Critically discuss the view that capital markets created the Essay - 4

Critically discuss the view that capital markets created the conditions that led to the new economy bubble and the banking crisis - Essay Example This essay aids, to discuss the view that capital markets created the conditions that led to the â€Å"new economy† bubble and the banking crisis. Old economy firms were or are large, well established firms that operate in a form of traditional sector. Old economy firms have small investment and less involved in the current technology era (Torre & Schmukler 2007, p. 88). These old economy firms were the ones, which dominated the entire economic activities before the introduction of the dotcom epoch. The current dotcom era ushered in the economy back in the 1990s, leading to the creation of new and high-growth firms hence improving the economic status of many countries â€Å"bubble† and causing banking crisis internationally. Old economy firms usually exhibit low volatility and suffer continuous dividends as they continue to participate in mature firm sectors, which tend not to provide potential investments for companies (United Nations Conference On Trade And Development 2009, p. 90). In contrast, new economy firms operate in advance technology industry sectors and the highly competing and successful firms have the opportunity of building value at a higher growth rate. Good examples of these new economy firms include primary firms, whose operations involve commerce and technology-based services such as Intel, Google, eBay, and Cisco. These new economy firms typically operate in environments, which are extremely different from of the old economy firms and have more volatile stocks (Stiglitz & Ocampo 2008, p. 30). New economy firms do not necessarily pay dividends since they opt to reinvest their profits into new businesses or expansion. Old and new economy firms not only differ in terms of their activities, but also they differ in the way markets value them. New economy firms tend to have strong volatility valuations since their modes of