The+Dot+Com+Bubble+Group+2

Andrew Ng and Mitchell Nachman Dot-Com Bubble – 1990s

1.The bubble began in 1995 and ended in 2000. The climax was on March 10, 2000.

2.The rising cause of the bubble is the steady commercial growth of the Internet with the advent of World Wide Web. Capitalists saw that “dot-com” companies were experiencing dramatic rises in their stock prices. These companies would allow the market to decide which company would succeed. The companies sold their ideas to investors as there were low interest rates in 1998-99 which increased initial start-up capital amounts. They had the idea to “get big fast” by charging profitable rates for their services by enough brand awareness after giving free services first. This caused many people to invest in the internet stocks since the stocks were soaring to higher heights.

The reason the bubble burst was because the US Federal Reserve in the early 2000 and in 1999 have been increasing the interest rates six times causing issues in the market which slowed the economy. Economists determined that the bubble burst numerically on Friday, March 10, 2000, when the NASDAQ portion of the stock market peaked at 5,048.62 which is twice the amount the previous year. On that day, NASDAQ lost more than 10 percent from that peak.

Note: The bubble was referred to as “dot-com” because that was what the group of new Internet-based companies were called during that period.

3. Life during the Dot-Com bubble began to spiral downhill when over 1999 and early 2000, the US Federal Reserve increased interest rates by six fold. Of course, as we learned in class, when interest rates are jacked up, companies no longer invest as much, which decreases aggregate GDP. As Sean Parker said right after the Dot-Com bubble burst on March 20, 2000, “During the next 12 months, scores of highflying Internet upstarts will have used up all their cash. If they can't scare up any more, they may be in for a savage shakeout. An exclusive survey of the likely losers." The burst causes debt in many households and thus a lower living standard, which upset millions of American citizens.

4. After the Dot-Com bubble bursting, companies like AOL, America Online, a favorite of dot-com investors of dial-up Internet access, started merging with other companies related with media. AOL in this case merged with Time Warrior, the world’s largest media company. In addition, communication companies were forced to file for bankruptcy. Along with these companies losing profit, an example like WorldCom exaggerated its profits in the stock markets which added more to the disruption in the economy. Eventually many dot-coms ran out of capital and they blame other companies and executive of fraud. The stock market crashed in 2000-2002 which lost 5 trillion dollars i market value. 9/11 also accelerated the stock market crash. However, some like Amazon.com and eBay survived as Google started dominating the internet industry.

5. In financial markets, a stock market bubble is a self-perpetuating rise or boom in the share prices of stocks of a particular industry. So, knowing this, credit obviously played a vital role in the burst of the Dot-Com bubble. The Dot-Com model was flawed because a variety of different businesses all had the same motive or mindset: to monopolize their respective sectors through network effects. Credit is involved because after the crash, people were desperate and came to the choice that they would keep spending the way they did before. It was almost a sense of denial because people did not want to change their life style’s. Resulting from this, people maxed out their credit which led the US economy into an even worse state.

6. The government did not do much about the bubble as it was building up, leaving it to the businesses to decide. But afterwards, the government would give tax cuts especially tax exemptions for technology firms. By lowering income taxes, the businesses would be stimulated and encouraged for development.

7. In my opinion, this bubble was different from all of the others because it was one that was caused by a new innovation in society. The Internet was a new and upcoming thing, a new fad. Members of society were vulnerable because they did not know the true power of the Internet and its limits. Businesses tried to take advantage of the new Internet, but when all of these businesses tried to monopolized it actually contracted the economy until it burst into what we now know as the Dot-Com bubble.

8. Retail investors who lost a lot started to place their investment portfolios in more cautious way.The stock market was therefore regulated more to ensure companies’ profits were correct and companies wouldn’t drastically lose income. The laid off workers such as computer programmers started to go back to school to become accountants or lawyer or other employments as the demand for programmers decreased.