The Orange County Bankruptcy and Dotcom Bubble.

1990년대 중반부터 인터넷 기반의 기업들이 급속도로 성장하면서 닷컴버블이라는 거품 경제 현상이 일어났다. 당시에는 인터넷 사업에 대한 무한한 가능성에 투자자들이 열광하면서 주가가 비이성적으로 과열되었다. 하지만 이러한 거품은 2000년대 초반에 터지면서 많은 기업들이 파산하거나 큰 타격을 입었다.

 

닷컴버블이 발생하기 전에도 몇몇 전조 현상들이 있었다. 그 중 하나가 1994년에 오렌지 카운티 은행의 파산이다. 오렌지 카운티 은행은 미국 캘리포니아주의 지방 자치 단체로, 공공기금을 관리하는 역할을 했다. 이 은행은 공공기금을 이용해 고위험 고수익의 파생상품 거래를 하면서 큰 이익을 올렸다. 하지만 1994년에 미국 연방준비제도가 금리를 인상하면서 파생상품의 가치가 급락했다. 이로 인해 오렌지 카운티 은행은 18억 달러의 손실을 보고 파산보호 신청을 했다.

 

오렌지 카운티 은행의 파산은 닷컴버블의 전조 현상으로 볼 수 있다. 왜냐하면 이 은행은 부실한 자산에 기반한 거품을 만들어내고, 그 거품이 터지면서 큰 충격을 주었기 때문이다. 닷컴버블도 마찬가지로 인터넷 기업들의 수익성과 가치가 과대평가되어 거품을 형성하고, 그 거품이 터지면서 많은 기업들이 살아남기 힘들었다. 따라서 오렌지 카운티 은행의 파산은 닷컴버블의 성격과 원인을 이해하는데 도움이 될 수 있다.

 

오렌지 카운티 은행 파산의 원인과 그로 인한 기술주로의 투자금 이동, 그리고 닷컴버블의 연결성에 대해 다음과 같이 설명할 수 있다.

 

오렌지 카운티는 미국 캘리포니아주에 있는 군으로, 1994년에 세계 최대의 지방자치단체 파산 사례를 낸 곳이다. 이는 오렌지 카운티 재무관 로버트 시트론이 공공자금을 과도하게 위험한 투자에 사용하면서 발생한 것이다. 시트론은 장기 공공채를 매입하고 단기 공공채를 매도하는 방식으로 이자차익을 노렸으나, 1994년 연방준비제도이사회가 금리를 인상하면서 시장이 반대로 움직였다. 이로 인해 오렌지 카운티는 18억 달러의 손실을 입고 파산 신청을 하게 되었다.

 

오렌지 카운티 은행 파산은 미국 금융시장에 큰 충격을 주었다. 특히 채권시장은 오렌지 카운티가 보유한 채권의 대규모 처분으로 인해 가격이 급락하였다. 반면 주식시장은 채권시장의 약세와 금리 상승에도 불구하고 강세를 보였다. 이는 기술주가 주도하는 새로운 시장 패러다임의 시작이었다. 오렌지 카운티 은행 파산 이후, 많은 투자자들이 채권시장에서 주식시장으로 자금을 옮겼으며, 특히 인터넷과 관련된 기술주에 대한 관심과 투자가 증가하였다. 이는 1990년대 후반부터 2000년 초까지 계속되는 닷컴버블의 발단이 되었다.

 

• The Orange County Bankruptcy in 1994

 

The Orange County Bankruptcy of 1994 was a financial crisis that occurred when Orange County, California, declared bankruptcy due to its investment losses in risky financial derivatives. Orange County had been investing in securities known as reverse repurchase agreements, which were highly leveraged and involved borrowing money to purchase securities in the hopes of earning a profit.

 

The County Treasurer, Robert Citron, had been investing in these high-risk securities for years, convinced that he could earn higher returns than traditional investments. However, when interest rates began to rise, the value of the securities fell sharply, leading to massive losses for the county. The losses ultimately totaled $1.7 billion, which was more than the county's entire annual budget at the time.

 

The bankruptcy caused widespread panic in the financial markets, as it was the largest municipal bankruptcy in US history up until that point. It also led to increased scrutiny of the use of financial derivatives and raised questions about the effectiveness of financial regulation.

 

The bankruptcy had significant consequences for Orange County and its residents, including severe cuts to public services and layoffs of government employees. It also led to changes in the way that municipalities and other government entities invest their funds, with many becoming more cautious about investing in high-risk financial instruments.

 

Overall, the Orange County bankruptcy of 1994 was a cautionary tale about the dangers of risky financial investments and the importance of effective financial regulation.

 

• The impact of the OCB in capital in the US.

 

The Orange County bankruptcy of 1994 had a significant impact on the movement of capital in the US financial markets, particularly in the bonds and stock markets.

 

In the aftermath of the bankruptcy, investors became more cautious about investing in bonds issued by municipalities, including those in California. The default on Orange County's debt was a stark reminder that even seemingly safe investments could carry significant risks, especially when highly leveraged and invested in risky securities. As a result, demand for municipal bonds declined, causing their prices to fall and yields to rise. This made it more expensive for municipalities to borrow money, which had the potential to impact their ability to fund public projects and services.

 

On the other hand, the stock market saw a relatively mild response to the Orange County bankruptcy. While there was some initial volatility and concern about the potential ripple effects of the bankruptcy, the stock market quickly recovered and continued its upward trend. This was largely due to the fact that the bankruptcy was seen as a relatively isolated incident, affecting only one municipality rather than the broader economy as a whole. Additionally, the Federal Reserve acted quickly to provide liquidity to the financial system, which helped to prevent a larger crisis.

 

Overall, the Orange County bankruptcy of 1994 had a significant impact on the way that investors viewed municipal bonds and the risks associated with highly leveraged investments. It also served as a reminder of the importance of effective financial regulation and the need for caution when investing in complex financial instruments. However, the relatively mild response of the stock market suggested that investors were able to distinguish between isolated incidents and broader economic trends.

 

•   The Beginngin of Dotcom Bubble.

 

After the Orange County bankruptcy, many investors turned to the dotcom industry as a new avenue for investment. There were several reasons for this trend:

 

High growth potential: The dotcom industry, which centered around internet-based businesses and technology companies, was seen as having enormous growth potential. Investors were drawn to the idea of getting in on the ground floor of a new industry with seemingly limitless possibilities for expansion.

 

Innovative technology: The dotcom industry was built around new and innovative technologies that promised to revolutionize the way people lived and worked. Companies like Amazon, Google, and eBay were seen as disruptive forces that could upend established industries and create entirely new markets.

 

FOMO: Fear of Missing Out (FOMO) played a significant role in driving investor interest in the dotcom industry. As more and more investors poured money into dotcom startups and initial public offerings (IPOs), there was a sense that those who failed to get in on the action would be left behind.

 

Speculation and hype: The dotcom boom was fueled in part by speculative investing and hype. Investors were willing to pour money into companies that had little to no revenue or earnings, betting on the potential for future growth and profitability.

 

Low interest rates: The low interest rate environment of the late 1990s and early 2000s made it easier for investors to borrow money to invest in the dotcom industry. This further fueled the speculative bubble that developed in the industry.

 

Overall, the dotcom industry was seen as an exciting and innovative new frontier for investors in the wake of the Orange County bankruptcy. While the industry ultimately experienced a dramatic crash in the early 2000s, the dotcom boom and subsequent bust demonstrated the power of hype, speculation, and innovation in driving investor behavior.

   

The dotcom bubble was a speculative frenzy that took place in the late 1990s and early 2000s, driven by investor enthusiasm for internet-based companies and technology startups. The bubble eventually burst in 2000, leading to massive losses in the stock market. Here are three of the highest losses experienced during the dotcom bubble:

 

The Nasdaq Composite Index: The Nasdaq Composite Index is a stock market index that tracks the performance of over 3,000 technology and internet-based companies. During the dotcom bubble, the Nasdaq reached an all-time high of 5,048.62 on March 10, 2000. However, as the bubble began to burst, the Nasdaq plummeted, losing over 78% of its value by October 2002. This was one of the largest losses experienced by any major stock market index in history.

 

Cisco Systems: Cisco Systems was one of the largest and most successful technology companies of the dotcom era, specializing in networking and telecommunications equipment. At its peak in 2000, Cisco was valued at over $500 billion, making it the most valuable company in the world at the time. However, as the dotcom bubble burst, Cisco's stock price tumbled, losing over 80% of its value between 2000 and 2002. This represented a loss of over $400 billion in market capitalization.

 

Amazon.com: Amazon.com was one of the most successful and enduring dotcom companies, specializing in online retail and e-commerce. However, during the dotcom bubble, Amazon's stock price experienced extreme volatility, reaching a high of $106 per share in December 1999 before plummeting to just $6 per share by September 2001. At its lowest point, Amazon had lost over 94% of its value, representing a loss of over $70 billion in market capitalization.

 

Overall, the dotcom bubble represented a period of extreme speculation and overvaluation in the technology and internet industries, leading to massive losses for investors when the bubble inevitably burst. The lessons of the dotcom bubble continue to be studied by economists and investors as a cautionary tale about the dangers of speculative bubbles and the importance of sound investing principles.

 

• The Survival, Amazon.com.

 

During the dotcom bubble, Amazon.com was one of the most successful and enduring dotcom companies, specializing in online retail and e-commerce. However, like many other dotcom companies, Amazon's stock price experienced extreme volatility and lost a significant amount of value. Here's a timeline of how Amazon overcame the losses from the dotcom bubble and became one of the biggest companies in the world:

 

1999-2001: During the height of the dotcom bubble, Amazon's stock price reached an all-time high of $106 per share in December 1999 before plummeting to just $6 per share by September 2001. At its lowest point, Amazon had lost over 94% of its value, representing a loss of over $70 billion in market capitalization.

 

2001-2003: In the aftermath of the dotcom bubble, Amazon struggled to recover its losses. However, the company took several steps to cut costs and improve its profitability, including reducing its workforce, streamlining its operations, and focusing on its core business of online retail.

 

2004-2010: Over the next several years, Amazon experienced steady growth and profitability, driven in large part by the success of its flagship product, Amazon Prime. The company also continued to expand into new areas, such as cloud computing (Amazon Web Services) and digital media (Kindle e-readers and Fire tablets).

 

2010-present: In the last decade, Amazon has grown at an unprecedented pace, becoming one of the biggest companies in the world. The company's stock price has soared, reaching over $3,000 per share in 2020, and its market capitalization has surpassed $1 trillion. Amazon has continued to innovate and expand, entering new markets such as healthcare (Amazon Pharmacy) and brick-and-mortar retail (Amazon Go stores).

 

So, what enabled Amazon to overcome the losses from the dotcom bubble and become one of the biggest companies in the world? Here are a few key reasons:

 

Focus on the customer: Amazon has always been known for its relentless focus on the customer, striving to deliver the best possible experience for shoppers. This has helped the company build a loyal customer base and stay ahead of competitors.

 

Innovation: Amazon has always been willing to experiment and try new things, from new product categories to new technologies. This has enabled the company to stay at the forefront of the rapidly evolving e-commerce and technology industries.

 

Diversification: Amazon has diversified its business across multiple product categories and industries, from online retail to cloud computing to digital media. This has helped the company weather economic downturns and stay resilient in the face of changing market conditions.

 

Overall, Amazon's ability to recover from the losses of the dotcom bubble and become one of the biggest companies in the world can be attributed to a combination of smart business strategy, relentless customer focus, and a willingness to innovate and adapt to changing market conditions.