But the seeds of future crises had already been sown. Several countries indulged in creative accounting to pass the budget test, and another criterion – a 60% cap on government debt to GDP – was effectively ignored. And the decline in interest rates across the region fuelled speculative bubbles, as we shall see. The build-up to the crisis The crisis that ended this era had its roots in an unexpected place – the American housing market.


On the Wrong Line: How Ideology and Incompetence Wrecked Britain's Railways by Christian Wolmar

accounting loophole / creative accounting, Beeching cuts, congestion charging, joint-stock company, profit motive, railway mania, the built environment, yield management, zero-sum game

The benefits were seen in the form of investment in schemes such as electronic radio signalling, which scored notable successes in reducing costs in remote locations such as the West Highland and Far North lines in Scotland and in East Suffolk and, more important, the replacement of almost all the worn-out diesel multiple units and locomotive-hauled trains on regional routes, all dating back to the late 1950s, with a modern fleet, many of which were air-conditioned. BR was set the target of making InterCity profitable, which was achieved with a bit of fiddling over the inclusion of high-revenue routes such as London-Norwich and the omission of loss-makers, such as trains to Barrow in Furness and Cleethorpes, and some creative accounting that ensured costs were stacked into the heavily subsidised Provincial Railways sector. Freight, too, was supposed to be profitable, a much harder target. From an annual loss of £100m in 1984, InterCity broke even a couple of years later and then became highly profitable in the boom years of the late 1980s.


pages: 552 words: 168,518

MacroWikinomics: Rebooting Business and the World by Don Tapscott, Anthony D. Williams

accounting loophole / creative accounting, airport security, Andrew Keen, augmented reality, Ayatollah Khomeini, barriers to entry, Ben Horowitz, bioinformatics, Bretton Woods, business climate, business process, buy and hold, car-free, carbon footprint, Charles Lindbergh, citizen journalism, Clayton Christensen, clean water, Climategate, Climatic Research Unit, cloud computing, collaborative editing, collapse of Lehman Brothers, collateralized debt obligation, colonial rule, commoditize, corporate governance, corporate social responsibility, creative destruction, crowdsourcing, death of newspapers, demographic transition, disruptive innovation, distributed generation, don't be evil, en.wikipedia.org, energy security, energy transition, Exxon Valdez, failed state, fault tolerance, financial innovation, Galaxy Zoo, game design, global village, Google Earth, Hans Rosling, hive mind, Home mortgage interest deduction, information asymmetry, interchangeable parts, Internet of things, invention of movable type, Isaac Newton, James Watt: steam engine, Jaron Lanier, jimmy wales, Joseph Schumpeter, Julian Assange, Kevin Kelly, Kickstarter, knowledge economy, knowledge worker, Marc Andreessen, Marshall McLuhan, mass immigration, medical bankruptcy, megacity, mortgage tax deduction, Netflix Prize, new economy, Nicholas Carr, oil shock, old-boy network, online collectivism, open borders, open economy, pattern recognition, peer-to-peer lending, personalized medicine, Ray Kurzweil, RFID, ride hailing / ride sharing, Ronald Reagan, Rubik’s Cube, scientific mainstream, shareholder value, Silicon Valley, Skype, smart grid, smart meter, social graph, social web, software patent, Steve Jobs, text mining, the scientific method, The Wisdom of Crowds, transaction costs, transfer pricing, University of East Anglia, urban sprawl, value at risk, WikiLeaks, X Prize, Yochai Benkler, young professional, Zipcar

Integrity Years ago corporate social responsibility advocates coined the optimistic adage, “you do well by doing good.” They were trying to make a business case for good corporate behavior. Few were persuaded. The main reason for the lack of success in winning support for corporate responsibility was that the “doing well by doing good” adage was not true. Many companies did well by being bad. Creative accounting, unfair labor practices, corporate secrecy, monopolistic behaviors, externalizing costs to society, and shady environmental behaviors could help beef up the bottom line. Not to mention that corporate executives themselves could “do well” by paying astronomical bonuses, even while their companies were struggling.


Digital Accounting: The Effects of the Internet and Erp on Accounting by Ashutosh Deshmukh

accounting loophole / creative accounting, AltaVista, business continuity plan, business intelligence, business process, call centre, computer age, conceptual framework, corporate governance, data acquisition, disinformation, dumpster diving, fixed income, hypertext link, interest rate swap, inventory management, iterative process, late fees, money market fund, new economy, New Journalism, optical character recognition, packet switching, performance metric, profit maximization, semantic web, shareholder value, six sigma, statistical model, supply-chain management, supply-chain management software, telemarketer, transaction costs, value at risk, web application, Y2K

Bandwidth explodes, along with the number of users of the Internet. Experts herald the arrival of the e-revolution and promise to change the world. Dot com stock values reach sky high. • The arrival of Internet2 and NGI. The dot com revolution crashes. Terrorism, corporate mis-governance, dubious business practices and creative accounting destroy stock values. Will the Internet deliver on its promised revolution? • Is it just one more tool in the toolkit of businesses? • What will be global effects of the Internet? • What do you think? • Copyright © 2006, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited. 6 Deshmukh The 1990s witnessed an explosion in the personal, business and government uses of the Internet.


pages: 598 words: 169,194

Bernie Madoff, the Wizard of Lies: Inside the Infamous $65 Billion Swindle by Diana B. Henriques

accounting loophole / creative accounting, airport security, Albert Einstein, banking crisis, Bernie Madoff, break the buck, British Empire, buy and hold, centralized clearinghouse, collapse of Lehman Brothers, computerized trading, corporate raider, diversified portfolio, Donald Trump, dumpster diving, Edward Thorp, financial deregulation, financial thriller, fixed income, forensic accounting, Gordon Gekko, index fund, locking in a profit, mail merge, merger arbitrage, money market fund, Plutocrats, plutocrats, Ponzi scheme, Potemkin village, random walk, Renaissance Technologies, riskless arbitrage, Ronald Reagan, Savings and loan crisis, short selling, Small Order Execution System, source of truth, sovereign wealth fund, too big to fail, transaction costs, traveling salesman

Regulators would argue that, as a lawyer and licenced securities professional, he could not have failed to discover the crime if he had been doing his job properly. Peter had signing authority for one of the firm’s bank accounts until about 1985. Although he was not an accountant by training or a partner in the firm, he could have gotten access to the firm’s general ledgers and might have seen the creative accounting and emergency loans arranged during the cash crisis in 2005 and early 2006, despite the awful distraction of his son’s illness during those frantic months. And, as chief operating officer of Madoff’s investment advisory business, he arguably should have made it his business to know what was happening on the seventeenth floor, however much his brother tried to shoo him away.


Big Blues: The Unmaking of IBM by Paul Carroll

accounting loophole / creative accounting, full employment, John Markoff, Mitch Kapor, popular electronics, Robert Metcalfe, Ronald Reagan, Silicon Valley, six sigma, software patent, Steve Ballmer, Steve Jobs, Steven Levy, thinkpad, traveling salesman

The IBMers let it be known that the real expectation was 2 million, but some executives also whispered to analysts off the record that the num ber could be as high as 4 million. Four million would have been impressive enough that it got some people’s attention, but because the word had been passed off the rec­ ord, the IBM ers knew that they wouldn’t be judged failures when the num ber actually shipped turned out to be far lower. Cannavino had to do some creative accounting to make 1992 come in on target, at 2 million. D ealers said that about one-third of the people who bought IBM PCs that came with OS/2 preinstalled were paying the dealers to take OS/2 off and replace it with Windows, which meant Gates got a double payment, because IBM paid him a royalty on each copy of OS/2 it sold, and Gates got to sell a copy of Windows, too.


pages: 604 words: 165,488

Mr Five Per Cent: The Many Lives of Calouste Gulbenkian, the World's Richest Man by Jonathan Conlin

accounting loophole / creative accounting, anti-communist, banking crisis, British Empire, carried interest, Ernest Rutherford, estate planning, Fellow of the Royal Society, light touch regulation, MITM: man-in-the-middle, Network effects, Pierre-Simon Laplace, rent-seeking, stakhanovite, Yom Kippur War

Gulbenkian helped Royal Dutch-Shell to overcome all these difficulties: he handled government liaison, reassured anxious concessionaires, managed share issues and kept Deterding under control. Without him, the pantechnicon would have soon come off the road. Thanks to him, the company had a very good war indeed. Even after paying dividends of 40 per cent, the combine was left with embarrassingly large amounts of retained earnings, which it did its best to ‘lose’ through creative accounting.18 In February 1907 General Antonio Aranguren had acquired a fifty-year concession for the districts of Maracaibo and Bolívar, in the Venezuelan state of Zulia. Aranguren came to London and joined forces with a New Zealander, Duncan Elliott Alves, subsequently forming an oil-focused syndicate with other, English investors in 1913.


pages: 614 words: 168,545

Rentier Capitalism: Who Owns the Economy, and Who Pays for It? by Brett Christophers

accounting loophole / creative accounting, Airbnb, Amazon Web Services, barriers to entry, Big bang: deregulation of the City of London, Boris Johnson, Bretton Woods, British Empire, business process, business process outsourcing, Buy land – they’re not making it any more, call centre, Capital in the Twenty-First Century by Thomas Piketty, Cass Sunstein, cloud computing, collective bargaining, congestion charging, corporate governance, David Graeber, deindustrialization, Diane Coyle, disintermediation, diversification, diversified portfolio, Donald Trump, Downton Abbey, Etonian, European colonialism, financial deregulation, financial innovation, financial intermediation, G4S, gig economy, Gini coefficient, Goldman Sachs: Vampire Squid, greed is good, haute couture, high net worth, housing crisis, income inequality, independent contractor, intangible asset, Internet of things, Jeff Bezos, Joseph Schumpeter, Kickstarter, land reform, land value tax, light touch regulation, Lyft, manufacturing employment, market clearing, Martin Wolf, means of production, moral hazard, mortgage debt, Network effects, new economy, North Sea oil, offshore financial centre, oil shale / tar sands, oil shock, patent troll, pattern recognition, peak oil, Piper Alpha, precariat, price discrimination, price mechanism, profit maximization, quantitative easing, race to the bottom, rent control, rent-seeking, ride hailing / ride sharing, Right to Buy, risk free rate, Ronald Coase, sharing economy, short selling, Silicon Valley, software patent, surveillance capitalism, TaskRabbit, The Nature of the Firm, transaction costs, Uber for X, uber lyft, very high income, wage slave, wealth creators, winner-take-all economy, working-age population, yield curve, you are the product

In October 2018, the then chancellor, Philip Hammond, announced eye-catching plans to introduce a so-called ‘digital services tax’, to be levied on revenues generated – rather than profits earned – in the UK specifically by digital platforms operating in three sub-sectors: search engines, social media platforms and online marketplaces. The tax will apply to any company whose worldwide annual revenues from these activities exceed £500 million, and for whom more than £25 million of these revenues are derived from UK users. Moreover, the wording of the policy paper suggests the measure may be resistant to the type of creative accounting practised by Google: taxable revenues are defined as those arising ‘by virtue of a UK user using the service’, which, in the case of advertising revenue, means ‘when the advertisement is viewed or otherwise consumed by a UK user’.98 It doesn’t matter, in other words, whether the advertising is sold out of London, Dublin or Mars.


pages: 1,202 words: 424,886

Stigum's Money Market, 4E by Marcia Stigum, Anthony Crescenzi

accounting loophole / creative accounting, Asian financial crisis, asset allocation, asset-backed security, bank run, banking crisis, banks create money, Black-Scholes formula, Brownian motion, business climate, buy and hold, capital controls, central bank independence, centralized clearinghouse, corporate governance, credit crunch, Credit Default Swap, currency manipulation / currency intervention, David Ricardo: comparative advantage, disintermediation, distributed generation, diversification, diversified portfolio, financial innovation, financial intermediation, fixed income, foreign exchange controls, full employment, high net worth, implied volatility, income per capita, intangible asset, interest rate derivative, interest rate swap, large denomination, locking in a profit, London Interbank Offered Rate, margin call, market bubble, market clearing, market fundamentalism, Money creation, money market fund, mortgage debt, Myron Scholes, offshore financial centre, paper trading, pension reform, Ponzi scheme, price mechanism, price stability, profit motive, Real Time Gross Settlement, reserve currency, risk free rate, risk tolerance, risk/return, Savings and loan crisis, seigniorage, shareholder value, short selling, tail risk, technology bubble, the payments system, too big to fail, transaction costs, two-sided market, value at risk, volatility smile, yield curve, zero-coupon bond, zero-sum game

Probably in every case, a dealer who eventually engaged in fraud started out intending to make money running an honest business; then, because of his incompetence and/or a few unfortunate bets he made on the market, the dealer lost money and ended up broke. At that point, he succumbed to the temptation to reason, “I’m bankrupt at the moment, but, if I just borrow from customers for a little while, I can recoup my losses.” And, thus, started the fraud, the creative accounting, and the deceit. Full Accrual Pricing High-profile dealer bankruptcies in the 1980s, perhaps because they caused a large loss to a particular bank (Chase), finally stirred the Fed to join in on the regulation of the government securities market. The Fed recommended, in a letter to the primary dealers, that they henceforth price repo collateral at market price plus accrued interest minus a reasonable haircut.

The increase in the number of taxpayers has greatly exceeded the increase in number of Social Security recipients, resulting in large surpluses (as Baby Boomers retire, this dynamic will work in the opposite direction, carrying with it a bundle of economic, financial, and political ramifications). Through creative accounting and political will, the surpluses have been included in the yearly readings on the U.S. fiscal balance, producing smaller reported deficits and larger surpluses than have actually been the case, but the debts owed to the Social Security trust fund have been kept out of the public’s eye. The second reason why the total amount of publicly traded Treasuries differs from the U.S. government’s total debt relates to the Federal Reserve.


Sweden by Becky Ohlsen

accounting loophole / creative accounting, car-free, centre right, clean water, financial independence, glass ceiling, haute couture, Kickstarter, low cost airline, low cost carrier, mass immigration, New Urbanism, period drama, place-making, post-work, starchitect, the built environment, white picket fence

The always hilarious Bill Bryson had an entertainingly difficult time of it in Sweden, as described in two chapters of his European travel book Neither Here Nor There. There are also a couple of good views of Sweden from within, including Selma Lagerlöf’s The Wonderful Adventures of Nils. This creative account of the country’s history and geography is still taught in Swedish classrooms. Get a taste of a thematic journey in the remotest parts of northern Sweden in Torgny Lindgren’s wonderful novel Hash. Two odd characters set off on a motorcycle in search of the perfect, life-altering pot of hash (pölsan), a sort of potted-meat dish traditionally prepared in the rural north


pages: 613 words: 181,605

Circle of Greed: The Spectacular Rise and Fall of the Lawyer Who Brought Corporate America to Its Knees by Patrick Dillon, Carl M. Cannon

accounting loophole / creative accounting, affirmative action, Bernie Madoff, buy and hold, collective bargaining, Columbine, computer age, corporate governance, corporate raider, desegregation, energy security, estate planning, Exxon Valdez, fear of failure, fixed income, Gordon Gekko, greed is good, illegal immigration, index fund, John Markoff, mandatory minimum, margin call, Maui Hawaii, McDonald's hot coffee lawsuit, money market fund, new economy, oil shale / tar sands, Ponzi scheme, Ralph Nader, rolodex, Ronald Reagan, Sand Hill Road, Savings and loan crisis, Silicon Valley, Silicon Valley startup, Steve Jobs, the High Line, the market place, white picket fence, Works Progress Administration, zero-sum game

Requiring five years of discovery prior to a seven-month jury trial that would produce more than 13,000 pages of trial transcripts along with some fifty witnesses and thousands of articles of evidence, Nucorp would stretch the firm’s resources, costing more than $5 million and tying up its star litigator. Lerach and his team secured hundreds of documents—memos and notes—from the defendants and interviewed dozens of witnesses, including Nucorp officers and managers. The ex-Nucorp executives conceded their part in the questionable revenues, creative accounting methods, and dubious claims of oil reserves that had continued to lure investors. After learning that Lerach had said: “I’ll be living in his house”—literally the cliffside mansion that Lerach had been coveting in La Jolla—Nucorp president Richard Burns instructed his attorneys to settle. Lerach next turned his attention to others he deemed responsible for the fraud: the company’s underwriter, Wall Street’s Donaldson, Lufkin & Jenrette; its auditor, Arthur Andersen; its lender, Continental Illinois Bank and Trust of Chicago; and finally a major Nucorp investor, Circle K Corp., a Phoenix-based convenience-store chain that was the first to install gas pumps.


pages: 670 words: 194,502

The Intelligent Investor (Collins Business Essentials) by Benjamin Graham, Jason Zweig

3Com Palm IPO, accounting loophole / creative accounting, air freight, Andrei Shleifer, asset allocation, business cycle, buy and hold, buy low sell high, capital asset pricing model, corporate governance, corporate raider, Daniel Kahneman / Amos Tversky, diversified portfolio, dogs of the Dow, Eugene Fama: efficient market hypothesis, Everybody Ought to Be Rich, George Santayana, hiring and firing, index fund, intangible asset, Isaac Newton, Long Term Capital Management, market bubble, merger arbitrage, money market fund, new economy, passive investing, price stability, Ralph Waldo Emerson, Richard Thaler, risk tolerance, Robert Shiller, Robert Shiller, Ronald Reagan, shareholder value, sharing economy, short selling, Silicon Valley, South Sea Bubble, Steve Jobs, stocks for the long run, survivorship bias, the market place, the rule of 72, transaction costs, tulip mania, VA Linux, Vanguard fund, Y2K, Yogi Berra

This case is a keen reminder of the importance of reading the fine print with a skeptical eye. I am indebted to Martin Fridson for suggesting this example. 8 Martin Fridson and Fernando Alvarez, Financial Statement Analysis: A Practitioner’s Guide (John Wiley & Sons, New York, 2002); Charles W. Mulford and Eugene E. Comiskey, The Financial Numbers Game: Detecting Creative Accounting Practices (John Wiley & Sons, New York, 2002); Howard Schilit, Financial Shenanigans (McGraw-Hill, New York, 2002). Benjamin Graham’s own book, The Interpretation of Financial Statements (HarperBusiness, New York, 1998 reprint of 1937 edition), remains an excellent brief introduction to the basic principles of earnings and expenses, assets and liabilities


pages: 898 words: 266,274

The Irrational Bundle by Dan Ariely

accounting loophole / creative accounting, air freight, Albert Einstein, Alvin Roth, assortative mating, banking crisis, Bernie Madoff, Black Swan, Broken windows theory, Burning Man, business process, cashless society, Cass Sunstein, clean water, cognitive dissonance, compensation consultant, computer vision, corporate governance, credit crunch, Credit Default Swap, Daniel Kahneman / Amos Tversky, delayed gratification, Donald Trump, end world poverty, endowment effect, Exxon Valdez, first-price auction, Frederick Winslow Taylor, fudge factor, Garrett Hardin, George Akerlof, Gordon Gekko, greed is good, happiness index / gross national happiness, hedonic treadmill, IKEA effect, Jean Tirole, job satisfaction, Kenneth Arrow, knowledge economy, knowledge worker, lake wobegon effect, late fees, loss aversion, Murray Gell-Mann, new economy, Peter Singer: altruism, placebo effect, price anchoring, Richard Feynman, Richard Thaler, Saturday Night Live, Schrödinger's Cat, second-price auction, Shai Danziger, shareholder value, Silicon Valley, Skype, software as a service, Steve Jobs, sunk-cost fallacy, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Tragedy of the Commons, ultimatum game, Upton Sinclair, Walter Mischel, young professional

I knew John as the erstwhile lyricist for the Grateful Dead, but during our chat I discovered that he had also been working as a consultant for a few companies—including Enron. In case you weren’t paying attention in 2001, the basic story of the fall of the Wall Street darling went something like this: Through a series of creative accounting tricks—helped along by the blind eye of consultants, rating agencies, the company’s board, and the now-defunct accounting firm Arthur Andersen, Enron rose to great financial heights only to come crashing down when its actions could no longer be concealed. Stockholders lost their investments, retirement plans evaporated, thousands of employees lost their jobs, and the company went bankrupt.


The Sum of All Fears by Tom Clancy

accounting loophole / creative accounting, airport security, Benoit Mandelbrot, British Empire, colonial exploitation, complexity theory, cuban missile crisis, demand response, disinformation, financial independence, index card, mandelbrot fractal, trade route, uranium enrichment

There are indications that the KGB is up to something. There seems to be a very discreet operation in Germany, looking for some lost tactical nukes." "Good Lord!" Fellows noted. "What do you mean by "lost"?" "We're not sure. If it ties in with SPINNAKER, well, maybe there's been some creative accounting on the part of the Soviet Army." "Your opinion?" "I don't know, guys, I just don't know. Our analysis people are about evenly divided - those that are willing to offer an opinion." "We know their army isn't real happy," Fellows said slowly. "The loss of funding, loss of prestige, loss of units and billets but that unhappy?"


Betrayal of Trust: The Collapse of Global Public Health by Laurie Garrett

accounting loophole / creative accounting, airport security, Albert Einstein, anti-communist, Ayatollah Khomeini, Berlin Wall, biofilm, clean water, collective bargaining, desegregation, discovery of DNA, discovery of penicillin, disinformation, Drosophila, employer provided health coverage, Fall of the Berlin Wall, germ theory of disease, global pandemic, illegal immigration, indoor plumbing, Induced demand, John Snow's cholera map, Jones Act, Louis Pasteur, Mahatma Gandhi, mass incarceration, Maui Hawaii, means of production, Menlo Park, Mikhail Gorbachev, mouse model, Nelson Mandela, new economy, nuclear winter, phenotype, profit motive, Project Plowshare, RAND corporation, randomized controlled trial, Right to Buy, Ronald Reagan, sexual politics, Silicon Valley, stem cell, the scientific method, urban decay, urban renewal, War on Poverty, working poor, Works Progress Administration, yellow journalism

He was obsessed with the pursuit, driven by the same desire to command a field of information as guided his endless searches for rare postage stamps and obscure rocks.20 A fluent speaker of Russian, Feshbach had been making data-hunting trips to the USSR since 1973. And make no mistake about it: Feshbach was relentless, if not ruthless, in his pursuit of numbers. Long before the collapse of the Soviet Union occurred Feshbach uncovered evidence of public health failure hidden by the creative accountants in the Kremlin. For example, adult premature death rates started climbing in 1964 all across the USSR, jumping from 6.9 per 1,000 adults annually to 10.3 per 1,000 in 1980. And by 1980, he discovered, the life expectancy gap between Soviet men and women was more than eleven years—already the widest gender chasm in the world.