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Reality Check
There's nothing like a spectacular run in the stock market to set pulses quickening, and a spectacular decline--like the recent one--to send everyone running for the antacids and tranquilizers. What's happening here? Is technology really just a hype phase in the market? Is the investment community just caught in its own excesses? No. There are two explanations for the Nasdaq plunge: greed and hype.
The greed part starts with venture capitals, which have funded the startups whose initial public offerings (IPO) have created many of the boom-then-bust stocks in the Nasdaq index. Where greed comes into play is that most of these new companies were never funded to succeed; they were funded to "flip."
In the lingo of the financial community, "flipping" means selling of an investment in a new company by selling the company to an established player, or to the public, before the company has proven its value. Flipping used to be a way for...