The Number: How the Drive for Quarterly Earnings Corrupted Wall Street and Corporate America by Alex Berenson. Random House, 2003.

"Once Again, Stock Market Success to Depend on Earnings," reads a recent headline in the Post-Gazette. And of course, the rise and fall of the stock market has a tremendous impact on the economy, not to mention who will win the next presidential election. But what exactly are those "earnings," that everything seems to depend on? If you would like to know the scoop -- and the sordid details that lie behind it -- this book will educate and alarm you.

The "number" of the title is earnings per share, increasingly considered by traders and investors, executives and analysts, to be the key indicator of a company's health. It is required by law to be publicly announced every 3 months, in the 10-Q and 10-K reports filed with and made public by the SEC. As this book contends, it almost single-handedly drives the stock market.

But, as the book also argues, "too bad it's a lie" -- a fabrication often concocted by greedy executives in cahoots with corrupt accountants, and winked at by analysts, mutual fund managers, regulators and politicians. Alex Berenson, acclaimed financial reporter for the New York Times, illustrates here how fraud behind the "number" fueled the phenomenal boom/bust cycle of the 1990's that literally erased trillions of dollars in everyone's pension funds and retirement accounts, and continues to threaten the investment climate.

The book starts with a short but cogent chronicle of American investing, starting in the 1920's -- a time when stock exchanges were essentially a form of gambling, and reliable information about company finances was unavailable. J.P. Morgan Sr. emerges as the first of a long line of executives less than happy with honest disclosure, trying hard to stave off the day when "all business will have to be done with glass pockets." Berenson shows vividly how today -- despite the enactment of many laws, regulations, and the creation of the Securities and Exchange Commission, designed to protect the investor and open companies' books -- those pockets remain opaque, stuffed as they are with executives' astronomical salaries and stock options.

Stock analysts and mutual fund managers take some of the heat in this blistering indictment. Analysts increasingly urged the public to buy stocks on flimsy financial grounds, deeply compromised by their ties to investment banking. Fund managers filled their funds with dubious stocks, ignoring clear indicators of financial trickery and trouble. With clarity and wit, Berenson explains how this situation evolved through the decades.

The real scoundrels of this story are the giant accounting firms, the "plumbers of capitalism," who -- hand-in-hand with company managements -- devised unethical and crafty schemes to cover up fraud and mismanagement in the companies that they audited, and warded off attempts to regulate their actions. (There is probably no other book with so many occurrences of the word "gimmick.") The SEC is portrayed throughout as a pathetically weak monitor, chronically without the resources or the gumption to rein in its charges.

The surprising and unsung heroes are the short-sellers, professional investors who make their money on declining stock values. These investment sleuths are geniuses at dissecting the hidden secrets of financial reports -- seeing behind and beyond "the number" -- to indications of a company's problems. The "shorts," as they are endearingly called, consistently tipped off reporters and investigators -- including this author -- to the truth behind the hype.

Enlightening and entertaining, this account of the corporate world will give readers a new grasp of the continually unfolding scandals in today's Business pages.

The First National Bank of Dad: The Best Way to Teach Kids about Money by David Owen. Simon and Schuster, 2003.

Here's a parenting technique that deserves more attention: If you want your kids to learn about money, create a bank for them, with you as their banker. This is what David Owen -- staff writer for the New Yorker, and a very clever parent -- did, and in this book he tells you how this, and similar techniques, can solve many of the inevitable problems that arise when you combine children with cash.

When his young kids got their first checks from Grandma, Owen began to show them how to manage money in the usual way, opening up an account in a local bank, and lecturing about the virtues of saving. But he started seeing it from their point of view: "To a kid, a savings account is just a black hole that swallows birthday checks," and pennies a year (a very long time to a 6-year-old) were not compelling evidence for the magic of compound interest. Worse, to most children, the bank appears to be a punitive enterprise, designed not to promote saving, but to prevent consumption.

Using his home computer and a copy of Quicken to create bank accounts for his kids, Owen offered them a rate of return that would make them accounts grow noticeably (5 percent) each month -- more like real time to a child. They could withdraw cash and spend it, or save and watch it grow. They could check their accounts on the computer whenever they wanted. Soon, the children's monthly income, (allowance plus interest and gifts) exceeded their monthly expenses, and they realized that frenzied spending was not in their best interest. (In addition, compulsive Dad could have great fun printing up checks, making bar graphs, and distributing account statements.)

In addition to outlining this appealing learning approach, the author addresses other related issues with good sense, warmth and humor. Should parents interfere when an expenditure seems foolish? (Generally, only when it also seems dangerous.) How much should an allowance be? (Large enough to permit some spending beyond what is absolutely necessary.) Should you pay kids to do chores? (Only special jobs, such as "rescuing a grown-up's hopelessly muddled hard drive.") Should teenagers work after school? (Not unless you think that a new stereo is worth more than an A in English.) Should a 12-year-old get an ATM card? (Absolutely, because she can't spend more than she has -- and you can also snoop on the monthly statement.)

After watching in disbelief as his 4th grader sold two Beanie Babies for over $100, Owen discovered that eBay is a terrific home laboratory for economics. Over the years (when he admits that they became occasionally "deranged") he and his son learned a lot about "psychology, marketing, advertising, cost control, responsibility, trust, duplicity, skepticism, irrational exuberance, and idiocy -- all valuable economic lessons."

This book, however, goes beyond the nuts and bolts of the cash nexus. Owen knows that the best way to teach children about money is to "live a life in which money plays just the right roles." He explains how to show children that value is separate from money, proposing the concept of "true net worth." And he won every librarian's heart by devoting a whole chapter to "the best investment you can make for your children: read to them even more than you already do."

When your children grow up, few things will affect their lives as much as the presence or absence of money. Unfortunately, most teachers and parents devote little systematic attention to teaching them how to live their economic lives. Start with this enjoyable book for some excellent suggestions -- and try the Carnegie Library's "Resources for Young People on Money, Investing, and Entrepreneurship" -- www.carnegielibrary.org/locations/business/researchguides/youth.html -- for more.

The Number: How the Drive for Quarterly Earnings Corrupted Wall Street and Corporate America by Alex Berenson. Random House, 2003.

"Once Again, Stock Market Success to Depend on Earnings," reads a recent headline in the Post-Gazette. And of course, the rise and fall of the stock market has a tremendous impact on the economy, not to mention who will win the next presidential election. But what exactly are those "earnings," that everything seems to depend on? If you would like to know the scoop -- and the sordid details that lie behind it -- this book will educate and alarm you.

The "number" of the title is earnings per share, increasingly considered by traders and investors, executives and analysts, to be the key indicator of a company's health. It is required by law to be publicly announced every 3 months, in the 10-Q and 10-K reports filed with and made public by the SEC. As this book contends, it almost single-handedly drives the stock market.

But, as the book also argues, "too bad it's a lie" -- a fabrication often concocted by greedy executives in cahoots with corrupt accountants, and winked at by analysts, mutual fund managers, regulators and politicians. Alex Berenson, acclaimed financial reporter for the New York Times, illustrates here how fraud behind the "number" fueled the phenomenal boom/bust cycle of the 1990's that literally erased trillions of dollars in everyone's pension funds and retirement accounts, and continues to threaten the investment climate.

The book starts with a short but cogent chronicle of American investing, starting in the 1920's -- a time when stock exchanges were essentially a form of gambling, and reliable information about company finances was unavailable. J.P. Morgan Sr. emerges as the first of a long line of executives less than happy with honest disclosure, trying hard to stave off the day when "all business will have to be done with glass pockets." Berenson shows vividly how today -- despite the enactment of many laws, regulations, and the creation of the Securities and Exchange Commission, designed to protect the investor and open companies' books -- those pockets remain opaque, stuffed as they are with executives' astronomical salaries and stock options.

Stock analysts and mutual fund managers take some of the heat in this blistering indictment. Analysts increasingly urged the public to buy stocks on flimsy financial grounds, deeply compromised by their ties to investment banking. Fund managers filled their funds with dubious stocks, ignoring clear indicators of financial trickery and trouble. With clarity and wit, Berenson explains how this situation evolved through the decades.

The real scoundrels of this story are the giant accounting firms, the "plumbers of capitalism," who -- hand-in-hand with company managements -- devised unethical and crafty schemes to cover up fraud and mismanagement in the companies that they audited, and warded off attempts to regulate their actions. (There is probably no other book with so many occurrences of the word "gimmick.") The SEC is portrayed throughout as a pathetically weak monitor, chronically without the resources or the gumption to rein in its charges.

The surprising and unsung heroes are the short-sellers, professional investors who make their money on declining stock values. These investment sleuths are geniuses at dissecting the hidden secrets of financial reports -- seeing behind and beyond "the number" -- to indications of a company's problems. The "shorts," as they are endearingly called, consistently tipped off reporters and investigators -- including this author -- to the truth behind the hype.

Enlightening and entertaining, this account of the corporate world will give readers a new grasp of the continually unfolding scandals in today's Business pages.

Also recommended are:

Railroads of Pennsylvania: Fragments of the Past in the Keystone Landscape by Lorett Treese. Stackpole Books, 2003.

The Intelligent Investor: A Book of Practical Counsel, Revised Edition by Benjamin Graham, updated with new commentary by Jason Zweig. HarperBusiness, 2003.