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The Bubble

The stock market bubble associated with the Internet was arguably the biggest financial mania in history. “At the 2000 peak of the titanic bull market… the value of all stocks as a percentage of the American gross domestic product reached 183 percent, more than twice the level before the crash in 1929.”[4] By early fall 2001, virtually the entire gain in the value of the NASDAQ which had been made since 1995 had evaporated. The bubble lasted about a year and a half, in 1999 and 2000, though it had deep roots in the earlier 1990s. Appendix A charts the bubble on America's NASDAQ and Germany's Nemax.

Though it is convenient to speak of one bubble, there were in fact four bubbles, one rapidly following another. This helped account for the remarkable overall size of the craze that is now referred to as a single entity: the Internet bubble. The first bubble consisted of the stocks of companies that were trying to use the Internet to help businesses reach consumers (B2C). When the bloom began to fade on this rose, the second bubble, consisting of stocks for firms trying to use the Net to conduct commerce among businesses (B2B), blossomed. As promise slipped in this area, and the lack of key infrastructure elements became evident as a cause of the limited success of B2C and C2C, a bubble began in the shares of firms building infrastructure for the Net. Finally, to connect everyone to the Net, a significant element of infrastructure building, a bubble developed in the telecom sector.


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