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Buy, Lie, and Sell High: How Investors Lost Out on Enron and the Internet Bubble

Book Description

In Buy, Lie, and Sell High, Harvard Business School Professor Daniel Quinn Mills offers the first systematic analysis of both the Internet stock bubble and the Enron scandal. Drawing upon extensive new research and insider interviews, Mills uncovers both systemic causes and outrageous misbehavior. He demonstrates how each link in the "financial value chain" failed, from venture funds to auditors and regulators. Finally, he offers practical guidance for investors and policymakers seeking to avoid the "next" speculative disaster.

Table of Contents

  1. Copyright
  2. Preface
  3. FINANCIAL TIMES Prentice Hall
  4. Financial Times Prentice Hall Books
  5. Acknowledgments
  6. The Bubble and Capital Markets
    1. How to Use This Book
      1. Why This Book Has Been Written
      2. How This Book Was Written
      3. An Unusual Feature of This Book: Contributions from Others
      4. The Message of This Book: How to Avoid Another Bubble and How to Protect Yourself If It Occurs
      5. Talking Points
    2. Destroyed by the Bubble
      1. The Capital Markets as an Engine of Progress
      2. The Social and Economic Utility of Capital Markets
      3. The Internet, Capital Markets, and Innovation
      4. The Early-Stage Financing of the Internet
      5. The System Hits a Glitch
      6. Talking Points
  7. How the Bubble Happened
    1. Causing the Bubble
      1. The Technology Bull Market
      2. The Bubble
      3. Why Did the Bubble Form?
      4. Day Trading and the Source of the Bubble
      5. Other Bubbles in History
      6. The Software Cycle
      7. The Transfer of Wealth
      8. Talking Points
    2. Inflating the Bubble: the Financial Value Chain
      1. The Financial Value Chain
      2. Diagramming the Financial Value Chain
      3. When Economic and Financial Value Diverge
      4. Why the Huge Valuations for Internet Companies?
      5. How the Financial Value Chain Should Have Worked
      6. Defending Enormous Valuations
      7. Talking Points
    3. What it Meant to “Do the Right Thing” at Enron
      1. Enron as an Internet Company
      2. Inflating the Enron Bubble
      3. Wall Street's Involvement
      4. The Key Role of the Accountants
      5. Equity Analysts Promote the Company
      6. Politicians Lend Their Aid
      7. Evaporating Employee Pensions
      8. Unethical, Unfair, but Illegal?
      9. Enron's Significance
      10. Talking Points
  8. Inexperienced Leaders
    1. Dumb Kids?
      1. Blaming the Entrepreneur—He's Dumb
      2.'s Miracle
      3. How Amazon Flouted the Rules
      4. The Learning Failure
      5. Talking Points
    2. How Some VCs and Bankers Led Entrepreneurs in the Wrong Direction
      1. Having to Go to the Venture Firms
      2. Pressure to Spend
      3. A Strategy's Limitations
      4. Like Sheep to the Slaughter
      5. Get-It-Right Instead of Get-Big-Fast
      6. Talking Points
  9. How Venture Firms Changed Their Criteria
    1. Building to Flip
      1. Venture Capital
      2. Rushing to an IPO
      3. Exiting an Investment
      4. How Their Own Rules Were Changed by the Venture Capital Firms
      5. The Baby Goes Out with the Bathwater
      6. Talking Points
    2. Choosing the Wrong People
      1. Whom to Back
      2. A Mistake from the Get-go
      4. Did the Venture Firms Make Money from the Bubble?
      5. Talking Points
  10. Taking Start-ups to the Public
    1. How Investment Banks Inflated the Bubble
      1. The Banks Bend the Rules
      2. The Investment Banks and Institutional Investors
      3. Who Brought Those Duds to Market?
      4. Mass Hysteria or Fraud
      5. The Blame Game
      6. Mass Hysteria
      7. What Did the Venture Firms Know?
      8. Did Wall Street Cross the Line?
      9. If You Can't Sue City Hall, Can You Sue Wall Street?
      10. Beware of “Buyer Beware”
      11. Talking Points
    2. The Retail Investor: Victim or Fool?
      1. The Buyers' Side of the Capital Market
      2. Why Mutual Funds Got on the Bandwagon
      3. Speculating with Pension Money
      4. Momentum Investors in Disguise
      5. Blaming the Investor—She's a Pig
      6. How Important Is the Freedom to Speculate?
      7. Talking Points
    3. Influencing Factors: Where Does Responsibility Lie?
      1. What the Accountants Should Have Done and Didn't
      2. The Hype Machine
      3. The Fed Was Also at Fault
      4. Talking Points
  11. The Road Kill of Capitalism
    1. Sell, Sell, Sell!
      2. Not a Smart Thing to Do
      3. Young People Succeeding Early
      4. The Return of Big Company Values
      5. Talking Points
    2. Dire Consequences
      1. Creating a New Business Cycle
      2. Economic Losses Caused by the Bubbles
      3. Starving Entrepreneurs of Capital
      4. Setting Back Technological Innovation
      5. What Happened in e-learning
      6. Meanwhile, in Germany…
      7. Another Wave of Internet Companies Is Coming
      8. A List of the Economic Consequences of the Bubble
      9. Insuring Public Confidence
      10. Talking Points
  12. A Troubled System
    1. Can America Lead?
      1. The United States as the World's Financial Leader
      2. Should American Leadership Be Followed?
      3. Dare We Privatize Social Security?
      4. Why Current Regulation Isn't Working Well Enough
      5. Talking Points
    2. Reforms to Protect Small Investors
      1. The German Experience
      2. Every Investor a Qualified Investor
      3. Extending Fiduciary Responsibility
      4. Improving Disclosure and Governance at Mutual Funds
      5. A Return to a More Restrictive Prudent Person Rule
      6. Preventing Another Enron
      7. New Regulations to Protect Investors in IPOs
      8. Nine Reforms to Restore Confidence and Rebuild the Economy
      9. Talking Points
  13. Less Damage Next Time
    1. What Does the Future Hold?
      1. Do We Want Another Bubble?
      2. Will There Be Another Bubble?
      3. Smaller Bubbles and Less Damage
    2. NEMAX (The German New Market) and NASDAQ
    3. Financial Value Chain Influencers
    4. Contributors