Market
Manias of
the Past
Tulip Mania: In the early 17th century the
popular tulip bulb became one of the first well known investment frenzy.
Tulip Mania occurred in Holland during the Dutch Golden Age
and has long been considered the first recorded speculative or asset bubble.
When the tulip was introduced, it immediately became a
popular status symbol for the wealthy and the growing middle class. However,
the flowers were fragile and it took years for flowers to grow from a seed.
After it was discovered that the flower could be grown faster from a bulb, the
bulbs became highly coveted. Speculation drove the value of tulip bulbs to
extremes and in 1634, tulip mania swept through the country. After a few years
the frenzy died down, and by February 1637, prices began to decline. By 1638
prices leveled off.
More recently some modern scholars have begun reevaluate long
held assumptions including the idea that this was truly a bubble. There was a
frantic tulip trade where people did pay incredibly high prices for some bulbs,
and the price of bulbs did collapse. At the same time, there were many people
who were not involved in the speculation and total national trade didn't
collapse.
Mississippi Company: The Mississippi Company owned a
monopoly on French colonies in North America and the West Indies and was
associated with John Law who was then the Controller General of Finances of
France.
John Law was born into a Scottish family of bankers and
goldsmiths. He established himself in France and eventually his proposal to
establish the Banque Générale, later nationalized and renamed Banque Royale,
was accepted. In 1717, he bought the Mississippi Company (originally found in
the 1670s) to help ensure the success of the colony of Louisiana. He also
started the Compagnie d'Occident and obtained a monopoly of trading to the
Americas specifically the Mississippi River Valley.
In 1719 the company was renamed the Compagnie des Indes and
it held an even monopoly on French commerce. That same year Law's original bank
was renamed the Bank Royale and it absorbed Compagnie des Indes. Law hoped to
retire the public debt by issuing shares in exchange for state-issued public
securities. The enthusiasm for the shares of Compagnie des Indes became more
intense and it began issuing more than it could cover. The value of the paper
money and public securities began to loose value and because of the intricate
linking of the company’s stock with the state’s finances, when value of the
shares plummeted it caused a general crash. By the end of 1720 the bubble burst
and Law was dismissed and left the country.
South Sea Bubble: The South Sea Company British
joint-stock company founded in January 1711 that was granted a monopoly in
trade with the west coast of the Americas and many rushed to invest.
The South Sea Company was founded in 1711 by Robert Harley,
1st Earl of Oxford as the Governor and Company of the merchants of Great
Britain, trading to the South Seas and other parts of America, and for the
encouragement of the Fishery. It was to be a public-private partnership to
consolidate and reduce England’s national debt, while also making money for
investors by underwriting the national debt on a promise of interest from the
government. The South Sea Bill was passed in 1720 and it gave the South Sea
Company a monopoly in trade with South America in return for a loan for the
government. People rushed to invest, but in September 1720, the bubble burst
when the stock value crashed. The directors of the board were arrested, the
Chancellor of the Exchequer was ousted, and other government officials were
found guilty of corruption and imprisoned.
Stock Market Panics: While Wall Street is speculative,
there were a few notable events including the Panic of 1873, Panic of 1907,
Stock Market Crash (1929), and Black Monday (1987).
Panic of 1873: Railroads across the country were
built and financed by companies and banks like the firm Jay Cooke and Company.
The firm was heavily invested in railroad construction and when it closed its
doors in September 1873, it triggered a major national economic panic.
The stock market crash of 1873, known as the Panic of 1873,
featured a sudden 25% drop on the New York Stock Exchange in a single week,
triggering a 35.5% peak-to-trough contraction and initiating the prolonged
economic downturn called the Long Depression.
Panic of 1907: When "Copper King" F.
Augustus Heinze and his brothers along with American Ice Company's "Ice
King" Charles W. Morse, tried and failed to corner the market on the stock
of United Copper, they triggered a panic on Wall Street that led to runs by
depositors on the banks associated with these men including the Knickerbocker
Trust Company.
1929 Stock Market Crash:
During the 1920s the
stock market went through a rapid expansion but at the same time unemployment
rose and production declined leaving stock prices less valuable. October 24,
1929 (Black Thursday) marks the day of the largest sell-off of shares while
October 29, 1929 (Black Tuesday) is when investors traded some 16 million
shares on the New York Stock Exchange in a single day.
1987 Black Monday: Beginning on October 14, 1987, the
U.S. stock market began to sharply decline. On October 19 the Dow Jones
Industrial Average dropped over 500 points followed by steep declines of the
S&P 500, the New York Stock Exchange, and NASDAQ; eventually twenty-three
major world markets experienced a sharp decline.
Dot-com Bubble (year
2000): This stock
market bubble in the late 1990's was a result of excessive speculation on tech
companies.
The 1990s saw the rise of the commercialization of the
internet and there was an abundance of venture capital funding for start-ups.
Everyone was talking about Business to Business (B2B) and Business to Consumer
(B2C) commerce. This resulted in a rapid rise in U.S. technology stocks during
the late 1990s bull market. In 1999, many of the initial public offerings
(IPOs) were for technology stocks and the technology-dominated Nasdaq index
rose quickly between the years 1995 and 2000. However, many of the start-ups
were overvalued often with little to show with regards to a product and
eventually capital began to dry up. Stocks tumbled precipitously from a peak on
March 10, 2000 and again on October 4, 2002. It was during this time that on
December 5, 1996, that Federal Reserve Chairman Alan Greenspan warned the
markets about their "irrational exuberance." By the end of 2001, most
dot-com stocks like pets.com, Webvan, etoys, and Kozmo went bust, although some
companies survived.
After multiple failed relief rallies, the bubble fully
deflated when the Nasdaq hit its bear market bottom at 1,114 points on October
9, 2002, wiping out over $5 trillion in market value.
Real Estate Crash: From 1997-2005 real estate prices in
the United States rose but prices peaked in 2006 and then collapsed.
Beginning in the early 2000s, prices for housing began to
rise until they peaked in 2006. They began to decline in 2006/2007 and in
December 2008, they sharply declined and continued to drop, until prices hit
their lowest point in 2012. This large decline in U.S. home prices led to
mortgage delinquencies, foreclosures, and the devaluation of housing-related
securities. The real estate bubble had implications beyond just real estate as
it contributed to the recession and a global financial crisis.
Bond Market Crash of
2020: The bond market bull market of a lifetime began on
9-30-1981 with the 10 year U.S. Treasury bond yield at 15.84% with yields roller
coasting downward ending on 8-4-2020 at 0.52%.
Rates moved back up at a pace never experienced in U.S. history. As of 7-23-2026 the 10 year U.S. Treasury
bond yield is 4.71% an increase of 806% since that fateful August day of 2020.
Stock market crash of 2026 or 2027/2028??
Chart above inflation corrected S&P 500...
The wild ride upward since 2009 when will it end?
