| In the wake of the dotcom crash the Fed was forced to lower the cash rate to 1%. Cheap and easy money was a huge contributing factor in creating the subprime disaster. Now the rate is 0%. This can end no other way than badly. The words "too big to fail" should send a chill down your spine. Wall street as it stands now has absolutely no aversion to risk because if everything goes pear-shaped the Fed will probably bail them out. I call this welfare for investment bankers. And it's a terrible, terrible idea. Anyway, back to VC, we already see the early signs of a bubble: a system awash with cash, high seed valuations, some fairly dubious enterprises being funded, etc. We all know how this song ends. At some point the house of cards will fall.some companies, VCs and investors will go under. Money will tighten up. Some real businesses will get caught in the crossfire and die. Valuations will go down. Companies won't get funding as a result (we've already seen this with companies seeking funding with 2007/2008 valuations; Mark Suster has written about this). Oh and the other consequence of that collapse is that it will be a great time to start a business as talent will be much cheaper. |
You know, both vigilance and long-term thinking are admirable traits. But don't you think it's a bit premature to become gloomy about the next recession? I mean, our economy hasn't really started to recover from the last one.
Besides this, I doubt the financial markets had this level of introspection before the housing collapse. Most banks regarded subprime mortgages as a sure thing and were largely caught unaware (even if they were unaware because they ignored the facts). Don't assume that a collapse is inevitable. A bubble doesn't grow if investors don't let it. So there's a good chance that a collapse will either be averted or won't be that bad.