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Chapter 14. Dire Consequences > Economic Losses Caused by the Bubbles

Economic Losses Caused by the Bubbles

Henry Kaufmann concluded, even before the bubble burst, that “…the tilt toward unbridled…financial entrepreneurship has exacted economic costs that often far outweigh their economic benefits.”[99] He is speaking of entrepreneurship in the financial value chain—that is, abandoning old rules of thumb and bringing new types of financial products to retail investors—and pointing to its serious economic consequences.

What was the real economic impact of the bubble? The bursting of the bubble was a contributor to the sharp drop in consumer confidence that took place in late 2000, and 2001. In addition, the actual decrease in wealth dampened consumer spending. Business investment was set back directly by the collapse of the bubble and indirectly by its impact on consumer spending. The result of falling consumer expenditures and weak business investment was a recession that began in the United States and spread abroad.


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