Alan Greenspan called it ‘irrational exuberance’. It’s when absurdly optimistic investors push the values of companies to completely unrealistic levels. Then there’s the opposite. The other day we called it ‘irrational exacerbation’. That’s when the public backlash against banks threatens to turn a problem into a full blown major crisis. Right now, it appears, the US has got both.

Here’s the exuberance bit. Do you remember when Rupert Murdoch forked out $580 million for MySpace? It seemed like a lot of money and the world wondered whether Mr Murdoch, known for his pragmatic ways and cynicism to the Internet, had allowed himself to be seduced by a new wave of dotcom hype. Well, it now appears that Mr Murdoch had his feet planted well and truly on the ground. For just two years on, Facebook, a company which enjoys less visitors than MySpsace, and is presumably less valuable, has just been valued at around $10 billion. At least, Microsoft is reporting to be considering paying out between $300 and $500 million for a 5 per cent stake.

Facebook is expected to make a profit of $30 million this year, and in what may possibly go down as one of the biggest understatements of all time, the BBC said on its web site this morning “on conventional valuations a $10bn price tag would look expensive.”

And yet while the days of dotcom mania seem to be returning with a vengeance, the poor beleaguered US housing market, and now consumer confidence, appear to be in something of a freefall. In the US, the supply of unsold single family homes is now at its highest level in 18 years. According to one report, the price of existing homes has now fallen by 3.9 per cent over the last year and consumer confidence, which until last month seemed to be defying all the gloom, has plummeted, falling to a two-year low. There’s no doubt about it, there’s plenty of exuberance and exacerbation. But the question is this. On this occasion is it irrational or is the apparent madness built on solid pillars of reason?

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