The Bubble

2011, Economics  -   17 Comments
Ratings: 7.31/10 from 26 users.

The BubbleBubbles are when a products value continues to rise beyond its true value. But what happens when the bubble inevitably bursts?

What are the types of economic bubbles? Intrinsic bubbles, informational bubbles, classic bubbles and fads are all the results of over valued products.

Tom Hadfield was only 12 years old when he set up the internet sensation Soccernet, by the time he was 17 years old he sold the company to ESPN for $40 million dollars.

Does the media fuel bubbles? The bubble wasn't just confined to the investment and trading community, the public also got involved, and this caused a media frenzy.

How was the market valued? The's equity was valued on visits and clicks. There was nothing to research, traditional valuing techniques went out the window.

Once the market started to crack, investors soon realized that these internet companies weren't really worth anything at all, but was this enough for them sell up before the bubble burst?

When bubbles bursts the immediate effect is damage to the public. But is there any longer lasting positive effect on the economy?

Is green technology the beginning of a new bubble? Can we spot a bubble emerging? Is there anything that can be done when a bubble does emerge?

You might also want to check out: Triumph of the Nerds: The Rise of Accidental Empires and Nerds 2.0.1: A Brief History of the Internet.

17 Comments / User Reviews

  1. Unity

    By the dot-com stock system, one could have potentially made millions, using software such as the one hacktivists use to overload a webpage. The software would just have to limit the "refresh" so as not to crash it.

    Wallstreet is the new Vegas


    If only it were actually funny... and even the slightest bit untrue...
    dont get me wrong great post its just satire isnt the same as it used to be...
    This documentary is awful it carries all the hallmarks of patronising "educational" BBC style narration- as if the target is children- or the very stupid...
    There is a very particular accent and intonation in these films, a very particular editing structure that is basically always used for pushing half truths-
    They are also very compartmentalised so to infer that because of the large amount of segments they are comprehensive in scope and the facts and conclusions are not in dispute.
    rubbish, annoying and manipulative to the extent of almost wilful indoctrination and hypnosis.
    Check out the BBC "documentary" on the gaza flotillas armed raid by the israelis- john pilger did a piece on the bias in that- but its more than that- all of the bbcs branded programming does this trick using the very same style- modern school lessons involve watching the same style nonsense presented in the same simplistic modular format-
    and arresting the development and critical thinking processes of its victims for want of a better term.

  4. DigiWongaDude
  5. DigiWongaDude

    The dot . com boom was a gold rush because of the potential exponential growth involved. Period. Here's a simple example:

    Let's say you wanted to sell something online. Say... sex toys - not a bad idea since 98% of ALL searches were sex related at that time.

    Let's say you tentatively believe you can capture or convert 1% of the online sex market...just 1, leaving 99% to your competition, so as not to over stretch your optimism. Multiply that figure by 5 (for your 5 year forecast). But don't stop there, don't forget to build in the exponential growth of online spending (i.e. your market) for each year. Suddenly you realise your company has an overnight value of at least $50 million before even selling a single product. Ludicrous? Ridiculous? Insane? Many didn't seem to think so.


    I got five minutes in and felt like i was being indoctrinated...
    but nice one for sitting through it and picking the gaping holes ....i could feel them coming...
    makes me shiver to remember the videos i watched at school about genocide that were presented and narrated in the same pre-concluded, patronising " A happened so B happened and there are only 3 types of C." "Some said that the rest of the alphabet was involved but it was defintely just 3 types of C- heres a professer to repeat what i just told you in another soundbite that confirms there were only 3 types of C and the king had nothing to with nazis it was love why he ran off to join the nazis,"

  8. David Ewer
  9. David Ewer

    Reasonably enjoyable, although fairly typical OU production in that it lacked a degree of critical evaluation.
    My biggest criticism was the repeated analogy to 'animal spirits' when clearly bubbles are very much human inventions.
    It's also worth pointing out that the fees for OU modules have risen so sharply recently that they could be said to be forming a 'bubble' themselves...

  10. Samuel Gallop
  11. Samuel Gallop

    It could be explained a bit more throughly but you explanation is basically correct. It is funny how pervasive this myth of the greedy, shadowy winner is.

  12. Geoffrey Grekin
  13. Geoffrey Grekin


    "If you are still unconvinced, imagine what would happen if two guys started trading some crap back and forth at ever increasing prices, using credit to satisfy their counterparty demands. In the end you have two guys deep in debt who will have their a** handed to them and a p*ssed off bank who will foreclose whatever it can before passing the remaining loss to its shareholders. Noone wins."

    - Sounds to me just like Enron. but just like Enron those that manipulated the Junk stock made off with millions in personal wealth, false personal wealth created in-order to attract investors.

    "Many people took part in the action and some - mostly by sheer luck - got out of it earlier than others. They have nothing to attribute to their "trading skill" nor any claim to "elite" status."

    - I'm sure there were some lucky investors who made out with the cash at inflated prices but these were far and few between. But this doesn't account for the majority of virtual funds that went missing.

    Your post is a satire, but in an unintended way. It is a satire of your silly worldview which assumes that economy is but a zero-sum game organized by some "rich elite".

    - I disagree, organized by some rich for Zero-sum is not what i was saying. The stock exchange is a casino for most investors, and just like a casino there are sometimes winners and some losers. Nevertheless for the ultra-rich they can rig the game, because of the sheer amount of their wealth.

    I don't think my world view is so silly, once you pop the bubble that has been constructed around you. But if you prefer to live in your own bubble, then I won't stop you...

    But i will leave you with this beautiful quote from a fictional character,

    Gordon Gekko "The richest one percent of this country owns half our country's wealth, five trillion dollars. One third of that comes from hard work, two thirds comes from inheritance, interest on interest accumulating to widows and i*iot sons and what I do, stock and real estate speculation. It's bulls***. You got ninety percent of the American public out there with little or no net worth. I create nothing. I own. We make the rules, pal. The news, war, peace, famine, upheaval, the price per paper clip. We pick that rabbit out of the hat while everybody sits out there wondering how the h*ll we did it. Now you're not naive enough to think we're living in a democracy, are you buddy? It's the free market. And you're a part of it. You've got that killer instinct. Stick around pal, I've still got a lot to teach you." -- Wall Street 1987

  14. Harry Nutzack
  15. Harry Nutzack

    i think the real lesson of this doc has been missed by all posting here: innovation is more often than not funded into reality by speculative investment based on manipulative con games. the railroads, automobiles, commercial radio, airlines, television (first broadcast, then cable, and now the various forms of wireless), cellular technology, the internet all owe their iconic status in society to tribes of lemmings leaping off a cliff at the behest of "market makers". a lesser case can be made for the telephone and even common electric power. of course, speculative investment is pretty much the only driver for emerging technology, as there are no "historical fundamentals" to base decisions on. the "art" in speculation lies in dispassionate assessment of expansion characteristics, so that one can recognize the actual real time real world value being exceeded.

  16. silkop
  17. silkop

    That's my point exactly: fictional characters is what you have to back your wild claims. Being very rich (as in "billions of dollars" rich) does NOT automatically make you a "mover and shaker" capable of rigging anything. It does NOT mean that you can expand or even sustain your wealth magically. There are multiple examples of billionaires who ceased to be, quite fast, to illustrate the point.

    But of course, you may ignore that and use movies, computer games or even the bs spewed by junior Wall Street drones as your preferred source of worldly information. Then teach this grand conspiracy to the "unenlightened masses" who will quite gladly swallow it. It will give you a sense of smugness and pseudointellectual accomplishment. It will also be a lot easier and entertaining than actually getting informed about some of the more dull aspects of how finance works. But even in the best scenario you will end up as an old nutcake preaching to the choir of other (younger) nutcakes,so I would not really recommend going this route.

  18. Geoffrey Grekin
  19. Geoffrey Grekin

    @ Slikop

    Sorry Silkop, I'm done listening to the accepted dribble propagated by the economic guru's who feed us their useless versions of economics espoused by free-marketers like milton friedman. No, I prefer to ask some questions that often remain anonymous, you know the real important ones.

    The reasons many people tend to lean towards alternative viewpoints like the one i'm merely expressing is because the divide between the wealthiest individuals and the majority of the general populace is increasing.
    The Middle-class also realize this because they feel their reality now being pushed further down the economic scale (lower wages, higher inflation, more unemployment, longer hours, higher expense of living)... (plenty of evidence out there)
    Additionally, university degrees are becoming less valuable as many new graduate students end up only acquiring a large student debt.
    Meanwhile the financial elite in wall-street and banking creates nothing substantial, but reap all of benefits giving themselves billions in bonuses increasing their wealth. Where does all this money come from?
    This question was made clear during the mortgage bubble crash when these financial idiots nearly brought the system to the point of collapse only to have the tax payer pick up the bill, leaving those that started this mess to continue to make personal fortunes.

    And after all that, we are all suppose to believe that everything is on the up and up? that all these corrupt destructive practices, massive debt are merely just a normal product of progressive economic system that will lead to innovation and an economic utopia. That these bankers, and wall street CEO's who made millions in bonuses off the mortgage crash depriving millions of others truly have our best interest in heart; we should just trust them when they explain to us whats wrong with our Economy on television!?

    I mean what's the bigger fairy tale, that mainstream version of these events or any other crazy idea like the 'Satire' that i explained
    I mean you don't need sources, references or 'evidence' to understand something that's starring you in the face! All you need is a little common sense.

  20. Samuel Gallop
  21. Samuel Gallop


    Alexander Pope was truly onto something when he said that "a little knowledge is a dangerous thing".

    You have all the right to be angry. However, anger alone will not put you in a better position regarding the source of your anger. Mind you, if you accept most of the "alternative viewpoints" without really thinking much about their soundness, it is a sure bet you will end up in a even worse situation indeed. I don't think Silkop is touting much "mainstream economics" anyway and Milton Friedman certainly wouldn't make it into the current BS paradigm of Economics, so you are wrong to pick on him like someone offering you the "official version" to keep you blind to the situation.

    What he says is true. Wall Street is an extremely competitive ground in which big players do not have it automatically easy to increase their balance sheets or even maintain them. Everyone is out to kill you, big or small it doesn't matter. And certainly the investment world is not rigged by the elite as you seem to think quite simplistically. Of course there is a certain amount of manipulation in the markets and all sorts of Ponzi schemes are running amok at the same time, but you need more than a satire of "Big against Small" to understand the issue.

    you say "All bubbles succeed at doing is widening the class divide by siphoning money out of the middle class to give to the super rich." And you are right mostly but with some qualifiers.

    A bubble is the "unintended" natural consequence of the workings of a fraudulent monetary system. This documentary fails miserably to notice that. It attributes the dot . com bubble to "animal spirits" gone wild and it even praise bubbles for the innovation they foster....go figure.....absolute rubbish.

    If you want to understand the current mess, you need to step out of your tiny box and do a couple of things:

    - first acquire a sound theoretical framework of what free markets and capitalism really stand for because you need that to be able to establish a fair comparison. Otherwise you're prone to be misled by all socialist "solutions" that are spread around.

    - second, you need to grasp the workings of a socialist, centrally managed, fraudulent monetary system and how it massively contributes to steal from the big group of producers in the economy and siphon that wealth to a small elite of recipients of the monetary expansion, widening the gap you as you so aptly notice.

    Good luck with that.

  22. KsDevil
  23. KsDevil

    The problem is, the stock market was opened up to the general public but there was no platform to insure the genral public received the proper education to handle this endeavor.
    What we ended up with was psudo-experts who provieded their slick sales pitches to convince people their opinion was informed which lead the lemmings off the cliff.

  24. Blake Bell & instant amnesia
  25. Blake Bell & instant amnesia

    Bubbles can develop naturally (read: innocently) or super-naturally (read: manipulated). Either way the failure to properly attribute value to an item in a general sense is usually to blame. The Real Estate bubble was a manipulation in the price of real estate aided by the ability to finance anyone and anything. The con was in and many bought in. I believe the dot. com bubble was more a matter of no one understanding how revenue would be sustained in the web 2.0 - add to that the fact that wall street had no idea either so valuations were just made out of thin aire or a guess as to how the market would respond in the coming sustainment period. In either case, one has to ask themselves if the underlying asset and associated deal truly passes the common sense test. You can hype anything but at the end of the day, you have to show and tell. Much like the entertainment or music business...hype all you want, but you have to bring the goods at some point...good documentary

  26. Philip Fong
  27. Philip Fong

    the ad is so annoying, too many times in such a short time.


    When you said that wealth was destroyed in the stock market by people/institutions borrowing money from banks you were wrong. I do not know how much you know about stocks but in such a risky game, most small/mid size investors will not leverage their positions 2 - 1. This is something that is done by large investors. Furthermore, larger firms are better equipped to understand the risk involved in investing volatile stocks and will still not typically leverage their risky positions. Some of the wealth will be destroyed but not anything substantial over the long run. I do not believe that the dot. com crash is an example of the super rich taking advantage of the small investor. However, there has been many instances in the past where wealthy investors were able to manipulate the market and come very close to the satirical 8 step reference that Geoffery posted earlier. In the world we live in information is key. Money can buy access to relevant, timely and accurate information. With this being said, wouldn't a billionaire have access to more timely, accurate and relevant information than the small investor? and wouldn't that increase his chances of exiting a bubble before it burst?

    Have you ever heard the saying "Satans biggest accomplishment was making the world believe he didn't exist" Its foolish to believe that a small investor has the same chance in the market as a large investor. Also, could you give me examples of billionaires who ceased to be? These were most likely first generation billionaires like Mark Zuckerberg. There has been very few instances throughout history where "BILLIONAIRES" cease to be unless it was by war. Geoffrey is no looney,it is a cumbersome task, but markets can definitely be manipulated.

  30. disqus_U0rDsTA0Qe
  31. disqus_U0rDsTA0Qe

    if you put a bubble inside a cube what is the cubic area of the remaining corners of the cube?

  32. Jimijr
  33. Jimijr

    Cubic volume you mean. Answer -- r**3 times [8 minus (4/3)pi], r= half the side

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