This week in financial history we recount a landmark that many thought unrealistic, two important pieces of legislation, and a wee little accounting error.

Lost Count of the Zeros
On November 8, 2001, Enron announced that accounting errors going back to 1997 led to it misstating earnings by over $600 million. This announcement, along with a string of red flags, increased the scrutiny on both the energy giant and its accounting firm, Arthur Anderson. As a result of the restatement and circling SEC investigations, shareholder equity plunged by around $1 billion. It turned out that false earnings were just the tip of the iceberg, as the company's debt was also grossly under-reported. (Enron is a classic example of greed gone wrong and how investors were led astray. For further reading, see Enron's Collapse: The Fall Of A Wall Street Darling.)


IN PICTURES: Top 7 Biggest Bank Failures

Student Funding
On November 8, 1965, the Higher Education Act of 1965 was signed into law by President Johnson. The bill was focused on creating programs that could help prospective students gain accesses to low-interest loans. Both the Federal Family Education Loan Program and the later Federal Direct Student Loan Program come out of this bill. The Higher Education Act has been altered by the Higher Education Opportunity Act of 2008, and various tax incentives have been periodically added to help make post-secondary education accessible for more people.

Majors Mergers
On November 8, 1966, President Johnson signed another piece of law allowing a merger between the National Football League and the American Football League. This law exempted the new organization from anti-trust laws. Although this is far from the only government-enabled monopoly, it does suggest that we'll accept things in sports that would enrage us in any other circumstance. Of course, that's hardly news.

Continuing on the topic of mergers, November 10, 1997 saw the world's largest merger between Worldcom and MCI communications. The deal was worth $37 billion. Within five years, however, $37 billion wasn't enough to even make the top 10 mergers. (While acquisitions can be hostile, these varied mergers are always friendly. Read The Wonderful World Of Mergers.)


Boesky Day
On November 14, 1986, Ivan Boesky plead guilty for his part in the insider trading scandal that engulfed many Wall Street investment banks. Boesky received a $100 million fine - around $265 million in today's dollars - and served two years in prison. Information that Boesky provided to the SEC was used in building the case against junk bond king, Michael Milken. As part of his sentencing, Boesky was banned from ever working in the securities industry again. (Don't be fooled by the name - junk bonds can be valuable if you know how to analyze them. See Junk Bonds: Everything You Need To Know.)

IN PICTURES: Top 6 Uses For Bonds


Breaking the Glass-Steagall
On November 12, 1999, the Financial Services Modernization Act was enacted, reversing many of the restrictions from the Glass-Steagall Act of 1933. Basically, this act opened the way for financial institutions to bundle financial services like insurance, banking and brokerage service. This set off a series of mergers that many economists blame for creating the "too big to fail" crowd.


As True Now As It Was Then
On November 13, 1789, Benjamin Franklin wrote a letter to his friend containing one of his most famous quotes: "In this world nothing can be said to be certain, except death and taxes." This lament has echoed down the ages and rings just as true now. In fact, of the two, taxes often seem the worst. Death only happens to you once, whereas taxes are an annual ordeal - and they hound your estate even after death.

Dow 1000
On November 14, 1972, the DJIA exceeded 1,000 a mere 16 years after reaching 500. The average was lifted by its not-so-industrial components like IBM, Xerox, Texas Instruments, Johnson and Johnson and so on. The acceleration in the value of the Dow was also helped along by the introduction of proto-index funds for risk-averse institutional investors like insurance companies. These started appearing in 1971 and they were opened to the general public in 1976 by Vanguard.


That's all for this week. Next week we'll look at a commodities scandal, a free-trade agreement and much more.

For the latest financial news, see Water Cooler Finance: Lions And Diapers And Dows, Oh My!

Related Articles
  1. Economics

    The History of Stock Exchanges

    Stock exchanges began with countries who sailed east in the 1600s, braving pirates and bad weather to find goods they could trade back home.
  2. Economics

    How Warren Buffett Made Berkshire A Winner

    Berkshire Fine Spinning Associated and Hathaway Manufacturing Company merged in 1955 to form Berkshire Hathaway.
  3. Economics

    Why Enron Collapsed

    Enron’s collapse is a classic example of greed gone wrong.
  4. Investing

    The Economic Effects of the New Deal

    While the New Deal failed to revive the U.S. economy during the Great Depression, its legacy lives on today as increasing the social welfare of America.
  5. Products and Investments

    Why MLPs May Be a Thing of the Past

    Do rising rates as well as lower oil prices mean a bleak future for master limited partnerships?
  6. Retirement

    What Was The Glass-Steagall Act?

    Established in 1933 and repealed in 1999, the Glass-Steagall Act had good intentions but mixed results.
  7. Bonds & Fixed Income

    Junk Bonds: Everything You Need To Know

    Don't be fooled by the name - junk bonds may be for you if you know how to analyze them.
  8. Professionals

    7 Careers That No Longer Exist

    Learn how technology and innovation has led to the near-extinction and elimination of seven careers that once employed hundreds of thousands of people.
  9. Economics

    Management Strategies From A Top CEO

    Jack Welch is a legend in the business world: during the two decades he was CEO of General Electric, the company’s value rose by 4000%.
  10. Investing News

    Betamax, International Symbol Of Bad Marketing, Is Finally Dead (SNE)

    Sony Betamax is the business textbook case study of a company's spectacular oversight in assessing consumer demand. Now, Sony is finallly discontinuing it.
RELATED FAQS
  1. What is the difference between the Volcker Rule and the Glass-Steagall Act?

    The Banking Act of 1933, commonly referred to as Glass-Steagall after one of its most important components, created federal ... Read Full Answer >>
  2. What's the difference between investment banks and commercial banks?

    Investment banking and commercial banking are two divisions of the banking industry that provide substantially different ... Read Full Answer >>
  3. How did Enron use off-balance-sheet items to hide huge debts and toxic assets?

    Prior to its infamous accounting scandals and collapse, Enron used off-balance-sheet special purpose vehicles (SPVs) to hide ... Read Full Answer >>
  4. Where did the term 'Nostro' account come from?

    The term "nostro" is Italian in origin. It means "our" or "ours." In accounting and finance, nostro accounts are often differentiated ... Read Full Answer >>
  5. When is a bond's coupon rate and yield to maturity the same?

    The collapse of Enron – and its subsequent fallout – is perhaps the most infamous event in modern American corporate history. ... Read Full Answer >>
  6. Can the Herfindahl-Hirschman Index be used to determine competitive balance in professional ...

    Although the measurement and analysis of a company's key performance indicators (KPIs) vary by company, it is important to ... Read Full Answer >>
Hot Definitions
  1. Short Selling

    Short selling is the sale of a security that is not owned by the seller, or that the seller has borrowed. Short selling is ...
  2. Harry Potter Stock Index

    A collection of stocks from companies related to the "Harry Potter" series franchise. Created by StockPickr, this index seeks ...
  3. Liquidation Margin

    Liquidation margin refers to the value of all of the equity positions in a margin account. If an investor or trader holds ...
  4. Black Swan

    An event or occurrence that deviates beyond what is normally expected of a situation and that would be extremely difficult ...
  5. Inverted Yield Curve

    An interest rate environment in which long-term debt instruments have a lower yield than short-term debt instruments of the ...
  6. Socially Responsible Investment - SRI

    An investment that is considered socially responsible because of the nature of the business the company conducts. Common ...
Trading Center