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Monday, January 21, 2008

BULLETIN: 400 years of bubbles causing recession.

When will we ever learn? Bubbles in irrational speculation have been around for at least four hundred years. The Tulip Bubble. The South Seas Bibble. The Mississippi Bubble. The Junk Bond Bubble. The Dot Com Bubble. And now the Sub-Prime Mortgages Bubble.

Is every new generation born stupid?


-before the 17th century, depressions and recessions are usually caused by non-economic circumstances such as wars, crop failures and environmental disasters. In the 17th and 18th century- large economic disruptions begin to be caused by financial speculation.

1554- the tulip arrives from Turkey into Europe.

17th century- in Holland, overheated speculation on tulip bulbs, still believed to be rare, leads to a bubble of speculation followed by collapse.

1711- Robert Harley founds the South Sea Company. Holders of $6 million worth of government bonds are allowed to convert them into stock for Harley’s company which is given a monopoly on British trade among the islands of the south Pacific. The entire enterprise is predicated on concessions from Spain after the end of the War of the Spanish Succession.

1717- in France, financial adventurer John Law converts Antione Crozat’s commercial privileges in Louisianna into a La Compagnie de L’Occident, a trading company intended to handle all French colonial commercial ventures in Africa, the Indies and China. It soon becomes the Compagnie des Indes.

1720- the ‘Mississippi Bubble’ France allows Law’s Compagnie des Indes to assume the national debt, merge with the royal bank and collect taxes. Stories circulating about fabulous riches in Mississippi and Arkansas lead to massive public speculation. In October, the bubble bursts and everyone but a canny few loses their money.

1720- Britain (like France with the Compagnie des Indes) agrees that the South Sea Company should finance the national debt. A massive rush to invest results in an overextension of credit which inflates share value. Banks fail, unable to collect loans on inflated stock. Thousands of investors are ruined.

1790- New York Stock Exchange is founded.

1825- economic collapses begin to be caused by industrial problems rather than mere commercial speculation.

1873-1896- world economic depression results in a massive drop in prices.

1893- U.S. Financial Panic. Stock market crashes along with thousands of businesses and financial institutions. A depression ensues, setting off violent conflicts between capital and labour.

1929- US stock market crash triggers the Great Depression which will last until 1940.

-as part of President Roosevelt’s New Deal, the following three acts, from 1933-1935, are passed by Congress in response to the crash of 1929, to better protect stock market investors against catastrophic declines in the values of securities.

1933- the New Deal- the Securities Act. Companies issuing stock must fully inform their investors of all facts concerning the offered shares by registering their stock with the Securities Commmission.

1934- the New Deal: Securities Exchange Commission created by the Securities Exchange Act of 1934 to prevent unfair practices.

1935- the New Deal: the Public Utility Holding Company Act.

1939- the New Deal- the Trust Indenture Act..

1940- the New Deal- the Investment Advisers Act.

1973-74- recession is caused in the West by competitive Third World industries employing cheap labour, strong Japanese competition in the electronic market and a steep rise in imported commodities, especially oil. Economic slowdown and inflation leads to ‘stagflation’.

1982-83- severe global recession.

1983-1987 -rapid economic expansion.

1987- October- a loss of 500 points on the New York Stock Exchange triggers a recession that will last into the early 1990s.

1986-1988- the problem of Insider Trading raises its head in the United States.

1986- Dennis Levine is convicted of Insider Trading.

1988- Michael Milken is convicted of Insider Trading.

1990- NASDAQ accounts for the fifth greatest volume in stock trading in the world.

1991- economic recession.

1990s- the high tech boom, and the “irrational optimism” confessed to by Allan Greenspan leads to the “dot com” bust of the late 1990s.

2001- the terrorist attacks of 9/11 slow down a recovering market.

2007- a wave of sub-prime mortgages leads to an over-extension of credit to low-income borrowers who are unable to pay them back.

2008- under the weight of the sub-prime mortgage crisis, the post-9/11 market boom crumples leading to a probably recession.
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