On page 143 In our book, Ken and I referred to the triumph of the ‘finance guys’ at GM in the late 1950s, describing them as among the first of the disastrous, so-called ‘professional managers’ to make an appearance on the US corporate scene.
The ultimate achievement of the finance guys on US business was an approach to accounting known euphemistically as ‘marking to the market’. Traditional accountants had recorded a profit only when it was clearly in the bag. This new approach allowed you to book profits when a deal had been initiated but not completed. It was based on ‘modern finance theory,’ according to which markets are assumed to be perfectly efficient, i.e. they will always reflect the profitability of any business operation. Since in practice (and indeed in theory) no one can evaluate an incomplete deal, the door was opened to massive manipulation, legalised fraud leading to a vast transfer of funds to people who would have no way of paying them back. John Kay had an illuminating article on this subject in the Financial Times of May 6, 2009: ‘A boom based on little more than a bezzle’.
QV.
Best wishes — Will
