Cowboy's parting shot will rock US

Bernie Ebbers, the gangling 6ft founder of Worldcom, was fond of wearing western clothes from stetson hat to cowboy boots. In spite of this obvious clue, however, it was only today that investors realised his whole company was something of a cowboy outfit. It is a shock because in a little more than 10 years, through a series of quickfire acquisitions fuelled by massive loans and a soaring share price, the business had risen to be the largest telephone company in the world. Traditional giants like AT&T were left trailing in its wake. Minnows like BT, France Telecom or Deutsche Telecom barely figured on its radar. It, much more even than Enron, Lucent or Microsoft, was the spectacular creation of the dotcom years.

Everyone has known for months now that the company was in trouble. The steady slide in its share price has meant tens of billions of dollars have been written off the stock market value of the business. Ebbers himself was forced out of office a few months ago and the shares unceremoniously ejected from the Standard & Poor's list of the top 500 US companies - though it was still nowhere near the bottom. This was taken by Wall Street as a clear signal that someone out there expected it to go bust. But what no one expected was what they got late last night on Wall Street - news that there was an Enron-style black hole in its accounts.

In a statement after the American stock market closed it was disclosed that some $4 billion of costs in recent years had not been reflected in the accounts, which means in turn that when the company said it was making profits it was in fact making losses.

Inevitably the auditor for much of the period in question was Arthur Andersen, the same firm which has found itself in the dock over its willingness to gloss over the flaws in Enron's accounts - a fact that would be a death blow for the firm were it not already on the slab in the mortuary. The chief financial officer has gone, belatedly following Ebbers out the door, but neither has gone so fast as the company's credibility. It is a fair bet that when business begins today on Wall Street the price will be shredded. Investors who have already seen their shares halve, halve and halve again may well find themselves left with an almost worthless bit of paper.

Ironically one of the main casualties in this will be Ebbers himself. He not only talked the talk, but more than any one of that breed of dotcom and telecom billionaires he also walked the walk. He really did believe in what he had created - so much so that when the stock price started falling he borrowed money to buy more shares, and more and more. Ironically this indirectly added to Worldcom's woes.

It was revealed after that the hundreds of millions of dollars he had borrowed for these now worthless purchases had come from Worldcom itself. He still owes the business that small fortune.

The news is not just a disaster for Ebbers, and for those who trusted and backed him. It strikes at the heart of the American capitalist system. US industry gets its money from investors willing to buy shares. But they have made it clear they will not cough up the cash if they cannot believe the accounts. Had Enron been a one-off, the shock might have begun to subside but Enron is clearly not a one-off - and the real significance of today's news is that it implies it was just the tip of the iceberg. It will paralyse investors, and as long as that paralysis lasts it will do untold damage to business confidence and the ability of the US economy to regenerate itself. This is bad news indeed.