The amazing thing about bubbles is the rapidity and unpredictability with which they burst. Below are a few excerpts from "Devil Take the Hindmost" by Edward Chancellor describing the bursting of some famous bubbles. -Eric
The Tulip Mania (1637 crash):
"On February 3, 1637, the tulip market suddenly crashed. There was no clear reason for the panic except that spring was approaching when delivery fell due and the game would be up. <<the majority of tulip contracts were for bulbs in the ground>> In Haarlem, the centre of the flower trade, rumours circulated that there were no more buyers, and the next day tulips were unsaleable at any price."
The South Sea Bubble (1720 crash):
"By the middle of September (1720), the South Sea directors gave up hope of staving off a collapse and started selling mortgaged stock with the intention of buying it back later at a lower price. A few days later the Sword Blade Bank, which acted as banker to the South Sea Company and had made extensive loans against its stock, failed. By the end of September, the share price was below 200, a fall of around 75 percent in four weeks. At a meeting of the South Sea Company, a shareholder declared that the ruin was so widespread it had 'almost become unfashionable not to be bankrupt.'"
The South American Mining Mania (1825 crash):
"In January 1825, nearly seventy companies (including five railways) were floated. Speculation in commodities, loans and shares continued strongly for several months, but in the spring the euphoria began to wane. South American bond prices went into decline, and continued falling throughout the summer. In late August, a small loan for the United Provinces of Central America was floated, but it failed to attract any support and its scrip fell to an immediate discount. In the same month, Brazilian scrip also dropped despite an announcement of continuing interest payments. Investors had tired of receiving their dividends out of capital. As a summer torpor set in, trading on the stock market was thin. Investors began ignoring calls on partly paid shares, which led several companies to petition for dissolution. The leading stock of the mining mania, the Real del Monte, fell from a high of 1550 to under 200."
The US Stock Market Crash of 1929:
"In the face of minor stock market panics - in June and December 1928 and later in March 1929 - the bull forces succeeded in regrouping. They came out stronger for their trials, until the point was reached when speculators became deaf to warnings they did not wish to hear and developed a belief in their own invincibility. Instead of reasoning, they thrived on the countless rumours of fabulous wealth gained in the stock market by valets, chauffeurs, cattlemen, actresses, farmers' wives and so on..." " According to Festinger, a group will maintain a state of cognitive dissonance until the pain exceeds the rewards. In stock market terms this might be seen as the moment when the fear of loss outweighs the greed for gain. That point was reached on 3 September 1929, when the Dow Jones reached its year high. The following day, at an annual National Business Conference, an investment adviser named Roger Babson forecast an imminent stock market crash. He predicted that 'factories will shut down...men twill be thrown out of work...the vicious circle will get in full swing and the result will be a serious business depression.' The pronouncement elicited a savage response from the apostles of the new era. No pun was too corny. One paper dubbed Babson 'the prophet of Babsonmindedness." Stockbrokers pointed out that Babson had made the same forecast in the two previous years. Professor Irving emerged from his ivory tower to justify the current stock price levels and deny the likelihood of a crash..." "From the moment it opened on Tuesday, 29 October, the stock market was deluged by a further wave of sale orders as margin calls forced speculators to dispose of their stocks. On the floor of the Exchange, a broker grabbed a messenger by his hair, another fled the floor screaming like a madman, jackets were torn, collars dislodged and clerks in their frenzy lashed out at each other. The panic worsened after the technology upon with the market had become dependent collapsed: the transatlantic cable broke, the ticker stopped running, telephone lines became clogged with enquiries, and the telegraph system was unable to cope with the volume of broker's margin calls sent out across the nation. In New York, Western Union was forced to hire a fleet of taxis to deliver its telegrams. When the market closed, the ticker carried on clattering its dismal message for two hours. The Dow Jones Industrials were down 30 points at 230, on a massive turnover of sixteen and a half million shares. They called it the 'day of the millionaires' slaughter'. On Black Tuesday, the glamour stocks of the bull market suffered the worst damage. Radio Corporation of America, which on Monday had shed $19, collapsed from 40.25 to 26 in the first two hours of trading (at which point it was down 75 percent from its peak); the Goldman Sachs Trading Corporation opened at 60 and closed at 35; Blue Ridge, its affiliated investment trust, which a few weeks earlier was selling for 24, dropped from 10 to 3; and the United Corporation, J. P. Morgan's giant utility, went from 26 to 19.30. Bank stocks were slaughtered. The First National Bank of New York declined from $5200 to $1600, while National City sank from 455 to 300, despite a rearguard action from Charles Mitchell, who personally borrowed $12 million to support the stock. The Hollywood favourites - Paramount, Fox, and Warner Brothers - were also hit hard. For many stocks, there was simply no bid. A messenger boy was reported to have picked up a parcel of White Sewing Machine Company, which had traded earlier in the year at 48 and closed the previous day at 11 1/8, for a dollar a share." |
