Tax Reform Act of 1986
By enacting 26 U.S.C. § 469 (relating to limitations on deductions for passive activity losses and limitations on passive activity credits) to remove many tax shelters, especially for real estate investments, the Tax Reform Act of 1986 significantly decreased the value of many such investments which had been held more for their tax-advantaged status than for their inherent profitability. This contributed to the end of the real estate boom of the early to mid '80s and facilitated the Savings and Loan crisis. Prior to 1986, much real estate investment was done by passive investors. It was common for syndicates of investors to pool their resources in order to invest in property, commercial or residential. They would then hire management companies to run the operation. TRA 86 reduced the value of these investments by limiting the extent to which losses associated with them could be deducted from the investor's gross income. This, in turn, encouraged the holders of loss-generating properties to try and unload them, which contributed further to the problem of sinking real estate values.
I should have included the Fed in my first post. When a private unaudited institution is in charge of the money supply...
The bubble bursts
The technology-heavy NASDAQ Composite index peaked at 5,048 in March 2000, reflecting the high point of the dot-com bubble.
Over 1999 and early 2000, the U.S. Federal Reserve increased interest rates six times,[8] and the economy began to lose speed. The dot-com bubble burst, numerically, on March 10, 2000, when the technology heavy NASDAQ Composite index[9][not in citation given], peaked at 5,048.62 (intra-day peak 5,132.52), more than double its value just a year before. The NASDAQ fell slightly after that, but this was attributed to correction by most market analysts; the actual reversal and subsequent bear market may have been triggered by the adverse findings of fact in the United States v. Microsoft case which was being heard in federal court.[citation needed] The findings, which declared Microsoft a monopoly, were widely expected in the weeks before their release on April 3.[citation needed]
One possible cause for the collapse of the NASDAQ (and all dotcoms that collapsed) was the massive, multi-billion dollar sell orders for major bellwether high tech stocks (Cisco, IBM, Dell, etc.) that happened by chance to be processed simultaneously on the Monday morning following the March 10 weekend.[citation needed] This selling resulted in the NASDAQ opening roughly four percentage points lower on Monday March 13 from 5,038 to 4,879—the greatest percentage 'pre-market' selloff for the entire year.
The massive initial batch of sell orders processed on Monday, March 13 triggered a chain reaction of selling that fed on itself as investors, funds, and institutions liquidated positions.[citation needed] In just six days the NASDAQ had lost nearly nine percent, falling from roughly 5,050 on March 10 to 4,580 on March 15.
Another reason may have been accelerated business spending in preparation for the Y2K switchover. Once New Year had passed without incident, businesses found themselves with all the equipment they needed for some time, and business spending quickly declined. This correlates quite closely to the peak of U.S. stock markets. The Dow Jones peaked on January 14, 2000 (closed at 11,722.98, with an intra-day peak of 11,750.28 and theoretical[10] peak of 11,908.50)[11] and the broader S&P 500 on March 24, 2000 (closed at 1,527.46, with an intra-day peak of 1,553.11);[12] while, even more dramatically the UK's FTSE 100 Index peaked at 6,950.60 on the last day of trading in 1999 (December 30). Hiring freezes, layoffs, and consolidations followed in several industries, especially in the dot-com sector.
The bursting of the bubble may also have been related to the poor results of Internet retailers following the 1999 Christmas season.[citation needed] This was the first unequivocal and public evidence that the "Get Rich Quick" Internet strategy was flawed for most companies. These retailers' results were made public in March when annual and quarterly reports of public firms were released.[citation needed]
Some of the big business houses totally ignored the fundamentals and presumed that in the name of internet or new economy anything can be sold online and one can become a market leader overnight. One of the classic examples of this approach was that companies attempted to use a cookie cutter model as they tried to spread their wings on the global map. Many companies simply ignored the basic rules of due diligence of potential target market and customer base with respect to local market and needs. If an idea was successful in USA, it was assumed to be successful in other parts of the world, which did not turn out to be correct at the end of the day.
By 2001 the bubble was deflating at full speed. A majority of the dot-coms ceased trading after burning through their venture capital, many having never made a net profit. Investors often jokingly referred to these failed dot-coms as either "dot-bombs", "dot-compost" or "dot-shells".
Re: Hmmm........
Member #: 22852
Registered: 4/7/2003
Posted:
739
Occupation:
Wiring stuff together
Personal:
early 50s
Experience:
~36 years
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