(FORTUNE Magazine) – Back when greed was good, in the 1980s, a lot of rapacious capitalists got together and decided it was okay to do some bad things, like selling junk bonds to each other and doing insider trading and playing racquetball and stuff (this on top of that whole S&L debacle), which is to say that Wall Street's Decade of Greed was a carnival of immorality that is a stain on our national conscience or something.

Whew, thank goodness that's over! Today, by contrast, we have Silicon Valley and the Internet boom--a deeply wholesome movement of idealistic risk takers who are out to change the world and who, incidentally, all look like Jeff Bezos. These good folks and their IPOs have been blessedly free of the sort of shady doings that characterized those ugly predators and their LBOs. And if our TV screens are full of people declaring "I feel the need for greed," well, that's only a game show.

Nice story. But we're not so sure we buy it anymore. For the articles that follow, FORTUNE explored a series of increasingly common business practices in the Internet world that, while not yet the stuff of a Michael Douglas movie, collectively don't smell right.

The first story, Jeremy Kahn's "Presto Chango! Sales Are Huge!" examines the woolly accounting methods by which many dot-coms inflate their revenues. Melanie Warner delves into the world of friends-and-family stock--and reports how one company used it to reward key employees at what was then its only customer. Mark Gimein scrutinizes the decisions of CEOs who unload big chunks of their own stock, and Peter Elkind asks whether dot-coms' insiderish boards of directors are a corporate governance disaster waiting to happen. Finally, Erick Schonfeld shows how the "objective" opinions of Wall Street's Internet analysts may not be as objective as you think.

Together, they present a portrait of an industry awash in...what? Greed, certainly. But something else too: an inverted dynamic, born of a stock market gone mad, in which entrepreneurs have begun to regard the capital market not as a disciplining force but as the customer. Companies are created, hyped, and sold with less concern for attracting real customers than for lining one's pockets with investors' money. The result is that participants can wear a set of ethical blinders, behaving in ways that might seem perfectly acceptable within this insular context but that, when viewed with a modicum of objectivity, look borderline at best. One can already imagine the post-mortem articles that will follow any Internet crash. SiliconValley.con, they'll call it.

"The bull market has attracted a huge number of people for whom money is the only motivating factor," says Roger McNamee of Integral Capital Partners, a Menlo Park, Calif., investment firm. He's not alone in voicing such concerns. "We're getting to the stage where the frauds are going to come in," warns Bill Joy, Sun Microsystems' co-founder and chief scientist. "There will be handwringing afterward. We've seen this movie before." Only this time the sums at stake are much, much larger, making the end of the '80s look like kindergarten. Move over, Bonfire of the Vanities.

For the most part, they're not talking about latter-day Michael Milkens. (Though the Valley has had its share of out-and-out frauds, as when MiniScribe shipped bricks instead of disk drives. More recently, the Securities and Exchange Commission accused software-maker Informix of booking sales that were...well, not exactly sales.) Among the common infractions: companies stealing one another's intellectual property, cheating employees out of promised stock options (as two former execs have accused iVillage of doing), or intercepting private e-mail, as when Interloc, the corporate predecessor of rare-book company Alibris, started collecting messages sent from Amazon.com to its customers.

But before we talk further about business ethics, plural, a bit about the business ethic, singular, that has evolved along the fertile crescent between San Francisco and San Jose. The story starts, unsurprisingly, with the stock market and its recent tendency to grant to barely-off-the-drawing-board concepts--BlowYourNose.com, TheseDarnPants.com, what have you--market caps large enough to acquire most of the U.N.'s nonaligned bloc. With every IPO, every newly minted billionaire, the message gets louder: You're supposed to be getting rich, you chump. The hope of getting wealthy has morphed into something like expectation, often tinged with desperation. "They all think they have a God-given right to be a millionaire," says Lise Buyer, an Internet analyst at Credit Suisse First Boston. "The greed has grown, as it does at the top of any market," agrees Arthur Rock, widely credited with inventing high-tech venture capital. "People want their share, or unfair share."

Most Valleyites protest, predictably, that they're not in it for the money. And insofar as they have never had much use for mansions and helicopters, the claim is not a wholly disingenuous one. The thing is, money isn't just for buying things; it also functions as a scorecard. As in: If he's a billionaire, then I've got to be worth at least $500 million. So the perpetual refrain--"It's not about the money"--doesn't really carry much moral suasion. "We used to be able to say it with a very straight face," says Randy Komisar, the former head of LucasArts Entertainment and a self-styled "virtual CEO" who has helped run such companies as WebTV and TiVo. "Nowadays, it sounds stupid."

Yet it's the knowledge of just how quickly it all could end that lends everything a slightly kooky quality--like the manic laugh of the old man at the end of The Treasure of Sierra Madre, when he realizes the Mexicans have let the gold dust blow all over the prairie. "There's a gnawing anxiety right now in Silicon Valley. Everybody has this nasty knot in their stomach," says Joe Costello, ex-CEO of software giant Cadence Design Systems and now head of Think3, a startup that makes 3-D design software. Many companies, Costello notes, face the terrifying task of having to "grow into" those nosebleed valuations, and that requires the appearance of momentum: a constantly rising line of revenues, eyeballs, buzz, and so forth. "We've all learned to play the momentum game," says Costello. "But underneath, everyone knows it's something of a sham. People know these [valuations] are absolutely wild excursions to the upside.... There's going to be a day where people say, 'Okay, we want to see profits.' And I don't want my net worth being judged on that day of reckoning.

"That," he says, "generates a fast-money mentality: Dodge in and out--you know, If I can get out now, I'll never have to meet that day. It is the carrot and stick of fear and greed. But they're at such epic proportions that it creates a very, very strange psychology." Here, for instance, is how Komisar describes entrepreneurs pitching ideas to venture capitalists these days: "People walk into a VC presentation and their first line is about exit strategy. They're not talking about the investors--they're talking about themselves. How will they cash out? And this raises a subtle point: These founders don't think of themselves as CEOs of operating companies. They think of themselves as investors."

It's a complaint voiced more and more often these days, especially among high-tech veterans: Instead of building sustainable companies with long-term economic value, today's Internet entrepreneurs are more interested in playing the capital markets for the quick buck--pumping a concept, "flipping" it to an acquirer, then hopping to the next hot opportunity like a day trader riding momentum stocks. (Komisar calls it "momentum employment.") Some venture capitalists even have a name for these sorts of companies: burgers--built to be flipped.

Of course it's easy to roll one's eyes at Valleyites, their millions safely socked away, who are suddenly shocked, shocked to learn the arrivistes are motivated by--gasp--money! "I think every generation says, 'Boy, when I was doing it, people had values, people worked for it,' " notes Guy Kawasaki, a former Apple executive and now CEO of Garage.com. "I bet [Digital Equipment founder] Ken Olsen said that about Steve Jobs." But at the risk of sentimentalizing a past that had its share of money lust, it's hard to brush away the feeling that something has changed. "There wasn't this evanescent sense of 'We'll catch the wave today, hit it, and go away,' " says Fred Hoar, who served as communications director at Fairchild, Apple, and Genentech before becoming chairman of PR firm Miller/Shandwick Technologies. "We never had this expectation of instantaneous riches beyond the dreams of Croesus that permeates, not to say infects, the culture.... There's been a tectonic shift." Lest one be tempted to dismiss such remarks as the they-don't-build-'em-like-they-used-to natterings of an older generation, listen to Justin Kitch, the 27-year-old founder and CEO of free Website-building company Homestead.com: "It used to be that people started companies because they wanted to change the world. Now they start them to change their pocketbooks."

This situation does not in itself constitute an ethical transgression, of course. But it does create a context in which ethically dubious behavior can seem, well, normal. "Because momentum is everything, you start to do whatever it takes not to break it," says Connie Bagley, a Stanford Business School lecturer who studies Internet law. "People tell themselves, 'I'm making incredible value for my shareholders, I'm making great money for my employees.' And that gets very dangerous."

Many companies, for instance, have become clever about finding ways to recycle their balance sheets through their income statements: recording barter deals as revenue, investing in companies that turn around and buy advertising on their Websites, and so on. "It's not shipping bricks," says a venture capitalist, "but it's the online version of it." The thing is, because so much in the Internet economy is circular and self-fulfilling (e.g., a hot stock causes more customers to buy your product, having more customers causes more people to buy your stock, etc.), such tricks have a certain corrosive logic--deceiving people into thinking you're more successful than you are may, in fact, cause you to be more successful.

Lest we come down too hard on the entrepreneurs, though, let's take a closer look at the venture capitalists' role in all this. They, like the entrepreneurs, are theoretically in the business of developing and nurturing sustainable companies, and bearing much of the risk along the way. That's in theory. In practice, they're now taking startups public long before anyone can say whether those companies have a workable approach. By making such an early (and often insanely lucrative) exit, the VCs shift most of the risk onto the public market. And that risk is considerable. "The potential losses are gigantic," notes Costello. "It's not right. The venture guys should be thinking about building long-term, self-sustaining companies, but they're off to the races on something new. This is a just a pyramid game here, a pump-and-dump Ponzi scheme.... It's become a completely internal loop, with the public markets paying the bill."

Venture capitalists' main function thus becomes, in a sense, marketing: making their firm's own brand name so strong that the best deals flow their way and then using that imprimatur to sell as-yet-unproven concepts to the public. "It's a money-printing machine," says Costello. "The risk used to be the business model, and whether it could perform. Now the risk is, 'Did I get enough of my money in the deal?' And [the VCs] will kill to make that happen. They are clawing each other and stabbing each other in the back and screwing each other."

Sometimes it's the entrepreneurs who get stabbed. "Last week I saw the most outrageous thing I've ever seen in my life in this Valley," says Randy Komisar. "VCs are throwing term sheets on the table that aren't real term sheets, just to lock up the deal. The entrepreneurs, of course, don't know that." And when the venture capitalists decide they don't like the deal after all, the entrepreneurs "end up high and dry." (One might think, with venture returns being what they are right now--namely, ludicrous--that such cutthroat tactics would abate. But alas, it's a relative game, and the pressure to produce rates of return in line with other venture firms' is intense.)

Lest we unfairly single out the venture capitalists, though, consider that everyone else remotely involved with the money machine is also trying to squeeze lucre out of it. Consulting firms like Andersen and McKinsey are taking equity instead of cash for their services. Despite warnings of conflicts of interest, so are law firms. Even executive search firms are forming venture-capital funds to invest in companies in which they place executives. "Everybody in the world is trying to touch a piece of this dot-com bonanza," says Regis McKenna, Silicon Valley's Uber-marketer.

Consider the case of one software startup that was recently about to go public. According to a member of its board, the company's two largest customers called and said they'd, uh, like some pre-IPO shares. "I've never seen anything like it," says the board member. "It was extortion, a shakedown. They know we're going public, know they've got the muscle to screw it up, and so they cleverly exploit their position. What is [the startup] going to say? Um, no?" According to the board member, one of the corporate customers made $70 million off the deal. "Every single company that's going public, they knock up for stock," the board member adds. "And they're not alone; everybody's doing it. People were crawling all over this thing to find ways to get money out of it."

Meanwhile, those who hew to quaint notions of building for the long haul can find themselves walking into a stiff headwind, says Homestead.com CEO Kitch. "People say, 'Wait, you're not doing it? You're doing this barter deal and not reporting it as revenue?' I say no, that I'm thinking about what this organization is going to look like 20 years from now. Is doing this barter deal going to make the company better? In fact, it's going to make it worse, because I'm going to have to undo it and find another $100,000 of real revenue." Does he feel pressured toward such tactics frequently? "Totally," says Kitch. "Five times a day."

To hear business ethicists tell it, the sheer speed of activity may be partly to blame. "One of the problems is that ethics implies deliberation," says Dennis Moberg, director of the Markkula Center for Applied Ethics at Santa Clara University. "It implies periods of contemplation and deliberation, and working through a moral calculus." Who has time for such navel-gazing when everyone is "moving @ Internet speed"? "It's not that these are evil people; it's just that in the rush, a lot of things just don't get reflected upon," says Kirk Hanson, a senior lecturer in ethics at Stanford. "You see gold in the vein, and jumping the claim or grabbing the idea you hear from somebody else becomes much more tempting. So there's a coarsening of standards."

Yet, is it possible that the Internet economy could provide some safeguards against chicanery that the old economy couldn't? For one thing, there's the presence of experienced venture capitalists and angel investors on boards of directors, whose ongoing good will is needed if one is ever to raise money again. Then, too, the Internet itself can be a force for transparency; incriminating information that was once limited to file cabinets and a few people's heads nowadays has a way of appearing online. "There may be some corrective mechanisms emerging," speculates Joseph Badaracco, a professor of ethics at Harvard Business School. "It does involve a high degree of transparency, but it doesn't necessarily involve the SEC and all its mechanisms. It's a different kind of governance system--a self-regulating one."

Could be. The Old West developed a set of frontier ethics independent of the government and all its mechanisms. But frontier ethics can be problematic. "It becomes a wonderful context to validate your behavior," notes Jeffrey L. Seglin, assistant professor of ethics at Emerson College in Boston and author of The Good, the Bad, and Your Business: Choosing Right When Ethical Dilemmas Pull You Apart. "You can chalk it up to the New Economy." Many Net companies caught in wrongdoing have simply stopped the practice, shrugged, and said they weren't aware they were doing anything wrong.

Indeed, if there's anything that characterizes periods of economic upheaval--the Internet boom, the Wall Street boom, the industrial boom--it's the ineffable sense that old rules no longer apply, that the laws governing the universe have been suspended. From there, is it such a leap to conclude that the old rules of ethics have been suspended too? "The robber barons who lit up $100 bills to light cigars for guests, they were in a world where the old rules didn't apply," says Tom Donaldson, a professor of ethics at Wharton. "Eventually, our deeper values catch up to the new worlds we create. In the meantime, there will be a lot of shenanigans."

Bill Joy is right. We have seen this movie before.

FEEDBACK: juseem@fortunemail.com.