Not a new tale, but one well told

Subtitled 'the real story of why the internet bubble burst,' this account of the dot.com era was first published in 2001 but released in an affordable paperback format more recently.

Dot.Con by John Cassidy (Penguin, $26.99)

Subtitled "the real story of why the internet bubble burst," this account of the dot.com era was first published in 2001 but released in an affordable paperback format more recently.

The subject is hardly original: that the US and to a lesser extent Europe and Japan were gripped by madness, or as Federal Reserve governor Alan Greenspan put it, "irrational exuberance," from 1995 until April 2000 is no revelation.

Nor is the fact that internet entrepreneurs, investment banking firms and mom and dad investors all jumped on the bandwagon, buoyed by optimism following the end of the cold war and Gulf War.

However, while Dot.Con retells a tale already told, this account's fullness (350 pages) and detail make it compulsive reading.

John Cassidy, who has written for the Sunday Times and New Yorker, sets the scene as the US emerged from recession in the mid-90s and details the first dot.com, Netscape and the dozens that followed, all the while backgrounding the mania in light of the Federal Reserve's reluctance to raise interest rates to cool the craze.

Particular emphasis is put on US investment banks' lack of barriers between broking and investment banking divisions. Dot.coms that were turning over millions but still losing money were touted to investors because surely, with all those sales, profits would come eventually.

Despite reservations from some staffers, by the late '90s investmant banks were finding the profits from iternet IPOs irresistable and any reservations some banks had were swept aside as their rivals cashed in.

According to Cassidy, voices of caution, such as one older investment banker who pointed out the internet was hardly as revolutionary an invention as, say, air conditioning, were ignored or sidelined.

Cassidy is a journalist and doesn't let his own profession off the hook for its part in hyping dot.coms, with TV shows and publications that uncritically played a role coming under scrutiny.

As the '90s came to a close, the valuations climbed higher and higher and if anything represented the crescendo of the craze, 3Com's spinoff of its Palm mobile computing subsidiary did. Its trading high on the first day after the float was almost $US60, giving it a value double that of its parent company.

That and other crazy statistics make you shake your head and wonder, but Cassidy puts it in the context of the Dutch Tulip mania and Wall Street in the 1920s etc.

The book concludes with a word on September 11 2001 and how it exacerbated an already plunging economy and there is 16-page index at the end, detailing the hundreds of internet stocks floated in that era. Not many are still around today; exceptions including eBay and Amazon.com.

The former, in particular, is one stock Cassidy praises as suited to the internet model, having no inventory or stock to cope with.

The vast majority, however, are hammered by the author as are the investment banks, analysts and others who hyped companies like WebVan and Pets.Com.

As stated previously, Dot.Con will win no prizes for the originality of its subject but the story it tells is one that can't be told often enough if it isn't to be repeated.

  • Postscript: Frank Quattrone, one of the central figures of Dot.Con, was last month suspended from trading for a year and fined $US30,000 by the National Association of Securities Dealers for refusing to co-operate with an investigation into his activities during the dot.com era.He faces trial on more serious charges in March. His former employer, Credit Suisse First Boston, paid $US100 million in 2002 following a Securities and Exchange Commission investigation into abuses in its distribution of IPO stocks.

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