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Stock Market Crashes Through the Ages – Part I – 17th and 18th Centuries

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Bulls and Bears. It’s all about predicting when that upturn or that downswing in the market is going to take place and when you need to sell or buy that stock to hit the jackpot and make the millions. People have been doing it for centuries and that doesn’t look like it is going to stop right now. There have been dozens of financial crises over the centuries and each of them has had an effect on the lives of people to varying degrees.

Here’s the low down on what the biggest and the worst, the bad, grizzly bears that have affected our lives and shaped the way that we deal with the next one (if we learn from our mistakes that is!). The best of the bunch of world stock-market crashes from the 17th and 18th centuries are as follows. But, they might be old, they might be gone, but you’ll be surprised that we haven’t learnt a lot from our past mistakes. We did surprisingly crazy things and we are still doing some of the very same things today. Let’s take a peek into the past and see what was and what wasn’t the thing to do!

1.       Kipper and Wipper

1623

In German, known as the Kipper und Wipperzeit, or the ‘Tipper and See-saw’.  It is the first real financial crises and downturn in the economy and it took place at the start of the Thirty Years’ War (1618-1648). There was no effective taxation to finance the war and so the Holy Roman Emperor started to debase currency to raise revenue. The name of the crisis stems from the scales that were used to identify coins that had not been debased. They were removed from circulation and then melted down. Mixing them with baser metals (copper, lead or tin) meant that they could be reissued with a lower value of currency. Modern Quantitative Easing methods before QE had even been invented! Abenomics in the 17th century! We think that we invented everything, don’t we just?

Trouble was: the currency became so devalued that nobody wanted it anymore. Riots occurred, soldiers refused to work if they weren’t paid in real, non-debased money and even the state came a cropper, when it started getting the money back after collecting taxes. The coins became absolutely worthless and were nothing more than tidily-winks for kids in the streets. Is this what is in store for us?

2.       Mississippi Company Bubble

1720

Bubbles usually burst and the Mississippi Company was no exception.

However, the Mississippi Bubble wasn’t technically a bubble at all. It was inflationary pressure fueled by excessive money supply and failure of policies implemented to control money supplies.

The Mississippi Company was a business corporation that had a monopoly over the French colonies in the Americas. John Law set up the ‘Banque Générale Privée’ (or the ‘General Private Bank’) in 1716 and developed the circulation of paper notes as a means of payment. Law was a Scot that believed that money did not constitute wealth at all and that it was merely a means of exchange between companies and individuals.

He was avant-garde in that he believed that the wealth of a nation was dependent on trade between countries. He was appointed Controller of General Finances for Louis XV. The bank that Law set up was the first central bank of France and its capital was made up of government bills. The bank issued more notes than it should have done and it didn’t have enough coinage to represent the sums that were being printed.

Law was a notorious alcoholic, so maybe he was drunk half the time. He was also a gambler. He believed that coins should be gotten rid of and that we should only use paper money. He also believed that shares were a form of money, even the most superior form of money that existed, since they generated dividends. The printing of money for Law’s French bank resulted in economic inflation. The value of the paper currency ended up getting halved. Law was an excellent modern-day marketing man too. He made everyone believe (via gross-exaggeration) that Louisiana was much wealthier than it actually was. Smooth-talker, obviously.

The notes issued by the bank were used to pay dividends to shareholders that were investing  in the Mississippi Company. Except, the French had to admit after a while that they didn’t have the coinage to back it all up. Sounds like the UK Financial Rock (amongst many others that could be mentioned) meltdown in 2007 when people started queuing outside the banks to withdraw their money en masse. That bank run was the first that took place in Britain for 150 years! Maybe, they should have heeded Law’s warning and got rid of the coins in circulation altogether.

Things came to a head for the Mississippi Company in 1720 when the bubble burst in Law’s face. People rushed to try to convert their paper notes to coins and the bank foreclosed on payment. Bank notes had increased by 186% just in one year. Inflation was rampant and prices were doubling. Shares increased in price, but not so much through demand as the result of inflation. Law had to devalue the Banque Générale’s notes by 50% to deal with the inflationary pressure. Shares plummeted from 10, 000 livres to 1, 000 livres per share in 1720. By 1721, they were only worth 500 livres. The result was that investors lost millions. France plunged into economic depression, and brought half of Europe with it. It also laid the foundations, as usual, for social upheaval, revolution and struggle. The French Revolution was built on this.

Louis XV got rid of Law. He was exiled, poverty-stricken to Venice where he died in 1729, penniless. Luckily he believed that money wasn’t wealth, just a means of exchange. But, isn’t that the way. Choose the scapegoat, exile them and then carry on regardless. We are still doing it.

 3.       South Sea Company

1720

The South Sea Company was a joint-stock company that was founded just a decade before it went broke bringing with it the economy of the UK.  However, its intention was to reduce British national debt originally. The founders were found guilty of insider trading and they brought about the collapse of the shares of the company and ruined the national economy even further. They knew when the debt was going to be consolidated, and so they bought that debt in advance to make huge profits. It was bribes galore as the MPs were given back-handers to make sure Acts of Parliament went through to support their scheming. A modern-day insider trading scandal.

We are still doing it today. Preet Bharara, New York US Attorney, has charged 72 people over the past three years with insider trading. Some of the most famous cases to date are the Enron, Jeffrey Skilling case, for instance. Skilling (former President of Enron) was convicted in 2006 of insider trading (as well as 18 other charges). He ended up getting sentenced to 24 years behind bars and fined the hefty sum of $45 million. He appealed to the Supreme Court in 2010 and it went back to the appeals court for review. Or, in May 2011, Raj Rajaratnam was convicted of having tried to use insider information concerning the Galleon Group. It could have brought in the tidy sum of $20 million had he not been arrested, causing the subsequent falling apart of the group.

The South Sea Company saw the value of its shares rise rapidly over a very short period of time, mainly due to rumors, once again. In January 1720 the price rose to £128. A month later, it was worth £175 per share. By March, it stood at £330. By the end of the year a share was worth more than £1, 000. People were scrambling to get hold of the shares and make money, believing that the price would rise endlessly. Politicians were in cahoots with the founders of the company. They were ‘sold’ shares (that they never actually paid for) and then they waited until the price increased and ‘sold’ them back for a profit.

The company benefited from the legitimacy of the prestigious names that were investing in the company. It was all about image, even back then. The bubble came to an end as people became aware of what was taking place. The stocks fell to £150 and ruined thousands. It was put forward in the House of Commons that the bankers should be tied up in sacks with snakes and thrown into the Thames. It never happened (obviously), but the estates of the founders were confiscated and used to pay for relief funds of the victims. Ministers were prosecuted and the Chancellor of the Exchequer of Great Britain (John Aislabie) ended up in prison.

4.       Bengal Bubble

1769

The Great East Indian Crash took place in 1769 as a result of overvaluation of stock of the East India Company. This happened over a twelve year period between 1757 and 1769 due to attacks on the company’s holdings in Bengal, India and the famine of 1770. All of this was coupled with the collapse of the textile industry in the province of Bengal.

As a result stocks of the British East India Company fell from £276 in December 1768 to £122 in 1784. That’s a fall of 55% in the value of the stocks. There is even a Facebook page you can like (if the fancy takes you). It turns out there are pages to like most things these days, even events that turned out to be catastrophic for those that invested in them in the 18th century.

Back then the answer of the British government was to bail out the East India Company, but that just acted as a catalyst to the company’s demise and subsequent disappearance as people lost confidence. Makes you think if today’s bail-out techniques will do the same.

 5.       Panic of 1796-1797

1796

This was a series of downswings in the credit markets that caused recessions in the UK and the United States. There was a land-speculation bubble that exploded in the faces of the investors and the banking system in 1796 and as a result the Bank of England refused to maintain specie payments (the redemption of US paper money in coinage (usually gold)). The Bank of England was afraid that they were going to go bust and have insolvency problems when there were too many demands by account holders to withdraw cash deposits. The knock-on effect for the US and the UK was disflationary repercussions on the financial markets.

The Panic of 1796-1797 revealed just how much the United States of America was dependent on Europe for trade. It pointed to just how much interconnectedness there was, even before globalization was thought up. Things haven’t changed much. It was thanks to this panic that the Bankruptcy Act of 800 was established to form a framework whereby debtors and creditors should reach a settlement for their common good. There’s always something positive that comes out of the panics and bubble bursts, some might say.

These are just a few of the bubbles that burst in the 17th and the 18th centuries. They are telling in that they reveal that we haven’t actually moved a long way from where we were back then. We are still haunted by modern-day insider-dealing scandals; we still exile the ones to ‘blame’ in the hope that getting rid of them will erase the page so that we can start again and the dirty deeds that made people rich in the high echelons of the company will be soon forgotten. We still over-market and exaggerate, oversell and inflate prices. Then suddenly, the prices drop as people pull out and the government tries to shore up the bleeding wound with Elastoplast and first-aid bandages. But when the blood is pumping out and there’s a hemorrhage, sometimes, that doesn’t do anything at all. Or, at least nothing in the long term.

In the next installment, we’ll take a look at the historical bubbles that burst in the 19th century.

Originally posted Stock Market Crashes Through the Ages - Part 1 

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Wed, 06/05/2013 - 10:58 | 3626281 lakecity55
lakecity55's picture

I would suggest for further edification the "war" between Nelson Biddle and Andrew Jackson (my hero) and how Biddle blackmailed the US economy to try and keep his private central bank opened.

It is a primer for everything that has happened since, especially after the illegal creation of the "Fed" in 1913.

 

Bill Still's documentaries are superb, also.

Wed, 06/05/2013 - 06:51 | 3625627 Mr. Hudson
Mr. Hudson's picture

: "The bubble came to an end as people became aware of what was taking place."

 

Americans know what Bernanke is doing and could care less.

Wed, 06/05/2013 - 10:35 | 3626196 Setarcos
Setarcos's picture

Americans?  Do you mean Usans?  After all everyone from Argentina to Canada are Americans.

And what's with this "could care less" mangling of the English language?

"I could care less" means that I could care (about something) even less than I already do, e.g. about the plight of the victims of Washington's wars against Korea, Vietnam, Afghanistan, Iraq, Libya and now Syria and Iran.

This "could care less" is a mind bender of truly Orwellian proportions.

For starters:  By far the great majority of "Americans"/Usans don't have a clue about economics, nor politics, nor history, nor geography, nor science, nor philosophy, nor current affairs, nor anything else much except what is on TV by way of entertainment ... a saver is that much the same applies to every country on this planet, but because the Washington Empire is the sole "super power" I am concentrating on it and its subjects, who mostly believe that the US is the best thing to have ever happened in the course of history.

And the great majority of Usans do not have a clue about what Bernanke is doing ... and, at a guess, I daresay that about 30% of Usans have never heard of him and COULD NOT CARE LESS, even if they recall his name from some MSM broadcast.

Same around the world for most people, who do not give a stuff beyond immediate self-interest, but in English, or any other language, I doubt that anyone has ever inverted language as much as Usans have.

Your statement makes no sense:

"Americans know what Bernanke is doing and could care less."

By and large Usans do not have a clue, e.g. about the Fed, 911, JFK and so on; though more should/could care MORE, not LESS.

No wonder that it becomes increasingly difficult to communicate with truly Orwellian inversions of common langauge.

Maybe I should not harp on it, but "could care LESS" really bugs me, especially because it is uttered by those who mostly mean the opposite of that people should care MORE.  Or maybe not?

Where is CD (Cognitive Dissonance) when I need him to help explain disconnects in the mind?

 

 

Wed, 06/05/2013 - 17:50 | 3627732 Mr. Hudson
Mr. Hudson's picture

hmmm...you're right. People in the United States are dumb and ignorant. They deserve what is coming.

With regards to "could care less". That is an expression. We have a lot of stupid expressions in the United States that make no sense, like, "America is the greatest country in the world".

Wed, 06/05/2013 - 11:06 | 3626310 Bearwagon
Bearwagon's picture

I don't know where CD is, but I'll do my best to act in place of him: You are right, these linguistic structures shall blur your cognition and thus your ability to think. May the insights of early NLP could be of help to comprehend the correlation:

Richard Bandler and John Grinder: 'The Structure of Magic'

http://cdn.preterhuman.net/texts/manuals/magic/The%20Structure%20Of%20Ma...

 

Wed, 06/05/2013 - 10:59 | 3626289 lakecity55
lakecity55's picture

+1!

Wed, 06/05/2013 - 06:26 | 3625614 Confundido
Confundido's picture

The first crash has been documented in a work called the Trapeziticus. It gives information on the run on deposits and fall of banks in Athens, upon learning of the defeat before Sparta. A 10 year deposit freeze ensued. The Justinian code already has provisions/language incorporated, on the relationship between debtors / creditors, with regards to bail ins....

Wed, 06/05/2013 - 05:52 | 3625600 libertard
libertard's picture

John law for fed chair!

Wed, 06/05/2013 - 03:38 | 3625564 Nickson
Nickson's picture

how can i become a contributor to zero hedge, i can find it nowhere on the site

Wed, 06/05/2013 - 07:58 | 3625703 Aegelis
Aegelis's picture

Wha?  No longer feeling the insurmountable joy of being a heckler?

Wed, 06/05/2013 - 07:37 | 3625665 Setarcos
Setarcos's picture

You already are a contributor, just by commenting briefly.  But I assume that you have some lengthy message to get across and would like recognition for it?

No problem.

As far as I know there are no limits on lengths of posts, so fire away and see what happens, e.g. you might become a featured contributor.

Don't get me wrong!  There have been times when I've felt like submitting an article, but it is not realistic to expect acceptance without any prior credentials of one kind or another.

A comparable case is authors wanting books published, without any history of prior success.  It rarely happens and mostly for good reason, e.g. the book is crap, except for in the eyes of the author.

In any case: if you have something to say that can be contained within less-than book length (obviously) in ZH, then let it rip and then maybe Tyler will invite you on board as a regular.

First you have to let us all know what you have to say, other than just asking how to be a featured contributor.

Wed, 06/05/2013 - 00:40 | 3625447 jonjon831983
jonjon831983's picture

These listings of popped bubbles always focus on the big kahuna.

 

The question is what happened to the rest of the market and the listed companies.  How did they fare, who survived, thrived, or failed.  Were there opportunities to be had there like in 2007-2009.  Always bound to be something.  Did markets react in similar way back then? etc etc

Wed, 06/05/2013 - 00:34 | 3625440 adr
adr's picture

If only I could have bought before the bubble, and sold before it popped, I'd be rich.

The single statement that explains all bubbles.

As long as the opportunity exists to make money without earning it, people will chase whatever bogus opportunity appears.

You oonly need to look at the "Make your kid happy bubbles" to see how stupid people are.

Beenie Baby bubble, Furby Bubble, Tickle Me Elmo Bubble, Buzz Lightyear Bubble, Xbox 360 Bubble, and the latest Twinkie Bubble.

Why do people believe there will always be someone willing to pay more?

It's like the saying, "Even as strong as you are, there will always be someone stronger."

Yes, if you bench around 160. Thing is once you get to somewhere around 500lbs, the chances of running into someone stronger gets smaller and smaller.

When you get to $2500 for a blue whale Beenie Baby, the pool of greater fools is virtualy non-existent. If the fool becomes you, then you'll sell for any price and the bubble pops.

Wed, 06/05/2013 - 08:07 | 3625727 Setarcos
Setarcos's picture

I only recall my daughter's Barbie Bubble, but I don't doubt you at all about all you mention.

BTW: nothing so strong as the wantingness of little girls and their mothers.

I have a theory that our species is "hard wired" to be hunters and gatherers, with that having 'evolved' into men 'hunting' to build shopping centres for women to gather (shop) in ... and gather they do in droves, as they window-shop or whatever.

 

Tue, 06/04/2013 - 22:37 | 3625299 StarTedStackin'
StarTedStackin''s picture

You had me at Kipper whipper.......not so much......

 

 

 

 

 

 

Does TD garden?

Tue, 06/04/2013 - 22:36 | 3625268 valkyrie99
valkyrie99's picture

This article is a great example of why copy/paste from stub articles from Wikipedia is NOT= to 'learning from the past' (also not a bad example of shit about the internet that disappoints me).

To start on picking this apart:

"1.       Kipper and Wipper

1623

In German, known as the Kipper und Wipperzeit, or the ‘Tipper and See-saw"’well 'tipper and sea-saw TIME' is one translation, I'll leave it be

"It is the first real financial crises"WTF, really? No issues during Roman time, then Eurpore made it through the end of direct Roman rule and transitioned to a feudal system just fine...no boughts of deflation/great silver shortage there...no prob with that plague, discovering that mountain of silver in Peru a 1/2 century before? What about the Schinderling Inflation that happened in the same area the century before then? Now - one could plausibly argue that some of the bubbles you talk about next were first that only came about after the stock market and fractional reserve banking began, but this is an inflation, it's not that new

"and downturn in the economy and it took place at the start of the Thirty Years’ War (1618-1648)"Before the onset - that's important, wars often come with inflation, this proceeded the war and continued through with it.

"There was no effective taxation to finance the war "well except for real estate, other property, and poll taxes and the 'Ungeld' system -  the consumption tax on luxury goods, alcohol, tobacco, meat, imported stuff, a bunch of other stuff somebody doesn't like, etc.,

"and so the Holy Roman Emperor started to debase currency to raise revenue."I think it was Voltaire that best said  something like: by this time the Holy Roman Empire was neither Holy, nor Roman, nor an Empire. Actually, in 1559 the Holy Romans made decrees to standardize and preserve their currency's value. They decreed that only their princes would own mints, they wouldn't be sold or leased, that no domestic coins would be exported and few foreign ones brought in, that the metal content of coins was fixed throughout the whole structure - even small denominations had the right metal weights. They decreed death to violators. The problem was that esp. with the tech of the day, minting cost money - mints would get enough senorage profits introducing large denomination coins to still profit from thier manufacture, but not from small coins.  So, they stopped producing them, which was another problem, as most people were poor and needed them for the stuff they could buy. But again Rome wasn't really an empire by then, so foreign traders first used this oppurtunity to pawn off debased foreign coins, then some merchants started building mints and started melting the good coins and shavings into small, debased silver coins and nobody stopped them, so everybody started doing it - there were priests converting nunneries into homemade mints, sending out hordes of con men to get the unsuspecting to make trades to them with not-yet-debased coins, there were princes renting out their mints to  guys for a day, it got nuts. But official mints only later started issuing debased currency as the debasement of small coins spread through regions - it's a common study on Greshams' law how the 'bad money replaced the good'  and if regions didn't debase they would quickly see all their full-bodies coins finding the way across the border and forign debased currency take over. Throw in the already inflationary environment in Europe from the discovery of that mountain of silver in Peru a 1/2 century before + the inflows of copper from the vast increases in Swedish porduction at the same time, yes, prices rose a lot. But the Holy Romans didn't do it as much of a lack of an authority big enough to go behead some diy minters. Unfortunatly this makes this nothing at all like a government choosing to do quantitative easing.  all i got time for atm maybe come back for the actual hisotry of history later

Tue, 06/04/2013 - 20:08 | 3624950 MaxThrust
MaxThrust's picture

There will always be booms and busts. The Banksters know that inside every human is the gambling gene. Let the Banksters drive the bubble and latter pick it. They make money on the up and buy assets cheap on the down. What's not to like about that. (if your a Bankster)

Tue, 06/04/2013 - 16:41 | 3624533 machineh
machineh's picture

 John Law ... change the vowel in his surname, substitute the nickname, and you've got:

JACK LEW

(pleased to meet ya, hope you guessed my name)

Tue, 06/04/2013 - 16:21 | 3624499 mkkby
mkkby's picture

"It’s all about predicting when that upturn or that downswing in the market is going to take place and when you need to sell or buy that stock..."

The trading aspect sold but never delivered.  Just a worthless cut/paste from wiki.  Fuck off Pivot Whore.

Tue, 06/04/2013 - 15:03 | 3624249 moneybots
moneybots's picture

"There’s always something positive that comes out of the panics and bubble bursts, some might say."

I am still waiting to see it.  So far all i see is more and more financial fraud to cover up the previous financial fraud.

 

Wed, 06/05/2013 - 08:05 | 3625722 RaceToTheBottom
RaceToTheBottom's picture

Thats because the real heavy stuff has not come down yet....

Tue, 06/04/2013 - 15:14 | 3624287 Madcow
Madcow's picture

She swallowed a spider to catch the fly ... 

http://www.poppyfields.net/poppy/songs/oldwoman.html

 

Its not a lie if you belive it -

Jerry, just remember. It's not a lie... if you believe it... - YouTube
Tue, 06/04/2013 - 14:56 | 3624222 moneybots
moneybots's picture

" It was put forward in the House of Commons that the bankers should be tied up in sacks with snakes and thrown into the Thames."

These days the bankers are rewarded for their crimes, with the tax payers money.

"Ministers were prosecuted and the Chancellor of the Exchequer of Great Britain (John Aislabie) ended up in prison."

These days ther are ZERO criminal prosecutions.

 

Tue, 06/04/2013 - 22:36 | 3625298 disabledvet
disabledvet's picture

BIG difference this time around. "Moral hazard"...in other words "bubbles are to be created as an instrument of State policy." leaving aside the fact that no one knows how to create them in the first place...recreating them seems a tall order indeed. Still...with synthetic CDO's back...without a doubt it's being done. I think Larry Summers is looking like a shoe in already at Treasu...er, I mean the Fed. Hmmm. "moral hazard indeed." this is also one of the worst articles I've ever read at ZH. See below for simple wiki versions that aren't totally stupid. I mean...hello...the 80's was a market bubble, the 90's was a market bubble, the 2000's was a market bubble, and now we're on decade number four. "yes interest rates can in fact go lower." amazing. Truly amazing.

Tue, 06/04/2013 - 13:06 | 3623884 medium giraffe
medium giraffe's picture

 

 

 

From Wikipedia:

Kipper und Wipper (German: Kipper- und Wipperzeit), literally 'Tipper and See-saw' is the name given to a financial crisis during the start of the Thirty Years' War (1618–48)

The "Mississippi Company" (of 1684) became the "Company of the West" (1717) and expanded as the "Company of the Indies" (1719).[1] This corporation, which held a business monopoly in French colonies in North America and the West Indies, became one of the earliest examples of an economic bubble.

The South Sea Company (officially 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 fishing)[1] was a British joint-stock company founded in 1711, created as a public-private partnership to consolidate and reduce the cost of national debt

The Panic of 1796–1797 was a series of downturns in Atlantic credit markets that led to broader commercial downturns in both Britain and the United States.

--------------------------------

Awesome Ctrl+C Ctrl+V & slight editing, Pivot Farm!  Well done.

 

Tue, 06/04/2013 - 13:20 | 3623938 kridkrid
kridkrid's picture

Ha! Funny.

http://youtu.be/L5gZrgGXOco - Could have just gone with this.

Tue, 06/04/2013 - 13:27 | 3623967 medium giraffe
medium giraffe's picture

Love the end of that movie where the credits are rolling to the sound of a dead dog being buried. Very apt. :)

Tue, 06/04/2013 - 14:37 | 3624169 kridkrid
kridkrid's picture

http://www.youtube.com/watch?v=B0OGRftqniY - The other great scene. 

Tue, 06/04/2013 - 14:45 | 3624194 medium giraffe
medium giraffe's picture

It was so accurate I had to laugh when I first heard it.  A lot of truth there....

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