Friday, February 22, 2002

Dot.con: the Greatest Story Ever Sold by John Cassidy [Review] Greater fool theory "It was always so. One of the most striking features of these bubbles is how they tend to be associated with revolutionary innovations. The opening up of the world to trade through sea travel brought the South Sea Bubble (which cost Sir Isaac Newton £20,000 - a very great deal of money in 1720); the invention of railways brought the railway-share mania of the 1840s; the arrival of aeroplanes and the radio brought the great stock-market crash of 1929. In all these cases, people followed a false syllogism: this thing is going to change the world, therefore I can make money by investing in it. Speculators were right about the first part of the proposition and wrong about the second." " ... Alan Greenspan ... does come in for a severely sceptical reappraisal." " ... the book is mistitled, since Cassidy doesn't really regard the boom-and-bust as a con so much as an episode of mass hysteria, fuelled principally by greed." ... [more] The Old New Thing " ... start-up firms that promised to Change Everything. ... conventional wisdom built up. The Internet ... would overturn so many established ways of doing things that it would inevitably create vast new fortunes ... but the collapse took so long to occur that many of the pessimists were out of their jobs by the time it happened." " ... [the author] scoffs at journalists, business analysts, and politicians who 'helped create a populist investing culture in which adulation of the stock market was the norm.' In the height of financial euphoria, he intones, 'all prior reasoning, sentiment, and knowledge count for naught. Only the twisted logic of the market matters.'" "What was unusual about the dot-com era was not that many new businesses sprang up but that they went public. ... in January 1995 ... the Dow Jones Industrial Average was about 3,800. In January 2002 ... it was a little under 10,000. In other words, the Dow more than doubled in seven years -- not bad for a story of greed and gullibility. ... Yet the shallowness (to date) of the recession inaugurated by the Internet collapse suggests that the U.S. economy was simply too large and complex to be thrown for a loop by a noisy techno-cabal in Silicon Valley." ... [more] 3:47:29 PM    comment  []

Ninety percent of young male workers now doing worse than they would have 20 years ago "The promise of upward mobility – a centerpiece of the American dream ... may have disappeared with the 20th century. ... 90 percent of young white male workers can expect to have lower lifetime wage growth than the previous generation." " ... key findings indicate that: ... inequality in lifetime wage growth has risen rapidly in the 1980s and 1990s. ... college graduates are ... actually seeing lower wage gains now than in the past. ... Men with some college education ... have lost even more ground. Few now see any payoff to their investment in a two-year degree ... can now expect his wage growth to look much like that of a high school graduate. ... workers are now being funneled into low-end, low-paying jobs in sectors such as retail trade and business services. ... a 40-percent decline in the fraction of men who can expect to achieve the kind of economic standing that defined America's middle class in the 1970s. ... Growing job instability ... one of the main factors driving these changes. ... the rewards to building tenure with an employer in later years are being lost as job instability has nearly doubled among those in their mid-30's." "This growth in inequality appears to be the signature theme of the new economy. ... 'the negative impact of economic restructuring is not just happening at the fringes of the work force ... It is happening to white men, traditionally the most protected group, at the heart of the work force. With the kinds of declines in hourly wages that we find here, it is a bit of a puzzle why there has been so little public outcry. ... people are working more hours and there are more women in the work force now. The net result is that total household income levels have held steady ... As it sucks more and more resources out of the home, we are seeing rising stress on families, and declining time for being with children.' ... the decline of labor unions and the increased trends of downsizing and outsourcing by businesses has produced a climate in which the American economy is producing more low-paying jobs than high-end ones." " ... 'we are beginning to lose our middle class. And many more Americans work to live, not live to work.' ... [we need to] think about national priorities and to recognize that there is a cost to having shareholder profits as a top priority. The facts ... should give us a reason to pause and reflect on the path we are on ...we can choose a system in which prosperity is shared, and the reward for hard work is at least a living wage. ... This is a political choice, and it determines where American society will be in the future. For many decades, regulated economic growth was the rising tide that lifted all boats. ... Upward mobility has deteriorated to the point where workers face much more limited and unequal wage growth, even when the economy grows at record rates as it did in the 1990s. ... the recent experiences of Russia and Argentina also make it clear that the social costs of a free market approach can be very high, without producing the promised economic development. ... [the current trend] will make the gulf between the rich and the poor nearly unbridgeable. That would truly be the end of the American dream. Is that really the choice we want to make?'" ... [more] 3:25:28 PM    comment  []

The Flipped-Over Rock " ... after the politicians tire of wounding each other and declare a truce, we may see some overdue action on the control of financial derivatives. ... whose abuse has been disastrous to investors from Orange County to Long-Term Capital Management." "Hedge funds are supposed to spread and reduce risk; in reality, they are often used to make huge bets unknown to their institutional investors. Accountants are supposed to enforce disclosure of all liabilities, but many have become expert in the concealment of risk." " ... worries ... about dangerous excesses in the convertible bond market, 'swaptions' and ever-narrowing derivatives. ... wheeler-dealers an edge. Complication and secrecy are mother's milk to them, while the average investor's best protection is full disclosure." "When you flip over a flat rock like Enron or Global Crossing, you see much panicky scurrying-about by those who like to work in the dark. For too long, new-economy corporate creeps and their accounting Heeps have hidden risk in arcane off-the-books dealing. The new S.E.C. chairman, Harvey Pitt, seems not to get it: Stop pretending it's a political scandal and start dealing with the accounting and derivatives scandal." ... [more] 2:47:05 PM    comment  []