How long have bubbles been bursting? Probably since the dawn of time on myriad levels, as those determined to “have more” undermine the stability of everyone/everything else.
According to International Living (an online newsletter): It’s official . . . The end of the “Age of America” will happen in 2016. That’s when, according the latest forecasts from the IMF, China’s economy will surpass America’s. According to International Living, the next president of the United States will be the last to lead the world’s biggest economy.
A decade ago, the U.S. economy was three times the size of the Chinese economy. Up until now economists have predicted that China wouldn’t overtake the U.S. until 2030. What does this mean? Quite possibly quite a few more bubbles will be twisting around and bursting; International Living is predicting the biggest shake-up of wealth in 235 years.
These types of financial machinations are way beyond my brain; all I know is that the middle class (that would be those of us who have been shoring up the system for decades) is someone’s footstool.
Following are economic woes recognized in history which have had ruinous effects. Given America’s economy today, it seems nothing has been learned and greed repeatedly undermines planning as investors intentionally forget (have forgotten) everything they learned in Investing 101. Tulipmania has been invoked frequently in news stories . . . The following was written by Alice Hamilton (Harvard Medical School) in May 1930.
This year, if ever, it behooves us to think soberly of the need of giving some form of security to those upon whom the fluctuations of business throw the heaviest burdens. These are men and women who have no control over discount rates, or credit, or the manipulation of bull markets and bear markets, yet they are the first victims of the battles fought in those high and mysterious regions . . . It is time for us to devise ways of meeting the inevitable disaster of old age and the almost equally inevitable disasters of sickness and unemployment, and these must be ways that will not fail when the stock market breaks or a new machine is invented, that will function in the lean years as in the fat years, and that can be accepted without loss of self-respect.
1634-1638: TULIPMANIA
Known for their passionate love of flowers, the Dutch highly prized the tulip upon its introduction to Western Europe in the mid-16th century. 
Dutch collectors devised a hierarchy of tulip varieties based upon their species and coloring, assigning values to the various flowers. Because it was impossible to determine which variegation would bloom from a particular bulb, the tulip became an object of speculation. During their earliest years in Europe, the bulbs were primarily of interest to the wealthy, but by the mid-1630s the craze caught on with middle-class and poorer families. The increased demand caused the price of the bulbs to soar.
While there’s no accurate way to render prices in today’s currencies, some prices roughly equalled the annual income of a wealthy merchant. The Semper Augustus tulip sold for a record price during “tulip mania.”
Around 1630 professional tulip traders sought out flower lovers and speculators alike. The supply of tulip buyers grew quickly, however the supply of bulbs did not. It takes seven years to grow a tulip from seed. And while bulbs can produce two or three clones, or “offsets,” annually, the mother bulb only lasts a few years.
Bulb prices rose steadily throughout the 1630s, as ever more speculators wedged into the market.
Weavers and farmers mortgaged whatever they could to raise cash to begin trading. In 1633, a farmhouse in Hoorn changed hands for three rare bulbs. By 1636 any tulip–even bulbs recently considered garbage–could be sold off, often for hundreds of guilders. A futures market for bulbs existed, and tulip traders could be found conducting their business in Dutch taverns.
In order to buy the bulbs for resale at higher prices, people mortgaged their homes. British journalist Charles Mackay, in his definitive history of early financial bubbles, Extraordinary Popular Delusions and the Madness of Crowds (1841), published a list of objects (and their prices) which were exchanged for “one single root of the rare species called the Viceroy”:
- Two lasts of wheat (448 florins)
- Four lasts of rye (558 florins)
- Four fat oxen (480 florins)
- Eight fat swine (240 florins)
- Twelve fat sheep (120 florins)
- Two Hogsheads of wine (70 florins)
- Four tuns of beer (32 florins)
- Two tuns of butter (192 florins)
- One thousands lbs. of cheese (120 florins)
- A complete bed (100 florins)
- A suit of clothes (80 florins)
- A silver drinking-cup (60 florins)
Tulipmania reached its peak during the winter of 1636-37, when some bulbs were changing hands ten times in a day. The zenith came early that winter, at an auction to benefit seven orphans whose only asset was 70 fine tulips left by their father. One, a rare Violetten Admirael van Enkhuizen bulb that was about to split in two, sold for 5,200 guilders, the all-time record. All told, the flowers brought in nearly 53,000 guilders. The tulip market crashed. Despite the efforts of traders to prop up demand, the market for tulips evaporated.
1719-1720: MISSISSIPPI BUBBLE (French Mississippi Company)
This grew out of France’s dire economic situation in the early 18th century. By the time of Louis XIV’s death in 1715, the treasury was in shambles, with the value of metallic currency fluctuating wildly. The following year, the French regent turned to a Scotsman named John Law for help. Law, a gambler who had been forced into exile in France as the result of a duel, suggested the Banque Royale take deposits and issue banknotes payable in the value of the metallic currency at the time the banknotes were issued.
Law’s strategy helped the French convert from metallic to paper currency, and resulted in a period of financial stability.
In August 1717, Law incorporated the Companie des Indes (commonly known as the Mississippi Company), to which the French regent gave a monopoly on trading rights with French colonies, including what was then known as “French Louisiana.” In August 1719, Law devised a scheme in which the Mississippi Company subsumed the entire French national debt, and launched a plan whereby portions of the debt would be exchanged for shares in the company. Based upon the expected riches from the trading monopoly, Law promised 120 percent profit for shareholders, and there were at least 300,000 applicants for the 50,000 shares offered.
As the demand for shares continued to rise, the Banque Royale — which was owned by the French government but effectively controlled by Law — continued to print paper banknotes, causing inflation to soar. The bubble burst in May 1720 when a run on the Banque Royale forced the government to acknowledge that the amount of metallic currency in the country was not quite equal to half the total amount of paper currency in circulation. On May 21, the government issued an edict that would gradually depreciate Mississippi Company shares, so that by the end of the year they would be valued at half their nominal worth. The public outcry was such that one week later, on May 27, the Regent’s Council issued another edict restoring the shares to their original value. On the same day, however, the Banque Royale stopped payment in specie. When the Banque Royale reopened in June, the bank runs continued. By November, shares in the Mississippi Company were worthless, the company was eventually divested of its remaining assets, and Law was forced to flee the country.
The Evening Post, London, England
From Thursday September 21 to Saturday September 23, 1721
From the Amsterdam Courant, September 30, Hanover September 23.
he famous John Law arrived here Incognito last Thursday with his Son, and was since Treated by divers Persons of Distinction; The Saturday following he had the Honour of being introduced to Prince Frederick, he is since gone for England if the common Report is true.
The Evening Post, London, England
From Saturday December 23 to Tuesday, December 26, 1721
The Creditors of Mr. John Law have met at the Notary Maignan’s, to consider the properest methods ot recover their Debts.
The Evening Post, London England
From Saturday November 10 to Tuesday November 13, 1722
Hague, November 5: The Committee of Council, nominated in inspect the Affairs of Mr. John Law, have given Judgment for the Sale of his Real Estate.
John Law who had been born into a family of bankers, believed that money was only a means of exchange that did not constitute wealth in itself. He received a pardon in 1719, moved to London, then to Venice where he died a poor man on March 21, 1729.
1720: THE SOUTH SEA BUBBLE
During the same period that French speculators were driving up the price of shares in the Mississippi Company, English speculators were purchasing stock in the South Sea Company. Famous First Bubbles: The Fundamentals of Early Manias
Formed in 1711 by Robert Harley, the South Sea Company was created to convert £10 million of government war debt (incurred during the War of Spanish Succession) into its own shares. In exchange, the company would receive annual interest payments from the government and a monopoly on trade with the South Seas and South America.
The exchange was successful although the expected trade riches never materialized.
In 1720, following John Law’s example in France, the company proposed to take over the entire British national debt. As soon as the plan was announced to Parliament, the company’s share prices began to rise as speculators gambled on the conversion plan. The House of Lords approved the plan on April 7, 1720, after government officials had been bribed with secret allocations of shares. In order to make the deal more attractive, the company inflated the value of its stock. On April 14, £2 million of South Sea Company stock was offered to the public at £300 per share and the subscription sold out within an hour. The company made several more stock offerings, all of which sold out, with the subscribers representing all social classes. The apparent success of the South Sea Company’s scheme led to the appearance of many new joint-stock companies, which became known as “bubble” companies.
In an attempt to sustain their share price, the South Sea Company convinced the government to pass the Bubble Act in June 1720, which prevented the establishment of new companies without government permission, and allowed existing companies only to carry out those activities that were prescribed by their charters.
The price of South Sea stock peaked at £1050 in late June of 1720, before the scheme began to fall apart. The first large drop in the market occurred in August, as foreigners and other investors began to withdraw from the market.
Parliament conducted an investigation, corrupt politicians and businessmen were imprisoned, and over £2 million was confiscated from South Sea Company directors.
Historical Register, January 1, 1721, London, Middlesex (pg 68, 69)
On the 17th of February the Commons, in a Committee of the whole Houfe, confider’d of the King’s Message relating to the South Sea Company’s Petition and came to the following Resolution, viz.
- Payment of the Sum of four Millions one hundred fifty six thoufand three hundred six Pounds four Shillings eleven Pence, due to the Publick by the South Sea Company, by Virtue of the Act of the last Session of Parliament, and made payable within one Year, by four equal and quarterly Payments, the first Payment commencing the 15th Day of March 1724 be farther delay’d and postponed to the Year 1732; and that farther Provision be made for the more effectual payment thereof.
- . . . Repayment of the Sum or One Million, which was lent to the South Sea Company, on or about the 7th of June 1722 . . .
- That the taking in or holding of Stock by the South Sea Company, for the Benefit of any Member of either House of Parliament, or Person concerned in the Adminifhation, (during the Time that the Company’s Propofals, or the Bill thereto, relating were depending in Parliament) without, any valuable Consideration paid, or fufficient Security given for the Acceptance of, or Payment for such Stock; and the Company’s paying or allowing such Person the Difference arising by the advanced Price of the Stocks, were corrupt, infamous, and dangerous Practices, highly reflecting on the Honour and Justice of Parliaments, and destructive of the Interests of his Majesty’s Government.
- Any of the Directors of the South Sea Company selling their own Stock at high Prices to the Company or others, at the same Time that they gave Orders for buying stock upon Account of the Company, under pretence of keeping up the nominal Value of said stock, was a scandalous Practice, tending to enrich themselves, to the great Loss and Detriment of the Company, and of other of his Majesty’s Subjects, for which they ought to make satisfaction of their own estates . . .” with which we agree and that leads us back to Waiting For Permission? You Got It!
1924-1929: THE BULL MARKET
The raging U.S. stock market of the late 1920s was hailed by many as evidence of a “new era” of economic fundamentals. Coolidge administration policies included the extension of free trade, anti-inflation measures, and the relaxation of anti-trust laws; and corporate improvements such as increased worker productivity and expanded research and development.
In reality, the driving factor behind both the inflation and the bursting of this bubble was the expanding use of leverage (i.e., debt) by individuals as well as corporations. America’s current sorry state of financial affairs echoes this era; have we learned nothing?
The decade was marked by an enormous expansion of consumer credit, which Americans used to finance purchases of new products such as automobiles and radios, which were created using new techniques of mass production that additionally helped to drive down prices. Consumers also used credit to purchase stocks, and as the stock market escalated, investors began to take advantage of margin loans provided by their brokers. Their primary targets were industries involving new technologies, such as the automobile, motion picture, and aircraft industries. Radio stocks boomed, rising by 400 percent in 1928 alone,7 and the stock market attracted an immense public following.
Above: Newspaper advertisement for “Unusually Liberal Credit,” From The San Antonio Light (Texas), Sunday, July 29, 1928 — This type of advertising continues to undermine the strength of America’s families.
Oct. 24, 1929 became known as “Black Thursday”: it marked the beginning of the stock market’s “Crash of 1929.” Following the chaos of October, the market briefly rallied through Spring 1930 before plummeting again during the early 1930s.
1930s: THE GREAT DEPRESSION
In a February 1930 article entitled “The Revolution in Banking Theory,” Bernhard Ostrolenk sought to explain the forces at work behind the failure of so many banks during the previous decade. For the first century and a half of our history, he explained, the federal government, and most of the states, had prohibited “branch banking”—the ownership of one bank by another—instead fostering a system of small, independent “unit banks” . . .
The unit bank was well suited to financing the small, independent businesses that had dominated the American economic landscape throughout the 19th Century. But the trend toward centralization of the economy, set in motion during the Industrial Revolution, called for banks with far greater resources.
Investment banking had undergone significant changes as well during that same period. In the January 1930 Atlantic, Edgar Lawrence Smith described how Wall Street’s lending practices had come to violate the basic principles of sound banking. Prior to this era, banks rarely, if ever, made loans to people with whose affairs they were not reasonably familiar.
During the high-flying ’20s, when a customer borrowed from a stockbroker to invest in the market, Smith observed, such caution was abandoned. Iindividuals assumed (and were allowed to assume) large amounts of debt in order to purchase stock they could not afford.
Stockbrokers, in pursuit of commissions and with an eye towards driving prices ever higher, readily extended unwise loans, referred to as “debit balances.” The ability of the borrowers to pay back the loan depended on “the general level of stock prices.” The flaws in this system soon became tragically apparent, ruining many unwitting investors.
1984-1989: THE JAPANESE BUBBLE ECONOMY
From the 1960s to the 1980s, Japan had one of the highest economic growth rates in the world. In the 1970s, the government began to deregulate financial markets, which allowed banks to actively seek out new customers. During the mid-1980s, Japan took a loose approach to monetary policy, which caused the money supply to increase and interest rates to fall. After obtaining low-interest loans, corporations were easily able to raise funds on the markets. While these funds sometimes fueled capital investment, they often were recycled back into further speculative market activities.
Land speculation was another important part of the bubble economy. Japanese land prices were traditionally high, partly due to the mountainous island nation’s small amount of available land and population growth. Because of its high value, banks often accepted property as collateral and land served as the engine of credit for the entire economy.
The government increased interest rates five more times before August 1990, to try and halt the continued rise of property prices. The government was forced to intervene in a futile attempt to try and revive the market and stave off recession. Throughout the 1990s, Japan experienced slower growth than any other major industrial nation.
First published in 1841, 
Extraordinary Popular Delusions and The Madness of Crowds by Charles Mackay is often cited as the best book ever written about market psychology. This Harriman House edition includes Charles Mackay’s account of the three infamous financial manias – John Law’s Mississipi Scheme, the South Sea Bubble, and Tulipomania. These three historic episodes confirm that greed and fear have always been the driving forces of financial markets, and, furthermore, that being sensible and clever is no defence against the mesmeric allure of a popular craze with the wind filling its sails. Charles Mackay proved himself a master chronicler of social as well as financial history. Blessed with a cast of characters that covered all the vices, gifted a passage of events which was inevitably heading for disaster, and with the benefit of hindsight, he produced a record that is at once a riveting thriller and absorbing historical document. A century and a half later, it is as vibrant and lurid as the day it was written. For modern-day investors, the moral of the popular manias scarcely needs spelling out. When the next bubble comes along — be it stock market, real estate, or tulips — be advised to recall the plight of some of the unfortunates on these pages, and avoid getting dragged under the wheels of the careening career bandwagon yourself.
Resources: The Atlantic, PBS.org, Newspaper Archive (online), Wikipedia, and as noted above.
I’m 2.5 years into working to save my home from foreclosure. After two years of battle, and an 8-inch thick 20 pound binder, I was accidentally given a 5-year loan modification.
A note of caution, please consider carefully, especially if your dream career is photography. Yes, it is a seemingly “romantic” career path. It is also an extremely difficult one because everyone with a tiny camera or cell phone is shooting these days. If you don’t need income (and I’m assuming you wouldn’t be on this site if you don’t), this is a rough road.
In an attempt to dissuade homeowners from walking away from their delinquent mortgages, the lender announced that it would bar defaulting borrowers from getting additional Fannie Mae financing for seven years unless they can prove that they didn’t have the capacity to pay, or they attempted to negotiate in good faith for a workout alternative in lieu of foreclosure.
If that is true, and if he worked for me, I would fire him on the spot.
,” and, in my opinion, situational ethics are ruling and ruining this country. 
As a regional vice president for Chase Home Finance in southern Florida, Theckston shoveled money at home borrowers. In 2007, his team wrote $2 billion in mortgages, he says. Sometimes those were “no documentation” mortgages.
is often cited as the best book ever written about market psychology. This edition includes Charles Mackay’s account of three infamous financial manias – John Law’s Mississipi Scheme, the South Sea Bubble, and Tulipomania. These three historic episodes confirm that greed and fear have always been the driving forces of financial markets, and, furthermore, that being sensible and clever is no defence against the mesmeric allure of a popular craze with the wind filling its sails. Charles Mackay proved himself a master chronicler of social as well as financial history. Blessed with a cast of characters that covered all the vices, gifted a passage of events which was inevitably heading for disaster, and with the benefit of hindsight, he produced a record that is at once a riveting thriller and absorbing historical document. A century and a half later, it is as vibrant and lurid as the day it was written. For modern-day investors, the moral of the popular manias scarcely needs spelling out. When the next bubble comes along — be it stock market, real estate, or tulips — be advised to recall the plight of some of the unfortunates on these pages, and avoid getting dragged under the wheels of the careening career bandwagon yourself.
This isn’t here to recommend any form of religion. It is here to help keep balance, give us impetus to stand for our rights, but also realize that no matter how bad it is here, it is far worse elsewhere. 
