What If the Feds Bailed Out the Busted Dot-coms?

What if the government had spent $750 billion to bail out the dot-com companies when the Internet bubble collapsed in 2001?

I’ve been thinking about this as I’ve watched the feds run the spectrum from rugged free market individualist (tough luck, Lehman Brothers, don’t let the door hit your butt on the way out) to a socialist bankers paradise (we can’t fail as long as the U.S. Treasury has ink and paper). Were those dot-com companies too important and too big to fail?

If that had been the decision, I’d guess the world would look something like this.

Webvan 

Thank goodness the feds decided to bail out Webvan from its 2001 bankruptcy with a $10 billion cash infusion. Unless the online delivery grocery business was preserved, it was clear what a terrible food crisis we would all be now having. While people would be able to order their groceries online, without Webvan there would be no way to get those groceries from the stores to the homes. Grocery stores would be awash in undelivered inventory as no one could think of a way to travel from a house to a store to get those packages. There would have been a food surplus (at the store) and a food shortage (at the home) of unimaginable proportions that the United States would have had to fix.

A few entrepreneurs may have considered an economy where people drive to the stores with a shopping list, but economic experts didn’t see much of a chance of this catching on. Government economists estimate that it costs the Treasury $150 to deliver every $10 order of beer and chips, which is expected to decrease at 1 percent per year.

Pets.com 

The countryside would be crawling with starving, crazed, dangerous pets if the government had not decided to prop up Pets.com with $2 billion in funding in 2000. While similar to the Webvan problem of how to bridge the gap between the hungry pooch at home and the warehouse full of dog food, the pet crisis had an additional, far more sinister twist. Little did homeowners know that when the cute little dog sock puppet got hungry, the pet owner suddenly started to look a lot like dinner.

Again, it was government funding that came to the rescue by buying its own fleet of dog and cat food trucks to deliver the supplies. Quick thinking all around.

CMGi 

Of course, the vital venture capital funding pipeline would have faltered and failed without the government’s decision to pump $50 billion into CMGi. The revolutionary idea that companies don’t need products, expertise or sales was a concept that had to be preserved and encouraged. Without the government’s willingness to step in and grow the dot-com company creation economy, startups would have been forced to come up with real products for which real customers would plunk down real cash. Aren’t we glad that never happened?

Comdex 

And where would the tech industry be without the fed’s decision to pour $5 billion (and counting) into the Comdex trade show in Las Vegas? Comdex is the only place where buyers and sellers can confab over drinks, and it is impossible to consider that any other location or venue beyond Las Vegas would be a sensible site for techies to see the new toys.

By subsidizing a yearly event where every techie in the world gets a free trip to Vegas, not only is the tech industry assured of continued survival, but the concepts of the endless buffet, the Elvis impersonator and the lap dance have advanced all of civilization.

Anyway, you get the idea. Sometimes bailing out the folks who got us into the mess doesn’t seem to make too much sense.