4. Who Suffered and Who Survived the Asset Bubble?
The bursting of the dot-com bubble prompted manic sell-offs in technology stocks and by 2002 financial loss amounted to $5 trillion in market capitalisation. With undiversified portfolios, individuals’ retirement savings dwindled as 70% of 401(k)s had lost at least one-fifth of their worth. Between 2001-2005, 415,600 individuals in the technology industry suffered job cuts. The “dot-bombs” had shaken investors' confidence in the internet sector which was also reflective in the younger generation as Thibodeau noted that enrolments in computer-related degrees plunged with the crash.
Balanced Banks
The portfolio of banks never incorporated more than 4% of technology stocks, reducing their vulnerability to the market crash. Schuermann stated that banks minimised exposure to credit risk efficiently as they were the greatest net buyers and participants of credit derivatives during 2001. This finding is in harmony with Mishkin who expressed that banks' balance sheets were not significantly damaged by the internet bubble, which was a key determinant of the mild recession that ensued.
Admirable Amazon
Despite many ambitious start-up companies delisting as capital evaporated, 48% of dot-com companies survived the market crash. Amazon.com, became publicly listed in 1997 and is now a global powerhouse, lost 90% of its stock value when the bubble collapsed but was able to recover by reinvesting its revenue. Similarly, Stone pins the reason to Amazon outlasting the economic downturn to the infusion of funds in February 2000 due to the company selling $672 million convertible bonds to investors.
In conclusion, it is understandable that individuals suffered the most from the market bust due to investing with their personal savings whereas banks were protected through the use of credit derivatives to offset losses. Although numerous dot-com companies filed for bankruptcy, various technology companies survived and remain victorious, notably Amazon.
