Welcome to European Tribune. It's gone a bit quiet around here these days, but it's still going.
I believe two primary forces were at play that finally broke the internet bubble; equity supply and taxes.

He's leaving out a big input on each of these.  First, a big reason the equity supply dried up was that the players saw that, with the coming of Y2K and the end of work on that project (which frankly was about the only value-producing IT work going on in 1998 and 1999, New Economy shit shoveling notwithstanding), the merry-go-round was about to stop, and it was time to bug out and leave someone else holding the bag.  It was so obvious what had been happening that one of the tech mags in Seattle had a cartoon with a room full of suits listening to a sales pitch from a scruffy kid in a t-shirt who says, "I'm gonna create a website about my cat," and they all start throwing bags of money at him.

That leads us to the tax side.  While there were still a lot of marks out there who still believed the BS and were desperate to buy in because the markets could only go up, there was a critical mass of buyers looking at their 1999 tax liability.  They were looking at a big tax hit, figured there would be a market correction in 2000, and figured if they bought immediately and rode the correction, they could get some decent set-offs.  When the market corrected and stabilized in February, they looked like geniuses.  Then came March, and April, and the bloodbath that was the rest of the year.

Fast forward to 2008.  This was in fact a long con.  By Thanksgiving 2006 (I started spotting the cracks in the wall in December 2005, but whatever.), the players knew they needed to be looking for an exit as the regulators were forced to wake up because the amount of money betting against the market was becoming obvious.  They threw a bunch of internal patsies under the bus to give the regulators someone to chew on and then went looking for marks to either buy their crap positions outright or counterparty a hedge position.  They found a lot of small and medium schmucks and one very big one that apparently had not gotten the memo, AIG.  They spent 2007 covering themselves at the expense of their marks, and then in 2008, it hit the fan.  And believe it or not, there was a tax side then as well, just a different one.  All those mortgages were held in REIT tax shelters, and there was a question what effect foreclosing would have on taxes.  That was the real reason for the foreclosure moratorium.  They need not have worried.  In 2012 Obama's IRS said, "Ah, never mind," and off we charged toward the next bubble.

by rifek on Mon Mar 29th, 2021 at 10:32:16 PM EST
I actually saw the LA Real Estate bust coming even before 2005, but, having sat out the '80s bull market, by then I was aware of the problem of timing. The market could stay irrational a very long time. But the job market came to my rescue. It dried up. I was an independent consultant working for architects and engineers mostly on Los Angeles Unified School technology upgrades and in July I was informed that there was no new work available until AFTER Jan 1. My house had tripled in value so the decision to retire early and move to a lower priced real estate market was easy. We were sold and gone by New Year's Eve.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Tue Mar 30th, 2021 at 02:49:17 PM EST
[ Parent ]


Occasional Series