There’s a persistent myth about the Dotcom bubble. The story goes that a generation of over-excited retail investors, glued to their TV screens, got swept up in a speculative frenzy about the internet. It’s a simple narrative that blames the public for the inevitable crash. It’s also wrong.
In truth, the Dotcom boom was shaped by politics. It was the product of the Thatcher-Reagan era and the Wall Street culture that followed. Those years encouraged innovation and deregulation, but by weakening oversight they also opened the door to mis-selling and conflicts of interest.
The “greed is good” ethos of the 1980s, captured in pop-culture icons like Gordon Gekko and Patrick Bateman, wasn’t just a caricature. It reflected a real shift in how people got paid.
Politics and culture matter because, for the most part, financial products are sold, not bought. Few retail investors wake up wanting IPOs, life insurance or managed funds. They rely on professionals to assess value and risk. When those professionals are incentivised to sell rather than advise, nothing good happens.
What Drove the Dotcom Bubble
By the late 1990s, two main forces powered the tech boom: US investment banks and the old wirehouses (i.e. retail brokers).
Investment banks were the manufacturers. They produced a torrent of IPOs, many of questionable quality. Their analysts, often part of the same teams that managed those IPOs, were deeply conflicted. They appeared on television with glowing “buy” ratings designed to stimulate demand. The banks pocketed underwriting fees and bore little risk when the shares collapsed.
Retail brokers distributed these deals to everyday investors. At the time, the industry operated under commission-driven models that rewarded transaction volume. Getting paid based on sales was standard across global finance, but it encouraged activity over alignment. With limited oversight and strong sales incentives, mis-selling became common. Like the banks, brokers carried little risk in the stocks they promoted.
It was this – a conflicted sales process – that manufactured the Dotcom bubble.
The Pendulum Swings Back
After the crash, regulators moved in. The Sarbanes-Oxley Act and the Global Research Analyst Settlement forced clear separation between research and banking, strengthened disclosure rules and reined in commission-driven sales. These reforms addressed the main problems in public equity markets.
But deregulation remained in debt and derivatives. History repeated in 2008 when conflicted mortgage sales created the subprime lending bubble. Brokers and bankers sold loans to people who had no business owning them. Paid on volume, they passed the risks to others through the alphabet soup of CDOs and CLOs.
Regulators struck again, this time harder. Dodd-Frank required greater risk retention, and the Volcker Rule banned trading against one’s own clients.
Why Today Is Different
Two decades on, the landscape is unrecognisable.
Today’s advisers and brokers operate in a completely different environment. They’re bound by best-interest duties and heavy compliance frameworks. Commercially, the focus is on long-term relationships and transparency. It’s a far more professional and accountable industry than that of the 1990s.
Investment banking has retreated to the institutional world. Retail investors are rarely offered IPOs directly. Conflicts between research and corporate finance are now policed aggressively. The powerful machine that once manufactured and distributed hype to the public has been dismantled.
Crucially, today’s AI boom bears little resemblance to the Dotcom mania. Companies such as Nvidia, OpenAI and Palantir aren’t being inflated by conflicted research or retail salesmanship. The buyers are institutional investors, pension funds and family offices – investors with governance structures and analytical depth to assess the risks themselves.
Speculation still exists, but the regulatory and cultural foundations that enabled the Dotcom and mortgage bubbles have changed. Markets now operate under tighter rules and far more professional sales and marketing systems.
Better, Not Perfect
None of this means markets are immune to exuberance. Human psychology hasn’t changed. Investors will still chase growth stories, and assets will still overshoot. But the mechanisms are different – driven by interest rates, macro policy and momentum trading, not industrial-scale mis-selling.
The 1990s were a product of a specific moment in financial history, when deregulation outpaced discipline. That world is gone.
Lily Tomlin once said, “No matter how cynical you get, it’s impossible to keep up.” But sometimes things really do get better.
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