Ape Man

Maybe it’s just me being too tired from working to much over time, but it seems to me that Tyler is letting his emotions cloud his judgment. I just can’t think of any other reason why he would approvingly quote this on his blog…..

But remember, the tech bust devoured about $9 trillion in corporate equity; next to that, the subprime problem looks like an insect bite—unless it spreads to the rest of the mortgage market.

Maybe it’s just my ignorance showing through, but this seems like an absurd comparison to me. I waited to see if any of Tyler fine commentators picked up on this, but they seem to have dropped the ball.

Maybe the problem is just me, I don’t know.

Let us say that I create a company that has 1,000 shares. Let us say I sell one share to my mom for $5. Do I now have a company worth $5,000? How much money have I lost if I can’t find another sucker to buy my stock? $4,995? This is how I saw the accounting being done in the tech boom era.

Now let us say I loan $500 to some one and they only pay me back $5 dollars. How much money have I lost? $495 dollars right?

If you are Michael Mandel (the guy Tyler was quoting) you would say I lost 10 times as much money on my company as I did on my loans. I would disagree….

Now I am not saying that no real money was lost during the tech boom. I am not even saying that more money will be lost in the housing slump then on tech stocks (though I suspect that this will be the case.) But I do think it is awful sloppy reasoning to say that the 9 Trillion dollars of equity “lost” during the dot.com bust dwarf the potential loses in the sub-prime.

There are a lot of people on the doom and gloom sides of the housing bubble debate that are letting their emotions get the better of them. But most of optimists seem to be stretching things equally far if not farther.

This entry was posted on Thursday, March 22nd, 2007 at 5:27 pm and is filed under Economics, Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.