In the three years leading up to 2000, commercial banks loaned enormous sums of money to telecom, cable and technology companies to finance capital-spending programs. These loans weren't backed by assets, but were based on projections that all three sectors would have sales growth rates several times that of the economy for many years to come.
Last summer it became clear that sales growth would not meet those heady projections. Instead of the 14% growth projected by analysts for telecoms this year, for example, actual sales will shrink. Companies without revenues don't make interest payments. And so by the fall of 2000, OCC teams were forcing regional banks to downgrade loans and reduce business lending.
This is how the Clinton administration artificially pumped up the economy in the late 1990s to help stave off impeachment. It has been obvious to me since early last year that something fishy was going on, I just couldn't figure out what it was. Clearly the White House was giving orders to the bank regulators to pump as much capital as possible into the tech sector. Eventually even the Clinton-appointed bank regulators realized they were headed off a cliff and started tightening up lending standards. This instantly reduced the book value of thousands of highly leveraged companies. As in all such tightenings, the regulators got carried away and now even legitimate businesses cannot borrow money. Clinton himself couldn't have cared less, he avoided impeachment and knew he would be long gone by the time the true impact of the tightening was felt.
The really bad news is that most of the heads of the bank regulatory agencies are Clinton holdovers, and there are dozens of bureaucrats in these agencies that were hired in the last 8 years.
Aldrich speaks from the grave.
In fact, banking on "future sales" is exactly what EVERY new company does. Virtually no new venture has assets. Berry Gordy started Motown Records with $500 and no assets. C. W. Post was broke when he started Post cereals.
What happened? The telecom markets STOPPED growing. But why? There was no demand for faster, and better, information. There certainly is no glut here, where I can't even get past a 56k Modem. No, what happened is that you have a "knot in the hose." You have flowers that need the water at one end (new companies) and you have plenty of water at the other (new technologies in rapid data transmission, computerized video, MP3 technology) but there is a blockage in delivering the info. This is---and there are different explanations, I'll admit---because the Baby Bells have the technology, but not the authority, to open their wire to digital info; and the local telecoms have the authority, but not the wire.
There is also a massive shortage of VENTURE capital, which the author seems to confuse with the "money supply." WE DO have a deflation in the money supply, but even before this there was a drying up of telecom venture capital---likley due to the factors I mentioned above.