----- Original Message ----- From: Felix Stalder <[EMAIL PROTECTED]> To: <[EMAIL PROTECTED]> Sent: Sunday, May 28, 2000 7:56 AM Subject: <nettime> Gamblers in the casino capitalism > [[From an email exchange between David Mandl, Dough Henwood, Ted Byfield, > David Hudson and myself in preparation of the Tulipomania conference > <http://www.balie.nl/tulipomania/>. Felix]] > > > The following is an excerpt from Herb Greenberg's column on TheStreet.com > yesterday. I've seen several letters like this on that site alone in the > past few days. Not to make light of this poor guy's suffering, but I was > wondering when we'd start seeing stories like this. I'm sure there are > many more. Sad. > > ----------------------------------------- > > Which brings us to some guy named Martin, who posted: "I'm writing with a > heavy heart and tears in my eyes. I have worked hard all of my life, > always trying to do the right thing for my family, friends and the world > in general. I have never taken advantage of another person in any way. I > have scrimped and saved over the years as I did not have the luxury of a > company pension or retirement plan. When I became aware of CYBR and the > EHC, I did voluminous amounts of research and only after I was totally > convinced, I started buying. I admit that I probably got caught up in all > of the good repartee being bantered about the boards and violated some of > my own basic rules of investing, but I really believed and in fact, still > do. > > "I have literally lost everything I have worked for my entire lifetime. A > woman whose husband bought into CYBR on my recommendation called me this > morning in tears as she thinks her husband is going to kill himself, as he > did what I have done. We are both 62 years old and cannot recover from > this. I called their son and told him to get over there. This is one of > the most decent human beings you could ever hope to know. His life is > ruined now. They are both sick and have less chance than I do of > recovering from this. ... > > "I did make a giant mistake by buying on margin. I have had to liquidate > shares several times for margin calls and thought that the nightmare was > finally over. Then this week happened. I am now so far in the hole that > even if I liquidate totally, I still owe! Now that's incredible and shows > the dangers of margin. I have until tomorrow and I don't know what to do, > other than hope for a miracle." > > > ------][------ > > >The following is an excerpt from Herb Greenberg's column on > >TheStreet.com yesterday. I've seen several letters like this on that > >site alone in the past few days. Not to make light of this poor guy's > >suffering, but I was wondering when we'd start seeing stories like > >this. I'm sure there are many more. Sad. > > It is sad, but you've got to wonder what people were thinking when they > bought these turkeys. Well one thing they were thinking is: 30% annual > returns! The Next Microsoft! Sure there were, are, and always will be a > lot of carnival barkers hawking crappy stocks, but the buyers are often > not wholly innocent, except maybe in retrospect. > > My friend Gregg Wirth, who used to cover stock scams for TheStreet.com, > interviewed lots of people who fell for pump & dump schemes. He asked them > why they bought the financial equivalent of vaporware. They repeatedly > said, "Because the broker said they were going to triple!" Sorry to be so > hard-hearted, but at least some people should know better. > > > ------][------ > > > Totally agree, Doug, and I think most people on this list are aware of my > "fuck 'em all" attitude to New Economy greedbags. I'd be lying if I said I > wasn't looking forward to this Big Correction. And I agree that lots of > people who were drooling over 300%-returns-at-any-cost will now try to > rewrite history and portray themselves as wittle innocents. > > But, I don't know, I think there are SOME number of people who were > basically trying to jump on the bandwagon and not be left behind, just > thinking that hunting for the Big Hot Stock is what you need to do to make > money nowadays (true, to a certain degree--a bank CD ain't gonna cut it > anymore). The problem is figuring out who they were. Not easy. > > I'll tell you one thing: I have zero tolerance for people who sue their > brokers, claiming that they hadn't been told about the risks. There've > been a bunch of these, and I bet there'll be many more now. I'm sure most > of these people are full of shit, and I have about as much sympathy for > them as I have for the people who sue lumber yards for not warning them > not to eat sawdust. > > ------][------ > > > >But, I don't know, I think there are SOME number of people who were > >basically trying to jump on the bandwagon and not be left behind, just > >thinking that hunting for the Big Hot Stock is what you need to do to > >make money nowadays (true, to a certain degree--a bank CD ain't gonna > >cut it anymore). > > Here's where I reveal my bleeding heart a bit and say, yes, I sympathize > with *some* of these people. My father, in the US, for example, is > convinced inflation will be back and that mere savings won't be able to > keep up. Being 'left behind' wouldn't be just, you know, embarrassing -- > some are genuinely worried about going under while the economy roars off > without them. > > More broadly, people are simply convinced -- in the same way that they're > convinced that the streets are more and more dangerous every year or that > there's no such thinng as a nuclear threat anymore -- that this is the new > way of the world, that investing is "smart" and what could be smarter than > investing in stocks that promise the greatest returns? > > Here in Germany, one out of five folks are playing the markets all of a > sudden. Risk has never been so attractive to the Germans. One week, Die > Woche is warning of the dangers of 'Gl�ckspiel B�rse' (the stock market > gamble) on its cover, but the next, Stern puts a "How to Play the Markets" > package on its cover. > > *Most* people are aware of the risks now that we've had our little > 'corrections,' but before this spring, serious-looking guys in suits with > serious-sounding degrees and titles were telling them that there were no > signs on the horizon that this wouldn't go on indefinitely. > > > ------][------ > > The question is, what will be the fallout of these sob-stories? > > While I'm not sure if suing your broker is it hitting the right target, > it's clear that there were significant interests in the hype, and that, > like in any pyramid scheme, the ones who came late and with limited > resources are the ones who get hurt the most. Keeping with the pyramid > scheme metaphor, who were to ones who got in big and early? They must have > known the bubble character of all of this, or are the markets really run > by 23 years olds who cannot remember what they had for lunch yesterday? > > > ------][------ > > > > 23 years olds who cannot remember what they had for lunch yesterday? > > as opposed to us 35-years-olds who can't remember what we had for lunch > yesterday? > > but more to the point, i disagree. that's not to say i'm sym- pathetic to > people who got burned: i'm no more sympathetic to them than they were to > others who didn't pile on the money- grubbing rollercoaster. you can look > at it as a matter of personal greed, but it was structural; that's why > things like rent are going through the roof, hurting everyone. > > but since i sympathize with the people who never lost because --very > likely--they didn't have the resources or knowhow to get involved, i might > as well sympathize with the suckers who got burned. besides, that way i > can save all my venom for the rats who won big by ripping off the unwashed > masses whichever way the markets went. > > these freshly minted losers may prove to be a political force not to be > trifled with. not because they understand what hap- pened, but because > they'll be legion--and pissed. > > > ------][------ > > > > Keeping with the pyramid > > scheme metaphor, who were to ones who got in big and early? They must have > > known the bubble character of all of this, or are the markets really run by > > 23 years olds who cannot remember what they had for lunch yesterday? > > It's always been very clear who the winners were (by design): > > - The investment banks underwriting the IPOs: They made billions no > matter what, both in underwriting fees and on the shares they > received (dirt cheap), which they almost always flipped right after > IPO day for massive profits. They were much too smart to play the > game at all. Their money was guaranteed. > > - The principals of the startups: The companies were always brought > public at artificially low prices (at the companies' expense, if > that matters to you), guaranteeing the principals huge gains > immediately. Many of them sold stock as soon as as they could or > used sophisticated hedging strategies to lock in their gains. Those > who didn't have lost their money too. (They're not as smart as the > bankers.) > > Other people might have made money here and there, but basically anyone > who bought in on one of these hot IPOs (TheStreet.com, TheGlobe.com, > iVillage.com, drkoop.com, etc., etc.) on IPO day lost it all. > > ------][------ > > > >It's always been very clear who the winners were (by design): > > > >- The investment banks underwriting the IPOs: They made billions no > > matter what, both in underwriting fees and on the shares they > > received (dirt cheap), which they almost always flipped right after > > IPO day for massive profits. They were much too smart to play the > > game at all. Their money was guaranteed. > > I'm an ignorant in these matters, but isn't there something like a > hold-period in which people who get preferred stock (or whatever the > technical terms is for those who can buy it before it goes public) cannot > sell it, exactly to prevent this kind of speculative behaviour? > > > > ------][------ > > > Ah, yes and no: Yes for the principals of the company, but no for the > brokerage firms. Think about it: When a company goes public, brokerage > firms are allocated a bunch of shares FOR THE EXPRESS PURPOSE OF SELLING > THEM. They're the ones who actually peddle the stock to the public. They > MAY also keep some for themselves if they think it's a good investment. > It'd be interesting to see what these firms thought these companies were > REALLY worth, based on how much of their own money they risked on the > stock. > > And getting back to the holding-period question: That's why fancy hedging > strategies were invented for principals to use. These people couldn't > legally sell the stock, but they could use option "collars" that locked in > the gains for when they did eventually sell. There was a very good paper > floating around the net last year with statistics on how popular these > strategies were (i.e., how little confidence the principals had!). I work > with equity derivatives quants who know the ins and outs of this stuff > pretty well. > > > ------][------ > ------][------ > > > > > > > > > > > > > > > # distributed via <nettime>: no commercial use without permission > # <nettime> is a moderated mailing list for net criticism, > # collaborative text filtering and cultural politics of the nets > # more info: [EMAIL PROTECTED] and "info nettime-l" in the msg body > # archive: http://www.nettime.org contact: [EMAIL PROTECTED] >
