When the bubble bursts, the feedback loop goes into reverse. Prices decline and individuals find not only that their wealth has declined but that in many cases their mortgage indebtedness exceeds the value of their houses. Loans then go sour, and consumers reduce their spending. Overly leveraged financial institutions begin a deleveraging process. The attendant tightening of credit weakens economic activity further, and the outcome of the negative feedback loop is a severe recession. Credit boom bubbles are the ones that pose the greatest danger to real economic activity.
