

The Great American Bubble Machine - nir
http://forums.somethingawful.com/showthread.php?threadid=3159732&pagenumber=1

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nir
Article's a bit hyperbole, but I think it might be interesting to HN for its
description of the dot.com bubble:

"The basic scam in the Internet Age is pretty easy even for the financially
illiterate to grasp. Companies that weren't much more than pot-fueled ideas
scrawled on napkins by up-too-late bong-smokers were taken public via IPOs,
hyped in the media and sold to the public for megamillions. It was as if banks
like Goldman were wrapping ribbons around watermelons, tossing them out
50-story windows and opening the phones for bids. In this game you were a
winner only if you took your money out before the melon hit the pavement.

It sounds obvious now, but what the average investor didn't know at the time
was that the banks had changed the rules of the game, making the deals look
better than they actually were. They did this by setting up what was, in
reality, a two-tiered investment system - one for the insiders who knew the
real numbers, and another for the lay investor who was invited to chase
soaring prices the banks themselves knew were irrational. While Goldman's
later pattern would be to capitalize on changes in the regulatory environment,
its key innovation in the Internet years was to abandon its own industry's
standards of quality control.

"Since the Depression, there were strict underwriting guidelines that Wall
Street adhered to when taking a company public," says one prominent hedge-fund
manager. "The company had to be in business for a minimum of five years, and
it had to show profitability for three consecutive years. But Wall Street took
these guidelines and threw them in the trash." Goldman completed the snow job
by pumping up the sham stocks: "Their analysts were out there saying
Bullshit.com is worth $100 a share."

