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Talking Points

Various specialized financial firms work together to turn economic value created by operating companies into financial value for investors. During the bubble the Financial Value Chain worked like this: New economy companies were subject to the same method of valuation as old economy companies, but with very different assumptions. So favorable were the assumptions for new economy firms that their valuations bore little resemblance to reality, and soon financial values had diverged dramatically from economic values. This is how the bubble was blown up, and why it ultimately had to burst.


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