3c hapter - Index of

Blue Skies, Pipe Dreams, and the Lure of Easy Money 25
downturns, but overall, individual investors shared broadly in the
prosperity and stability.
That’s not to say that the Blue Sky merchants that Dolley railed
against had been entirely vanquished. There will always be scam
artists, whether shady boiler- room operators or Ponzi- scheme artists
masquerading as fi nancial magicians, trying to make a buck
off of some rube. Greed may be an enduring aspect of human
nature and fi nancial markets—bankers have gotten a bad rap since
at least Biblical times, and the Rothschild bank was called “a vast,
black octopus stretching its tentacles around the world” 11 more
than a century before Matt Taibbi famously labeled Goldman
Sachs a “vampire squid wrapped around the face of humanity” in
the pages of Rolling Stone. But for the most part, the securities and
banking regulations put in place starting in 1933 kept the abuses in
check, facilitating the fl ow of growth capital to businesses and fostering
widespread confi dence in the fi nancial system.
But as many investors sense, something fundamental has
changed. In little more than a decade, investors have been buffeted
by a string of scandals. There was the dot- com frenzy of the
late 1990s, when investment banking analysts hyped companies
their employers were taking public despite the fact that they had
little revenue, much less profi ts, and were privately characterized as
“dogs.” In 2001 and 2002, a wave of accounting scandals exposed
the cooked books of prominent companies like Enron, WorldCom,
and Tyco. Shares of Enron, the energy trading giant, went from
$90 in mid-2000 to $1 just fi ve months later, wiping out $11 billion
in shareholder value. Those blips, of course, are overshadowed by
the derivatives- fueled subprime mortgage meltdown that nearly
took down the entire global economy six years later, on the 75th
anniversary of the Securities and Banking Acts of 1933. Trillions of
dollars’ worth of wealth evaporated almost overnight. For the fi rst
decade of the 21st century, the markets delivered negative returns.
The Dow was down 9.3 percent, the S&P lost 24 percent, and the
NASDAQ ended the decade a whopping 44 percent below where it
started. And that includes dividend income. 12
Indeed, the most breathtakingly reckless and deceitful practices
over the past decade or two (let’s not forget the savings & loan crisis