Review: Origins of the Crash – by Roger Lowenstein

Origins of the Crash: The Great Bubble and Its Undoing – By Roger Lowenstein

When the dotCom stock market bubble collapsed, it left behind a similar bubble of overvalued “legitimate” stocks. This is the bubble that Lowenstein writes about. I personally don’t see what happened as a crash a-la the crash of 1929. The bubble was pricked and has been leaking air ever since. True, there was a big gush of air that escaped the bubble when Enron and WorldCom imploded with accounting irregularities. The Wall Street wiz-kids try to pump air back into it, but because the leak is still there, it inflates a little and then sputters back out. There have been other business that had accounting regularities, but many of these were able to survive financially even if their stockholders didn’t. The current sub-prime lender fiasco is related to these “technically legal” but ethically reprehensible accounting practices. If I didn’t own a water bed, I just might be stuffing my investment cash into the mattress.

I think Roger Lowenstein does a commendable job discussing the things that caused the bubble to be created in the first place. He uses language that a lay person can understand. I had never really considered how paranoid the threat of a leveraged buyout could make a CEO, or how many CEOs would come to view their stock options as a god given right to profit, no matter what. If I were in the position of running a start-up company today and the chance for an IPO (joining a stock market) presented itself, I would decline in a heartbeat. Not only are the current laws still open to accounting fraud, but the current stock purchaser still has not learned the dotCom lesson and is constantly trading trying to find that deal that will make them rich. Every commercial ad for investment firms discuss cheap trading, and if they mention long term strategy, it is an afterthought or is day-trading dressed up for the party. The stock market is no more stable today than the day the Enron closed its doors.

If there is one complaint I have about this book is that it really only scratches the surface. There is no in-depth study, and only superficially points to other major greed mongers that for political and popularity reasons have gotten away with fleecing the stock buying public. I guess he might have been afraid of being sued if he aired more than those facts he had ample documentation for. The end notes are thirty pages long; more than 10% of the book’s text.


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