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July 23, 2002

Dot.Con: The Bubble Exposed

cover I've been reading John Cassidy's Dot.Com: The Greatest Story Ever Sold-- one of the more indispensable guides to what led to the current tech meltdown. Cassidy is a New Yorker writer and artfully takes down the whole culture of tech hype, from George Gilder to Wired Magazine, while documenting the financial industry which leeched off their hype to drain the retirement funds of America.

What Cassidy makes clear is how early the insanity set in. In 1996, a company called Cybercash did an IPO of 2 million shares at $17 each which rapidly jumped to $50 per share. This new $100 million company had lost $10 million in its seventeen months of existence, hardly unusual admittedly in this world. But what was remarkable was that Cybercash managed to have a $100 million of stock on the market for a company that had no customers and no revenue for its whole existence to that point. None. Zippo.

From that base the insanity would only get worse. Yes, the WorldComs and Enrons of the world lied about their financial conditions, but when investors were willing to invest in companies with no admitted sales, the problem was deeper than financial fraud.

The real problem was intellectual fraud-- the hype that the "New Economy" had changed everything and deregulation was promissing miracles of efficiency.

Or as Robert Kuttner writes in an op-ad to appear in the New York Times "laissez-faire itself is the ultimate corporate fraud."

Posted by Nathan at July 23, 2002 02:53 PM

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