First of all - hegemony is not a bad word. It carries a bad connotation because those who know what it means and use it regularly are pseudo-intellectuals spouting their liberal, one-world agenda in the lecture halls of modern academia and poisoned press of a free marketed free-speech nation. Hegemony is what the
And then came the
So Bill began gutting the
The dot com era began just before the end of his first term and he had the perfect elixir to the economy. He could deliver on the Carville bumper slogan of "It's the economy, stupid" and turn it into "It's the stupid economy" or perhaps "It's the economy and you're all stupid." The better the index reports the better his approval rating. Money was getting cheaper by the day with consecutive drops in the Prime Rate. No sense slowing this freight train because as long as the rails ran on for another eight years who cared if the break in the track over the canyon wall was only another year or two past that time. Bill and Hillary would have already climbed off at the last station.
So now here I am in the mid-90's, watching it up close, daily, in the cubical trenches and eventually from glass towers above Wall Street.
I remember having my first light bulb moment when I was six months into my post-graduate career of selling computers and saying, this can't last. At the time we were touching thousands of new customers every day. People who had never owned anything more technical than a toaster oven were now shelling out $3000-$4000 for a PC or a MAC. Microsoft had done some of their better work and really liberated computing from the arcane workshops in basements, empty garages and university electronics labs and turned it into something mildly useful and entertaining. My reaction was a mixed emotion. I was riding the high of selling these pricey and financially rewarding gizmos but one of the few stepping back long enough from the frenzy to realize it just wasn't sustainable (my wife would say it was my negativity, my friends would identify it as a pessimistic trait. Call it what you will but I said it then).
I would say to people, colleagues and outsiders, "This must be a little bit what it was like working at Ford Motor Co. back when Henry rolled the Model A into production." No one in this country had one. Everyone felt they needed one or at least convinced themselves that wanting one was the right thing. So
I am sure you've heard the joke about how you could get a Model A in any color you wanted as long as that color was black. So after a meteoric rise the market hit a plateau. Much like computers, the original automobiles were built to last. Also, people took better care of their major investments and it was right-minded to continue repairing and maintaining something rather than replace it. I believe this is why all sorts of subtle variations in options, body styles and even colors were introduced. People needed to feel their old car was somehow inadequate and replace a perfectly functional machine with a newer one.
"Look ma, now we can order our computers with different colors."
"Does that make them work better?"
"Umm, no. But it's cool. I need a new one in pink."
So anyway that's kind of how I viewed the computer industry and continue to view it to this day. We were at the dawn of a whole new economic era and no one quite knew how to quantify it.
The first time I stood up and looked around I was seeing 20-30 new people starting on the phones each week. That's not an exaggeration, rather an understatement. My company easily hired more than 1500 new people that year just into the sales divisions. And my company had already gone public. And the stock was going up faster than the employee count . . . and splitting . . . and then going right back to its pre-split price inside of nine months. And that wasn't really uncommon. Almost any public technology company was watching their stock value climb at a weekly rate that was turning people into overnight millionaires. Some of these people were colleagues that had started 2-3 years before me. They truly got in at the ground level, receiving pre-IPO shares and having the savvy to hold them. The guy who didn't is still asking people if they want to sit on his $35,000 couch.
Someone at my alma mater and NOT Al Gore invented a means for computers to talk to each other over telephone lines hundreds of miles apart. Initially this had military applications (as so many inventions do) and was a means of academics sharing libraries of knowledge. Thanks to
So another year gone, almost every middle class family in America owned a computer and could "log-on" via AOL and that's when the Internet became the hot market-space, perhaps the last true Killer-Application of the Millennium. It was virgin territory, so for sharp entrepreneurs it was the WWW -- not world wide web -- the Wild Wild West. This is also when non Internet companies figured they could bolt the Internet on to the side of their brick and mortar and give it some new investment-worthy excitement. This was also the time that a company in
So I was making the transition from the phones to the field at this time. I had a front row center seat to watch the effects of cheap money. I remember fighting with my own upper management about discounting. They wondered why we didn't. There was no need. Dot coms flush with venture capital had more millions in the bank then employees in their company. They had no idea what things would ultimately cost when (IF) they ever became operational. Asking for discounts wasn't really necessary.
Then I was meeting with them face-to-face. I was traveling to major metros mostly. Because again, running the shop in bargain mode just wasn't the highest priority. I overlooked the skylines of
And there I am one day after one of these meetings and an hour before another one, somewhere in midtown
I distinctly remember visiting a company in D.C. who was webinizing a way to package and sell the mortgage paper from bank to bank. They needed an increase in their credit line and they warranted it because they would not be allowed to fail by the five major banks who were their investors, their customers and chief benefactors. I won't even touch on the apparent conflict of interest here. Suffice it to say that I was there witnessing the creation of a key component of our current dilemma -- fast, automated transfer of credit risks -- the complete commoditization of the mortgage market.
I know you are probably thinking what reason did I have to complain? Well, I didn't. I wasn't. I also wasn't living so far beyond my means that a slowing of that progress or even a sudden downturn would send me into debtor’s prison like it did some of the
Because it did. It started going sideways even before it stopped. I spoke with companies over the phone that were shipping back last months purchases because their own private bubble popped. Either they ran out of venture capital before ever hitting critical mass or someone bought them for their intellectual property rights then flushed everything else, including all the employees who were needlessly creating unnecessary payroll at that point. Initially this was all just part of the game. The founders and their employees would move on to the next start-up and the cycle would continue.
Occasionally, rarely, there were legitimate players with innovative offerings but that's where the problem really took root. They would make it to their own not-so-private day of reckoning. The day of their IPO. And because they were quite rare amidst the vast field of pretenders they all had record setting IPOs. Brokerage firms had to make rules about buying IPO shares on margin much like casinos had to make rules about splitting tens. Any fool could do it. Everyone was making money at this point and they were doing it with borrowed capital.
But the same people who figured out how to get you to buy dog food and prescription drugs online also figured out how to track it all very granularly and that started to put a cap on advertising revenues. Plus, like any industry before it, internet commerce went through all the stages, except in this case almost literally at the speed of fiber optic light. So it had matured in many cases before it had truly finished growing. So the buyouts, the mergers and the need for no more than three internet booksellers (mirroring the three brick and mortar booksellers) put an end to it all. No amount of cheap money could save the virtual from the reality of the markets. My visits to start-ups declined. I was seeing more and more companies in traditional industries and the dot coms were nichier and more boutique or more robust, gobbling up their competition with voracity. I was even visiting some of them in out of the way little burgs where they realized T-1's were no more expensive but office space and all other costs of doing business were bargain priced.
The market started to cascade downward almost as quickly as it had climbed to the peaks of its own glorious ski slopes. My own company's stock stopped moving up. It had been a full year since there was a split. Almost everyone I knew had options that were under water. Some were ducking margin calls. We were all selling our own company's shares to avoid the bigger loss.
I saw it happening and made another well timed career move. I left selling to the dot com world in my rear view mirror before it could leave me standing by the roadside. Occasionally I would glance back. And one day when one of my reps received a call from a refurb computer reseller who had run through all the cheap computers he bought at Dot Com fire sales, calling the manufacturer directly now that he was out of stock and expecting the same pennies on the dollar prices, I knew it was truly over.
And later that year not just Enron but MCI/Worldcom, Tyco and Global Crossing to name a few, all got cranked through their own machinery of crooked accounting in the name of fast and as it turned out, unrealistic profits. Some had been calling for a market correction. That would appear to be a very kind euphemism in these cases though. No one bailed out the stockholders of those companies. I never got a sorry-fella welfare check for my scant few Worldcom shares. Not that I am complaining. Others who had worked for these companies lost their entire pensions and 401(k)'s. No bailout in these cases unless you call Social Security and Medicare a bailout.
So we enter the new Millennium, not with a bang in the year 2000 (which technically, we are told, is not the new Millennium) but instead nine months into the year 2001, the true millennial New Year. A symbol of financial strength, the
It did not, however end their love affair with profit mongering in the extreme. Like junkies with one bad fix it was time to move to a new dealer or perhaps a different drug.
Enter the psychotic looking dancing banner ad clown. Did the Fed increase rates? I didn't notice. Neither did the car dealers who weren't moving inventory after 9/11. Zero percent, pre-approved everything must go infected the credit industry.
Mortgages apparently became the next virtual big-money reality. People who should never be able to afford houses, yes, I said "NEVER", are getting approved for $200 - $400k loans. And because they don't have an income or assets to support that lifestyle they are taking out home equity loans to buy the accessories for that mode of living like: a second car, recreational water and land vehicles, furniture for a house too big for their means or needs, etc., etc. There was exploitation and bad decision making on both sides of the table and at all levels of the market place. I blame the institutional investors with an almost day traders avarice, the home builders selling "custom homes" like new cars with menus of overpriced, luxury upsell options, buyers who knew full well they wouldn't be able to pay the real loan that came due when the ARM rates adjusted (pleading ignorance is not a defense - ask Thomas Jefferson - you signed the contract and no one held a gun to your head when you signed it) and then the banks for selling the paper before it would come back to haunt them all.
Mort Zuckerman's analysis in his September 29th U.S. News & World Report editorial is much more succinct and eloquent on the key economic levers involved in this epidemic of easy money in a mark to market world. Suffice it to say that there was action by some, inaction by others and plenty of warning signs and indicators of how this all might play out. We've watched a collapse of a very large and elaborate house of cards. Let's not pretend that no one at all was responsible for building it.
The only righteous thing that can occur at this point is investigations that lead to indictments and that everyone, including politicians, past and present are called to account for their actions or inaction as the case may be.
Lee Iacocca took only loan guarantees amidst far more controversy to rescue Chrysler. He made his case to Congress and they agreed but he was proven correct.
This bailout should only be offered in the similar vein and the American people should benefit from total transparency to the loans as part of the Freedom of Information Act. Then, if we see financial institutions that took big loan guarantees and continued going on junkets or others not paying back their loans, we'll know with whom we should bank and who we should avoid. That would correct the market on many levels.
Like many, I am torn. I don't want to see the massive market correction that would occur without some moves made by all the governments of the free world. We all lose and then we truly are victimized by these greedy charlatans who deserve jail time or at least prohibition on the privilege to sit on boards and hold executive posts. And life sentence on those restrictions are justified because if Kevin Mitnick is banned from touching a computer keyboard then their punishments would appear to fit the crime in similar fashion. Conversely, with the bailout as proposed there doesn't appear to be any real accountability, less so if the government merely seizes some measure of control and subjects us all to their characteristic inefficiencies and mismanagement.
On the flip side of the coin that reads "Freedom" is the word "Responsibility".
As good parents we teach our children this lesson from pre-adolescence on. Let government behave like a good parent. Who will be responsible for their bad decisions?
There is no guarantee of outcomes and there is very rarely a safety net big and deep enough for those who want to fly so high. If someone always catches us when we fall we will never feel the pain of the precipitating action. We will not have an aversion to that action when faced with that decision the next time. We will certainly fall again . . . and how far will we all fall next time?