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THE SOUTH SEA BUBBLE

The South Sea Bubble is the name given to a speculation in 1720, and associated with the South Sea Company in London. People bought shares in the 5 company expecting to make a huge profit, but the boom in shares collapsed and many investors lost all their money.

The South Sea Company was founded in 1711 to trade with Spanish America. The in company’s stock offered a guaranteed interest of 6% and it sold well. Unfortunately, however, Spain allowed the company to send only one ship a year to trade in the area.

The first voyage in 1717 was a success. Then 15 King George I became governor of the company in antiques and paintings a new business venture 1719. This created confidence in the business, and soon it was paying 100% interest.

In 1720, there was a boom in the South Sea Company's shares because it agreed to take over the 20 country's national debt. It expected to get back its money by increased trade and a rise in the value of its shares.

The shares did, in fact, rise dramatically. The stock of the company, which had been around £128 by September the market, had collapsed, and the price fell back to £124. Eventually, with the support of the Government, the shares levelled off at around £140.

The South Sea Bubble had burst and it led to 30 an economic depression in the country.

 

TULIPOMANIA

The first modern stock market appeared in Amsterdam at the beginning of the 17th century. In Holland in the 1630s, there was one of the first and most extraordinary speculative explosions in history. It was not in stocks and shares, in real estate or in fine painting as you might expect, but in tulip bulbs. It has become known by the name Tulipomania.

People from all classes invested in the bulbs. Many sold their property so that they could pay for the bulbs they had bought in the tulip market. Foreigners joined in the rush to buy the flowers and money poured into Holland from other countries.

In 1637, the boom in the market ended. No one knows why, but people began to sell. Others followed suit. Soon there was a panic among investors and the tulip market collapsed. Many people who had offered their property as security for credit went bankrupt. People who had agreed to 15 buy tulips at inflated prices were unable to pay their debts. When sellers took legal action to recover their money, the courts were not helpful because they saw such investment as a kind of gambling.



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It is not surprising that the collapse in prices led to a severe 20 economic recessions in Holland.

 

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