Comment by chailatte | Hacker News Reader

Comment by chailatte | Hacker News Reader

So many optimists on this board, talking about 'the pop won't be as devastating this time'.

This time:

- 30% of mortgages are underwater http://money.cnn.com/2011/02/09/real_estate/underwater_mortg...

- U6 rate for Jan 2011 is 16.10 percenthttp://www.congress.org/soapbox/alert/25908506

- labor force participation rate at 64.2% http://www.zerohedge.com/article/labor-force-participations-...

- 43 Million Americans on food stamps http://blogs.wsj.com/economics/2011/02/02/some-43-million-am...

In 2001:

- 66% labor force participation http://www.zerohedge.com/sites/default/files/images/user5/im...

- 8% for U6 unemployment http://www.shadowstats.com/alternate_data/unemployment-chart...

- 17 Million on food stamps http://www.dailyjobsupdate.com/wp-content/uploads/Food-Stamp...

Oh, and income stayed relatively the same, http://www.davemanuel.com/median-household-income.php while food prices doubled or tripled http://www.mongabay.com/images/commodities/charts/wheat.html http://www.mongabay.com/images/commodities/charts/chart-suga....

Pretty sure that once this pension/money printing funded tech bubble bursts, it will hurt even more this time.

This kind of armchair economics is surprisingly popular here, given that HN has a smart community. Sure, the economy is worse right now. But when you say that it will hurt "once the pension/money-printing funded tech bubble bursts," well, what does that even mean?

The Federal Reserve is printing money and handing it to VCs? That's not right, banks have very high borrowing requirements and won't just lend money out freely. [0]

Retirees' pensions are going to explode when the bubble pops? Tech stocks only gained 2% last year during a strong year for the S&P 500. [1] Meanwhile, the companies in question are all private, so no pensions should be involved.

You have a nice if-then statement going, but the "if" is the ultimate question here. You can't just assume it away.

[0] http://www.minneapolisfed.org/bb/ (see December and January Beige Books) [1] http://seekingalpha.com/article/231109-s-p-500-sector-perfor...

Pension and endowment funds represent some of the largest VC LPs.

Source? Example? I'm curious.

Goldman Sachs has access to the Federal Reserve's discount window.

Banks do not use the discount window unless they are about to fail. GS stock would tank if they went to the window, as any other bank should provide sufficient liquidity. There is no clear mechanism for Goldman to take money from the Fed and invest it in Facebook.

Also, Goldman has used the investment bank version of the window in the past, but they've already repaid all loans. [0]

[0] http://en.wikipedia.org/wiki/Goldman_Sachs#Use_of_Federal_Re...

I can't see how these two sets of data correlate into a massive bubble popping, just that the reality is that the US is still trying to come out of the results of the last bubble bursting...as an example, since the fall of 2008, unemployment has not recovered, so what, exactly, is about to burst?

I would think that hyper inflated values and unsustainable YOY gains in valuation for asset classes (stocks, real estate, internet companies) would be more of an indicator of a bubble.

But don't you think we're seeing those in commodities and many stocks, including but not limited to tech stocks? You wouldn't see it in real estate, because popped bubbles don't reinflate. Whenever I see a company like Cisco drop huge %'s overnight not on a loss, but on "somewhat worse than expected" revenue, my alarm bells start going off.

http://online.wsj.com/article/BT-CO-20110210-714816.html

"Cisco's (CSCO, $19.04, -$3.00, -13.61%) fiscal second-quarter profit declined 18% with margins sliding for a fourth consecutive quarter as the company faced increasing pricing pressure in its core products and sold less profitable consumer products. "

I'm seeing increased competition in a rough market driving profits down, not the warning bells of a pop.

I agree that the overall situation is pretty dire. In the grand scheme of things, the amount of money exposed in the tech startup bubble is pretty small -- and it's disproportionately from certain groups of people (wealthy tech startup veterans, Goldman Sachs clients). But California's counting on the tax revenue so it could catch a lot of others up in it as well. We shall see ...

Agreed, the amount of money exposed is smaller. But remember, the economy is drastically smaller as well.

Drastically smaller? If you're talking about the US economy, GDP is $5 trillion larger than in 2001. That's a 50% increase.

[0] http://www.google.com/publicdata?ds=wb-wdi&met=ny_gdp_mk...

Inflation. Gold is 7X today, wheat is 3X today, regular gas is 2X today.

How much gas and wheat do you consume regularly as a proportion of your income? What about gold?

True, I read "current" as "constant."

Even using constant dollars, though, our economy is 18% larger between then and now. That's not "drastically" smaller. [0]

[0]http://www.wolframalpha.com/input/?i=real+us+gdp+2001+to+201...

But California's counting on the tax revenue

Says who? California is counting on the tax revenue generated by Facebook and Zynga? Seriously?

Yeah, it probably doesn't count on them. But every last bit helps and remember that when the bubble pops even innocent tech companies will be affected, not only those with crazy valuations.

when the bubble pops even innocent tech companies will be affected

How so? How will the "bubble" pop? None of the companies in question (Groupon, Facebook, and Zynga) are public. How would a loss of investor confidence in those private companies take down all technology companies?

If you're referring to the Goldman investment in Facebook: even at $50 billion, Facebook's valuation is peanuts in contrast to the technology economy. You may someday see ex-Facebook employees out on the streets with resumes, and some angry investors, but certainly this does not at all resemble 2000, when nearly every mutual fund and private investor had a stake in profitless dot-com companies that imploded.

there are many ways they will be affected, to list a few:

- FB, Zynga etc. use a lot of technology infrastructure. When that growth ceases, a lot of hardware vendors, service etc co's will be affected

- when/if bubble pops, it will affect investor confidence - lower if any valuations for new start-ups in that space and less cash for existing companies

- even stricter regulatory scrutiny (SOX will be peanuts compared to legislations that will be introduced after this bubble pops)

etc etc

That first statistic is misleading. 30% of the homes currently financed by a mortgage are underwater. There are many homes owned outright so that percentage is much lower (about 17%).

Also, food stamp program participation lags economic growth by a fairly large timeframe. See http://bit.ly/igTa7W

Finally, I'd recommend using zerohedge as a primary source. That's like citing Fox News or Mother Jones for politics. Instead, go to the source that they scraped their info from for less biased data.

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