Customer Reviews

Dot.Con: The Greatest Story Ever Sold

5 star:		(18)
4 star:		(15)
3 star:		(8)
2 star:		(2)
1 star:		(7)

 

 

There have been a lot of books about the crash of the high tech market. This is one of the best. The coverage is thorough if at times tedious. Cassidy makes an excellent case that the lack of a business model and the prevalent "greater fool" theory led to the demise of the Internet bubble. Too many pitched the idea that if their site captured just one percent of a [Hundred] billion-dollar market, than the firm would be a success. Only even one percent was a pipe dream, and perhaps a dozen firms had the same idea. And the "greater fool" theory suggests that even if the originators are wrong, somebody else will be foolish enough to buy them out.

Cassidy concludes his good work with a lengthy table of dot.com failures, a sobering story in itself. Perhaps it is so sobering that the life and exhuberance of the subject drained away. I found the last third of the book to be more of a continuous litany of mistakes and I lost much of my interest.

The first thing you'd say about this book is that, however clever the title, it's erroneous: this isn't the story of a "con" at all, it's the story of a speculative bubble.

The whole point is that no-one was "conned" by the hot air. As Cassidy mentions from the outset, the prospectuses all contained large print health warnings in prominent places: "THIS COMPANY HAS NEVER MADE ANY MONEY, MOST LIKELY NEVER WILL" - but the punters still bought and bought. There were many psychological and sociological factors at play, but deception was not one of them.

For all that, Dot Con is well researched, well written and entertaining into the bargain (my copy was the paperback second edition in which the typos & manifest errors spotted by keen Amazonians (none of which, in my view, was earth-shattering) had been corrected). Cassidy describes briefly and competently the history of the internet and the general financial environment of the last 50 years, and then takes you into the maelstrom of the bubble from 1995 to 2001, all of which he portrays in suitably stunned-mullet fashion. The new edition features a lengthy epilogue which surveys the wreckage and covers the subsequent inquiry into the practices of investment banking firms and their uneasy relationships with their research analysts, all of which is still very current.

While he doesn't really dwell on it, I think Cassidy would come out in favour of more market regulation and intervention: He's especially critical of the Fed's approach to monetary policy and the atmosphere on the street which led to the boom in the first place.

In some ways (though it's hardly fashionable to say so) the investment banking firms and fund managers were as much victims of this as anyone: while the roof is blowing off the market and the choice is to join in and make hay, or watch your competitors annexing large portions of your market share while you sit on your hands, it is a singular Wall Street firm indeed which chooses to sit the boom out.

In any event this is a thoughtful and well put together book and serves as a pretty good overview of some of the most remarkable times in the history of modern finance.

This should be a book of fiction. I don't know if I can count all the obvious factual errors. Paul Allen, co-founder of Microsoft, has his name wrong. He claims the Altair computer was named after a character in Star Wars. If the Altair computer was invented in 1975, and Star Wars came out in 1977, how was that possible? Duh... The book states: "In 1978, two Chicago students, Randy Seuss and Ward Christensen, invented the modem...."
No they didn't! In 1977, Christensen wrote Xmodem, the first computer program used to transfer files between computers equipped with modems; a year later, he teamed with Seuss to create the first "bulletin board system" software.
Again, Duh....
The CON here is obviously the publisher, Hyberbole, who got conned by a financial writer who apparantly had a bunch of news snippets he gathered to form a book. There is NO STORY here. Just pieces of information pasted together to form a book. The sad part is, much of the information is mis-spelled, misunderstood by the author, grammictally incorrect or just plain false.
To think people are reading this and thinking they are "Learning" something about the internet craze would be like reading a science fiction novel and think you are learning about NASA.

John Creedy relates how Jeff Bezos had t-shirts with the Amazon.con's business plan "Get Big Fast!" made up for Amazon.com employees to wear. The goal of getting big fast was the naive belief by Bezos that it a relatively simple thing to establish a monopolistic business enterprise. This incredidbly simple minded theory of monopoly development was accepted and talked up by Wall Street analysts, such as Mary Meeker and Henry Blodgett, who in turn were treated as if they were "Nobel quality" economists, when in fact they were nothing more than common "Wall Street pimps."

Unfortunately, for the investors that bought this argument, monopoly is either based on the exclusive ownership of a crucial input, where Microsoft's operating system is a reasonable example, or a government obtained privilege, such as the right to broadcast on a particular frequency.

Of course pure monopoly is an abstraction, but it is interesting to note that Wall Mart, the inspiration of many internet retailers got big by becoming somewhat of a monopoly supplier in rural America where it was able to have regional markets more or less to itself. On the other hand, it is the nature of the internet to in theory eliminate the "separate" markets of rural America, or the world to the extent there is free trade across borders. This should have been clear to Wall Street. After all, according to Creedy Bill Gates, someone who knows a thing or two about establishing monopoly power, in the second edition of his book, The Road Ahead, noted that the internet was a competition enabling device rather than a device to generate monopoly profit.

Cassidy is a financial writer, and approaches the dot.com era from that standpoint. You won't read long stories about the bacchanalian excesses of the 'digerati' here, but you will get a sound explanation of how this absurd self-deluding mania started, grew and ended. His analysis of the role of various Wall Street analysts in fuelling the hype is brilliant. I hope some of them go to jail!

Caveat: The book is characterized by some laughable typos and not a few mistakes on technology subjects. Don't publishers employ proofreaders anymore?

This book was bound to be controversial as it touched on a subject where many people made and lost massive amounts of money. I agree with a previous reviewer who said all of this has been written before. However, no where has someone provided a good historical of the total Dot.com bubble and this book does it perfectly.

Providing great insights into the stock market as well as management of the Treasury market by Greenspan, the author does a great job of providing an economic overview of the climate that helped create bubble, allowed it to flourish and eventually led to its demise.

This overall perspective now allows an interested reader to see how a bubble could happen. Everyone knew the stocks were overpriced but as long as they continued to go up, money managers could not refuse to hold the stocks as their yield comparsions would look so much worse than their competitors.

In summary, there is no new ground broken here. Just a valid analysis of a fascinating period in our history.

I read "Dot.con" after reading an excerpt of it in Michael Lewis' "Panic". I was excited to get a comprehensive account of the internet stock speculative bubble and relate it to the current subprime housing mess. While I can't speak for some of the technical points that other reviewers have pointed out to be erroneous, it was interesting to read this account nearly 7 years after it was published.

John Cassidy points out numerous times throughout the book that the speculation of these internet stocks was perpetuated by Wall Street. Virtually every internet IPO was based on potential earnings and income growth. Therefore, no one had any idea on how to value the stocks because there were no earnings or even a consistent revenue stream to for that matter. However, Wall Street just started creating new valuation models based on number of web-page hits and current revenue and extrapolated out into the future assuming that web traffic would continue to increase exponentially, while costs would decrease due to these websites not incurring the typical costs that traditional firms were saddled with. While web traffic has continued to increase and more and more people are connected to the Internet than ever before, the costs of acquiring these customers, through significant price reductions and huge marketing budgets never waivered, bankrupting mostly all of these websites.

In addition to haphazardly marketing the IPOs for these websites, each investment bank on Wall Street and Silicon Valley were using their analysts to justify these IPO valuations. The research divisions within the investment banks were traditionally independent of the sales and brokerage division. During this era, the supposed "Chinese Wall" was torn down. What resulted was an environment where independent analysts were hyping the stocks the investment banks were marketing to their clients and ultimately, individual investors.

While Cassidy does place a significant amount of blame on Wall Street, he also implies that Alan Greenspan could have done much more by raising interest rates while the speculative bubble was forming. This would have slowed capital into the equity markets and potentially prevented the bubble from popping.

Looking at the parallels between the internet stock crash and the housing market crash is pretty remarkable. In each instance, individual investors are the ones who are suffering. During each IPO, the investment banks would sale the first offerings of their stocks to their preferred customers, typically institutional investors (mutual funds, pension funds, etc,). Through the marketing machine that hyped these investment vehicles, individual investors were eager to get their hands on these shares as they wanted to benefit from the coming technological age. Therefore, individual investors were not able to access shares until after the institutional investors sold theirs. For example, if Pets.com issued 5 million shares at $5 a piece, the institutional investors might get them at $5 a share, but as demand in the markets increased, they would then sale them at say, $10. Inevitably, once the markets realized the company had no real earnings potential, the stock would plummet and it would end up below the initial IPO. During that chain, the investment bank raked in their huge fees for the IPO, their best clients realized huge gains by being able to buy these stocks before the rest of the public and then, by the time the public had access to these stocks, they were overpriced but since everyone else was doing it, the public continued to snatch up any shares.

Compared to the housing mess, we had Wall Street peddling Residential Mortgage Backed Security (RMBS) bonds as safe investments. The demand for these investment vehicles increased, creating a situation where banks were focused on generating loans. Basic underwriting principles were ignored and housing prices continued to increase. Eventually the good times ended and when owners get in over their heads and foreclosures started increasing resulting in the crash of the housing market.

In both instances, critics have charged that Wall Street and the Federal Reserve, still chaired by Alan Greenspan, could have prevented this. As a free-market economist, I believe that, unfortunately, things like this can never be prevented and as we enter an age where globalization has intertwined the economies of nearly every nation, these panics an crashes will tend to be the norm. It was very ironic to read Cassidy's epilogue where the implication is that this might never happen again and it only took five years for the next speculative crash.

This is an interesting look at the Dot.Com Nasdaq bubble ,which started in the early 1990's and collapsed in 2000- 2001.This is not surprising since every bubble in history has collapsed.
The author pinpoints three groups and/or individuals that he feels are specifically to blame for allowing this fiasco to occur.The first group is the financial journalists and analysts,such as Mary Meeker ,Blodgett,and Abby Joseph Cohen,who used their positions to hype the sale of Dot.com stocks that they knew were purely speculative in nature.The second is a group of one,Alan Greenspan.The author overlooks that Greenspan had no authority over the giant investment banks that were the source of the problem.They were supposed to be regulated by the Securities and Exchange Commission(SEC).Unfortunately,the SEC had been stuffed full of University of Chicago type economists, who did not believe that bubbles were possible ,based on their artificially constructed Efficient Market Hypothesis(EMH).
.Of course,Benoit Mandelbrot had already demonstrated repeatedly over the time period 1958-2008 that the EMH was false.The economists at the SEC simply refused to accept the ancient wisdom of Adam Smith-the goal of all financial regulation is to prevent speculation.Greenspan certainly is partly culpable,however.
The third group is the American public,which,as first pointed out by Michael Lewis,came to believe that the way to riches was not productive,hard work but speculating in stocks.
I have subtracted one half of a star because the author is apparently ignorant of the fact that Adam Smith devoted 80 pages in The Wealth of Nations(1776;Modern Library(Cannan)edition with the foreward by Max Lerner) to discussing the problem of banking and speculation.Smith was well aware of the severe problems resulting from the Mississippi and South Seas bubbles inthe 1719-1721 time period.Smith also knew that such bubbles could not inflate without the explicit support of the private banking industry.Smith's solution was the creation of a central bank that would prevent the private banking industry from making loans to three categories of borrower-projectors,prodigals,and imprudent risk takers.These three categories are the same as Keynes's two categories,speculators and rentiers ,in The General Theory(1936).Smith's policy is thus a preventive one-do not allow the savings deposits of savers to be loaned out to speculators.Smith's warning is very clear.Loans made to speculators will be wasted and destroyed.That is precisely what happened in the Dot.Com bubble and has happened in every bubble in history.
A final point to ponder was the author's belief that the Dot.Com bubble was an aberration that would not be repeated.Unfortunately,it was quickly followed by simultaneous bubbles in housing and the DOW.These bubbles have also collapsed,just as predicted over 230 years ago by Adam Smith.Unfortunately,Greenspan,Paulson,Bernanke,et. al.,never read Smith.

Dot.con is a book that reads like a long "New Yorker" article. I view this as a quality, given the subject matter. Despite the size of the ".com" bubble, its explanation is not as elusive as other speculative frenzies (e.g., 1929). The recent speculation is the outcome of "herd behavior" on a massive scale, favored by unique historical conditions, such as the development of a new technology, the liquidity excess in the american markets, and a favorable economic environment. There are plenty of quantitative models and historical studies of such behavior. Cassidy spells out this early (quoting in the process Charles Mackay's seminal treatise), and gets it out of the way. What makes the book interesting is the intricate relationship--and amplification of speculative behavior--among the actors of the bubble: investment banks, venture capitalists, the media, the Federal Bank, entrepreneurs, and finally the american public. Taken individually, the actions of each group may appear greedy, dishonest, stupid. Placed in the proper context however, the judgement is more nuanced. Cassidy shows how the skeptical VCs, financiers and journalists were repeatedly proven wrong in the early stages of the speculation and decreased in number, to the point of extinction. Nowhere is the pressure to imitate the crowds more evident than in Mary Meeker's case, the poster boy of Wall Street hype. Cassidy partially exculpates for her behavior, based on the environment in which she operated. But the examples in the book abound. Noone gets out scot-free, save one or two honest Wall Street stock strategists on the verge of retirement. Cassidy is relatively lenient toward the individual investor, the world of finance, and the entepreneurs: after all, these people had an incentive in feeding the bubble. The author uses his venom for the media and the fed. These are two actor whose role was to inform and vigilate, not to speculate; hence they were failing in their most important role. With all the qualifications of the case, Cassidy heavily criticizes Greenspan, and stigmatizes Wired, CNBC, and Time. His point is well taken, and I would recommend the book because it takes the time and effort to spell out the whys and hows.

A final remark: in my edition (2003, with a post-9/11 afterward) there were very few typos and glaring mistake. For example, Altair was named after a star mentioned in Star Trek, not Star Wars, as mentioned by a reviewer. The early history of the internet is sketchy, but appropriately succint, given that the topic has been eviscerated in thousands of articles and books. On the other side, the events between 1993 and 2001 are covered in detail.

The all-too-familiar story of dizzying internet stock proces is told in an entertaining and reasonably sound manner. Though the book fails to bring to light anything new, it does provide an excellent summary of the events that led to the technological development, and the financial aspect of the 90's stock frenzy. While reading this book, we should keep in mind that predicting the past is not exactly difficult thing to do.Barring from a few embarrasing typos, the book is well presented and definetly deserves to be read..provides some good reference materials also in case anyone is interested to check up where the author brings his quotes or figures. Generally, a pleasurable reading experience and may learn a new "anecdote" or two about the Internet boom and gloom.