--- Brad DeLong <jbdelong at uclink.berkeley.edu> wrote:
> The fact is that the Silicon Valley companies that grant the options
> think it is *very* important that the fully-diluted numbers stay in
> small print at the back, think it is *very* important that they be
> able to focus their press releases on "pro forma" numbers, and that
> GAAP not be improved.
This is certainly true, but in my experience of company reporting, they're often very keen on kidding themselves about what's important. As I say, it's not as if Amazon, Boo and Qualcomm looked "cheap" on the basis of proforma earnings numbers. I think the rush to destroy GAAP (about which I have previously ranted here and elsewhere) was more of a symptom than a cause of dot com mania -- cognitive dissonance set in as people had to start reconciling what they wanted to be the case with what actually was.
>
> I was somewhat slightly bemused at the conference by the fact that my
> usually laissez faire-loving ex-roommate Andrei Shleifer felt so very
> strongly that the past two decades had seen a substantial degradation
> in the quality of the information on which the marginal investor is
> acting, and that this was a problem that required government action
> to solve.
It's probably true that there was "a substantial degradation in the quality of the information on which the marginal investor is acting", but this tells you more about the marginal investor than the published financial statements. I repeat; every set of accounts published by every quoted company in the USA contains disclosure of stock options granted, and contains earnings according to one of the strictest GAAPs in the world. They even give you a cash flow statement, so you can see exactly how much cash your company is burning. The information was there, and people chose not to look at it. They even published great big articles in the Wall Street Journal and Barron's warning you in forty point type that "THESE COMPANIES ARE NOT MAKING PROFITS AND PROBABLY NEVER WILL". I don't see how the government can force people to pay attention to things they don't want to.
And I think it's not so very surprising that a laissez-faire type like Andrei Shleifer would come to the conclusion that a massive misallocation of capital by a free market was the fault of a few Very Bad People who Cheated and Must Be Prevented From Interfering In The Workings Of A Basically Fine Market Mechanism. Explaining that everything would have been fine except for a few bad apples is practically an industry in itself. It's the explanation of the phenomenon which allows him to preserve all of his beliefs about the efficiency of laissez-faire capital markets and most of the facts. Ask him whether the Crash of 1929 was the fault of Jesse Livermore and the Standard Oil crowd.
>
> But at the moment I am even more bemused.
>
> In the phrase "their own lookout" I hear the echo of _Atlas
> Shrugged_. The thought of Alan Greenspan being outflanked on the Ayn
> Randite (Randish? Randian? Randist?) right by Daniel Davies...
heh. I haven't read that one, though my review of "The Fountainhead" should be appearing on adequacy.org next week. But fer chrissake. An "investor" is by definition a capital-owner. We're not talking about penniless graduate students or Indonesian children here. You don't have to be a free-market nut to say that people with cash to spare and accurate accounts available free on the Web should be exposed to abit of caveat emptor. But of course, everyone is a conservative when it comes to his own pocketbook and I am hardly a disinterested party ... my favourite adjective is "Randroid".
dd
>
> :-)
>
>
> Brad DeLong
>
===== ... in countries which do not enjoy Mediterranean sunshine idleness is more difficult, and a great public propaganda will be required to inaugurate it. -- Bertrand Russell
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