Chapter 4. Inflating the Bubble: the Financial Value Chain

A chain of specialized institutions links entrepreneurs to the capital markets and thereby facilitates innovation. The emergence of this chain in financial services is part of a major aspect of free economies, noted two centuries ago by economists—the increasing specialization of firms as markets grow larger.

But extending the chain of middlemen between entrepreneurs and the investing public appears to be associated with ever wilder spasms of excitement and despair among investors. The greatest of these—so far—was the Internet boom of the late 1990s.