Denys asks:

> Need we say more.

No. Those were pretty much the facts as I reported them. "For the first three
months of the year, AOL posted a jaw-dropping net loss of $54 billion." The
fact that investors knew that the loss was coming certainly didn't change the
size of the loss.

The reason for the accounting rule changes that forced this enormous loss
onto the books in one quarter was, as you might guess: Enron. The pro-forma
accounting procedures that everyone was beginning to employ were essentially
falsifying the actual worths of the various companies stock. The SEC has been
under tremendous pressure of late to bring it to a halt.

Qwest, our telephone/internet/web host/email supplier, is approaching true
bankruptcy, in great part because it too participated in this nonsense. Enron
was actually teaching classes on how to employ this form of accounting for a
while. Although AT&T declined Enron's offer to teach its classes at AT&T,
Qwest bought it -- and bought into it.

As I've mentioned before, there is enormous overcapacity in broadband
capabilities at the moment, and both Enron and Qwest had sunk an enormous
amount of money into broadband infrastructure in the 1990's. Faced with this
massive overcapacity and thus truly substantial losses in these divisions,
Enron and Qwest devised a scheme to swap overcapacity orders with each other.
Qwest bought millions of dollars worth of bandwidth from Enron, and Enron did
the same from Qwest, and they both then reported millions of dollars on their
books as orders rather than the losses that they really were. The fact that
these companies were "making money" in a down market significantly -- and
completely falsely -- affected their stock prices.

In the same manner, Xerox has been reporting future income from equipment
leases -- such as the FreeColorPrinter program -- as current sales, thus
similarly affecting their current balance sheets. The SEC has politely asked
everyone to stop doing this or they would start launching criminal
prosecutions. As a consequence, you're going to see a lot of comparable
losses in the next little bit, but the losses are not just paper money.
They're genuine. The reason that they're appearing now is that they're no
longer being covered up by the creative "killer app" accounting methods that
Enron was peddling, and which became surprisingly fashionable in the last few
years.

Wirt Atmar

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