The Golden Collapse

Believe it or not, there once was a market crash where participants paid the consequences.


Where were you when the bubble burst, Daddy?

No, not the housing bubble (see Paul Thornton's "The War on Renters," page 19) and the ensuing wipeout at the exotic edges of the credit market, a contraction so grave that it has jeopardized such nonsubprime economies as Iceland's. Nor am I referring to the severe early-'00s overvaluation of the U.S. dollar, a now-forgotten artifact of irrational exuberance that was nonetheless obvious enough back in 2001 that even a nonanalyst like me was urging Americans to enjoy those cheap European vacations "before the currency bubble bursts." (The greenback has almost halved its value against the euro since then.)

I'm talking instead about one of the most beautiful and under-appreciated collapses in modern financial history: the great dot-com crash of 2000, when NASDAQ lost 10 percent of its value in just one day, went from $1.2 million Super Bowl commercials to $82.5 million initial public offerings to full liquidation within 11 short months, and the nation's professional chin strokers transformed themselves from envious and befuddled New Economy spectators to world-weary bringers of harsh business truths. The air was thick with a vindictive Schadenfreude directed at those Generation Xers who had the bad manners to make fortunes (or just an interesting living) while experimenting with new technology during what until recently had been called the Long Boom.

"One minute you've got zip-drive techies pulling all-nighters amid their look-at-me-I'm-wacky workstations, and the next moment—poof—it seems so stale," New York Times pop sociologist David Brooks wrote in May 2001. "Suddenly, it doesn't really matter much if the speed of microprocessors doubles with the square root of every lunar eclipse (or whatever Moore's Law was)."

Late-breaking Old Media gold diggers like co-founder Lou Dobbs woke up the morning after, presumably feeling a bit ridiculous, while analog-world moguls like's Steven Spielberg and David Geffen quietly folded shop before the ice was sculptured for the launch party. Retirement-age investors who saw their NASDAQ-heavy 401(k)s cut in half seemingly overnight were derided as "greater fools" who got what they deserved for buying into the 21st-century equivalent of tulip mania. Even some of the tech industry's long-toiling observers took vicious aim at the bubble blowers. In April 2000, longtime PC Magazine grump John C. Dvorak warned darkly (and inaccurately) of "a depression that will rival 1929." Newly popular sites such as Net Slaves and Fucked Company reveled in the spectacular—and occasionally criminal—flameouts of such buzzword-slinging, broadband-dependent money burners as the Internet Entertainment Group (IEG) and the Digital Entertainment Network (DEN).

I was a gleeful participant both in the last great days of the dot-com boom (when I worked briefly at the aforementioned DEN) and the first grim days of the bust. Despite the considerable hit that the wave of tech publication closures had on the pocketbooks of freelancers like me, it was terrific fun to have post-crash sport at the expense of jargon-addicted IPO charlatans and Koolaid-drinking late adopters, and there was a hope in those days that the post-crash Web would revert to the individual, low-budget level of wacky experimentation and cheap humor. That hope, we have seen, has turned out well.

But what turned out best of all, and what has the most relevance to today's various economic busts, was the regulatory response to the technology crash: a grand, collective shrug.

Like the subprime collapse of 2008, the dot-com bust of 2000 took place during a heated presidential campaign. Yet the tech bubble didn't merit a single mention in any of the presidential or vice presidential debates that fall. The Federal Reserve responded to the 2000 contraction by using the main mechanism at its disposal: repeatedly slashing interest rates (a move, many say, that helped inflate the next bubble). The Fed is responding to 2008, on the other hand, by proposing vast new mechanisms for itself, including regulatory oversight of investment banks, new rules for credit rating agencies, and authority over such far-flung sectors as insurance and commodities trading.

Even the villains of the dot-com collapse mostly came out smelling like roses. Remember Mary Meeker? She was the "Queen of the Net," a Morgan Stanley analyst who midwifed Netscape's IPO and championed scores of others, including eventual busts like After the dot-com crash she was crucified as a walking conflict of interest, investigated for fraud, and quickly forgotten as a pop culture figure. Now? She's still a managing director at Morgan Stanley, still championing the technology boom (this time, in China), and has long been cleared of all charges. Meeker's colleague Henry Blodget, after paying a $2 million settlement on a securities fraud charge levied by then–New York Attorney General Eliot Spitzer, left Wall Street and founded the thriving tech blog Silicon Valley Insider. Even that stock-picking loudmouth James Cramer, who was temporarily disgraced for having said in February 2000 that Internet stocks "are the only ones worth owning right now," was quickly rehabilitated as the ubiquitous host of CNBC's Mad Money.

The only substantial "reform" that came in the wake of that crash was the disastrous Sarbanes-Oxley Act of 2002, a make-work program for accountants that was more a reaction to the shoddy internal reporting of Enron, Adelphia, and WorldCom than it was to the fantasy-based price/earnings ratios of

What were the nefarious effects of the surprisingly laissez-faire attitude toward tech stock de-listings and baby boomer NASDAQ wipeouts? The Dow Jones recovered its 2000 highs by 2006, and even tech-heavy NASDAQ has more than doubled its value since post-crash lows in October 2002. The United States, led by the ongoing information revolution, has continued to innovate and thrive, with only a few minor macroeconomic hiccups in 15 years of robust growth. The broadband dream that seemed so far off in 2000 has long since become a reality: It's YouTube's world; we just live in it.

Eight years ago, as the freelance contracts dried up and the nation knuckled down for a presidential race that turned out even more tedious than predicted, my sympathies were with Tim Cavanaugh, then of, now a freshly minted reason columnist (see "Classical Gasbags," page 62), who wrote: "It was a wild ride, and now it's over. The spectacle of an industry in full retreat might be good for a few chortles, but it's the kind of laughter you try to choke back at a funeral. We remember the whole story; we know it was a golden age; and we know better than to join in the exultation of dot-com backlashers, old economy scolds, or now-jobless economic naïfs still excited over the prospect that San Francisco housing rates might fall."

In fact, the dot-com collapse was better in retrospect than we could have ever predicted in its wake. By becoming associated in the popular imagination with the kind of loathsome young techno-weenies immortalized in such films as Office Space and, by headquartering itself in the always loathable (and self-loathing) San Francisco, and by spawning an entire self-caricaturizing literature of New Economy boosterism, the Internet bubble was allowed to inflate and burst the old-fashioned way—privately, as the result of transactions between consenting adults.

So add another arrow to the quiver of nostalgia for the 1990s. We will tell our disbelieving grandchildren that there once was a time when you could board an airplane without removing your shoes, travel all over the Western Hemisphere without flashing a passport or submitting to an eyeball scan, and engage in risky, exciting economic behavior knowing full well that you'd actually have to pay the consequences. (Well, unless you're James Cramer.) Say what you will about Generation X, but we were never too big to fail.

Matt Welch is reason's editor in chief.