This article is fascinating. Market enthusiasts proclaim that
markets are magnificant processors of information. This article
desribes how markets are driven by frenzy more than by
information.
Yeah - amazing how bad info takes a life of its own. The article doesn't mention the deliberate deception that stemmed from that "doubling every 100 day" stat. If you take the difference between a glorified (fabricated, misrepresented - whatever you want to call it) 1000% per year capacity growth and the reality of 100% per year growth, you still won't use up the 97% capacity that's lying dormant. You don't sell 20-25 year capacity contracts (as most fiber teleco's did) to book cash upfront if you believe in 1000% capacity growth per year.
The article states: "That point (about growth not being 1000% per year) appears to have been lost on the analysts and investment bankers who reaped untold millions of dollars helping companies like Global Crossing Ltd. fund their fiber networks."
It wasn't lost! Telcos amassed $1.1 trillion in debt from 1998-2001 to finance fiber networks. Investment banks didn't care about "the truth" on their way to the $13bln of fees they got. Grubman only cut his recommendation on WorldCom when the stock hit 91 cents. There's no way between $65 and 91 cents, he didn't realize the growth he touted was false. (Salomon made $1bln in teleco fees, the NASD fined them $5mln for misleading research)
Nomi
