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Housing Bubble Fallout: Echoes Of Web 1.0

September 21st, 2008

This financial mess, created by years of low interest rates, is becoming increasingly surreal.

Echoes Of Web 1.0

First, I’m seeing a few articles making the worthy point that the problems today are loosely related to the .com bubble of the late nineties. The collapse in the financial markets then, led Greenspan to drop interest rates low, which led speculation to move from tech stocks to housing. Essentially, Americans’ unhealthy appetite for risk wasn’t quashed after the NASDAQ bit it. It just moved to housing. To be more cynical, many consumers, living on home equity loans and borrowing against their homes, have propped up the economy since 2001 until now.

All of that is over. The pendulum is swinging back toward risk-aversion, time-tested and proven business models, hard work, and thrift. It’s simply happening because credit will be harder to come by, and leveraging risk has proven to be a terrible addiction.

I’m very curious what effect this will have on the Silicon Valley culture. The first issue to deal with will be the credit squeeze, through companies “deleveraging” to forgo debt for actual cash (imagine that). Then it will be tightening of purse strings by the average consumer. It’s good that some are thinking about this, because the usual bubble mentality of the Valley has got to stop. To think tech is immune is just ridiculous at this point.

But as in any downturn, some companies will survive and prosper (Google rose out of the ashes, after all). The survivors will be those that have already demonstrated profitability – established a revenue stream, wisely piled up a huge stash of cash, and eschewed risky VC funding. Several large tech companies have cas stockpiles of billions. Also a huge strength is the low cost to get a company going these days. The thrifty ones that have stayed by doing more with less will be rewarded.

Brief Diversion Into Politics

Yes, I’m breaking a self-imposed rule to avoid discussing politics. The second item I think is worth noting, is a closer look at the Bush administration’s $800 billion bailout proposal. It grants unprecedented powers to the Treasury Secretary.

The Secretary is authorized to purchase, and to make and fund commitments to purchase, on such terms and conditions as determined by the Secretary, mortgage-related assets from any financial institution having its headquarters in the United States.

And:

Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.

Take a step back, away from your personal interest in the financial markets, and just consider what this really means. An individual appointed by the President has unchecked powers to buy “mortgage related assets.” That’s rather broadly defined. And no-one can question what they’re doing?

I’ve always felt this country’s strength was in its checks and balances. If you thought the Bush administration unwisely leveraged 9/11 to expand the powers of the executive branch – well, here we go again.

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  • How about some protection for the taxpayers?

    1) Treasury gets extremely dilutive warrants from any bank that touches this facility. This is what happened at AIG: the taxpayers may lose a lot of money, but at least Wall Street's profit from the scheme is minimized and the taxpayers get something back in a best-case scenario.

    2) Executive compensation is capped at any bank that touches this facility. Nobody makes more than 10x or 20x the median employee, and no more stock options. Maybe even a clawback for ill-gotten gains during the bubble. Executives don't go along? Push them out.

    3) A huge new program for the Justice Department to prosecute mortgage fraud and securities fraud for everyone that caused this problem, from Angelo Mozilo and investment bankers all the way down to speculators who committed fraud on their loan applications.
  • Hey Jase - I hear your concerns, I for myself don't know quite what to make of all of this, personally I think we're all SOL, and should just do what we can do at a minimal to our families and loved ones, even itf it means painful paper losses in our portfolios and investment plans. However I thought it was worth considering some debate on the issue - from CNN's Wolf Blitzer's interview with Rep. Ron Paul. . . he didn't win the primary, but maybe he was on point with some of the issues that pertain to Americans, especially in today's world.
    http://www.youtube.com/watch?v=WbSRJRxV_WU
  • I think web 1.0 is ending soon...... web2.0 is boom now so happy to welcome web 2.0.

    thanks
  • There are so many upgradations that are coming up making this web1.0 a little outdated. But still it had its own advantages.
  • would you chew a"B-U-B-B-L-E GUM" before titled this article as" housing-bubble-fallout-echoes-of-web-10",you are smash us all with one shot wow! what a pro this was?
  • Web Has served the users a lot and its time for us to bid farewell to Web1 paving way for the others to come up and serve us better. Each change in technology will bring about a cjange in the services we are using.
  • Well, there won't be a Web 2.0 or a Web 3.0 without a Web 1.0. We still owe it to Web 1.0. Nothing is permanent in this world. The only constant thing is this world is change so expect a lot of improvements and upgrades on a lot of things in the net.
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