The Internet Bubble (1998-1999)

The internet bubble that burst during the year of 1998-1999 was similar to the housing market affect we saw happen no more than four years ago. In the case of the housing market, you had large market firms offering different types of loans to individuals that really couldn’t afford them (Balloon rate loans, Adjustable rate loans just to name a few). The main objective of these larger companies (Freddie Mac, Fannie Mae included) were to gain a significant profit while the “getting was going good”. In other words, they wanted to cash in on the loans they were lending to people that they knew eventually they wouldn’t be able to afford the loan. Whether the customer could afford the loan or not, wasn’t the main concern of the few that were running this ridiculous scheme. Once they saw that overall situation was going to eventually fall back on the customers who trust them with the loans they were signing up for, the quickly slid out the back door and left the customers in a world of trouble. Regardless if their companies went down, a few of people at the top of the food chain actually got rich off of the downfall of the housing market. Again, this is similar to what happen to the internet bubble before it bust to pieces. There was some research that was done in 2003 that showed how there was a radical transformation in the profile of IPO investors (Entrepreneurs Exploiting the Internet Bubble 1998 to 2001: Do Insiders Abandon Ship at the First Sign of Trouble?). By the late 1990s, the peak of the internet altered the profile of the IPO investor. Individual investors latched on to this IPO market action. They couldn’t get enough of it due to the high revenues and profits that large companies didn’t have to work for. The IPO market action created a environment where companies floated successful IPOs with very marginal track records (Entrepreneurs Exploiting the Internet Bubble 1998 to 2001: Do Insiders Abandon Ship at the First Sign of Trouble?). One result in particular to this was the creation of large paper fortunes. A lot of investors, more than few with inside knowledge, actually cashed out with a great deal of wealth before the internet bubble actually burst. Researchers from Babson College conducted a research of thirty companies that went public during the years of 1998-2001. They broke the thirty companies down into three different groups; therefore, ten companies in each group. Their research showed that there was a direct relationship between the percentage of outstanding shares held by insiders at IPO and the annualized company return with respect to market capitalization (Entrepreneurs Exploiting the Internet Bubble 1998 to 2001: Do Insiders Abandon Ship at the First Sign of Trouble?). Their research also found that float falls as the annualized return goes up (Entrepreneurs Exploiting the Internet Bubble 1998 to 2001: Do Insiders Abandon Ship at the First Sign of Trouble?). The research showed that there was a positive relationship between company success and insider holdings. It doesn’t matter whether it is in the technology world or people to people interaction. There is always a moral line that has a high possibility of being breached at any given moment. Investors and companies have their own objectives sometimes. It seems that they never sit back to think about the damage that they can cause a person or a family of their thought of getting rich by any means necessary.