Empty Cookie Jar

The Four Seasons hotel, Houston, 20 January 2000. The investment managers and analysts packed into the ballroom are paying only partial attention to the presentation by the Enron Corporation. On the New York Stock Exchange, Enron’s shares have been rising all day, by as much as $2 an hour. It is now mid-afternoon, New York is about to close, and the members of the audience know that the moment to profit will have passed if they wait for the dramatic announcement they all suspect is coming. Out come the mobile telephones. ‘They weren’t even leaving their chairs, they were calling their traders and saying, “Buy it, I don’t care what the price is, buy it,”’ one attendee told Robert Bryce. As New York closes, the announcement comes. Enron, which began by owning pipelines carrying natural gas, is going to organise the trading of ‘bandwidth’ (capacity) in pipelines that carry information, the fibre-optic cables of the Internet. At the end of a tumultuous day, Enron’s stock price has risen by 26 per cent.

The Waldorf Astoria, Manhattan, 19 November 2001. This time, the audience is Enron’s bankers. Any mobile telephones will have been used to say ‘sell’, but they probably won’t have been needed. All those present already know that Enron is in potentially fatal difficulties. The previous month, it had announced ‘non-recurring’ losses of $1.01 billion. Some had been incurred in the bandwidth business it had entered so triumphally the previous year, but Enron had also admitted large losses from its dealings with a ‘special purpose entity’ (of which, more later) with the unrevealing name of ‘LJM2 Co-Investment, LP’. Despite this warning of trouble, the scale of what the bankers are told on 19 November is remarkable. Enron’s balance-sheet for the third quarter of 2001 had reported debts of $13 billion. Now, the audience learns of an additional $25 billion of previously undisclosed debt. Appeals to the bankers are of no avail, just as calls to the Federal Reserve and the Bush Administration fail to produce a rescue. On 2 December 2001, Enron files for bankruptcy protection, at that point the largest US corporation ever to do so.

Though caught up in the Internet boom, Enron was not a stereotypical dot.com, all hype and no substance. It was a serious and imaginative firm. Every year from 1996 to 2001, Fortune magazine ranked it the US’s ‘most innovative’ company, and the award was given in earnest: Fortune isn’t big on irony. Enron combined expertise of two types. One was in managing physical assets such as pipelines, electricity generating plant and water systems (in the UK it owned Wessex Water). It was often very good at this. For example, the Teesside co-generation plant, built by an Enron-led consortium, processes natural gas, generates around 3 per cent of Britain’s electricity and turns what would otherwise be waste heat into steam for ICI’s nearby petrochemical complex. The plant was widely regarded as exemplary when it opened in 1993.

Owning physical assets was, however, seen by Enron largely as a lever for an ever more important second kind of expertise in the burgeoning area of energy trading. First in the US and then elsewhere, industries such as gas, electricity and water were liberalised in the 1980s and 1990s, making it possible to create markets where none previously existed. Enron positioned itself between the producers of energy and its consumers by, for example, offering large industrial consumers of natural gas the security of long-term fixed-price contracts. It then ‘hedged’ the risk of such contracts, for example by buying the gas ‘futures’ that the New York Mercantile Exchange began to trade in 1990 – a ‘future’ being a standardised contract to buy or sell a set quantity of a given asset at a set price on a given future date.

Enron’s ambitions were huge, and lay in areas in which government still called the shots. Accordingly, it built links to political power. Its connections to George W. Bush have attracted much attention. They were indeed longstanding, with deep roots in Houston’s local politics, and went beyond financial contributions: in 1986, Enron was involved in joint drilling with Bush’s company, Spectrum 7. Enron’s chairman, Kenneth Lay, seems to have developed a joshing intimacy with Bush. Loren Fox reproduces Bush’s 1997 birthday letter to Lay: ‘55 years old. Wow! That is really old. Thank goodness you have such a young, beautiful wife.’ Political links outside the US were also important, particularly in India, where Enron’s massively expensive Dabhol electricity generating plant, the first such privately owned project in the Subcontinent, was mired in controversy, and viewed as inappropriate by the World Bank. Local protesters were allegedly beaten up by the police and subjected, according to Amnesty, to arbitrary arrest. The then US Ambassador to India, who condemned the plant’s cancellation (soon to be reversed) by the state government of Maharashtra, later joined the board of Enron Oil and Gas.

Bush’s critics have failed to find the ‘smoking gun’ in his links to Enron that might threaten his Presidency. He, other Republicans and many Democrats would often have wanted to provide the free-market conditions that Enron sought, even if funding had not flowed in their direction from the corporation. Bush did not grant Enron the single decision it perhaps most desired: for the US Administration to withdraw its objections to the Kyoto Protocol limiting greenhouse gas emissions. If it seems odd that the corporation was in favour of Kyoto, remember Enron’s commitment to making money by creating markets. If an effective system of global control of carbon dioxide emissions is ever created, it will most likely involve a system of tradeable permits. Companies or countries that can reduce their emissions cheaply, or that do not need their full carbon dioxide quotas, will be able to sell emissions permits. Other companies or countries will then buy them if that works out cheaper than cutting emissions. Economists reckon that emissions trading will make it possible to achieve necessary reductions in greenhouse gas emissions at minimum cost. It’s not a silly idea: in the US, sulphur dioxide permits have successfully been traded by Enron and many others since the start of the 1990s. Tradeable greenhouse gas permits could even be egalitarian. If permits were issued on a simple per capita basis, the consequence would be a huge transfer of resources from rich to poor countries, though preventing benefits simply being absorbed by elites in the latter is a difficult issue.

Greenhouse emissions trading is, however, a prospect to make any trader drool. Carbon dioxide permits would quickly be supplemented by ‘derivatives’ of the kind in which Enron had great expertise: carbon dioxide futures, carbon dioxide options and so on. (An ‘option’ is a contract that gives the right, but – unlike a future – not the obligation, to buy or to sell a set quantity of an asset at a set price on or up to a given future date.) It might well all add up to the biggest market in history, and Enron badly wanted to be at its centre. So did the British Government, which wanted the market to be based in London, not Houston. Chicago, the historic home of futures trading in the US, had ambitions, too. All are now stalled by the US withdrawal from Kyoto.

More successful was a remarkable effort by Enron to move the trading of energy and energy derivatives, which had previously been conducted by telephone, onto the Internet. The idea was formulated early in 1999, and a 31-year-old gas trader in Enron’s London office led its implementation. By the end of November 1999, she and her team had EnronOnline up and running. By June 2000, it had hosted trades worth $100 billion.

Even relatively junior Enron employees could put forward ideas and see them implemented: ‘We really believed that anything could be done,’ one of them told Fox. And an idea wasn’t judged according to the gender, sexual orientation or ethnic background of its promoter. As Fox puts it, ‘Enron cared only about performance, so it didn’t matter if an employee was Caucasian, just as it didn’t matter if an employee had a nose ring or green hair or was homosexual.’ If you could keep up with the pace, and didn’t fear the scrutiny of Enron’s Performance Review Committees (which ranked every employee on a scale from 1 to 5, with repeated 5s meaning dismissal), Enron’s Houston skyscraper was an exciting place to work.

I have emphasised that Enron had substance and was in some ways admirable, because its failure was not the simple collapse of a house of cards. It was a manifestation of an old faultline lying deep in corporate capitalism. Like the majority of large corporations, Enron was a publicly traded joint stock company, whose ownership was thus dispersed over a perpetually changing multitude of shareholders. In contrast, control of the corporation was – for all the ‘empowerment’ of low-level employees – concentrated in the hands of a small number of senior executives.

Can the managers of a corporation like Enron be trusted to act in the interests of its owners (the shareholders)? The question is as old as the joint stock company as a legal form. Adam Smith suspected the answer was ‘no’. In Volume III of Capital, Marx warned that directors might swindle shareholders, although he also welcomed the growing separation of managerial control from legal ownership as a transitional step towards socialism. In 1932, Adolf Berle and Gardiner Means estimated that ‘perhaps two-thirds of the industrial wealth’ of the US was in the hands of large corporations controlled by their managers rather than their owners. This paved the way, they argued, for what we would now call a ‘stakeholder’ form of capitalism – one that would recognise the legitimacy of interests other than those of shareholders. In 1967, J.K. Galbraith claimed that the separation of ownership from control meant that corporations no longer pursued the traditional goal of capitalist firms: maximum profit. The corporation was in the hands of what Galbraith called the ‘technostructure’, a managerial cadre whose goal was growth of output, because that would bring them larger departments to manage and thus higher pay and better promotion possibilities. Whether growth was the most profitable use of the corporation’s capital was a secondary matter; shareholders had no real influence any longer. As Galbraith put it, ‘the annual meeting’ of shareholders of the ‘large American corporation is, perhaps, our most elaborate exercise in popular illusion’.

In the 1980s and 1990s, however, it seemed as if managerial and shareholder interests had been reconciled. In the 1980s, corporate raiders brought off a series of increasingly audacious takeovers, largely financed by ‘junk’ bonds (bonds which rating agencies deem to be below investment-grade). The very names of these raiders – Carl Icahn, T. Boone Pickens, Sir James Goldsmith – brought fear to Galbraithian managers, whom they ruthlessly displaced. Underperforming corporate assets were sold off, workforces were dramatically shrunk, bond-holders paid – and both raiders and shareholders were greatly enriched.

Gradually, corporations built defences. Enron, for example, was born in 1985 when InterNorth, a larger pipeline company, merged with Kenneth Lay’s Houston Natural Gas and thus avoided falling into the hands of Irv the Liquidator, the corporate raider Irwin Jacobs. However, the traumas of the 1980s taught corporate managers that they neglected share prices and profits at their peril. The ideal new-style managers were people like Enron’s second-in-command from 1988, Rich Kinder (pronounced Kinn-der). Although now remembered with nostalgia by the former Enron employees who have spoken to Fox and Bryce, he was no softy. It was he, not Lay, who was responsible for detailed management, and he kept costs and staff numbers firmly under control, reduced the corporation’s already large debts, and viewed any expenditure ‘like the money was coming out of his own personal chequebook’, as one ex-employee told Bryce. Over-enthusiastic underlings were frequently put down by Kinder telling them: ‘Let’s not start smoking our own dope.’

That, however, seems to be exactly what Enron started to do after Kinder’s departure in 1996. If the office gossip recycled by Bryce and Fox is to be believed, Enron’s high-intensity buzz contributed to numerous sexual liaisons among its workaholic staff, and an alleged affair between Kinder and Lay’s personal assistant may have caused a rift between the two men. Kinder’s replacement, Jeff Skilling, was a ‘big strategy’ man rather than a tight-wad. He was a Baker scholar from the Harvard Business School – in other words, in the top 5 per cent of an already elite MBA class – and before he joined Enron had been an employee of the world’s pre-eminent consulting firm, McKinsey & Company.

In the late 1990s, Enron’s creative juices flowed unrestrained: this was the period of the ‘most innovative company’ awards. Control over costs, however, seems to have slackened. Staff numbers grew rapidly, and among them were many high-flying MBAs from leading universities, at correspondingly expensive salaries. The private jets got more up-market. Assets such as Wessex Water, the Buenos Aires water company AGOSBA and the Brazilian utility Elektro Eletricidade were bought not because they were cheap but because they offered entry into new and potentially profitable markets such as water trading and Latin America. Debt accumulated – but Enron grew, becoming the seventh largest corporation in the US.

It was as if the Galbraithian technostructure was back in control, but with two fatal differences. In the 1960s, managers had been concerned about share prices, but only as one issue among several. By the 1990s, however, share prices were an obsession for the managers at Enron, at almost all other US and British corporations, and at an increasing proportion of companies in Continental Europe and elsewhere. In order to tie managers’ interests to those of their shareholders, an increasing proportion of their pay came in the form of shares or share options, and Enron was extremely generous in this respect. At the entrance to its headquarters was a large electronic display showing the second-by-second movement of its share price. As that number ticked up and down, the personal wealth of senior managers could rise and fall by millions of dollars.

The second difference from the 1960s was that Enron, like many other present-day companies, was much more dependent on the view of it taken by credit-rating agencies, in particular the two globally dominant ones, Moody’s and Standard & Poor’s. These agencies rate the bonds of corporations, municipalities and governments, essentially according to what they see as the likelihood of default. Their opinion of companies mattered even in the 1960s, but the conservatively run corporations of that period had little difficulty achieving high ratings. In the 1980s and 1990s, however, corporations started to issue more and more bonds and take on increasing amounts of other forms of debt: Enron was far from alone in this. The debt funded necessary investment, but it also permitted expensive takeovers and allowed corporations to buy back large amounts of their shares – the simplest way to keep share prices high and managers’ share options valuable. By 2002, only eight US corporations still held Moody’s highest, Aaa rating.

Ratings help determine the costs faced by a corporation or government. The lower your rating, the higher the rate of interest you have to pay on your bonds and the more it costs you to service your debt, and this last can be a life or death matter for Third World countries. It would thus be only a slight exaggeration to call Moody’s and Standard & Poor’s the world’s most powerful organisations, national governments apart. For Enron, the views of the agencies had especial significance. Its rapidly expanding trading empire, in particular EnronOnline, depended totally on its credit rating. It was ‘investment grade’, but never high in investment grade. In the late 1990s, Moody’s rated Enron as Baa2, only two notches above Ba1, the upper tier of junk or ‘speculative’ bonds, as the agencies politely call them. If Enron slipped those two notches, it would cease to be an attractive trading partner. A major and highly visible question-mark would be placed over its capacity to meet its obligations, and who would then enter into a futures contract with Enron, or buy an option from it?

The twin pressures to keep its share price high and its ratings investment grade explain why Enron started to engage in optimistic accountancy and to move poorly performing or high-risk investments (and more and more debt) off its own balance-sheet into those of ‘special purpose entities’. These entities are limited partnerships or companies which are set up by a corporation but legally distinct from it and are formed because they can carry out certain transactions more profitably than the parent corporation. An entity can be structured, for example, so that it is provided with revenues that match the obligations it enters into by borrowing, which means that creditors can be persuaded to lend to it on favourable terms. The tight nexus of share prices, ratings, debts and special purpose entities also explains the rapidity of Enron’s implosion in 2001. The entities had been provided with, or promised, Enron shares to enable them to meet their obligations. As those shares slipped in value, the entities couldn’t do so, and the concealed iceberg of losses and debt began to become visible. Shares slipped further, the markets and rating agencies grew more sceptical, and Enron became locked into a death spiral. Its downgrade to junk by the rating agencies on 28 November 2001 sealed its fate.

Simply to cry ‘fraud’ and call for tighter accountancy rules is to miss the depth of the issues raised by Enron and other similar debacles. How can investors trust that those in whom they have invested, or to whom they have lent, will use the money prudently and properly? A major aspect of the answer has always been character, reputation and virtue: investors’ knowledge of the personal qualities of those to whom they entrust their cash. That was part of the way old-fashioned small-town bank managers made their lending decisions, and it’s an approach that has not vanished even at the start of the 21st century. Warren Buffet – America’s most celebrated and most successful investor – judges, among other things, the people who run the companies he is considering. If he doesn’t like them, he won’t invest, no matter how attractive an opportunity their companies seem to present. Steven Shapin, in ongoing work on Californian venture capitalists, finds a similar approach: they judge the person, not just the business plan. It’s a perfectly rational attitude, Shapin points out: in a world in which technologies and economic circumstances change rapidly, personal virtues may be the most stable things around.

You need ‘face time’ with someone in order to judge him or her as a person. Warren Buffet and major venture capitalists can get one-on-one face time with even the most senior executives, but a small investor considering buying a hundred Enron shares could not hope for a private meeting with Kenneth Lay or Jeff Skilling. When personal trust is impossible, modernity turns to ‘trust in numbers’ (the title of an important book on these questions by Theodore Porter). Numbers are pervasive in finance and beyond: share prices; price-earnings ratios (a key criterion for professional investors); bond ratings (which are not literally numbers, but have a quasi-numeric ‘hard fact’ quality); school and hospital league tables; surgeons’ success rates; university departments’ Research Assessment scores. Trust in numbers, however, works only if those who produce the numbers can be trusted: it displaces, rather than solves, modernity’s problem with trust.

Enron’s production of numbers – the accountancy practices that generated its balance-sheet – was not entirely covert. The existence of the special purpose entities was dutifully disclosed in footnotes to the accounts. True, those footnotes couldn’t be said to give a full and transparent version of Enron’s dealings with these entities. However, the readers of CFO (chief financial officer) magazine must have had a notion. In 1998, as US wholesale electricity prices started to spike upwards, Enron used a special purpose entity to buy generating capacity close to New York City. Enron’s CFO, Andrew Fastow, told the magazine: ‘We accessed $1.5 billion in capital but expanded the Enron balance-sheet by only $65 million.’ The magazine seems to have approved, awarding Fastow its 1999 CFO Excellence Award for Capital Structure Management. CFO may not be on every news-stand, but it is surely on the reading list at Moody’s, and in March 2000 the rating agency raised Enron a notch to Baa1.

Just how unusual were Enron’s accountancy practices? Were they actually illegal? (Criminal charges have been brought against some Enron managers, and some cases have been settled by plea bargain, but at the time of writing no case against a senior figure has gone to court.) Here we enter a murky world that almost no economists, and only a limited number of other social scientists, have sought to enter. Let’s call it the world of ‘ethnoaccountancy’. The term is analogous to ‘ethnobotany’, which is the study of how cultures classify plants, and which sets aside the issue of whether these classifications are correct according to our modern botany. An ethnoaccountant, similarly, would study how people produce numbers, how they actually do their financial reckoning.

An ethnoaccountant couldn’t just read the rule book, even though it exists in the form of GAAP, the Generally Accepted Accounting Principles of the Financial Accounting Standards Board. The ethnoaccountant has to be a Wittgensteinian. In the Philosophical Investigations, Wittgenstein pointed to the hidden complexity of the apparently simple notion of ‘following a rule’. If we think of a rule as a set of words – written, for example, on the pages of GAAP – then following it seems to involve an act of interpretation of what the words ‘mean’. Interpretations, however, are contestable – especially if you have expensive lawyers and sophisticated accountants bent on finding an interpretation that will permit a valued client to do what he or she wishes. Of course, one can write rules for interpretation, but these rules themselves need to be interpreted: we are at the start of a potentially endless regress. If rules are simply verbal formulae, then, as Wittgenstein put it, ‘no course of action could be determined by a rule, because every course of action can be made out to accord with the rule.’

All philosophers know Wittgenstein’s discussion of following a rule. It seems as if the US Financial Accounting Standards Board does not, for it has progressed a long way into the interpretive regress: Fox reports that GAAP now comprises 100,000 pages of rules. At every stage of the regress, however, the Wittgensteinian analysis holds: even when expanded to 100,000 pages, what the rules of accounting ‘mean’ can be contested.

Hence the need for ethnoaccountancy, for discovering how accountancy is actually done. Because there has been only a little of it, one can merely speculate as to what exactly would be found by an ethnoaccountant of the modern American corporation. It’s certain that she would find a myriad of special purpose entities. Often their purpose is precisely to manage debt: to match it with a defined and predictable income stream in a way that will attract for the entities a higher rating from Moody’s or Standard & Poor’s. More generally, she would also find that the different ways in which rules can be applied can have major financial consequences. As Louis Lowenstein, a scholar straddling finance and law, put it in the Columbia Law Review in 1996:

Accounting is not precise or scientific. It is an art, and a highly developed one . . . GAAP requires industry to use accrual basis accounting. Income is thus recognised when it is earned rather than when cash is received. The essence of the accrual basis is the matching of expenses with revenues, so as to produce a truer picture of a company’s profitability. The rub is that accrual-basis accounting affords a great deal of flexibility and judgment in the timing of income and expense recognition. Will American Airlines’ new aeroplanes be serviceable for thirty years or should they be depreciated over just twenty? Should research and development expenses be charged to earnings as they are incurred, or should some portion be capitalised and charged only over time? And so on. There is no single, correct answer to such questions.

The ethnoaccountant might well find that timing is the key issue. It is, for example, greatly in managers’ interests for share prices to be kept high at least until their share options can be exercised profitably – what happens in the more distant future may be of less concern. More subtly, flexibility about when income and expenses are recognised on balance-sheets permits what is known as ‘income smoothing’: managing balance-sheets in such a way that a corporation’s profits rise smoothly and predictably (just beating the ‘forecasts’ which investor relations departments have fed to Wall Street analysts), rather than fluctuating erratically. One way of smoothing income is to have a ‘cookie jar’, or a reserve of earnings that have not yet been declared on the balance-sheet. A good moment to create or replenish a cookie jar is when a corporation takes a ‘big bath’ or reports a large loss. The markets can be perfectly tolerant of an occasional large loss, so long as it seems to be one-off and can be explained satisfactorily, for example as the costs associated with doing things of which the market approves, like reducing employee numbers dramatically. What better time to be very pessimistic in the way one values assets or provides for future liabilities? Such pessimistic reporting refills the cookie jar, because rising asset values or lower than expected liabilities then form the foundation for future reporting of profits.

It’s easy to overstate the practical implications of Wittgenstein’s ‘rule-scepticism’. He was saying that words alone can’t constrain us, not that nothing constrains us. Sometimes we just know (in ways we may not be able entirely to explain in words and can’t really construe as acts of interpretation) that an action is right or wrong. Intriguingly, while most of us would say that we can just see these things, Wittgenstein reversed the visual metaphor. He said we must ultimately follow a rule blindly. But however we choose to express the point, juries often have little difficulty convicting murderers, even though precisely how to distinguish between murder and legitimate or less culpable forms of killing is a matter of continuous legal and ethical debate.

There was certainly quite some unease among those who had an insider view of Enron’s accounting practices. Had there not been, staff at its auditors, Arthur Andersen (one of the ‘big five’ global accountancy firms before its spectacular Enron-induced collapse), would not have taken the fatal decision to shred Enron-related records when they learned that the corporation was being investigated by the Securities and Exchange Commission. But unease is not the same as assertion of blatant illegality, especially when those with the most negative views were sidelined, as apparently happened to the most sceptical Andersen partner, Carl Bass. In February 1999, David Duncan, the partner in charge of its dealings with Enron, told the latter’s audit committee that ‘Obviously, we are on board with all of these’ – Enron’s accountancy practices – ‘but many push limits and have a high “others could have a different view” risk profile.’ He was warning the corporation that what it was doing had the potential to create a damaging dispute – not telling them they would end up in jail if they kept doing it. If Enron’s CFO, Andrew Fastow, had thought that special purpose entities like LJM1 and LJM2 would be the subject of criminal proceedings, he would scarcely have named them, as he did, after the initials of his wife and two children. Enron was sailing close to the wind, but that’s the way to sail fast, and in the late 1990s the stock market was rewarding those who did so.

Many thousands of hours of courtroom time and tens of millions of dollars in lawyers’ fees may be going to be spent determining what GAAP and other accountancy rules ‘mean’ in the context of Enron and similar episodes. A case that gives a flavour of what may lie ahead was between one of America’s most august banks, J.P. Morgan Chase, and 11 insurance companies. The latter provided the bank with ‘surety bonds’ totalling $1 billion against Enron defaulting on ‘forward’ contracts with the bank. (A ‘forward’ is a customised future, and unlike a future isn’t traded on organised exchanges.) The insurers declined to stump up, arguing that the apparent forwards were actually disguised loans from Morgan Chase to Enron. The case was settled out of court at the beginning of January this year (with Morgan Chase getting $600 million), and thus without a legal ruling on the distinction between forwards and loans. There may be hundreds of such definitions to contest, and if Wittgenstein is right, none of them can ever be made so unambiguous that they can never be contested again.

Understandably, momentum is gathering behind an apparent fix to American accountancy’s Wittgensteinian problems. It is to shift from the ‘rules-based’ US approach to the ‘principles-based’ approach currently used to regulate accountancy in Britain. In the latter, detailed rules are supplemented by an overarching requirement that a company’s accounts give a ‘true’ and ‘fair’ view of its financial situation. It might indeed be a useful reform. It would almost certainly be easier to persuade a jury of lay people that the balance-sheet of Enron (or of WorldCom, which went bankrupt on an even larger scale in July 2002) did not give a ‘fair’ account of its situation than it would be to get a jury to understand a host of detailed accountancy rules and prove beyond reasonable doubt that they were violated. Principles, however, are a species of meta-rule, and the Wittgensteinian analysis applies to them, too. It is easy to anticipate that, especially in the US legal system, a thicket of GAAP-like interpretation will come to surround them, and ‘principles’ have not entirely shielded investors in British companies from the sudden discovery of black holes in corporate accounts.

Accountancy, it is often thought, is boring. The limited attention given to it by social scientists seems to suggest that we share that prejudice. However, the numbers that accountancy generates are consequential. Profit is the signal that a free-market economy uses to allocate resources to some activities and not to others. A back-of-the-envelope calculation suggests that the $38 billion of debt run up by Enron would pay around a fifth of the capital costs of providing safe drinking water to every human being on earth who currently lacks it. Universally available safe water would avoid some five million deaths a year and countless person-months of debilitating water-borne illness. It would have economic as well as humanitarian benefits, but those benefits would not show up as profit on any of the balance-sheets that currently matter.

Enquire into almost any of the numbers that abound in the world of finance, and one discovers that it is the endpoint of an often complex chain of construction. Those chains often also lead deep into people’s lives: into what happens to their savings and their pensions, into whether or not they have jobs or homes. Bill Peterson’s wife and children will tell you that. Mr Peterson worked for Enron, and was being treated for cancer when the corporation became bankrupt. He lost his job, and with it his Enron-subsidised health insurance. With expenses mounting, and his wife unable to take up paid work because she needed to look after him, the $800 a month the couple had to pay to keep their insurance going could be met only by selling the house in which they had brought up their children. Mr Peterson died last September, not at home but while staying with relatives 175 miles away from the rest of his family. ‘He should have been allowed to die in his own bed,’ his wife told the Financial Times.

What happened to Mr Peterson is one of the casual cruelties of the American system, cruelties that are the other side of its restless, innovative, money-making, winner-takes-all energy. His fate should also remind us that numbers matter. We need to understand how they are constructed, and perhaps to start to imagine ways in which they can be reconstructed to better ends.