The Banks Bend the Rules
To facilitate the bubble, the investment banks changed their rules, just as the venture firms had done. Because so many dot-coms had no profits, the banks shifted their valuation rules to formulas based on sales, not profits. And since there were no profits, the old Wall Street rule of thumb that said don't take a company public until it had at least three quarters of profits was junked.
The result was that companies were going public so early that Wall Streeters had a hard time differentiating winners and losers.[55]
The abandonment of the old rules caused arguments inside the banks: Should this be happening? Is this how we should be valuing companies? There was nothing to back the valuations, but still the retail investor ...
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