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WILLIAMS: The slow collapse of America’s economic might

- The Washington Times - Sunday, January 8, 2012

ANALYSIS/OPINION:

One of the foundations of the American Dream has always been the hope of someday purchasing one's own home. In the past, however, it took nearly a lifetime of sacrifice before most people could afford to do so.

The aftermath of the collapse of the 1990s tech bubble was a troubling time in America. After a prolonged, losing battle to win back manufacturing jobs from overseas, America's corporate and government leaders were looking for a way out. Technology seemed to fit the bill. Beginning in the mid-1990s, the U.S. economy banked on the Internet, telecommunications and biotechnology. Virtually any startup company with ".com" in its name attracted obscene amounts of venture capital and institutional investments. All sound business decisions were thrown out the door, and the capital market's cognitive dissonance made everyone think that sending the stock market through the stratosphere was indeed "good business."

The world media were more than happy to make these people and their businesses appear untouchable and mythical. At one point in the late 1990s, companies with no revenue, no products, no service capacity - just a few high school kids with an idea - were able to have an initial public offering, or IPO, and become overnight multimillionaires. It was the information superhighway to the riches. Stock options replaced paychecks, and anyone with an idea was starting a company. In appearance and with the mainstream-media public relations machine in overdrive, it certainly looked as if America had found the solution to its long-term growth challenges.

But in the fall of 2000, the bubble began to leak serious air. In 2001, a plethora of unexpected and devastating events changed the economic dynamics of America and the rest of the world. Sept. 11, Enron, WorldCom and other corporate scandals increased these slow leaks and eventually turned them into gushing holes of air. As the bubble collapsed, trillions of dollars of market capitalization were erased from the U.S. economy and the net worth of its citizens. We can, with little effort, pinpoint a few events that triggered our fate, but Sept. 11, Enron and WorldCom are among dozens of disasters that compounded the crisis we still face.

The federal government reacted by enacting a draconian set of regulations - most notably the Sarbanes-Oxley reforms - designed to reduce the conflicts of interest that had beset corporate leadership. The once promising bubble of unlimited wealth, promised by the pursuit of the technology era, deflated. Our nation was so shocked by the sudden turn of fortunes that it seriously sputtered into a state of uncertainty.

Everyone began to look for a financial safe haven. No one truly understood what any of those technology firms produced anyway, and the equity markets looked like perilous places to speculate. People had come back down to earth and were looking for a traditional method to accumulate wealth. They wanted something tangible, something that was understandable and most familiar to them. They wanted something that was simply understood and easily remedied if we miscalculated.

Real estate seemed perfect and became the new bankable industry that would turn around the drastic miscalculations and once again set this country on firm financial ground. It was among the most tangible of all assets and historically one of the safest investments. Or so it seemed.

The first decade of the millennium bore witness to a viral explosion in real estate investment, fueled by a seemingly perfect and lucrative storm of events: low mortgage rates and an abandonment of the equity markets. The nation created a market overnight to continue the necessary growth in the U.S. and all with one key component: home mortgage debt.

In the blink of an eye, the American consumers, companies and investment markets shifted from an investment practice and equity-oriented philosophy that had characterized the dot-com era to a debt-fueled runaway train with no end in sight.

Armstrong Williams, author of the 2010 book "Reawakening Virtues," is on Sirius Power 128, 7-8 p.m. and 4-5 a.m. Mondays through Fridays. Become a fan on Facebook at www.facebook.com/arightside, and follow him on Twitter at www.twitter.com/arightside. Read his content on RightSideWire.com.

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