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Historical bubbles in real estate and other investments since 1600 |
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The current financial crisis, as we know is the result of an economic bubble in real estate as well as in equity markets Although the current crisis is of an unusually fierce strength, then the economic bubbles is not an unfamiliar concept. Bubbles occur regularly and have done so far back in history We can try to learn some of the current crisis, but new bubbles will unerring occur again. Explore the history, learn how to get through the current crisis and how to predict future bubbles in the economy |
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The bubbles repeat themselves - again and again |
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Bubbles are a manifestation of human nature and of man's indomitable will to believe in the future. A characteristic that through centuries has generated growth, investment readiness and innovation. Basic positive attributes, which also has been a prerequisite for the society we have today. But sometimes it goes wrong when the collective optimism runs of track. One of the first historically documented bubbles occurred in the 1600s, but probably, there have been numerous since the humanity's childhood. 1637 Tulipan bubble Tulips were already in the 1500s popular among the wealthy, the prices of the good tulips rose and tulip-growers invested in developing new varieties that could be placed on the market at ever increasing prices. In the early 1600s the costly production and development of new tulips was increasingly funded by venture capitalists and new tulip onions was sold on future similar contracts. Many went immensely wealthy and during the 1620 s the market exploded. It was people from all classes who threw himself over the investments. Local citizens formed small investment funds and sold everything they had to participate in the race. In 1637 the bubble broke, and in short time a lot of people went bankrupt. 1719-1720 The Mississippi bubble Around 1720 a massive hype arose in France around the business opportunities in trade with the French colonial Louisiana, and with other emerging U.S. markets. Commercial concession was transferred from the French royal family to a newly created company, The Mississippi Company, which sold shares to private investors. There was a massive speculation in these shares and the quotes multiplied in short time. When it became clear that the market had overestimated the opportunities in the U.S. markets the stock quotes collapsed. Again, many families in all social classes went bankrupt. Even the French royal family was ruined. 1720 The South Sea bubble Alongside the Mississippi bubble in France a similar bubble in England went on. The South Sea Company was formed in 1711 and had a monopoly on trade with "The South Sea", ie. South America. Shares in the company was torn away, and from a starting quote of 300 pound the quotes rose to 1050 only to dive by 75 percent when it came clear, that the market again had overestimated the commercial opportunities. Isaac Newton was among the investors who lost money and cracked after he should have said: "I can calculate stellar movements, but no man's madness." 1840 century railway bubble The steam locomotive was the 1800s new technology that created entirely new expectations for the future. The new possibilities for transporting people and goods over long distances brought brand new business opportunities. One railway company after another was funded and attracted enthusiastic investors in large numbers.
In 1846, the Parliament approved the start of 272 new rail companies in
spite of several of them planned to build parallel lines. Investors
saw the many new companies as brilliant new investment opportunities,
stock prices of
the first movers had exploded and many stories were told about the fortunes
that had been created. Now everybody wanted to get involved before it
was too late. The economy was at a boiling point and the Bank of
England tried to cool it down by raising the interest rates. This in
combination with the
overvaluation of the market and the fierce competition among the
many companies led to a total collapse of
the industry. Many small investors who had borrowed to their investment,
went bankrupt and withdrew several banks in the fall.
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