My first bubble must have been the real estate bubble that developed during the Carter Presidency. Housing prices in my Northern California region were popping up 2% a month. Everyone and their uncle suddenly wanted to buy a “fixer upper” and cash in.
That bubble burst sometime late in 1979, if I recall properly, which I should since I owned a real estate company at the time. I knew the end was near for that bubble when suddenly the investors showing up in my office weren't grizzled old pros, but average Joes. “Hi, my neighbor and I scrapped together five grand and we want to invest it in a fixer upper,” they'd tell me.
I took that as a sure sign that the jig was up. I sold my office and went looking for another line of work. That turned out being the newspaper business, which is a story for another day.
After that I avoided bubbles until 1996, when I suddenly found myself in wallet deep in a San Francisco Internet startup, Quokka Sports. Eeeeeeeeeeeeeeeeeha! What ride that was. We burnt through $164 million in venture capital money in less than 40 months. And when the dust settled in 2001 all that was left were 438 over-priced Herman Miller desk chairs, a ping pong table and a couple of tons of empty Cheeto bags.
Of course, we were just one of hundreds of dot com companies that flared like new-born stars, burnt brightly for a short time, then went super nova, leaving nothing behind but a big ass echo and lot of dust. (The dust would be all that dot.com stock ordinary folks bought like lemmings at the top of the curve.... as they always do – just like those two neighbors I mentioned above who were gonna get rich buying fixer uppers..)
That's the way of bubbles. They are fueled by hope, greed and -- most of all -- other people's money. And the money is easy to get. Hell the bubblemisters don't even have go get the stuff. Other people bring it to them by the truckload and beg them to take the stuff.
When the bubble bursts the bubblemisters shrug and mumble things like, “Oh well, nothing ventured, nothing gained,” and “Hey, don't blame me, you're the one who begged us to let you in on the action.” (My favorite rationalization during the dot.com bubble came when a reporter asked a venture capitalist why they continue funding CEOs who ran failed dot.com companies. “Because you can't encourage risk-taking by punishing failure,” he replied. Easy for him to say, since he was investing what? – Other people's money.)
But the real problem with most bubbles is not that people lose money. The real problem with bubbles is that the amount of money lavished on bubble-stuff rarely creates anything near the amount of useful tangibles that could have invented/produced with the commensurate amount of money.
Nobel Prize winning economist and columnist, Paul Krugman wrote yesterday;
“...once the economy has perked up a bit, there will be a lot of pressure on the new administration to pull back, to throw away the economy’s crutches....The point is that it may take a lot longer than many people think before the U.S. economy is ready to live without bubbles..”Now, while I agree with that in principle, I am rooting for three more bubbles;
* An infrastructure building boom bubble
* A universal healthcare bubble
* A green technologies bubble.
Because that's the only way we're going to deal with the challenges that face us.
Thanks to Global Warming deniers in both government and industry, we are at least 25-years behind the curve on addressing human contributions to global climate change. And there's simply no way normal market forces are going to spend what it will take to catch up. In fact many industries, like coal and oil, have taken a page right out of the old Big Tobacco playbook, pumping out junk science and junkier scientists to counter such efforts.
The only way to catch up is to ignite the same animal passion that fuels every bubble – greed. “Make some green by investing green,” needs to become one of America's investment mantras. “A healthy American is a consuming American” is another good one.
There are some early signs that just that kind of thing may be beginning to happen. With Democrats back in power, and the billions of fresh dollars rolling off the presses in DC, investors smell new opportunities in new places – the kind of places Democrats and the incoming Obama administration say they favor – healthcare, infrastructure and all things green.
Need capital? Green start-ups may fare best in tough '09
December 17, 2008 --Start-up companies in green industries stand the best chance of getting venture capital funding in 2009 -- in what will otherwise be a dismal year for entrepreneurs looking for money, a new venture industry survey suggests.
"We will likely see a marked slowdown of new investments as venture capitalists turn their attention to supporting existing companies," said Mark Heesen, NVCA president. Despite the overall slowdown expected in venture funding, 48% of venture capitalists predicted increased investment in clean technology businesses, ranking that sector at the top of list of industries likely to get more funding. The life sciences industry, including biotech, ranked second.” (Full)
The pressure on the incoming Obama administration to change the direction of the Bush bailouts will be overwhelming. Ordinary Americans have no sympathy for Wall Street companies and bankers who took it up the assets when the housing market collapsed. Nor do Americans have much of appetite for saving the Big Three auto companies, which wasted the last decade rock stupid products like Hummers and other four-wheeled dinosaurs.