Today the Dow Jones Industrials dipped below 9000, and it seems that there is no end in sight. Believe me, I am feeling the pain in my 401ks and IRAs, but life goes on, and I still have a job and I am still quite busy. I truly believe that the reason I and many others have a job right now in the Silicon Valley is because of the last bubble. When the NASDAQ lost more than half of its value and dot coms died left and right the Valley returned to frugality and good business practices and we all should be thankful for it.
When the last bubble happened I just started at UC Berkeley, so I missed all of the crazy IPOs and block parties. After I graduated, I did join a startup, but it was clear that it operated very frugally. It was profitable and maintained a positive cash flow with only one round of venture funding. This company is still operating right now. Since then I have joined two more small private companies and both operated the same way. Overall, I think the companies thriving in the Valley now are better quality businesses than those companies that shot up to $300 a share on the Nasdaq and then died in an ignominious fashion complete with auctions of office furniture.
As a result of the dot com bubble, even venerable technology companies became more frugal than they were and held onto their cash. This is why Microsoft and Hewlett-Packard are able to do stock buybacks this year. My last company actually issued a stock dividend because they had the cash to do so. At least technology companies became more aware of the importance of having a cash reserve for a rainy day, and it sure is pouring right now.
Another thing that happened in the Valley is that IPOs became as elusive as albino koalas. Again, I believe this is a positive thing because if there were rampant IPOs then companies would have overhired again and the fall would be very very hard. A more popular exit strategy for small companies was to be purchased by Google/Yahoo/Microsoft, and again, these large companies were able to do these acquisitions because they held onto oodles of cash.
I hope the housing bubble will serve as a lesson to everyone involved just like the dot come bubble did to the tech industry. The technology sector has become wiser and is now on more solid footing than a lot of other industries. We will all feel pain from the fallout of this financial crisis, but hopefully banks will return to better business practices and people will learn to live more frugal lives. That is actually exactly what happened after the Great Depression. We had a generation of extremely frugal folks and decades where the middle class prospered, but unfortunate history is often forgotten, and repeats itself over and over again.
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7 comments ↓
It’s also interesting to compare the amount of government intervention associated with each bubble.
When the tech bubble burst, a lot of companies went out of business with and the government, correctly, did nothing. The tech downturn lasted a year, figured out how to compete better in the market and got back at it.
I’m guessing that the current situation will last a lot longer — maybe 8-10 years, depression-style? Housing prices — like the stock price of pets.com in 2001 — WANT to go down. Too bad the government is just prolonging the inevitable.
[…] Thank goodness for the dot com bubble […]
In a similar way, I wonder if this current crisis (plus the dot com bubble) will have a positive effect on my generation. Perhaps we’ll be a bit more tempered and actually allocate our assets properly, be wary around bubbles, etc.
Of course, if things get too bad we may become crotchety old people with all our money in a sock under our mattress. Not the worst thing, but much more vulnerable.
First, renters are angery because they thought house prices were too high, which they were, and second, that they were being asked ,via their taxes, to bail out those who have sub-prime loans and thought that house prices were not too high.
Thus, savers (angary renters) are being compelled to bail out debtors (angary mortgate holders and their bankers).
The bottom line is simple. Once again, the inocent are punished and the guilty are resqued.
“We have the finest government money can buy.”
[…] The Bag Lady has written an interesting article, on why she believes the Silicon Valley is a better place since the dot com bubble bursts. And she explains why this recession may also have a positive impact on the housing market and the banking industry in: Thank Goodness For The Dot Com Bubble. […]
Nice comparison. . . here’s hoping that there will be some positives out of all this upheaval.
Yes of course dot-com bubble was one of the most important and un-forgettable history.
Some info regarding the crash or bubble is available here
http://www.myblog.com.np/internet/what-was-the-dot-com-bubble-or-dot-com-crash/
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