A Decade of Delusions: From Speculative Contagion to the Great Recession

Chapter 3

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The first year of the popularly perceived new millennium began with an ironic twist. The much-ballyhooed and widely feared Y2K computer meltdown will be remembered (assuming the acronym so symbolic of the amorphous outreach of the tentacles of technology has not already been erased from your cranial hard drive) as the ultimate nonevent. Perhaps Y2K’s sole redeeming virtue was in once again giving witness to the nearly incomprehensible power of crowd psychology. On the other hand, the largely unexpected and thus not feared disintegration of the technology and Internet stocks was, by chilling contrast, the cataclysmic incident for which the year will not soon be forgotten. The common thread that ties these two incidents together? The willingness of people to submit themselves en masse so unquestioningly and with such groundless fear in the first instance and with such “irrational exuberance” in the second. The Internet and computer technology are related ideas from the same school of science: The Internet teems with overcapacity, as the economic efficacy of its many entrants is yet, if ever, to be proved, while most stocks pertaining to computer technology are outrageously overvalued, priced as if endless hypergrowth were assured.

Risk: No Longer an Afterthought

At its most rudimentary level, the featured financial story ...