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Sunday, Nov 8, 2009
"Dot.con: The Greatest Story Ever Sold" is the first good book about one of capitalism's most embarrassing debacles.
Jan 9, 2002 | The latest crop of diarists of that great and distant epoch, the Digital Age, have yet to score a hit, and frankly, this has come as a relief. We're at war, after all, and "Whatever happened to those Baby Moguls?" has been a less-than-pressing concern. Recently, however, feeling guilty of too short an attention span, I took a couple of memoirs -- J. David Kuo's "dot.bomb" and Stephan Paternot's "A Very Public Offering" -- out for a spin. And while I don't recommend you do the same, I was surprised to find the books left me hungry for more on the subject. They raise anew questions that, even now, have to count among the most important of our time, and might help us comprehend how fanciful -- and hateful -- notions catch on.
Such as? Such as how, exactly, America's best and brightest came to prize disastrous start-ups over entire, established industries? More to the point: Were stratospheric dot-coms like Paternot's TheGlobe.com accidental beneficiaries of a mass delusion, or, as Tom Frank argues in "One Market Under God," cynical, high-tech scams? (And you have to admit, the Internet boom as heist movie holds a certain appeal. "Ocean's 11" set not in Vegas, but on Sand Hill Road. George Clooney in the Jim Clark role? Brad Pitt as John Doerr? Matt Damon as Marc Andreessen? Julia Roberts as Mary Meeker? At the very least, it would give the guileless Paternots of the world a dash of retroactive panache).
To get at the answers, we can now thankfully turn to John Cassidy's "Dot.Con: The Greatest Story Ever Sold" -- serialized this week in The New Yorker. In contrast to Kuo's dull insider, or Michael Wolff's wise-ass insider (his 1998 book "Burn Rate" is still the one to beat in the "what I saw of the Internet revolution" category), Cassidy did not live the Web dream, nor assume a fake job, but had season tickets to the show as a financial reporter. If newspapers are the first draft of history, and film documentaries like "Startup.com" comprise a second, Cassidy has given us a polished third draft, a popular history of the digital bubble, as the dust jacket says, "in the tradition of John Kenneth Galbraith's 'The Great Crash.'"
Though the title recalls the author's stint as deputy editor of the New York Post, those unfamiliar with Cassidy's work at the New Yorker, where he is a staff writer, should be aware that he was formerly at the Economist. His strengths are what I consider the best of that magazine. He's a great synthesizer of facts and figures, a facile stylist and a droll humorist.
Right in those moments when Tom Wolfe could be counted on to have a punctuation seizure, Cassidy opts instead for stinging understatement. Critical of Amazon.com's founder, Jeff Bezos, for suggesting his firm had stopped bleeding cash in February 2000, Cassidy notes, "For all Bezos' protestations to the contrary, the numbers showed that his company was still subject to what might be called Amazon's Law: the more money it took in, the more money it lost."
Of Bezos' fame, he notes, "Newspaper and magazine editors were desperate to put a human face on the Internet story, and writing about Bezos was an obvious way to do it. With baby features and an infectious cackle, he could all too easily be portrayed as the goofy boy next door. Most of them focused on his discovery of the World Wide Web, his fateful drive cross-country, and the origins of Amazon.com in a Bellevue garage. Few mentioned that he was ordered to research Internet e-commerce, that he flew from New York to Texas, and that he rented a house with a garage precisely so he could later say that Amazon.com started out in one."
Despite the title, Cassidy does not argue that the flowering and wilting of dot-coms represents a vast conspiracy -- right-wing or otherwise -- but more a confluence of several vectors that went unchecked by those who knew better. These include the Internet's becoming mainstream (and being widely used to trade stocks); an ever-widening inner circle of business executives who believed their own bullshit; a pop culture obsessed with young "rebels"; a libertarian-savant central banker; and, most of all, "a massive restructuring of American capitalism" brought on by that humble innovation, the mutual fund.
You may beg to differ with Cassidy's assertion that "the stock market's sustained ascent was the central and dominant fact of American history in the 1980s and 1990s" -- what about Michael? Madonna? Britney? -- but it's hard to argue with this: "In 1983, the wealthiest one percent of American households owned 90 percent of all stocks. The vast majority of households -- about three out of four -- owned no stocks at all. Most of these families, if they had any surplus income, kept it in the bank. Fifteen years later in 1998 ... almost half of all American households owned stocks, either through individual shareholdings or through mutual funds."
Cassidy is persuasive that 401Ks and IRAs had as much a role in setting the stage for the digital bubble as the Netscape browser. During 1996-97 alone, Americans poured $170 billion into stock funds. "It's no accident that the bull market and the development of the mutual fund industry coincided," he writes. "Rising stock prices drew more money into mutual funds, and mutual funds poured money into the stock market." Of course, this seemingly virtuous cycle can work in reverse -- and later did.
