Financial Markets and High Tech Startups – Part II

Posted on September 16, 2008
Filed Under Advanced Search, Business, David Waldman, Gogimon, International, Israel, Palestine, US, US economy, United States, Wall Street, World Economy, business trends, economy, financial, financial markets, government bailouts, investment, investors, money, profit, technology | Comments Off

With Wall Street spiraling into down one of the most tumultuous periods since the great depression, investment in startup companies may be halted, or at least harder to find. Frankly, no one is quite sure how all the rather incredible and fast developing events on Wall Street will affect the high tech world. The future of small companies seems bleak as the shortage of ready cash will minimize further development. The latest news of the complete collapse of Lehman brothers and the take over of Merrill Lynch will surely slow down the money flow in the short term, that is very bad news for high tech startups.

Jack Williams, resident scholar at the American Bankruptcy Institute and a professor at Georgia State College of Law says: “Bankruptcy filing for Lehman has destroyed any credibility it had left.” Incredibly enough, the Lehman Brothers Bank still has assets of about $639 billion though they may be assets that are connected to companies that guaranteed high risk loans. All the billions lost in Lehman’s and other bank collapse will pull huge amounts of money that would otherwise have been reinvested in budding new high tech firms.

Some have theorized that there could be some cash relief for some small companies, as people who were burned from unwise investments in Wall Street will look to high tech. That would be wishful thinking as a cash crunch will first and foremost affect those who need the cash the most. Alas the survival of the fittest will be the norm as the cash squeeze will forces more aggressive tactics on the part of companies procuring funds.

All this happened following a small rally as a result of the fed bailing out two very large companies Fannie Mae and Freddie Mac. That rally was artificial and very short lived, as reality settled in when Lehman Brothers could not pay its creditors and filed for bankruptcy.

Who is to blame who is to gain and where have all the billions gone? The blame falls squarely on the shoulders of the CEO and others who bought high risk loans and guaranteed them. Tech firms that can convince frazzled investors to invest in the next great idea are the ones to share in the gains. The billions have gone into the pockets of those who gambled the market would go down. The rest of the money was just on paper.

As the financial world and world at large are grappling with the new reality of the collapse of Lehman Bros and its repercussions, a new order in the world of finance is unfolding. This order presumably would be one of much greater adherence to healthy lending policies. There would be no more legal loan sharking. People who were high risk would not receive loans and everyone else would not benefit from the huge interest made on these loans. This interest was never made but led to the partial collapse of the financial world that most have come to recognize. Greed in this case led to financial ruin for many.

Something to ponder…

David Waldman

[Mr. Waldman is Managing Director of Gogimon Advanced Search Channel, an Israeli search startup]