Dick Pidcock has been pondering those
historic moments when mania led to collapse...
A is for Athens: The world's earliest recorded speculative bubble set the tone for
future collapses with a brutally tearful ending after a prolonged bout of property
speculation in Ancient Greece. Land values peaked in 333 BC and then went rather
sharply south. The good news is that anybody holding onto purchases made at the top
of the market would have got their initial stake back (excluding inflation) within a
millennium or so.
B is for Bank: The British Banking Crisis was just one such spectacular instance of
when these most august of financial institutions went blissfully bust in the aftermath of a
typical herd movement which has always served everyone's best interests so badly.
High property values, over-extended banks (especially the so-called second-tier) and a
booming stock market proved to be a dangerous combination. A number of secondary
banking institutions collapsed during autumn 1973 and there was a savage bear equity
market during 1973-1974. Only the intervention by the Bank of England's so-called
"lifeboat" operation kept things even vaguely afloat.
C is for Cotton: The Cotton Panic was the name given to the first sharp collapse in
U.S. equity prices during 1837. The fledgling stock market was decimated with many
banks vanishing almost overnight when their stock values collapsed. Worst affected of
all were property values.
D is for Debacle: The Credit Mobilier Debacle was a scheme under the patronage of
Napoleon III. The Perire brothers established Credit Mobilier and were encouraged
by the French ruler to help finance Baron Haussman's magnificent rebuilding plans for
Paris. In 1868, after the completion of most of Haussman's grand designs, Credit
Mobilier collapsed. With many ordinary Frenchmen (and other financial institutions)
implicated, the shock waves reverberated throughout the country. Fortunately for
future tourist generations, the impressively wide boulevards remained intact.
E is for Engine, the Steam Engine: The Crisis of 1857 was a result of heavy
speculation in railway shares on both sides of the Atlantic which came off the rails on
24 August 1857. As ever, various banks failed in sympathy.
F is for Friday, Black Friday: When the London discount house Overend Gurney
collapsed on Black Friday (May 1866), the new-fangled technology of ticker-tape
proved to be a double-edged sword. Markets wobbled globally within minutes. In
June, the Royal Bank of Scotland was amongst the failures. This series of events
completed the series of crashes begun by the Indian affair (see under "I") the previous
year, resulting in financial panic spreading throughout Europe to Wall Street.
G is for German Hyperinflation: Between 1920 and 1923 the Mark collapsed as
hyperinflation raged. Some believe that the long-term results were beneficial. However,
it was almost certainly the root of the inherent abhorrence felt by many German people
today towards inflation - and we all know where the Bundesbank's priorities have lain
since World War 2, don't we?
H is for Hunt: The Hunt brothers had almost, but not quite, cornered silver by
January 1980. On "Silver Thursday," 27 March 1980, prices collapsed leaving the
family with estimated liabilities of $1,825 million. As the dust settled, Bunker Hunt
memorably remarked "A billion dollars isn't what it used to be."
I is for India and The Indian Cotton Crash: India was centre-stage for a boom in
cotton prices aided and abetted by the American civil war (their cotton producers were
hurriedly supplying ready-made uniforms). Speculation in Bombay went a trifle berserk
and when cotton prices collapsed in 1865, the rest of the Indian economy, stock
markets etc., collapsed in sympathy. US cotton prices have never exceeded their Civil
War highs to this day.
J is for Jay Gould: Reputedly responsible for many of the bear raids in the 1873
crash, JG endeavoured to control the gold market and at one time held all the gold in
circulation, bar that held by the government. When the government eventually came to
its senses, Gould reversed his positions and shorted his way to another fortune ($11
million), at the expense of his partner in the venture, Jim Fisk, who ultimately walked
away from a $60 million liability. The subsequent depression lasted from 1873 to
1897. The stock market trough in 1877 was equivalent to the highs of 1835.
K is for Kuwait: Arguably the closest thing to the mania of the South Sea Bubble seen
in recent times. Between April and August 1982 daily turnover in the Middle Eastern
state frequently exceeded that of the London Stock Exchange. Shares in companies
which had yet to produce a preliminary balance sheet soared 500%. An immigration
official, who had once earned 250 dinars a month stamping passports, amassed debts
of over $10 billion through the use of post-dated cheques to buy shares.
L is for Law, John Law and the Mississippi Bubble: The utterly colossal French
national debt (3 billion livres in 1715 at the death of Louis XIV), led the regent Louis
XV to rather desperate measures. Suave Scotsman John Law's scheme to take over
the development of the French territory in Mississippi and Louisiana was intriguing,
opportunistic and spectacularly doomed. Share prices grew by a factor of 40 in three
years, boosting the value of a company listed at 100 million livres in 1717 to 12 billion!
Shares in Compagnie des Indes fell from 20,000 livres in January 1720 to 9,000 by the
end of April 1720. The banking system collapsed with the stock market and France
reverted to the medieval process of barter.
M is for Monday, Black Monday, 19 October 1987: If Black Monday was "The
non-event of the year" as the then UK Chancellor of the Exchequer Nigel Lawson
memorably remarked, why is it still a major topic of conversation during traders'
reminiscences?
N is for Nick, Nick Leeson: An intriguing fact about Barings Bank was not just that
it was once prompted into insolvency by a clerk in a far away country of whom the
management apparently knew little. But that it actually happened twice. A victim of the
late 19th century collapses, as a result of overzealous investment in infrastructure
projects by a rogue operative in Latin America, the Bank of England launched a
lifeboat and the then Barings supremo went into resigned exile on an Irish island, with a
kangaroo and several other exotic animals for company. It probably didn't seem much
different to how he presumably ran the bank.
However, in 1995, the lifeboat remained firmly moored in Threadneedle Street as the
central bankers with the elephantine memories (which the Barings family presumably
now wish they had too), flogged the operation to Dutch bank ING for a solitary
Pound. For the folk from Holland, it represented another step in the global
rehabilitation process after the shock and shame of Tulipomania over 3 centuries
earlier. Meanwhile, Nick Leeson rests in Changi jail.
O is for October, 13 October 1989: The mini-crash of 1989 was not as traumatic as
its predecessor two years earlier, but it was sufficient to bring the doomsters out of
hibernation.
P is for Prussia: Despite the Prussian victory in the war with France and the
subsequent foundation of the German Empire in 1871, the German stock market
encountered its most torrid moments with the collapse of land values in 1873. The
collapse which began in Vienna, spread rapidly to America (the Viennese banks had
been speculating heavily in American rail shares) leading to a crash in American stocks,
marking the end of the 1825 - 1873 Long Wave and the commencement of the longest
depression of all time. During the crash, the New York Stock Exchange was closed for
10 days after the traumatic events of Friday 19 September 1873. This little gem of a
collapse was affectionately referred to as "The Crash of Crashes" - which just goes to
show how much hyperbole the media indulged in, even before we had half-naked
women in the tabloids. (Now I know what's missing from ADT!)
Q is for Quantum: George Soros' Hedge Fund remains the current world leader in
crash participation on the positive side for the corporate P and L. When the Pound
Sterling was ejected from the European Exchange Rate Mechanism (ERM) in 1992,
George pocketed a cool billion dollars. Of course, Quantum only made 950 million-ish
out of the actual devaluation, "jobbing" a mere 50 or so million on the rest of the day!
Admittedly, there have been a few off moments in the crash detection business.
Perhaps best publicised was when Soros reckoned the 1987 crash was about to
happen, but sold Japanese shares. The US promptly crumbled and Tokyo went up.
Nevertheless, the nimble Quantum managed to make up for its losses with customary
vigour.
R is for Real Estate, or The Great Property Crash: There have been substantial
property crashes with widespread major repercussions in the following localities
amongst others:
Athens, Greece, 333BC
Britain 1773
United States (centred on Chicago) 1837
France (building land) 1838
Germany 1870
Vienna, Austria, 1873
United States (Southern California) 1880s
Britain 1890s
United States (Florida) 1925
United States 1986
Japan 1990
S is for South Sea Bubble: An ingenious scheme revolving around eradicating
government debt and mercantile concessions in new territory. Unfortunately this initial
foray into privatisation captured the public's imagination to such an extent that once the
peak of buying frenzy had been attained, not even the influence of the Bank of England
or the government - who attempted legislation to bolster share prices - could be of any
benefit. (Dear governments of the world, there is a lesson here, you fatheads; regards,
DP). Prices peaked on 1 August 1720 and collapsed 54 days later on 23 September.
T is for Tulipomania: With Holland's arrival as the principle power in Europe in the
early 17th century, the tulip bulb proved popular as a fashion item, many Dutch people
seeking to decorate their homes with the Turkish plant. In 1636, bulbs were selling at
vast prices with futures contracts trading on a number of stock and dedicated tulip
exchanges!
U is for USA, The Great Crash: As J.K.Galbraith eloquently outlined "the causes of
the crash were all in the speculative orgy that preceded it." Black Thursday 24 October
was followed by Black Tuesday 29 October. Stocks plummeted in many other
countries apart from the U.S.A., including Belgium, Britain, Canada and Holland.
Between 1929 and 1932 the Dow lost 89% of its value, Canada 85%, the UK and
France a mere 50%.
V is for Vienna: Despite a predilection for high culture and wonderful architecture, the
Viennese have frequently been distracted from their magnificent musical pedigree and
opera, to indulge in some crazed speculative punting. Land values and the equity
market were clobbered in 1873 despite Prussian war victories in one of their regular
face-offs with the French - the Viennese were rather overlong of railway stocks,
particularly in the emerging US market. However, perhaps Vienna's darkest hour in
world financial markets came in 1929 when the collapse of the local Creditanstalt
Bankverein was widely regarded as the incident which sparked off the Wall Street
crash.
W is for Waterloo: The run-up to the Battle of Waterloo saw a collapse in UK share
prices which rapidly reversed when the outcome was known. The actual post war
collapse in the stock market did not take place until 1825, marking the conclusion of
another long wave which had begun in 1772.
X is for..... Errr, very few places or things or even people begin with "X". But "extra"
almost begins with "X" and why not note here some of the other historic collapses
omitted in the 24 letters to date. For instance, H would be for Hamanaka and copper.
Well, okay, C is strictly for copper but Mr. H's dealings are inextricably linked with
that high volatility spat we enjoyed / endured (delete as appropriate) during 1996. Then
there are emerging markets and all those years when they spectacularly "dis-emerged"
- 1994 being the last time they did so in a globally synchronised movement. And then
there are American canals, whose locks rather dried up after 1836... Unfortunately,
until the alphabet expands to Japanese proportions, it will remain outside the scope of
articles such as this to provide you with a truly comprehensive review of each and
every crash.
Y is for Year's End: It is intriguing to note how many crashes appear to have been
clustered around the autumn/end of year period. Indeed, the Manchester Statistical
Society heard a paper on precisely this topic as early as December 1857. From the
brief list above, the dates 23 September 1720, 24 August 1857, 19 September 1873,
29 October 1929, 19 October 1987 and 13 October 1989 stand out. In fact, a great
many other dramatic moves not listed above are to be found clustered in the August -
November period. An on-going source of intrigue to many, others dismiss this apparent
phenomenon as little more than coincidence.
Z - indicates sleep, as in ZZZ: During crashes, people often find it difficult to get a lot
of this. Okay, okay, so this is a bit of a weak one to end on, but have you any smarter
ideas?
Dick Pidcock
On other pages:
EDITORIAL:
The CTA, An Endangered Species?
FEATURES:
Charles Cottle on Boxes
Copper Conundrum
Interview: John Duggan
A - Z of Crashes
A Cry for Help
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