The South-Sea Bubble from Memoirs of Extraordinary Popular Delusions and the Madness of Crowds by Charles Mackay
The South-Sea Bubble from Memoirs of Extraordinary Popular Delusions and the Madness of Crowds by Charles Mackay
I am live every weekday at 7:45am HST / 1:45pm EST reading The South-Sea Bubble from Memoirs of Extraordinary Popular Delusions and the Madness of Crowds by Charles Mackay.
The government of England is in debt so they make a deal with the South-Sea company, allowing them a monopoly of trade and tariffs if they assume the government debt. Though the company isn’t profitable and doesn’t actually trade what they promise, they become profitable as a financial company.
The South-Sea Company proposes to take on the National Debt of England and outbids the Bank of England. Their shares more than double in value while the proposal is being discussed.
pp. 50 to 53, The South-Sea Company’s proposal is passed into law. The stock price drops so the members of the government fabricate stories of trading in Spanish ports for free, people buy stock in a frenzy to get rich
pp. 53-55 There are so many new schemes invented to sell shares. Some projects are created by royalty, some are created by thieves. The most ridiculous was a company that sold shares in “A company for carrying on an undertaking of great advantage, but nobody to know what it is.” The man sold shares on the first day and made $2,000l., then ran off that night and was never heard from again. The government moves to ban these fake companies.
pp. 55 – 63 We read through a list of dismissed petitions for new businesses. We also read through a list of 80 bubble companies…ranging from fisheries, to pensions for widow, to making soap. A card deck was designed with a bubble company on each one, making fun of those who invested in them.
pp. 63-66 The South-Sea company meets to discuss how to repair the stocks dropping price. The public begins to panic and sell and the price drops to 400.
pp. 66 – 69 The bank’s issue bonds to help the plummeting stock, but it doesn’t work and the share price falls to 135. There is a run on the bank and all businesses that supported credit for buying shares. Riots begin and violence occurs towards directors of the South-Sea Company.
pp. 69 – 72 The Parliament convenes and the country wants to blame the South-Sea Company for the ruined national credit. They start fighting amongst themselves on who is guilty and what should be done. They agree that no members of the South-Sea Company can leave the country or sell their assets.
pp. 73 – 75 The South-Sea Company investigation in the government continues. One man with records of who bought stock in the government flees the country. While they try to get him back, arguments start in the Parliament and one statesman dies suddenly after he started bleeding during an argument.
pp. 76 – 80 Mr. Knight the Treasurer to the South-Sea Company that fled, is found in Austria and Austria refuses to send him back to England, as they will put him on trial there. The English government puts government officials on trial, and 2 are acquitted and 1 Mr. Aislabie found guilty. The crowds riot at the 2 let free and celebrate with bonfires and dancing with Mr. Aislebie’s guilty sentence.
pp. 81 – 85 The Directors were tried and most of their estates were taken from them and redistributed to shareholders who had lost money due to the artificially inflated price of the South Sea Company stock. In addition, money from the company was also redistributed, and debts made off of the value of the stock were lowered. Public credit was slowly restored. This is the end of the chapter.
