Chapter 13. Dot Coms and Cheap Money

“People still place too much confidence in the markets and have too strong a belief that paying attention to the gyrations in their investments will someday make them rich, and so they do not make conservative preparations for possible bad outcomes.”

Robert Shiller in Irrational Exuberance

The dot-com boom was the biggest stock market bubble in history—the culmination of decades of cheap money, moral hazard, irrational exuberance, and the herd-like behavior of the investment industry. The response to it prompted the rise of hedge funds and speculative excesses in credit and housing—preconditions for a broader super-bubble.

On November 13, 1998, a few weeks after the LTCM rescue, a start-up company called ...

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