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DEREGULATION REDUX 

of the Great Depression), this crisis soon faded into memory. But not before, in Feb-
ruary , Time magazine featured Robert Rubin, Larry Summers, and Alan
Greenspan on its cover as “The Committee to Save the World.” Federal Reserve
Chairman Greenspan became a cult hero—the “Maestro”—who had handled every
emergency since the  stock market crash. 

DOTCOM CRASH: “LAY ON MORE RISK”
The late s was a good time for investment banking. Annual public underwrit-
ings and private placements of corporate securities in U.S. markets almost quadru-
pled, from  billion in  to . trillion in . Annual initial public offerings
of stocks (IPOs) soared from  billion in  to  billion in  as banks and
securities firms sponsored IPOs for new Internet and telecommunications compa-
nies—the dot-coms and telecoms. A stock market boom ensued comparable to the

great bull market of the s. The value of publicly traded stocks rose from . tril-

lion in December  to . trillion in March . The boom was particularly
striking in recent dot-com and telecom issues on the NASDAQ exchange. Over this
period, the NASDAQ skyrocketed from  to ,.
In the spring of , the tech bubble burst. The “new economy” dot-coms and
telecoms had failed to match the lofty expectations of investors, who had relied on
bullish—and, as it turned out, sometimes deceptive—research reports issued by the
same banks and securities firms that had underwritten the tech companies’ initial
public offerings. Between March  and March , the NASDAQ fell by almost
two-thirds. This slump accelerated after the terrorist attacks on September  as the
nation slipped into recession. Investors were further shaken by revelations of ac-
counting frauds and other scandals at prominent firms such as Enron and World-
com. Some leading commercial and investment banks settled with regulators over
improper practices in the allocation of IPO shares during the bubble—for spinning
(doling out shares in “hot” IPOs in return for reciprocal business) and laddering

(doling out shares to investors who agreed to buy more later at higher prices). The
regulators also found that public research reports prepared by investment banks’ ana-
lysts were tainted by conflicts of interest. The SEC, New York’s attorney general, the
National Association of Securities Dealers (now FINRA), and state regulators settled
enforcement actions against  firms for  million, forbade certain practices, and
instituted reforms. 
The sudden collapses of Enron and WorldCom were shocking; with assets of 
billion and  billion, respectively, they were the largest corporate bankruptcies
before the default of Lehman Brothers in .
Following legal proceedings and investigations, Citigroup, JP Morgan, Merrill
Lynch, and other Wall Street banks paid billions of dollars—although admitted no
wrongdoing—for helping Enron hide its debt until just before its collapse. Enron and
its bankers had created entities to do complex transactions generating fictitious
earnings, disguised debt as sales and derivative transactions, and understated the
firm’s leverage. Executives at the banks had pressured their analysts to write glowing