Editorial: What If The Bubble Really Bursts?

Last week was certainly a scary time for investors. But whether it signified the end of an era--the proverbial bursting of the bubble--is unclear. The new economy, the sky-high valuations, the instant millionaire dot.com guys and gals are distressing to traditionalists.

But what if it all stopped? When I start to look back at the losses I think what this could mean for all of us in the future if the markets just never recovered. How do you value a company that has negative $5 a share earnings? Only 15 of the 57 companies followed in the Streaming Media Index have earnings at all and only 4 companies have a P/E of less than 50.

If investors become reluctant or unwilling to back these types of endeavors would they-- could they--exist in a solely private environment? Surely there would be no big VC's or Internet angels floating about to fund these guys if the reward was missing. Friday's significant fall forced two investors I know into negative equity. They were too heavily margined and they got caught, not willing to sell. Should these humble two be regarded as warriors for a modern day world, willing to put their money on the line for the good of us all?

Like it or not the inflated P/E's of the stock market have led to tremendous innovations. Whether in technology or medicine or whatever, the Wall Street payoffs that have become commonplace have affected our daily lives. Chips are getting smaller and faster, medicines are being developed faster and are coming to market quicker. The growth of human knowledge is growing at an unprecedented rate, and while some religious groups might see this as sign of the end of times, it has certainly made for change. Things do not always work in a proper or moral fashion when the motivating factor is money.

On the micro-level, things can be and are pernicious, and we must do everything we can to curb the unwanted effects of dollar first objectives. But taken on a more macro perspective desire for wealth can be positive; it fuels the fire of innovation. If the markets stop over-rewarding everyone we might see an end to this rapid development we have all grown accustomed to. From watching the market this week, it doesn't look like we will have to worry about any of this.