Tuesday, September 23, 2008
Wall Street's mess: Tech bubble 2.0?
Easy money. Easy credit. Greed. No real financial stability. Unreal expectations. Is that a description of the current Wall Street crisis or the tech bubble boom and subsequent bust of the late 1990s?
The two are not identical, but the parallels between them are undeniable and some economists are arguing that the tech bubble brought us to our current financial disarray.
While the stock market bubble of the 1990s went beyond tech, we never really cured the underlying problem. Instead, the tech boom before the bust gave financial institutions a taste of steep gains, leading them to mortgage-backed securities as they looked to duplicate such highs. The housing market caught the illness, handing out lofty mortgages and credit to many who find themselves in foreclosure because they aren't capable of making payments.
And now, near 10 years later, here we are again with a struggling economy. The one big difference between Wall Street's current crisis and the tech bubble being that Uncle Sam didn't come along to bail this industry out of its stupidity. Wall Street never fully recovered from the tech burst and it seems to have learned little if anything from its mistakes. Is a $700 billion bailout a Band-Aid fix that allows the possibility of another similar crisis a few years down the line?
Without handing out financial advice, this blog last week encouraged readers to "try not to panic" and asked for opinions on Wall Street's impact on tech, which lead to a comments field discussion on outsourcing and the transfer of wealth.
This blog is continuing to encourage readers not to panic. But do brace yourselves. Wall Street hasn't hit bottom yet and a buyout may keep it from fully doing so. When we do truly hit bottom, though, it's going to hurt.
What are your thoughts on the Wall Street mess and the tech bubble burst? Are they intertwined? Is history repeating itself? And is the massive government buyout a help or hindrance? Share your thoughts below.
--Suzanne Deffree, Managing Editor, News
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