In the late 1990s surgeons at New York City’s Mount Sinai Hospital kept a computer in the operating room so that they could trade stocks between operations.
By Steven Brull
March 2002
Institutional Investor Magazine
In retrospect, such displays can be seen as all too obvious signs of speculative excess, but as the bubble inflated, skeptics were as scarce as stock analysts’ sell ratings. New Yorker staff writer John Cassidy, one of the few to cast a jaundiced eye on New Economy hype circa Nasdaq 5000, looks back on the mania in Dot.con: The Greatest Story Ever Sold. He spins a good yarn.
Cassidy offers little fresh reporting in his 372-page book, which regurgitates the stories of Netscape, Amazon.com, day trading and other well-worn business sagas, but his narrative is well written and entertaining, and it usefully highlights the peculiarly American character of the bubble. “The Internet boom and bust was about America - how it works and what it thought of itself in that short interregnum between the end of the Cold War and September 2001,” the author writes.
A central myth of the dot-com era, as the British-born Cassidy sees it, was that the Internet was a triumph of American capitalism and that the union of computing and communications technologies would liberate people from history and geography and usher in an era of endless prosperity.
Instead, as Cassidy reminds us, the Internet was created not by clever entrepreneurs but by Pentagon-funded academics. What’s more, in 1990 a European, Tim Berners-Lee, invented its most important application, the World Wide Web, at a particle physics laboratory near Geneva.
The author likens the Internet boom and bust to an “epic miniseries,” inspiring viewers with notions of technological utopianism and featuring “instantly recognizable American types” such as Netscape founder Marc Andreessen, “the gawky farm boy,” and Merrill Lynch analyst Henry Blodget, “the smooth-talking preppie.”
“When all is said and done, Cassidy writes, “this was primarily a story of greed and gullibility.”
The author recalls that George Gilder, “the high priest of the conservative technology cult,” predicted in 1995 that the Internet would “displace both the telephone and the television in the next five years or so.” Perhaps still smarting from past disputes with hypemeisters such as Gilder, Cassidy notes gratuitously that the pundit finished last in his class at Phillips Exeter Academy and had “an equally undistinguished academic career” at Harvard University.
Inevitably, Cassidy tackles those familiar targets, the Wall Street analysts who concocted new valuation models based on concepts like “mind share,” “eyeballs,” and “first-mover advantage.” But he adds little to the chorus of critics who have already taken them to task.
Nor is Cassidy the first to remark upon the transformation of business journalists into breathless cheerleaders for the boom. As others have noted, CNBC covered the stock market as though it were a football game, complete with a pregame show, play-by-play commentary during trading hours and a postgame wrap-up. All the hype helped to create a nation of day traders who were more gamblers than investors. The vast majority of them, of course, lost money. One Atlanta day trader, Mark Barton, after losing his life savings, murdered his wife and two children and then nine others at brokerage firms that hosted day traders.
Like some, Cassidy believes that Federal Reserve Board chairman Alan Greenspan deserves much of the blame for pumping up the bubble. In July 1997, just six months after he warned investors about “irrational exuberance,” the Fed chief became a New Economy convert. He told the Senate Banking Committee that the economy’s buoyancy was a “once- or twice-in-a-century phenomenon that will carry productivity trends nationally and globally to a new, higher track.” This misreading of the U.S. economy, Cassidy argues, explains why Greenspan failed to dampen the economy in 1998 and 1999 and was slow to react after the market peaked in March 2000.
September 11, Cassidy writes, “drew a thick line under the dot-com era.” As he sees it, “many of the intellectual assumptions that had underpinned the Internet bubble” - that the business cycle was extinct, that Alan Greenspan could do no wrong, that the productivity miracle was real - collapsed along with the Twin Towers.
That’s hardly an original observation, and much of Dot.con covers familiar ground. But Cassidy deserves respect for his early skepticism, and he tells one doozy of an American tale.
