The Impact Of Texas On The Economy Of 1998-99

The low interest rates in 1998-99 helped increase the start-up capital amounts. During this period there was the growth of venture capitalists that were into Internet-based companies commonly referred to as dot-coms. However, these companies soon began to work on an inherently flawed business model which was that monopolizing their respective sectors through network effects. They relied on harnessing network effects by operating at a sustained net loss to build the market share. This was through the offer of services or end product for free. For this the companies relied on initial public offerings of stock to pay their expenses while having no source of income at all. They hoped that through this they could build enough brand awareness to

The communication providers also began improving their networks with high-speed equipment and fiber optic cables in order to participate in the boom. As a result, some of these companies went into heavy debt. They were convinced that in the future the economy would require ubiquitous broadband access and as such they were also into a mirage. Network equipment companies like Nortel Networks began to work over-extension and faced bankruptcies.

From the latter half of the 1999 to early 2000, the U.S Federal Reserve increased interest rates six times due to which economy began to lose speed. As a result the dot-com bubble burst. On Friday, March 10, 2000 the NASDAQ had hit a high of 5,132.52, which was more than double of its value a year ago. There was a slight correction on the closing of the day. The trigger to sell off soon same from the adverse findings of the fact in the United States vs Microsoft case, which declared Microsoft as a monopoly. The following day, April 4, the NASDAQ fell from 4,283 points to 3,649 and rebounded back to 4,223 with a V shaped

Sean Parker wrote that within a year the Internet upstarts will have used up all their cash. This led to a rapid awareness about the issue.

By 2001 the bubble was deflating at full speed.

Things kept getting worse as financial burden began to weigh hard upon the dot com companies. Soon big scams came out. For example WorldCom, a significant player in this field was soon found by practicing illegal accounting practices to exaggerate its profits. Eventually the company had to file the third-largest corporate bankruptcy in U.S. history. Similar was the fate with some other dot-coms also. Some of the companies were acquired or while some were liquidated. The U.S. Securities and Exchange Commission fined top investment firms like Citigroup and Merrill Lynch millions of dollars for misleading investors.

Supporting industries like advertising and shipping began to panic and started to scale back their operations. Companies, such as Amazon.com and eBay survived the storm and appear assured of long-term survival. Other firms such as Google became industry dominating mega-firms. The stock market crash caused the loss of $5 trillion in the market value of companies from March 2000 to October 2002. The 9/11 terrorist destruction of the World Trade Center's Twin Towers further accelerated the stock market