Dot Com Economics

As economists continue to sift through the rubble from the dot com collapse, it seems many of them are puzzled by the behavior of the dot coms in the boom years. As recently reported in The Wall Street Journal , economists are asking, “Why did technology companies act in seemingly irrational ways during the dot com boom, by allowing their hot I.P.O.’s to be issued at deep discounts to the price at which they would ultimately trade in the open market?” The Journal notes that the average underpricing of I.P.O.’s grew from 7 percent in the 1980’s, to 15 percent in 1990 to 1998, to 65 percent during 1999 to 2000. Economists such as the University of Florida’s Jay Ritter and Yale University’s Bob Shiller are baffled as to why the companies didn’t issue their stock at higher levels, in keeping with what the market was showing on a daily basis (namely, that any company with a dot com in its name would see its stock price soar as soon as its shares became public). What they did, the thinking goes, short-changed the dot com treasuries by hundreds of millions of dollars when they went public.

But what’s truly baffling here is that the economists continue to be so clueless.

The economists’ big mistake is in not realizing that this was never an economic issue, as anyone in the syndicate department of any Wall Street firm could tell you. The dot coms purposely issued their stock at low prices to create a stampede of demand-a demand which very quickly exceeded the supply. Which just made the dumbbells who were chasing I.P.O.’s rush in even faster. Everyone was making money anyway -it was just a question of how much you made. The more frenzied the demand, the bigger the bubble would grow, and the less motive there would be for investors to pause and ask why they were pumping billions into worthless companies. But let’s remember, the dot com Wunderkinds were thrilled to raise capital at any price. The truth was, these dot com valuations-even those seemingly “cheap” offerings-were absurd. The 65 percent underpricing took place because the supply of these garbage I.P.O.’s got so huge that a seductive price discount was necessary. And don’t forget, the after-market buyers had to be sucked in as well.

Unfortunately, this euphoria could have been significantly cooled had Alan Greenspan raised margin requirements. I.P.O.’s would have come to market at cheaper prices, many would have been closed down altogether, and investors would have lost billions less-without even taking into account the impact the dot com hysteria had on the Dow Jones Industrials and the Standard & Poor’s 500, and now the aftermath of the trillions lost by stockholders and the resulting crushing effect it continues to have on the economy.

Helping the Homeless

As the city dips toward winter, there have been reports in the media of an apparent increase in the visibility of the homeless population -or at least an increase in agitation among the non-homeless population about a feared return to the days when the homeless were ubiquitous. And so Mayor Michael Bloomberg gave a statement earlier this week, saying that the number of homeless in the city is the same, or even somewhat less, than it was last year. But whether the numbers of homeless are up 5 percent or down 10 percent, the real issue is simple: These people must be provided with the services they need to reclaim their lives. This is not merely an economic issue about how the homeless are scaring away businesses and tourists, etc. It is a moral issue. The debate about numbers is beside the point -after all, how could one ever posit an “acceptable” number of people living on the streets?

Families account for 75 percent of the city’s current homeless-shelter population, including over 13,000 children-a figure that severely compromises the city’s claims to greatness. How many New Yorkers can imagine what it would be like to grow up without a home, the nights a hellish journey through the city’s shelter system, followed by brusque awakenings before dawn. Life as a child with a home is difficult enough; to pass through childhood with no sane semblance of a house or apartment is surely more than any child, anywhere, should have to bear. That so many do so right here, in one of the world’s wealthiest cities, is shocking and shameful.

Mayor Bloomberg has rightly indicated that the perceived increase in the number of homeless is likely caused by the police refusing to allow people to sleep in subway tunnels and under bridges, because of post-9/11 security concerns. The new Commissioner of Homeless Services, Linda Gibbs, who worked in the Administration for Children’s Services during the Giuliani administration, has been impressive so far in her determination to move the homeless into housing and out of temporary shelters. And private groups continue to provide an essential component to breaking the poverty cycle. Whether the homeless are highly visible or kept out of sight, their ongoing struggle demands the attention of all New Yorkers.

The Horace Mann Record

Fledgling journalists at the Horace Mann School in the Riverdale section of the Bronx have been irritating and informing readers since 1902, when the Horace Mann Record made its debut. Through the years, the Record has served as a training ground for an astonishing number of young writers who went on to prominence, including Jack Kerouac, Anthony Lewis and Robert Caro.

No wonder, then, that when the newspaper celebrated its 100th volume recently, a distinguished panel of journalists went to the school to talk about press freedom. Th e Horace Mann Record is a newspaper like few other student-run publications in the country. It is published weekly, an accomplishment in its own right, and it is published well. The Record is no simple chronicle of the school’s exploits on the athletic field, or a collection of happy-talk profiles of teachers and administrators. The newspaper has a proud tradition of challenging the assumptions of students, parents and faculty alike. Mr. Caro, for example, sent copies of the paper to the Soviet Union when he was editor in 1953 so that students there could see what life was like in the United States. And reporters in the 1960’s and 1970’s wrote stories about the controversial issues of the day-Vietnam, Watergate and student drug use.

To the enormous credit of the school’s faculty, the Record is a vital journal that is unafraid to address hot-button topics. The newspaper enhances the school’s strong reputation as a no-nonsense place where students can be assured of a rigorous education. Congratulations, then, to the student journalists, the teachers and the administrators who have made the Record an important voice in New York, and a leader among the nation’s student publications.