Steve and I, exhausted at the best of times, forgot our tiredness and looked to the future. Every week we fed our best ideas to Kate and kept her posted on all the new developments. She often told me it was like getting dispatches from the front lines of a war zone.

Four times more she did programs on convertible bonds, all of which featured us and our Web site. And right now she had the attention of the entire bond-investing world. The major publications, Barron's, Fortune Barron's, Fortune, and the Journal Journal, were forever writing about the convertibles, and we were getting hits from some of the biggest investors in the world, including Warren Buffett's Berkshire Hathaway and several other big value investors. Everyone was looking for information on ConvertBond.com. Everyone was talking about us. We were getting bigger and bigger, and shortly we would be named by Forbes Forbes as the Best of the Web. as the Best of the Web.

Kate for one brief moment seemed to think this was getting bigger than all of us, but I steadied her, told her that with her Wharton expertise and her natural flair, she could do anything. And I would do my bit to help make her an authority on convertible bonds in the media world.

"Kate," I said, "you can handle this."

She looked at me and said, "Larry, you're d.a.m.n right I can."

Finally, Steve arrived at the conclusion we both knew was inevitable: it was merely a matter of time before we launched our own corporation, aligned with our Web site, to trade convertible bonds online, to get into the sharp end of the game, buying and investing for clients, selling and advising. The slight drawback was that we would need a building the size of Fort Knox, with similar resources, to put such an operation together. Our present s.p.a.ce above the Chinese restaurant could not house such an organization.

Without getting too deeply into the nitty-gritty of setting up a trading operation intended to rival Lehman Brothers, Salomon, Goldman Sachs, and Morgan Stanley, we concentrated on the intellectual requirements for such a scheme and the computer resources required. In fairness, we were too busy to delve deeply into even that. But, true to form, one of us let it slip to one of the many journalists currently in touch with us that those were our plans, to open our own convertible bond trading floor on the Internet, the first one in the world.

I have never really known what kind of a reaction that caused among Wall Street's big hitters except for one of them, Tony Bosco, Morgan Stanley's managing director of convertible securities trading, who elected to contact us. Somehow he located our phone number, and I answered the call. I'll never forget what he said, very quietly: "McDonald? My name is Tony Bosco, and I'm calling from Morgan Stanley."

There was a silence, just for a moment, while I gathered my thoughts. And then a deafening roar came from the other end of the line: "Who the h.e.l.l are you guys? And what the h.e.l.l is going on?" "Who the h.e.l.l are you guys? And what the h.e.l.l is going on?"

I d.a.m.ned nearly dropped the phone, but I knew better than to hang around and get into a slanging match with this character. So I told him I was too busy right now and to call back later. Can you imagine, me telling the might of Morgan Stanley to call back? One of the great keepers of my lifelong holy grail, getting blown off by a guy who worked above a dry cleaner in suburban Connecticut?

Later that day he did call back and ranted and raved at us. It turned out his main gripe was about our rating system on the Web site, where we and thousands of our users around the world were apt to criticize new bonds that came out with, say, only a 3 percent coupon, the same as the bank. We would not have hesitated to dump on such a bond, and with our current 250,000-hit-a-day Web site having such influence over the global market, Tony apparently thought we had gone several steps too far.

One of the bonds Morgan Stanley was marketing had been clobbered by the ConvertBond.com a.n.a.lysts (Steve and me) on the grounds of "crummy credit and not enough coupon." Bosco was not having that. Even without our threat to become a bond-trading operation, we had already ruined his day. a.n.a.lysts (Steve and me) on the grounds of "crummy credit and not enough coupon." Bosco was not having that. Even without our threat to become a bond-trading operation, we had already ruined his day.

He yelled down the line, threatening b.l.o.o.d.y murder. "I'll sue your a.s.s ... I'll have you in court by Monday morning ... I'll have five partners on your case from the biggest law firm in New York. I'll bankrupt you with legal fees."

"Come on, Tony, that company's got s.h.i.tty credit and a stupid coupon. Our own online poll of global users wouldn't give five bucks for 'em." Before I hung up on him, I added, "And you know it. So you can stop bulls.h.i.tting me." We both sensed we had Morgan Stanley on the wrong foot.

At this time, there were Internet mergers and acquisitions all over the marketplace, like AOL Time Warner. And pretty soon there was a rumor that Union Bank of Switzerland was trying to buy us. The story broke in a couple of publications, and when it did, we thought that would really unnerve Morgan Stanley, who probably foresaw it would be difficult to market any convertible bond without our stamp of approval.

For a while Bosco was quiet, presumably a.s.sessing just how big a nuisance we really were. But one fact was obvious: if we gave a poor rating to any convertible bond, it would be more difficult to market, especially new issues, because people followed our advice, respected our a.s.sessments, and relied on our a.n.a.lysis and research.

I can just imagine Bosco's baleful stare as he glared at the screen, noting we had a.s.sessed one of Morgan's new bonds by saying, "This corporation has really shaky credit, too much debt, and the coupon's rubbish. Is this bond a buy? You must be crazy."

He called from time to time, mostly to remonstrate. I could just tell our presence was intermittently scaring Morgan Stanley to death. And in a very short time they made one of those decisions common to the bully boys of Wall Street. In the autumn of 1999 they made up their minds to buy us, just to get us out of the way, to get control of our loose-cannon Web site, the one that half the bond buyers in the country counted on for pragmatic a.s.sessments and information.

Tony personally opened the proceedings. Christ, he must have hated that-from loathing us to loving us in such a short time. He asked us gruffly what we considered ConvertBond.com was worth, and we told him that just then, with the dot-coms on the crest of a wave, the figure was possibly too much for him. He did not tune in to the joke. was worth, and we told him that just then, with the dot-coms on the crest of a wave, the figure was possibly too much for him. He did not tune in to the joke.

Steve and I could feel him seething down the line from New York. But he kept his cool and requested a number. I told him I could not really put a price on it, but I'd definitely know it when I heard it. Former pork chop salesmen can be pretty tough that way.

Finally he fired out a number. "How does that sound?" he asked.

"Pretty modest," said Steve. "Let's not waste our time. Larry and I have sweated blood to make this business into a cash cow. We do not need to give it away."

Tony Bosco was noncommittal, but then he upped his bid. There was a sadness about the discussion, because I think Steve and I both knew there was a chance Morgan Stanley only wanted ConvertBond.com to shelve it, to get it out of their lives. Anyway, we turned him down. We both thought Bosco's interest represented imperfect timing. We gave him what we thought a fair price was at the time, but warned that in three or four months, if dot-com stocks continued going to the moon, we might be worth a great deal more. to shelve it, to get it out of their lives. Anyway, we turned him down. We both thought Bosco's interest represented imperfect timing. We gave him what we thought a fair price was at the time, but warned that in three or four months, if dot-com stocks continued going to the moon, we might be worth a great deal more.

We were growing fast, but we had to deal with now. Morgan Stanley was champing at the bit to get us out of the way. And Tony Bosco was ready to up his offer. The downside for us was the huge gap the loss of our corporation would make in our lives. Nothing would ever be the same again, and we'd miss the fun, the sense of flying by the seat of our pants trying to make it work.

The following day, Tony came back and made another offer for ConvertBond.com. It wasn't even close to high enough, but we thought it over and figured we might be near the top of the market, and we took it. We shook hands over the phone and agreed to the contracts being drawn up. Morgan Stanley wanted us both to join them and the deal did not take long to put together. Our Web site would be controlled by the investment bank, and now they would operate it with our a.s.sistance.

And so I said good-bye to my first entrepreneurial success. I was going to a place one step nearer to Wall Street. And, in a sense, I was closer to my dream of a place among the elite than I had ever been. At the time, I was a thirty-three-year-old millionaire, and I thought I knew what was going on.

But little did I suspect that looming right up ahead was an enormous stock market crash that I would experience at close quarters-when the dot-coms went south in some kind of an atomic cloud.

* Chapter 7 of the Bankruptcy Code provides for "liquidation" (i.e., the sale of a debtor's nonexempt property and the distribution of the proceeds to creditors). Chapter 7 of the Bankruptcy Code provides for "liquidation" (i.e., the sale of a debtor's nonexempt property and the distribution of the proceeds to creditors).* Companies loved issuing convertibles not just because the coupon was lower, but because in a rising stock market, investors actually converted their bonds to stock, saving the companies precious cash. Companies loved issuing convertibles not just because the coupon was lower, but because in a rising stock market, investors actually converted their bonds to stock, saving the companies precious cash.

3.

Only the Bears Smiled.

What was wrong with the world that autumn after the catastrophe? Had it sent people off the rails? But after Enron collapsed, a spate of bankruptcies rocked our system. And they all involved convertible bonds.

NEITHER S STEVE S SEEFELD nor I had any idea about corporate structure. No clues about how things worked in a vast operation. We'd both been freewheeling too long, making our own decisions, paddling our own canoes. Together we'd founded a national business worth millions of dollars without ever having a meeting, writing a memorandum, organizing a conference call, or taking anyone out to lunch. To us, formality was just a pain-in-the-a.s.s waste of time. If you've got something to say, say it. If there's something to do, do it. If you've screwed something up, admit it. nor I had any idea about corporate structure. No clues about how things worked in a vast operation. We'd both been freewheeling too long, making our own decisions, paddling our own canoes. Together we'd founded a national business worth millions of dollars without ever having a meeting, writing a memorandum, organizing a conference call, or taking anyone out to lunch. To us, formality was just a pain-in-the-a.s.s waste of time. If you've got something to say, say it. If there's something to do, do it. If you've screwed something up, admit it.

Big corporations do not function in that way. First of all, they've got too many people on the staff who don't know their a.s.s from their elbow-legions of workers who could no more achieve what Steve and I had done with ConvertBond.com than fly to the moon. than fly to the moon.

The whole ethos of a major company is different. There's people forever trying to cover their own a.s.ses, people who have somehow carved an entire career out of making small but telling criticisms of other people's work. That's because in a big corporation the guy who spots a screwup is somehow cleverer and more valuable than the guy who wrote the forty-page marketing plan in the first place.

Fear is the key. Fear of being the one person in this whole mora.s.s of execs who got it wrong. Fear of being the scapegoat, fear of looking ridiculous, fear of being fired. Thus there develops a whole art form of corporate ducking and diving, staying out of the firing line, writing memorandums that somehow shift the responsibility, not being seen with your head above the parapet, subtly seeking the glory but always dodging the blame, carefully filing the memo that will ultimately exonerate.

Ideologically, Steve was not ready for Morgan Stanley, nor was Morgan Stanley ready for him. And there was probably a hint of things to come in the first few days. Our new bosses had taken a thorough look at our Web site, but they decided it needed changing. They actually said "refining," because that immediately made them look about twenty times cleverer than us.

But we didn't care. They could essentially do what they liked, and after three endless meetings with consultants and G.o.d knows who else, they finally figured out what they wanted.

"Okay," said Steve, who understood more about the system and its possible changes than all of them put together. "We'll get that done in a couple of days."

What? It was as if he had suggested we abandon Christianity to become Hindus. No, no, no, no. A full team of experts from the head offices of IBM would be called in, all of them doubtless earning at the highest possible rate. They'd move into Connecticut as soon as possible and begin work right away.

I can't remember how long they took, but they came to our new offices in Stamford, and the process went on for months. Steve and I were amazed, mostly because we had not tuned in to the corporate mantra that it doesn't matter how long it takes or what it costs, just so long as there isn't a screwup, with the attached blame and recriminations. Just so long as no one gets caught with their pants down.

I can't even remember what difference it all made in the Web site, but I should have noticed the difference it made in Steve. He became less interested. It ought not to be forgotten that he was a person utterly unused to talking to anyone cleverer or richer than himself. Such people need extra consideration, but that's not how corporations work. They are places where the pecking order is everything, where an unimaginative grunt may find himself in a superior position to someone like Steve. They might think that's okay. But it never is, because people like Steve cannot kowtow to anyone.

For a couple of months we soldiered on in our new quarters at One Landmark Square, Stamford. I think they originally only kept ConvertBond.com going as insurance, just in case the bond market did go online, as we had suggested. But Morgan Stanley clients loved it, and it was a perfect place to showcase the investment bank's immaculate research, masterminded by the peerless Anand Iyer. So we continued, spending some of our time in sales, some running the old database, and the rest in research. We also spent all our time writing memorandums and going to meetings. I should have guessed this could not last. going as insurance, just in case the bond market did go online, as we had suggested. But Morgan Stanley clients loved it, and it was a perfect place to showcase the investment bank's immaculate research, masterminded by the peerless Anand Iyer. So we continued, spending some of our time in sales, some running the old database, and the rest in research. We also spent all our time writing memorandums and going to meetings. I should have guessed this could not last.

One morning we were informed there was a big meeting taking place that afternoon. Then we were told there would be a meeting in the late morning to prepare for the meeting in the afternoon. That wrapped it up for Steve. Uttering the Shakespearean phrase "I can't put up with this f.u.c.king bulls.h.i.t for another minute," he quit, gathered up his stuff, and left, walking out of Landmark Square like Hamlet after realizing there was something rotten in the state of Denmark.

Before he left, we arranged to meet for dinner that night in a good local restaurant called Sixty-Four, right on Greenwich Avenue. And there, over a halfway decent bottle of wine and a couple of New York strip steaks, we celebrated our long partnership.

It's hard to recount my sadness. After all we'd gone through together, it was finally over. Outside the restaurant, we shook hands. Steve told me I was still the best friend he ever had. "Remember, we built it together," he said, "And I want to thank you for everything. I just can't put up with this corporate bulls.h.i.t."

It was raining that night, and I remember I just stood there, getting soaked, stunned at the loss of my wingman, somehow losing a friend I had worked with every day for three years. Deep inside I was devastated; I had never felt so lonely. As I watched Steve drive away, it was almost impossible for me to accept that I would not see him at the office in the morning. I was all alone. Just me and the holy grail that lurked in some corner of Morgan Stanley-not in the Stamford office, but in the midtown office in New York. I pulled myself together and ran back to my car, resolving to find that holy grail the very next day and kick it right in the a.s.s, for old times' sake.

As for Steve, he went off and bought himself a small twin-engine prop plane and spent his time flying to and from the Bahamas. We're still in touch, but it can't ever be the same.

With the original office now closed, my life began to center on Morgan Stanley, and that was not all bad. I had a decent salary plus bonuses, and one day a month I went into the main office in New York to learn the ropes among the heavies. I never did trade bonds, and then my main man, Tony Bosco, suddenly quit to run a hedge fund in South Carolina. For me, these events were not so much depressing as sad. I missed both Steve and Tony and had obvious adjustments to make in my own career. You always do when your buddies suddenly vanish from your life.

But, in near silence and with relentless efficiency, another great force was gathering in Washington, one that would have an effect on my life approximately ten thousand times more drastic than anything appertaining to the absence of Steve and Tony. It was the embryo Commodity Futures Modernization Act of 2000, edging its way forward throughout the spring, summer, and fall of that year.

My new boss was Anand Iyer, an exWharton man, managing director and global head of convertible securities research at Morgan Stanley. Anand was in his early forties, born in India and the best-dressed man in the bank if not the state of Connecticut; he lived in Old Greenwich. Now he a.s.sumed responsibility for the corporation Tony Bosco had purchased.

There are many different types of operators at the top of any big investment bank, but Anand could never escape the fact that he was a natural-born intellect, a thoughtful, scholarly guy who needed to unravel even the most complex of problems before he made a move. I guess one of the biggest faults you find all over Wall Street is guys making decisions about subjects they do not even remotely understand.

And so, as Wall Street lobbyists and politicians staged the great struggle for the Commodity Futures Modernization Act (CFMA) in faraway Washington, there was one pair of dark, penetrating eyes watching their progress. Anand did not, of course, know the future ramifications of the act. But he knew it mattered terribly, and he was aware that deregulation in this instance might or might not be in our best interest. As a matter of fact, he was not all that crazy about the repeal of Gla.s.s-Steagall either.

Let me just recap the significance of the CFMA, which would not be pa.s.sed until the end of the year. A major purpose was to deregulate the entire business of trading a credit default swap (CDS). This is nothing more than a bet-for instance, that a mortgage company will go broke and its bond value will sink to, say, 4 cents on the dollar. We're talking about a bet that would allow a big bondholder to go to an investment bank and say, "I hold $1 billion worth of bonds in Countrywide. The coupon is 5 percent, which is 1 percent more than a similar Treasury bond. I'll give you 90 percent of that 1 percent if you'll insure me for the present value of the bond all the way to zero, in case the corporation goes broke and my bond becomes valueless."

So far as the bank was concerned, that was pretty good business. For absolutely nothing, they would be paid a fee of $9 million a year. That was great for the balance sheet-unless, of course, the corporation went down, in which case the bank would hold a $1 billion liability. More often, the bank would sell the CDS to a hedge fund, which was more willing to take the risk. The bank would pick up a fast $200,000 fee and be rid of the ha.s.sle.*

However, the unseen aspect of the CFMA, the one that would turn it into a weapon of ma.s.s destruction, was the section that made an ancient illegality into a legal transaction. That was the part that allowed anyone- anyone-bondholder or no-to take out that insurance, to have a bet against Countrywide staying alive, without even holding one single bond. In times to come, hedge funds and investors, even banks, would start betting against these big mortgage corporations' survival, against corporations with big debts, and against corporations that were just plain inefficient. The merchant banks would have many opportunities to pick up juicy multimillion-dollar annual fees while crazily racking up literally billions of dollars' worth of liability.

Just take our first example-the bank that, for $9 million a year, was risking a billion on the survival of a major mortgage house. Let's a.s.sume they accepted bets from a hundred such sources, and in the end the mortgage house went down. That's a liability of $100 billion. Not many banks have the cash reserves to pay out that much. What seemed so appealing in theory may not, in the future, look so hot in the grim reality of the market.

Anand and I spoke of the coming CFMA from time to time. And while neither of us actually nailed the true problem, we sure as h.e.l.l wondered what might happen in the unthinkable event of the real estate market ever going south or if a large CDS financial counterparty was not there to make good on the transaction.

I had remained in touch with my old gas station rival Larry McCarthy, who was continuing to fly high in his own career and was now managing director of high-yield bond trading at Wa.s.serstein, Perella.

We spoke on the phone most days, much of the time talking about my own career, and my next step up the ladder, one that I hoped would take me to Wall Street. Larry was always one h.e.l.l of a good friend, and in some ways he was closer to me than Steve.

In those early days at the great investment bank Morgan Stanley, I was still riding the dot-com tidal wave when suddenly there came warnings from a highly predictable quarter. The old perma-bear, the one with the pitching wedge and the John Wayne swagger, was growling in his Cape Cod lair. While the entire investment world was making fortunes off this high-tech Internet bonanza, the word coming from that particular cave was full of foreboding, as was only to be expected. "Larry, this isn't natural," my father told me. "Therefore it has to be a bubble." He cared nothing that some of the great modern fortunes were being made in this new industry, which represented the ability to communicate and swap information with thousands of people at the touch of a keyboard. "It's c.r.a.p."

"Sorry, Dad, didn't quite get that."

"c.r.a.p," he confirmed. "Nothing ever changes. History always always repeats itself. This world has seen more bubbles than Moby d.i.c.k. Everything from silk to spices, from whale oil to tulips. They're all crazes, and in the end they all crash. And you can mark my words, this dot-com boom will end in tears." repeats itself. This world has seen more bubbles than Moby d.i.c.k. Everything from silk to spices, from whale oil to tulips. They're all crazes, and in the end they all crash. And you can mark my words, this dot-com boom will end in tears."

That was not all that was vexing him. In early November it had become apparent that President Clinton was going to sign into law the bill repealing the Gla.s.s-Steagall Act, the 1933 law that had the express purpose of keeping a wall between commercial banks and investment houses. So far as I can tell, looking back, my dad was the first person I ever heard blow the whistle on that repeal. And he blew it real hard.

Nothing could persuade him that any good could possibly come from taking down the wall. "It wasn't put there just to pa.s.s the time of day," he told me. "It was put there because of the crash of 1929 when the banks went down with people's honest-to-goodness savings, ruined 'em. And Senator Gla.s.s knew why. That act of his was purposely designed to keep people's deposits out of the hands of the G.o.dd.a.m.ned investment banking lunatics who gamble other people's money."

Somehow I always knew, like some kind of a sixth sense, that he was correct. But nonetheless I enjoyed playing the devil's advocate and reminding him of the new enlightenment, the current perceived wisdom on Wall Street.

"But, Dad, all the a.n.a.lysts on the Street say that things are different now," I would remind him. "Anyone will tell you that. The world is swinging toward global free trade, and most people think it makes no sense to constrain our investment banks any longer. Otherwise ambitious foreign banks, like Iceland's and the Brits, will run riot all over us."

"c.r.a.p," repeated Dad. "Wall Street investment houses darn near took this country down once in 1929, and given a chance they'll probably do it again. Clinton signs that bill, he does so at great risk."

I asked him if he thought Citicorp merging with Travelers and Chase Manhattan merging with J. P. Morgan were fascinating prospects for increasing the United States' financial clout on the open market.

"I do not," he said. "I see both as potential disasters."

Of course, he was just as bearish about the prospects of what he called the dot-com bubble. "The price of those stocks is just too d.a.m.ned high," he said. "Most of 'em have never earned a nickel, their P/E ratios are insane, and I am just waiting for the crash. You got a lick of sense, you'll start shorting them."

I always used to protest about this. Always argued how different things were today and what a revolutionary time this was. "This is the new economy," I told him.

"Not so," he once replied. "It's just the same as the old one. And the same rules apply. And right now we seem to have about seven thousand dot-coms when the world probably needs about two hundred."

He'd been reading some report that claimed shopping malls were darn near obsolete. That within two years everyone would do their shopping online. According to the a.n.a.lysts, there would be hardly any shops.

"c.r.a.p," said Dad. "The retail world will hit back."

"How the h.e.l.l will a chain of bookstores. .h.i.t back," I asked, "when an outfit like Amazon will deliver any book in the world to anyone within forty-eight hours?"

"I guess people like picking up books and holding 'em," he said, "checking 'em out. There'll still be bookstores. They've been there for hundreds of years, and they'll still be there in the next century."

I pointed out that the next century was only about eight weeks away, and he retorted that he didn't care if it was fifty years away, there'd still be bookstores. In his considered opinion, the market would darn soon find out that these dot-com no-profit operations with their crazy stock prices were just a bubble. And like all bubbles, this one would surely burst.

I shook my head at the sheer uncomprehending mind-set of the old-fashioned investor. And I didn't even hear my dad's parting shot about getting myself a crash helmet.

Anyway, President Clinton signed the act repealing Gla.s.s-Steagall into law on the afternoon of November 12, 1999, with or without my dad's approval. And some truly momentous events began to rumble into place.

Citigroup had been formed by a merger that was illegal at the time it took place, as it violated Gla.s.s-Steagall, but now it was legal. The old Citicorp merging with Travelers gave them ownership of Primerica, which represented the fulfillment of my dad's dread: a huge commercial bank owning an investment house. As he put it, it was like "giving the gambler access to other people's savings."

And that was not all. Chase Manhattan, which had long nurtured ambitions to get into the stock market and start making some serious investments, almost immediately began moves to merge with J. P. Morgan, another investment house. Once more we were on the road to a situation where the smaller high-roller could be given unlimited backing by its masters-my dad's recipe for disaster.

These machinations by the Wall Street giants were conducted in the lowest-profile manner possible. Certainly they were not the issues everyone was discussing on a daily basis. That topic was very definitely the dot-com boom, and in the Stanford office of Morgan Stanley I represented the future. Steve and I had been that dot-com boom, a couple of characters who had walked off with a pile of dough in the midst of the riotous climb of the high-tech stocks.

That Christmas, I spent a little time with my dad, and once more we talked about the boom that had made me reasonably well off. Still the old man didn't buy it. When I returned to the office in the New Year his words were often on my mind. And I kept seeing statistics that I knew would cause the bear to start growling all over again. One of them was the financial report I was studying on the hugely fashionable California-based multinational Cisco Systems. I was poring over its numbers, trying to get a handle on them, when I had a sudden intuitive leap of understanding.

Cisco Systems basks in the sunlight of San Jose, a few miles southeast of San Francisco near the Santa Clara Mountains. The only thing I really knew about the area was it contained the giant telescope of the Lick Observatory, through which one could perhaps see infinity. But right here in Morgan Stanley, Landmark Square, Stamford, I was staring at a number that surely must have come from outer s.p.a.ce. Cisco Systems, which designs and sells networking and communications technology, claimed a market cap of $555 billion $555 billion. That made it, so far as I could tell, the highest in the world, bigger than ExxonMobil, bigger than everyone else.

At first I thought it might be a misprint. Better check out the price/earnings multiple Better check out the price/earnings multiple. At that point I thought fifty times earnings was exorbitant. My eyes almost popped out of my head when I saw Cisco's-they were valued at 160 times earnings 160 times earnings. One way of looking at that is to remember that if anyone bought the corporation at that price, at current trading levels, it would take 160 years to get the purchase price back. The same applied to buying its equity. This, I concluded, was nuts. But since I had only been at Morgan Stanley a short while, I didn't want to start raising h.e.l.l. Still, that night I went into the market-not recklessly, just a modest investment-and shorted Cisco, just the way Dad had advised. I knew that if I told my dad about Cisco's numbers, he'd just laugh. You can't fool a bear, right?

In the ensuing weeks we started to see the dot-com bubble go south. Which was probably a major shock for those thousands of investors who had dived into new public offerings by the tech companies without even checking to see when, if ever, they might make a profit. Blinded by phrases like networking, new paradigm, consumer-driven navigation networking, new paradigm, consumer-driven navigation, or tailored Web experience tailored Web experience, people had lavished money into this section of the market.

By March I was having serious doubts, as the son of any true bear would. The whole thing was a phenomenon, and pretty soon the dotcom corporations started reporting huge losses. Then they started to collapse. In the coming months Cisco Systems would eventually lose $400 billion of its market cap.

As the fall approached, the wreckage of the dot-com dream was scattered across the marketplace. And it did not escape me that if Steve and I had tried to sell ConvertBond.com nine months after we did, they'd have handed us a bucket of oats. nine months after we did, they'd have handed us a bucket of oats.

There were enormous losses, especially from the 117 dot-coms whose stock had doubled on the first day of issue in 1999. Altogether that year there were 457 dot-com initial public offerings (IPOs). In 2001 there were only 76, and there is no record of the stock price of any one of them doubling on the first day of issue.

No industry in the entire history of stock markets has ever evaporated that quickly. At that time there were 280 stocks on the Bloomberg U.S. Internet Index, and their value fell by a combined total of $1.755 trillion in seven months $1.755 trillion in seven months. Seventy-nine of them crashed 90 percent from their fifty-two-week high. Seventy-two more were down more than 80 percent.

Looking back, I can obviously see that it was one of the greatest fiascos of all time. It was a moment when investors were prepared to forgive anything: heavy losses, no profits, lousy management, half-crazed geeks trying to be businessmen, not enough advertising on the Web pages, and a grotesquely unrealistic estimate of future success. If it had anything to do with the Internet, no matter how remote or unlikely, there was a stampede to get involved. Steve and I had ridden high on that wave, of course. But from my perspective now, it was like walking out of a nuthouse with what seemed like a king's ransom.

I happen to be a world expert on hindsight, having been blessed with it myself. But as I reflect on that summer of high carnage in the first year of the new millennium, it seems fairly obvious that the world market needed only around four disk-drive makers. Venture capitalists, however, financed fifty of them.

I am thus drawn back to the views of my own father. He said it was a bubble. He said it could not possibly be either real or sustained. And he forecast an almighty crash, an industry that both went up and came down with a roar heard around the world-the dot-com crash of 2000, when only the bears smiled.

The events of that long summer had a profound effect on me. Every day I listened to those who had gambled, won, and then lost. But for me there was only one voice that was consistently right. And that voice lived in a somewhat luxurious cave on Cape Cod. Suddenly I realized something: in spirit, I was very much like my father. By inclination I was not a true perma-bear, but I was nonetheless a bear. Or perhaps I was a vulture; that's a slightly different breed, but much the same, one of G.o.d's creatures that can smell death when it's in the air.

Way back in the 1980s, during my final year in college and for the next two years, there were diabolical tremors in the financial markets. There was the stock market crash of 1987, when on Black Monday, October 19, computerized program selling caused the largest one-day percentage decline in stock market history. I remember my dad showing me the graph-it looked like the vertical drop from the high point of a Coney Island roller coaster.

And then there was the savings and loan crisis of 198890, which took years for the government to repair. That was a bank problem, when 747 of them failed. In a way, this was the forerunner of the trouble that loomed ahead when Gla.s.s-Steagall was repealed. Needless to say, throughout that entire time my dad was right about the market.