Most bubbles are easily assimilated or averted by an elastic market. Provided the bubble is small enough, the losers earn wisdom in retrospect, and the winners earn a lot of money. But the effects of a bubble might become cumulative if many owners of an overpriced asset feel rich and spend foolishly, especially in a period of deregulation. Imagine this: You buy a house for $200,000, for which you borrowed $160,000 beforehand. You have $40,000 in equity in the house. Over the next five years, the market appraisal rises to $500,000. Now you have $340,000 in equity ($500,000-$160,000), so you borrow another $240,000 from a bank using this equity to secure the loan. You still have $100,000 in equity in your home, and you have $240,000 to spend. You suddenly feel less need to be economical with your purchases and allocate more money for things like a vacation home, a new car, etc.