It isn't a new thing, it was rampant in 1998, some say it was rampant in 1982 as well.

Having lived through the dot com crash of the late 90's I have thought a lot about what went into that event. It is easy to be dismissive and "blame the suits" or the "bankers" but the reality is much more nuanced than that.

I have come to conclude that it depends on what goal is driving the bulk of the community. During a 'non-boom' the driving force is often engineers and designers who are spending all of their capital on solving a problem, or changing the efficiencies of an existing system to favor a different part of the value chain. You get a lot of folks thinking like that and eventually you get a couple of winners. That winning inspires other engineers to either work around similar spaces to see if they can replicate the success. A "wave" is started, whether it is "microprocessors", "the web", or "social media" or any other technology, it generates some success for people who get the value and can plug it into the bigger economy.

As that happens it starts generating economic value which gets translated into cash (the thing everyone thinks they understand).

That cash then attracts a different kind of person. Someone who can use cash to make more cash, they are meta-engineers if you will, playing off the second derivative of innovation, the change in cash flow over time. Their secret sauce is that they perceive the forces that are changing the cash flow and they speak to non-technically inclined folks about tapping that flow to send some cash their way. Imagine everyone in the world had gone wild for buying tulips, these people come in and find the folks who see people getting rich on buying and selling tulips, but don't understand tulips, or the attraction in tulips, and whisper that they know a farm that is growing outstanding tulips and will be harvesting soon.

What this other set of people have done, is to start influencing capital toward the 'new thing' but through their fingers. And they take a cut of course.

The truth is though that there has always been (and perhaps always will be) more capital than Silicon Valley can successfully convert into improvements into systems or new solutions to problems. And so this capital sits on the sideline until the third actor in our play arrives.

That is the person who is going to "get rich" in Silicon Valley. These people spin stories, stories that sound enticing and world changing. Stories about frictionless sharing or paradigm shifting. Stories about turning opportunity into massive shifts of economic power, political power, or both. They spin the story of changing the world, if only there was someone with the courage and the vision to back them in their quest. And at some point, that capital that is sitting on the sidelines "missing" this opportunity, sets aside the common sense its managers had and starts to make some big bets. Because everyone knows you need a lot of money to make a lot of money.

And that is where things have gone off the rails, at least twice before and perhaps now for a third time. Money begins to flow in, it goes to some great people, it sometimes knocks good projects off course, and it goes to some folks who are just good at talking. The the number of 'good' things that are happening with it, goes down quickly. When the diligence drops below the minimum sustainable level, the game board is set for some spectacular failures. And those failures are unavoidable, like a train engineer seeing a car on the tracks half a mile away, knowing it takes over a mile to stop the train, even with all wheels locked.

While I feel like I've analyzed the dot com crash enough to understand the mechanisms in play, I have yet to figure out any scheme or system which could prevent it from happening. That makes me sad.