- The Washington Times - Sunday, November 26, 2000

Oh, my goodness. The Florida Supremes have just granted Team Gore another five days for indented chad-stealing. And now David Boies, Al Gore's litigator-in-chief, comes on television center stage to conduct a celebratory press conference.

That's right, it's the same David Boies. The evil genius who broke Microsoft last winter. The one who persuaded Judge Thomas Penfield Jackson to rule in favor of splitting up the software-maker whose high-quality standardized computer application systems provided the backbone of the roaring information economy prosperity of the 1990s.

Mr. Boies' deft soft-shoe dance routine in the courtroom was a perfect complement to the backstage spider web of political strategies woven together by that other Justice Department evil genius Joel Klein. When the Jackson court ruled in favor of the so-called "structural" breakup of Microsoft, the Washington state company's share price snapped in two, crashing to $60 from its prior peak of nearly $120.

Shortly thereafter the rest of the Nasdaq technology index also snapped, to around 3,500 from 5,000, as the prosperity-killing and wealth-destroying implications of the federal government's antitrust-busting regulatory overreach fully dawned on 100 million or so Investor Class members.

Right at that judicially backed overregulatory moment late last winter there was a near-immediate shutdown of the risk-taking animal spirits of capital formation that had carried the Nasdaq stock market and the new economy's super-rapid growth to unprecedented heights. Since then risk-taking has been replaced by risk aversion. Bold capital has been replaced by cautious capital.

Now that Mr. Boies is back, this time as an election recount lawyer for Mr. Gore, the Nasdaq has resumed its decline. Since the Nov. 7 election, the high-tech index has fallen nearly 20 percent, or roughly 640 points. That's about 60 points a day.

A quick and dirty calculation shows that about $800 billion of Nasdaq wealth has been destroyed since the Gore-ites refused to allow George W. Bush's Election Night victory to stand. That was three vote counts ago. Because of Mr. Boies, more vote counts are coming.

This $800 billion wealth loss follows on the nearly $1.3 trillion of wealth destruction earlier in the year from the combined effects of the Klein-Boies-Jackson assault on Microsoft and U.S. technology innovation. Discarding the consumer and economic benefits from the increased production of high-quality software sold at lower prices, this gang of three imposed its litigious will on the tens of millions of investors who placed their retirement wealth ownership vote of confidence in the market.

Now that Mr. Boies is back on center stage in the midst of an unnerving postelection voter recount saga, it is no wonder that risk capital is once again fleeing the market. Mr. Boies has already established himself as a big government liberal regulator. Now, through his association with Mr. Gore's business-bashing and energy-overregulating presidential campaign, the fear factor for technology investors has increased significantly.

Will Mr. Boies be the next attorney general? Or head of the Federal Trade Commission? The Federal Communications Commission? The Anti-trust Division of the Justice Department? How about treasury secretary? Will there be Joel Kleins littered throughout the executive branch of an Al Gore government?

Politicians and media pundits may not understand it, but investors think about these things. With David Boies celebrating the Florida Supremes' pro-Gore judicial decision at 11:30 p.m., it is no wonder the Nasdaq dropped another 100 points the next morning.

Numerous Wall Street gurus will tell us stock prices are falling because earnings are weak. Trouble is, earnings aren't so weak. Third-quarter profits on a trailing 12-month basis increased 50 percent for the computer and software component of the S&P; 500. Semi-conductor earnings rose 130 percent. Computer networking jumped 61 percent, hardware by 35 percent, peripherals by 52 percent.

True enough, an overly tight Fed policy is slowing the outlook for future economic growth and corporate profits. But there's no new news in this. We've known it since last winter, when the Fed made its major tightening moves.

No, there's something else going on here besides the Fed, or even energy prices, or the euro. What's at stake is the willingness of investors to take risks in order to finance new technology innovation or refinance expansion of existing innovators.

Right now risk capital investors are boycotting the market. They don't like what they see. They never liked Mr. Gore, and the reappearance of Mr. Boies is a reminder of the threat of regulatory overkill in a potential Gore administration.

These politicians are not stupid people; they are smart people doing stupid things. The long technology-based prosperity wave of the past two decades has been funded by risk capital. Innovation requires risk capital. But overzealous regulation will block the supply of risk capital just as surely as a big tax increase or a major inflation spike. This is the message of the slumping Nasdaq market: Why take a risk when politicians threaten to confiscate the reward?



Lawrence Kudlow is chief U.S. investment strategist and chief U.S. economist at ING Barings LLC.

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