They marked up a private stake they cannot sell, booked the gain as earnings, and let the index rise on it. Jonathan Weil, writing in the Wall Street Journal, has named what the consensus number had been hiding. Alphabet and Amazon together booked roughly $121 billion in “other income” last quarter — almost all of it from marking up equity stakes in private companies like Anthropic and SpaceX. Other income made up 71 percent of Alphabet’s quarterly profit — the bulk of the $112.11 billion Q2 profit the company reported last month. At Amazon, 66 percent. Together those two lines are on track to deliver roughly 15 percent of the entire S&P 500’s second-quarter earnings. Strip the two names out and what looks like 31 percent earnings growth becomes 24 percent — and even that 24 percent includes stock-based compensation that at least sixty-five other S&P companies have persuaded their analysts to ignore. The earnings that aren’t earnings now move the index.
The defenders will say — and the case is not nothing — that GAAP requires unrealized investment gains to be booked in net income; that a company with a 15 percent stake in a private firm is following the rulebook when it marks to the last funding round; that stock-based compensation is genuinely contested as a “real” cost (it is both compensation and equity dilution, and different companies treat it differently). Nvidia pointed analysts at the same kind of item last quarter and they excluded it — $58.3 billion in GAAP net income, $45.5 billion adjusted, a $12.8 billion gap that is the cleanest exhibit of how arbitrary the choices really are. Both choices are technically defensible. That is the indictment. There is no settled principle here. There is only what each company prefers.
Cost goes out the moment it suits the narrative; gain comes in the moment it suits the narrative. Both directions, the narrative wins. That is not analysis. It is marketing dressed up in column inches.
The S&P 500 now trades at roughly 27 times trailing earnings on a GAAP basis. The historical average is about 16 times. On Street earnings — which strip out stock-based pay for two-thirds of the index’s biggest names but cheerfully include paper gains on stakes that have no public market at all — the index trades at 24 times. The asymmetry is not principled. It is convenient. The compact between a company and its owners — that reported earnings meant something, that someone outside the building could read the number and make a real decision — has been dissolved by management preference so thoroughly that no investor, no analyst, no saver can tell which company is actually earning what.
I worked this mechanism before. I sat at a desk in Chicago where a position in a private company was marked to the last secondary-market whisper and booked as a daily P&L event, and the men around me believed the number on the screen because they wanted to. The mark-to-market on Alphabet’s SpaceX stake is the same kind of mark — last funding round, last comparable transaction — except it is now being multiplied by ten times and shown to the public as quarterly profit. The rule was supposed to discipline the trader. The trader has captured the rule. So the rules themselves cannot be the answer, because the rules are what got captured. This should sound familiar to anyone who watched the dot-com era from a trading desk. It is the same discipline I used to work for Chicago — paper gains on equity stakes counted as income, recurring operating costs stripped from the bottom line, all in service of a quarterly beat. The numbers are different. The discipline is the same. The discipline is the disease.
It is the disease financialization has been about since the 1980s — replacing the real with the abstract, the production with the position, the wage with the option grant, the balance sheet with the footnote. The honest conservatism that once held the line on this is the conservatism of distributism — Belloc and Chesterton’s school, which holds that a free society rests on the widest possible distribution of productive property among the people who do the work, and that a system which concentrates ownership in the hands of those who do not work the thing owned is a kind of serfdom in waiting. It is the conservatism of Burke, of the localists, of the people who think the world is held together by real things done by real people in real places, and that abstractions which claim to be more real than the things they abstract from are a kind of theft. Weil, writing from the financial press’s own house, has done us the service of saying so — the kind of accounting the country used to expect from its business pages, before the pages themselves became instruments of the trade they were supposed to report on. The fact that it has to be written at all is the indictment of the system it describes.
The country has an older answer than the GAAP consensus number, and it does not need more rules. It needs different ownership. The Rochdale Pioneers, who founded the modern cooperative movement in 1844, listed honest accounting among their seven principles, because democratic member control requires it — you cannot govern what you cannot see. Mondragon, the Basque worker cooperative federation that now employs more than seventy thousand people, files audited statements its members can read and challenge. The REA cooperatives electrified rural America on the same principle in 1936 — member-owned, member-governed, member-accountable — and the rural electric cooperative headquartered in my own county in Friendship, Wisconsin, runs on it still. When two platforms mark up stakes in private firms and that is what moves the index, we have stopped measuring a market and started measuring a closed system. The remedy is not better accounting inside a captured one. It is widely distributed ownership of productive property in the first place, so that gains accrue to many people who can see and audit what their firm has actually done, and not to a handful of platforms marking up bets on each other.
The co-op where I work in Friendship sells real crops grown by real members for real prices. There is no Anthropic on our books. There is no SpaceX. The accounting is straightforward because the business is straightforward — buy inputs, grow a crop, sell it, divide the margin among the people who did the work. There is no quarter in which 71 percent of our profit depends on a private company’s last funding round. That is not because we are more virtuous than Alphabet. It is because we are owned by the people whose work produced the margin, and the work is what produces the margin. We cannot book paper as profit because paper is not what we sell.
The $121 billion in phantom profit that just moved the index was printed by a system that has outgrown its own ability to honestly describe the real thing underneath it. The remedy is older than the Street earnings convention. It is the member-owned firm in which the work and the report on the work cannot be separated, because the people who do the work are the people who own the report. Weil has named the disease. The rest of us still live in places where the books are honest because the people who do the work are the people who own the books.