December 9, 2005
Excerpts: The Battle For The Soul of Capitalism: Part VII
The Happy Conspiracy
The financial markets of the late 1990s seemed to accept the Wired thesis; if not in its entirety, surely in its spirit and its direction. From the start of 1997 to its high point in March 2000, the stock market doubled, valued at stratospheric multiples of earnings, dividends, and book values literally never seen before. The Great Bull Market fed on itself, a mania driven by the idea that we were in a New Era. Bolstered by that euphoria, our system of market capitalism—as all systems sometimes do—experienced a profound failure, with a whole variety of root causes, each interacting and reinforcing the other: the notion that our corporations were trees that could grow not only to the sky but beyond; the rise of the imperial chief executive officer; the legerdemain of financial engineering in corporate reporting; the failure of our gatekeepers—the auditors, regulators, legislators, investment managers, and boards of directors—who forgot to whom they owed their loyalty; the change in our financial institutions from being stock owners to being stock traders; the promotional hyperbole of Wall Street; the willingness of professional securities analysts to put aside their skepticism; the frenzied excitement of the media; and, of course, the eager members of the investing public, reveling in the easy wealth that seemed like a cornucopia. It was this happy conspiracy among virtually all interested parties that drove business standards down even as it drove stock prices up. The victory of investors, insiders, and investment operators during the Great Bull Market had a thousand fathers.
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