- The Washington Times - Tuesday, April 24, 2001

MENLO PARK, California — Theres a fog in Silicon Valley. In the headquarters of the New Economy, the buzzword is "visibility," and visibility is low. With the evaporation of nearly $4 trillion in stock market valuation as a result of the plunge in the tech-rich Nasdaq since the giddy highs of March 2000, and ample trouble signs throughout the rest of the economy, none of the corporate chieftains of high-tech here professes to know what lies ahead.
The San Jose Mercury News offered a useful compendium of the visibility problem Sunday. Said John Chambers, CEO of Cisco Systems, in March: "Visibility is tight. Were not able to see out into the future like we normally would." Likewise, John Roth, CEO of Nortel: "Given the poor visibility into the duration and breadth of the economic downturn and its impact on the overall growth in 2001, it is not possible to provide meaningful guidance for the companys financial performance for the full year." And Carly Fiorina, CEO of Hewlett-Packard: "Recovery is too strong a word, but we are talking about second quarter being a bottom. I say that with great caution because visibility remains limited."
All the "visibility" talk has even prompted a reality-check rebuke from Thomas Siebel, CEO of Siebel Systems: "I dont understand why CEOs continue to say they have poor visibility. We might not like what we see, but we know what were looking at. Were in a recession." By all accounts, its a great time if you happen to be looking for bargains in used office furniture, since warehouses are bulging with all that remains of many of the internet start ups that not long ago helped inflate the Nasdaq bubble or burn through the venture capital it was throwing off.
What exactly went haywire will be debated for years. Obviously, all the new supposed models for the "valuation" of companies without earnings now look laughable, a product of ideological faith in the promise of the New Economy, rather than anything real. True, a price-earnings ratio is irrelevant in evaluating the prospects of a company without earnings. But perhaps that tells you more about the wildly speculative character of assessing such companies than about the obsolescence of the price earnings ratio.
But whats striking so far about this debate, a really remarkable thing when you consider the $4 trillion dollars that seemed to be there a year ago and is gone today, is how little in the way of serious talk of recriminations it has provoked. Yes, there have been innumerable nyah-nyah articles in the papers, and more seriously, questions have arisen about the possible conflicts of interest for analysts talking up stocks their own firms have taken to market in high-flying IPOs. But whats missing is anything like a set of bold policy recommendations to "remedy" this problem (whatever it might be); and more dramatic for its absence, any demand for criminal accountability for the conduct of some of the participants in the creation of the bubble.
For purposes of illustration, allow me to let you in on a running conversation I have been having with my imaginary cousin Lefty Lindberg. In Leftys view, it would be entirely salutary if a few of those so-called analysts went to prison.
Not hard time, mind you. Leftys not that vindictive. But a couple of years in some minimum security klink, as well as forfeiture of any remaining ill-gotten gains from the period in which they were flagrantly defying rationality as they watched the profits of their firms go through the ceiling thanks to the booming Nasdaq. They should have known better, and maybe they did.
Lefty doesnt have anybody in particular in mind. In fact, he doesnt care. Hes looking for scapegoats. The idea is to create a deterrent to such behavior in the future. Anyone will do. Let the Wall Street Journal editorial page have a conniption and call for pardons; hey, let the pardons be granted. The message will go out, and never again will twentysomething so-called financial analysts rate Timebomb.com a "Strong Buy."
Lefty would also like the Securities and Exchange Commission to consider a strong package of reforms. For example, maybe it should be a legal requirement that companies have four or eight consecutive quarters of earnings before they can make a public stock offering. And maybe all this low-cost online trading needs closer scrutiny. And maybe people touting stocks for their brokerage firms should be required to have a certain percentage of their net worth invested in those stocks.
After all, in the 1980s, prosecutors sent Ivan Boesky and Michael Milken to jail, and Congress made the S&Ls; sell their junk bonds. In Leftys view, those were the days. Lefty sometimes fantasizes about President Bush naming Rudy Giuliani, once his mayoral term is up, as the U.S. Attorney for Manhattans Southern District again, so that hizzoner can recreate the glory days of his 1980s Wall Street prosecutions. A Decade of Greed is a Decade of Greed, the way Lefty sees it, whether its the 1980s or the 1990s. But seriously: Wheres Lefty? Nowhere to be seen, thats where. Perhaps if the economy goes from "poor visibility" to clearly bad to worse, hell turn up. But I wouldnt count on it.
And that, in turn, is remarkable. The left is invisible, and the secular faith in market economics is such that the Nasdaq can boom and bust and the economy can soar and tank without anyone talking about "market failure" that requires us to "do something." The appropriate tools for policy-makers are universally deemed to be fiscal and monetary policy, not expansive regulation, zealous oversight and prosecutorial crusades. Oh, and about the valley: The one thing that everyone is sure of here is that the fog will eventually lift.

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