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<nettime> The Madness of King George - Gary Rivlin

    The Madness of King George

    George Gilder listened to the technology, and became 
    guru of the telecosm. The markets listened to his 
    newsletter, and followed him into the Global
    Crossing abyss. yet he's never stopped believing.

    By Gary Rivlin

    The lunch plates were cleared long ago, and the waitress 
    gazes vacantly out over an otherwise empty dining room. 
    But George Gilder, his legs propped on a nearby chair, 
    seems rooted in place, not quite ready to leave. We're 
    lingering at a restaurant down the street from his 
    office in Great Barrington, a hamlet set along a rural 
    highway that winds through the southern tip of the 
    Berkshires in western Massachusetts. Here, one of the 
    tech world's more famous - and controversial - prophets 
    is contemplating how he could have been so right over 
    the past half-dozen years and yet seen everything turn 
    out so terribly wrong. A look of anguish clouds his 

    "I knew that it was going to crash, I really did," 
    Gilder says, looking out a window on to Main Street. 
    Since 1996, he has published the Gilder Technology 
    Report, a monthly newsletter that in its heyday was 
    arguably the most influential tout sheet on Wall Street. 
    He glances my way and notices my arched eyebrows. I had 
    plowed through several years' worth of issues, and while 
    I read page after page of praise for a lengthy list of 
    seemingly promising telecommunications companies, I saw 
    nary a hint of warning in anticipation of the Nasdaq's 
    March 2000 tumble and the financial tumult that 
    followed. He adds quickly, "I told people in early 2000 
    they should sell half their shares in these companies." 
    Then he says, in a tone of self-rebuke: "I didn't say it 
    often. I didn't put it in a newsletter."

    He made the recommendation to sell, he admits, only 
    within the limited confines of the Telecosm Lounge, his 
    online salon for newsletter subscribers. He fumbles for 
    words, starting one sentence, then another, before 
    growing uncharacteristically silent and staring off into 
    the distance.

    For a moment, he seems to be imagining what might have 
    been if things had turned out differently. Gilder, 62, 
    is the author of a dozen

    Photo by John Midgley books; he has been shouted down by 
    feminists on The Dick Cavett Show in the 1970s, faced 
    off with Dan Rather over trickle-down economics on 60 
    Minutes in the 1980s, and debated the future of 
    technology with the likes of Andy Grove and Bob Metcalfe 
    in the 1990s. Now many of his partisans are calling for 
    the tar and feathers. He starts another sentence, and 
    again cuts himself off. Suddenly he squares his body, 
    turns to me, and expels a slight, disbelieving laugh. 
    "When you're up there surfing," he says, "the beach 
    looks beautiful. You never think about what the sand in 
    your face might feel like until after you've crashed."

    For a short stretch during the late 1990s, Gilder's 
    newsletter made him a very wealthy man. Anyone taking a 
    cursory look at it might wonder why. Every issue is 
    densely freighted with talk of lambdas, petahertz, and 
    erbium-doped fiber amplifiers. The eighth and final 
    page, however, explains how so geeky a publication 
    attained, at its zenith, an annual subscription base of 
    $20 million. It's on the back page that Gilder lists the 
    stocks he has dubbed "telecosmic" - companies that have 
    most faithfully and fully embraced the "ascendant" 
    telecom technologies in which he believes so wholly and 
    deeply. "For a few years in row there, I was the best 
    stock picker in the world," Gilder says ruefully. "But 
    last year you could say" - here, for emphasis, he 
    repeats each word as a sentence unto itself - "I. Was. 
    The. Worst." Most of the companies listed have lost at 
    least 90 percent of their value over the past two years, 
    if they're even in business anymore.

    None exemplifies Gilder's rise and fall more than Global 
    Crossing, which filed for bankruptcy - the fourth-
    largest ever - in January. Even in a portfolio of flops, 
    the scope and depth of this particular debacle stands 
    out. "It will change the world economy," Gilder wrote a 
    few years ago about the company. After reading its 
    master plan, which called for the laying of fiber-optic 
    cables across the world's oceans and between its great 
    cities, Gilder proclaimed that for 10 years he had been 
    searching for a business this audacious and awe-
    inspiring. He declared Global Crossing his favorite 
    stock, and staked his financial future on it. While he 
    avoided investing in practically every company he wrote 
    about because of the potential for charges of conflict 
    of interest, this was a notable exception. "Global 
    Crossing going bankrupt?" Gilder asks, a look of 
    disbelief on his face. "I would've been willing to bet 
    my house against it." In effect he did. Just a few years 
    ago, he was the toast of Wall Street and commanded as 
    much as $100,000 per speech. Now, he confesses, he's 
    broke and has a lien against his home.

    During a period when blind optimism got the better of so 
    many, no one was more blithely optimistic about our 
    wired future than Gilder.

    Photo by John Midgley Beginning in the mid-'90s, he 
    advanced the argument that the businesses which most 
    aggressively embrace fiber optics, wireless 
    communication, and other telecommunications 
    breakthroughs would soar in the meteoric fashion of an 
    Intel. It was Gilder, as much as anyone, who helped 
    trigger the hundreds of billions of dollars invested to 
    create competing fiber networks. Then everything 
    imploded, and company after company went under. The 
    telecom sector proved to be an even greater financial 
    debacle than the dotcoms. Yet he's still convinced he 
    was dead-on right in most of his prognostications.

    And the damn of it may be that Gilder has a point.

    In addition to being famously optimistic, Gilder is also 
    a contrarian. In the mid-1990s -†while the rest of the 
    world was grousing about the slowness with which images 
    and large packets moved over the network, and some very 
    smart people fretted that the Internet would collapse 
    under its own weight - Gilder was already talking about 
    the coming age of network abundance. And being Gilder, 
    he didn't stop there. He vividly imagined a "new epoch 
    of spirit and faith" in which all of us would live in 
    the "majestic cumulative power, truth, and transcendence 
    of contemporary science and wealth." He also coined the 
    termtelecosm to describe the merging of newer 
    technologies, especially fiber optics, with existing 
    telecommunications systems.

    Gilder first spied the revolutionary potential of fiber 
    optics at the start of the 1990s, when he shared a 
    conference podium with Will Hicks, one of the field's 
    luminaries. Hicks had predicted that fiber-optic cable, 
    if it were made thin enough, could transmit bolts of 
    light like photons shooting out of a ray gun. Gilder 
    recalls the moment as one of the rare times he 
    encountered someone even more Panglossian than himself. 
    "I had always taken it for granted," he would later 
    write, "that in any assemblage of pundits, I would be 
    the most cornucopian - the most hyperbolically assured 
    that silicon could save the world."

    The predictions Gilder has made in the intervening 
    decade suggest that he vowed to never again permit 
    anyone else to convey a vision of the world more 
    exuberant than his own. In 1996 he foresaw that, because 
    of broadband's potential to deliver online learning, 
    within five years "the most deprived ghetto child in the 
    most benighted project will gain educational 
    opportunities exceeding those of today's suburban 
    preppy." It was a preposterous assertion, and hardly the 
    only one that seems absurd in the harsh fluorescent 
    light of the morning. He also claimed that the Web would 
    soon bring on the quick death of both the US Postal 
    Service and television. But none of this rendered 
    Gilder's optimism any less contagious given the light-
    headed exhilaration of the times.

    Yet to dismiss Gilder as just another poster boy for the 
    reckless optimism of the late '90s would be a mistake, 
    for the technical analysis

    Photo by John Midgley undergirding even his more utopian 
    flights of fancy was prescient. Forget terms like 
    megabits, gigabits, or even terabits when describing the 
    flow of data over the Internet. Soon enough, we'll be 
    measuring things in petabits, or 1 quadrillion (1,000 
    trillion) bits, because of fiber optics - information 
    traveling via photons flying over strands of glass 
    fiber. The only question is whether we'll see this day 
    as quickly as Gilder imagines. He asserts that by 2004, 
    networks of glass superhighways will deliver 8 petabits 
    per second over optical cables. "I listen very closely 
    to what George says, and then automatically add five 
    years," says Google CEO Eric Schmidt, who first 
    encountered Gilder in the early 1990s when Schmidt was 
    Sun's CTO.

    The potential of fiber optics is indeed staggering, 
    though not entirely without precedent, and therein lies 
    Gilder's greatest contribution to the field. He opened 
    minds to the technology by drawing on his understanding 
    of past innovation; Moore's law accurately anticipated 
    that the density of transistors on a computer chip would 
    double every 18 months. Gilder decided to make a 
    prediction of his own, and in 1998 he unveiled an axiom 
    he dubbed the law of the telecosm: The world's total 
    supply of bandwidth will double roughly every four 
    months - or more than four times faster than the rate of 
    advances in computer horsepower.

    Has it panned out? Yes and no. By mid-2000, Gilder had 
    already recalculated his theorem (and immodestly renamed 
    it in his honor): Bandwidth would double every six 
    months. Gilder notes that several years passed before 
    Moore's law revved up to its mind-bending pace. Then he 
    shifts into deep geek mode, rattling off arcana from a 
    recent newsletter in which he compares a fiber-based 
    telecommunications system available in 1995 with one the 
    Columbia, Maryland-based Corvis is selling today. Corvis 
    now offers a 280-wavelength system, compared with a 4-
    wavelength version available in 1995. Whereas seven 
    years ago each wavelength could transmit data at a rate 
    of 620 megabits per second, each can now transmit 10 
    gigabits of information per second, which means today's 
    system is 16 times faster. There's been a sixfold 
    increase in the number of fibers that can be jacketed in 
    each cable, and today an impulse needs to be regenerated 
    only every 2,000 miles, compared with every 300 miles 
    back in 1995. By Gilder's calculations, that represents 
    an 11,000-fold advance in just over six years - which 
    indeed works out to a doubling roughly every six months 
    or so.

    Eric Schmidt calculates that bandwidth has been doubling 
    more like every 12 months (an estimate confirmed by 
    Probe Research, which has been studying Internet traffic 
    since 1997). But to him, that hardly detracts from 
    Gilder's overall point. "As far as I know, George was 
    the first to see that infinite bandwidth was going to 
    have a similar kind of impact on our world as the 
    microprocessor," he says. "And on that fundamental 
    point, he's been proven absolutely right."

    Time has also proven Gilder fundamentally correct about 
    other, less-sweeping technological prophecies. 
    Throughout the last decade, Gilder has been associated 
    most closely with two highly technical debates. One 
    concerns wave-division multiplexing, a means of 
    increasing bandwidth over a fiber-optic network by 
    transmitting multiple signals simultaneously. If not for 
    WDM, Gilder argues, it would cost the telecom industry 
    trillions more dollars in capital expenditures on less-
    efficient equipment to accommodate Internet traffic. For 
    years, the telco establishment resisted WDM, but 
    eventually even the most bottom line-minded firms 
    embraced it.

    Gilder has also been a proponent of code division 
    multiple access, which he maintains is a more efficient 
    and elegant way to split the wireless spectrum. "Gilder 
    has won that argument," says Probe's Hilary Mine, an 
    analyst specializing in telecommunications. CDMA is now 
    a core technology in one-third of US cell phones.

    "I think the guy has been a real visionary," says CNET 
    founder Halsey Minor, who has been reading Gilder since 
    the early 1990s. "He, more than anybody else, woke us up 
    to this coming explosion in telecom. He wasn't right 
    about everything, but he was right about a lot."

    "My miscalculations were the commercial effect of this 
    revolution, especially as I chose particular companies 
    that were spearheads," Gilder says. "The companies did 
    function as spears, but spears often break." The 
    technologies, he says, lived up to their promise even as 
    the market for them collapsed. "The investment part 
    didn't pan out entirely, particularly for the 
    infrastructure players, but the expansion of traffic is 
    real, and the contribution of optics to enable the 
    expansion of traffic is real," he contends. He knows he 
    shouldn't utter the next line, but the congenitally 
    candid Gilder seems incapable of biting his tongue. "My 
    subscribers hate when I say things like this, but I 
    think we'll look back on the current period as a fairly 
    trivial event."

    To buttress his point, Gilder draws a parallel to the 
    tech collapse of the mid-1980s, which compelled some to 
    proclaim the death of the PC era. "We've seen this kind 
    of thing happen over and over again through the history 
    of enterprise," he says. "It's enormously disappointing 
    for the visionaries, yet it's not the visionaries but 
    the people who inherit the infrastructure they've built 
    who typically prosper from it."

    It's that final line, of course, that is likely to 
    infuriate the habitués of the Telecosm Lounge. One can 
    anticipate the postings of these people, some of whom 
    have lost millions by following Gilder's investment 
    advice. The only question is whether it will be 
    Networkbull, Optionbob, or someone else who writes, 
    "Nice of you tell us that now, George!"

    Gilder is a son of the Berkshires who lives in the red 
    farmhouse in which he grew up. A true New England WASP, 
    he has the vocabulary of an Oxford scholar and the 
    carriage of an aristocrat. There's a jaunty, patrician 
    manner in the way he walks, shoulders high and back, 
    chin thrust forward as if he learned to hold his head by 
    watching clips of FDR. He has bright blue eyes and a 
    broad smile that sits slightly off-kilter on his face, 
    and his hair hovers crazily, as if trapped in an 
    electromagnetic experiment. He generally exudes an aura 
    of unkempt disarray; in our two days together he wore 
    the same outfit and seemed oblivious to the penny-sized 
    splotch of whiskers on his chin.

    One of Gilder's great-grandfathers was Louis Comfort 
    Tiffany, the glassmaker; another was the editor of 
    Century magazine and a friend of Theodore Roosevelt's. 
    As Gilder describes it, he grew up "shabby gentry." 
    Today, friends describe him as singularly uninterested 
    in earthly possessions. One colleague jokingly says that 
    Gilder is so true to his hills Yankee roots "he has 
    furniture in his living room that even Goodwill wouldn't 

    His father, Richard Gilder, a writer, was killed during 
    World War II; however, Richard's college roommate, David 
    Rockefeller, made sure that George secured spots at 
    Exeter Academy and Harvard. Gilder was expelled from the 
    latter during his freshman year for poor grades but 
    readmitted after a short stint in the Marines, and he 
    graduated in 1962 with a BA in government.

    Through most of his twenties and thirties, Gilder toiled 
    as a freelance writer, reasonably successful but 
    constantly broke. His first two

    Photo by John Midgley The back door to Gilder's office 
    in Great Barrington, Massachusetts. books, Sexual 
    Suicide and Naked Nomads, might best be described as 
    antigay, antiwelfare, antifeminist screeds in which he 
    argues that equal pay between the sexes is in fact 
    antifamily. They won him notoriety among feminists but 
    little in the way of royalties.

    Gilder's breakthrough proved to be his fifth book, 
    Wealth and Poverty, published in 1981. Released shortly 
    into Ronald Reagan's tenure, it hailed the 
    entrepreneurial spirit as the most effective cure for 
    poverty, thereby securing Gilder's place as one of the 
    new president's supply-side gurus. The volume sold more 
    than 1 million copies, and the 41-year-old Gilder found 
    himself suddenly rich and famous. Yet it was precisely 
    at that point, despite having a wife and two kids 
    (they'd eventually have four) and no background in the 
    hard sciences, that he decided to chuck his career as a 
    political gadfly and teach himself physics. How does he 
    explain a choice that seems at once preposterous and 
    prescient? Peering into the future, he imagined a 
    restless life tilling the same tired soil yet never 
    quite matching the success of Wealth and Poverty. 
    Another factor, of course, was that he could suddenly 
    afford the folly of a whim.

    Gilder's decision didn't arrive entirely from out of the 
    blue. He'd devoted a whole chapter of Wealth and Poverty 
    to the semiconductor industry(though he now confesses 
    that his views were based almost solely on an article he 
    had read in Time). The parsimonious Gilder seemed 
    enchanted by the fact that silicon was really nothing 
    but sand, so readily abundant a raw material. He was 
    friends with National Semiconductor board chair Peter 
    Sprague, who had mentioned to Gilder that they soon 
    would "put scores of transistors not on the head but the 
    point of a pin." Above his bed at home, Gilder has a 
    famous Blake quotation about seeing all the world in a 
    single grain of sand. "I loved the idea that the 
    computer was a world in a grain of sand," he says.

    Over the next five years, he split time between coasts, 
    studying at Caltech under the eminent physicist Carver 
    Mead, who became his mentor and sage. Gilder took 
    classes when possible but mainly studied on his own. He 
    hired a tutor to teach him calculus so that he could 
    better understand physics. In all, he figures he read 
    "hundreds of books," most of them textbooks, to learn 
    the sciences of the microprocessor.

    The years of self-banishment served him well. His 
    resulting work, Microcosm, published in 1989, influenced 
    a generation of people, including former FCC chair Reed 
    Hundt. "Microcosm is a great visionary document," Hundt 
    says. "It helped change my thinking." If anything, 
    Gilder's next book, Life After Television, published in 
    1990, proved even more prophetic. A strong anti-TV bias 
    prompted Gilder to predict its imminent demise at the 
    hands of the PC - but he also spotted the potential for 
    convergence between the tube and the microchip and, 
    before Tim Berners-Lee had conceived of the World Wide 
    Web, wrote about "a crystalline web of glass and light."

    "Listen to the technology," Carver Mead had counseled 
    his disciple. And fiber optics seemed the perfect 
    subject matter for the fervently ascetic Gilder. Photons 
    and light waves, of course, are weightless and 
    ephemeral, the very embodiment of a nonmaterial world. 
    There's a cosmic perfection in a technology that can 
    move libraries' worth of information around the globe at 
    the speed of light.

    "Listen to the technology" - it had proved an invaluable 
    mantra as Gilder delved more deeply into the science of 
    light and electromagnetic particles. By the mid-1990s, 
    however, it was hard not to listen also to the sound of 

    The Gilder Technology Report wasn't Gilder's idea so 
    much as it was a notion planted in his head by two money 
    managers overseeing some of his financial planning. Late 
    in 1995, Chuck Frank and David Minor proposed that the 
    three go into business together. By that point Gilder 
    was writing regularly for Forbes and its technology 
    supplement, Forbes ASAP. (He also did occasional pieces 
    for this magazine and is still a contributing writer.) 
    Frank and Minor proposed that Gilder's writing be 
    repackaged as research, which they in turn would sell to 
    investment banks, but that idea proved a bust when 
    almost no banks expressed interest. As an alternative, 
    Gilder suggested a monthly newsletter. He contacted his 
    friend Steve Forbes, and a deal was struck between 
    Forbes Publishing and the newly formed Gilder Technology 
    Group: Gilder would write the report; Forbes would 
    handle the publishing, marketing, and distribution; and 
    the two companies would split the proceeds.

    The newsletter was launched in mid-1996 with an initial 
    run of 8,000. The primary audience was networking 
    techies drawn to its data-rich charts and, of course, to 
    Gilder's unique and passionate take on new technologies. 
    In the fall of 1997, about 350 people paid $4,000 apiece 
    to attend his first Telecosm conference, a two-day 
    affair at the Ritz-Carlton near Palm Springs, 
    California. For Gilder that would've been enough. Even 
    with a modest circulation of 10,000, the newsletter, 
    which cost subscribers $295 a year, was netting millions 
    of dollars in revenue, and the conference contributed 
    hundreds of thousands more to the company coffers. He 
    was also taking in around $50,000 per speech, a few 
    times a month. He had more than enough to keep himself 
    busy: columns, articles, and another book that was 
    several years overdue. A modestly successful business, 
    however, wasn't good enough, especially given the 
    overheated times and the ambitions of at least one of 
    his partners.

    Inside Gilder's circle, people refer to it simply as 
    "the list" - the companies Gilder has singled out as 
    worthy of an investor's interest. Gilder says he can't 
    recall exactly how it was decided that they'd include 
    fewer charts so the list could run on the report's final 
    page, but the impact of that decision is plain to him. 
    "Ultimately, I was now publishing an investment 
    newsletter," he says. In 1997, Rich Karlgaard, then the 
    publisher of Forbes ASAP, wrote the first of several 
    columns praising Gilder for his stock-picking prowess. 
    "Nobody ... can spot a gigadollar sure thing in a queue 
    of photons" like Gilder, wrote Karlgaard, who is now the 
    publisher of Forbes. He included a toll-free number for 
    potential subscribers but failed to reveal the 
    magazine's stake in the enterprise he was touting.

    Gilder hardly played the hapless bystander. He began 
    slipping stock tips into his articles. In one for Forbes 
    in 1999, for instance, he advised those wanting to "make 
    a killing over the next five years" to buy shares in 
    either Globalstar ("a supreme telecosmic play") or the 
    Loral Corp. (Globalstar declared bankruptcy this past 
    February, and shares in Loral are down 88 percent since 
    Gilder's recommendation.) In another piece, published in 
    1997, Gilder suggested that readers short Microsoft. (An 
    investor who took Gilder's advice and shorted $10,000 of 
    Microsoft stock would have lost as much as $25,000, 
    depending on when he or she decided to sell.) Gilder 
    also gushed over the stock market potential of a litany 
    of companies that have either gone bankrupt or are 
    trading at a fraction of their 1999 share price.

    Gilder's list performed well in 1998, but his 
    portfolio's 1999 performance was unreal. "I had six of 
    the top nine stocks on the S&P, and four of the top 
    eight on the Nasdaq," he boasts. A Karlgaard column, 
    written just as the Nasdaq was in the early paroxysms of 
    its great fall, noted that Gilder's basket of stock 
    picks had racked up ("Is your blood pressure in check?") 
    a 247 percent return in the prior 10 months. "Grow rich 
    on the coming technology revolution," blared the 
    promotional materials Forbes Publishing mailed out 
    soliciting subscriptions to Gilder's newsletter. At its 
    apogee, at the end of 2000, it had more than 70,000 
    paying subscribers, representing $20 million in revenue.

    The Gilder Technology Report represented only one, 
    albeit large, piece of the growing empire. Gilder 
    started hiring people to write additional newsletters on 
    niche topics such as online storage, and the annual 
    Telecosm conference gave birth to several regional 
    Telecosms. The company also added a series of investment 
    conferences to the calendar - six in 2000. Each brought 
    in another million dollars, according to Gilder. He 
    moved his burgeoning company into an 8,000-square-foot 
    office in Great Barrington that had taken the better 
    part of a year to refurbish in order to accommodate a 
    staff of two dozen.

    Meanwhile, Gilder's partners were anything but 
    satisfied. When Frank proposed a hedge fund, Gilder said 
    no, despite the enormous fees such an enterprise would 
    have earned investing money on behalf of rich 
    individuals; he felt it would ensnare them in too many 
    conflicts of interest. Similarly, he said no to a 
    Telecosm venture fund and other lucrative-sounding 
    schemes. "Because the company was started with the 
    expectations of doing these things, my repulsion was 
    seen, understandably, as a betrayal," says Gilder. 
    (Minor generally confirmed Gilder's recollections; Frank 
    did not respond to several messages left on his cell 

    So in March of 2000, at the market's peak, he bought out 
    his partners and started over as Gilder Publishing LLC. 
    "I thought we'd go public," he says. "Merrill Lynch and 
    Hambrecht were competing to be underwriters. There was 
    talk of a $200 million valuation. I thought we were 
    rich. What was $8.5 million for me to buy out my 
    partners?" At around that time, he also decided to spend 
    $2.5 million on The American Spectator, a money-losing 
    conservative political journal. "Effectively we let $11 
    million walk out the door at precisely the worst time, 
    just as we were about to go off a cliff."

    All the while, Gilder was feeling haunted by the immense 
    responsibility. "In retrospect, it's obvious that I 
    should've subtly said, 'Hey, things have gotten out of 
    hand at JDS Uniphase, and it's not worth what you'd have 
    to pay for it,'" he says. Each month, he thought about 
    providing a warning to his subscribers, and he decided 
    against it every time. He had witnessed firsthand what 
    others had dubbed the "Gilder effect": the steep spike 
    in a stock after he added that company to his list. It 
    wasn't unheard of for the price of a stock to jump by 
    more than 50 percent within an hour of a newsletter's 

    "If I had said, 'Hey, this is a top, you should all 
    sell,' it would've been a cataclysmic event," he says. 
    "I'd think about telling people that they should sell 
    half their holdings, and each time I'd conclude that my 
    subscribers would be enraged. I also wondered what I'd 
    precipitate if I did it." Fully 50 percent of his 
    readers had signed up for the report at what Gilder now 
    calls the "hysterical peak" of the market. "Half of my 
    subscribers would have been eternally grateful [for a 
    warning], but the other half -†the new ones - would've 
    been enraged because they had just come in," he says.

    "It was quite terrifying. I really didn't know what to 

    In the end he did nothing. And soon enough, he had an 
    entirely new set of distractions to fret over. "In the 
    past, we'd sell out our investor conferences within two 
    weeks," Gilder says. "But in 2001, we sent out the same 
    literature and the same invitations, and five or seven 
    people signed up." He lost the deposits that were placed 
    to reserve hotel space for the gatherings. Newsletter 
    renewal rates plummeted. A huge tax bill came due. By 
    spring 2002, he'd laid off nearly half of his staff.

    "You can be just fabulously flush one moment, and then 
    the next, you can't make that last million-dollar 
    payment to your partners, and there's suddenly a lien on 
    your house," he says. Gilder, who had always cast the 
    entrepreneur in the most flattering of light, had been 
    granted a far more intimate, less appealing glimpse of 
    life inside a startup.

    Any analysis of where Gilder went wrong has to begin 
    with his near-evangelical faith in J-curves and the 
    perfectibility of humankind. The notion of a new economy 
    that created its own set of rules represented no great 
    leap for this man who was inclined to see history as the 
    determined march from savage to enlightened being. 
    Likewise, the rocketing success on Wall Street of 
    companies staking their future on a transcendent 
    technology such as fiber optics confirmed everything he 
    had come to believe in over his lifetime. "The bull 
    market fit George's broad vision quite nicely," says 
    Spencer Reiss, editor of The American Spectator (and a 
    longtime Wired contributor). For years Gilder had been 
    perceived as a wild-eyed prophet yelling into the wind. 
    Suddenly he was endorsed by the masses. "For George this 
    wasn't about money, but ultimately a vindication of his 
    thinking," Reiss adds.

    Gilder embraces new technologies with the fervor of a 
    missionary. Rather than declare Java an interesting new 
    programming language worthy of adoption, he trumpeted it 
    in 1995 as if it were the Second Coming - and now admits 
    that he greatly overestimated its short-term impact. It 
    wasn't enough that he spied the remarkable impact of 
    fiber optics before anyone else, nor was he satisfied 
    predicting that bandwidth would replace computing power 
    as the driving force of technological innovation. Gilder 
    dedicates the last several chapters of Telecosm to 
    celebrating the "transfiguration" of society that will 
    surely follow once we cast off the "copper cages" of 
    existing technologies. In Gilder's broadband utopia, we 
    will no longer be bothered by telemarketers, time-
    wasting advertisements, or onerous government forms. 
    We'll overthrow the tyranny of mass media, advance world 
    peace, and generally find ourselves enjoying an era 
    marked by an abundance of leisure time.

    "If there was no George Gilder, the venture capitalists 
    and investment bankers would've invented one," says Fred 
    Hickey, editor of a newsletter called the High-Tech 
    Strategist. "They needed some kind of pied piper to put 
    the words on paper to justify the insanity of paying any 
    price for anything that offered any kind of technical 

    To Gilder's critics, he ignores the real workings of the 
    telecosm. Indeed, despite a past steeped in economic 
    policy issues, Gilder consistently downplayed the 
    enormous impact of regulation. "There's no way you do 
    telecom work without factoring in the regulatory piece," 
    says Gary Arlen, president of Arlen Communications and a 
    telecom analyst who has been following the industry for 
    20 years. "He was either naive or just refused to factor 
    that into the mix."

    Gilder had taken economics courses at Harvard, but they 
    hardly taught him the gimlet-eyed analytics or 
    understanding of business fundamentals that are crucial 
    to success as a stock picker. One of Gilder's bedrock 
    beliefs is that we have left behind the era of the 
    microcosm - a time marked by an abundance of transistors 
    and a scarcity of bandwidth - and entered the era of the 
    telecosm, in which bandwidth is abundant and transistors 
    scarce, given a migration to ever-smaller devices. "That 
    argument is generally true," says Google's Schmidt. "The 
    error George made is to assume that the economics of 
    surplus are positive for investors, when in fact surplus 
    means cutthroat price competition, over-provisioning, 
    and all the things we're seeing happen in the telecom 

    "The realities of business play only a cameo role in 
    George's theories," says Howard Anderson, founder of the 
    Yankee Group and a part-time professor at MIT, who has 
    observed the telecom industry for more than three 
    decades. "His thought was 'Build it and they will 
    come.'" When Global Crossing floated billions of 
    dollars' worth of junk bonds to build out its worldwide 
    fiber network, Gilder celebrated the decision as bold 
    and visionary. He blames Global Crossing's bankruptcy, 
    and the bankruptcies suffered by more than a dozen large 
    telecom companies, on both a "deflationary environment 
    hugely hostile to debtors" and Alan Greenspan's boom-
    time "obsession" with raising interest rates to tamp 
    down the stock market. Gilder refuses to acknowledge 
    that the company's main problem was a lack of demand, 
    and when pressed on the point tends to provide a history 
    lesson about the heroic role junk bonds played in the 
    success of companies such as MCI and McCaw Cellular 

    "In a different environment, these companies would have 
    survived and thrived," Gilder insists. "With no advance 
    warning, the financial climate suddenly became very, 
    very hostile to debtors."

    Still, he allows, "I led a whole bunch of credulous 
    people to finance this huge buildout of fiber." And 
    ultimately he blames himself for all those hundreds of 
    millions of dollars investors lost based on his 
    predictions. "I accepted the laurels when they were 
    being offered," Gilder says. "Now I really have to eat 
    crow and not skulk off to the corner and claim 'I'm just 
    a technologist.'"

    Gilder was in Silicon Valley when the news came, at the 
    end of January, that Global Crossing had filed for 
    bankruptcy protection. In the Telecosm Lounge, people 
    were in shock. Gilder had stuck by the company even as 
    share prices fell; if anything, he supported the stock 
    more fervently. "Your current qualms will seem 
    insignificant," he had declared midway through 2001, in 
    response to frightened investors. Upon hearing the 
    official news that their shares in Global Crossing were 
    indeed worthless, some posters were philosophical. A few 
    were angry, like the man who asked Gilder, "Are you a 
    villain or just naive?" But mainly people seemed annoyed 
    that for days their high priest remained silent despite 
    their suffering. One loyalist even sought investment 
    advice: "All I ask is for you to give us one stock right 
    now which will offer the greatest upside potential with 
    the least amount of risk to make up for Global 
    Crossing," wrote a poster named Phil.

    A different kind of man, feeling chastened after a 
    disaster of such magnitude, would have declined. By then 
    a full 50 percent of his subscribers had fled the Gilder 
    Technology Report, and there had been similar 
    circulation drops at his four other newsletters. His 
    list of telecosmic stocks had lost 75 percent of their 
    value since the start of 2000. He'd lost his own 
    fortune. Yet, incredibly, when Gilder finally appeared 
    in the Telecosm Lounge nine days later, he had an answer 
    for Phil: "I would buy National Semiconductor."

    So what has Gilder learned from his flirtation with 
    imponderable riches? Everything and nothing. He 
    expresses relief that he can return to what he knows 
    best, studying the inner workings of cutting-edge 
    technology. He expresses deep regret for the role he 
    played in the telecom crash.

    But Gilder is first and foremost a man of faith. He 
    continues to add new companies to his list, and he still 
    tries to predict the future. "My view is that all this 
    stuff is going to come back very rapidly," he says, 
    citing the wisdom that results from "being old enough to 
    have lived through many cycles." Science can now place 
    280 wavelengths on a single fiber and transmit data at a 
    rate of 10 gigabits per second. Soon we'll be measuring 
    the flow in petabits. All of the world's knowledge is 
    near- instantly available. Ghetto kids will have access 
    to the same information as rich preppies. Government 
    can't help but come to its senses. A recovery - nay, the 
    next boom! - is just around the corner.

    That, at least, is what the technology is telling him.

    Gary Rivlin is the author of several books, including 
    The Godfather of Silicon Valley.


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