is a bubble, it’s hardly the first.
From tulip mania in the 17th century to the dot-com spectacle of the 1990s, bubbles have boosted—and burned—investors for centuries.
Here’s a look at some previous bubbles:
When tulips were introduced to Western Europe in the 16th century, they were prized for their brilliant colors. Eventually, though, the Dutch took the tulip trade to the next level, as the 19th century writer Charles Mackay points out in his book “Extraordinary Popular Delusions and the Madness of Crowds.” The people of 17th century Holland were no strangers to markets and trade. The stock exchange in Amsterdam had been operating since 1602, and the Dutch East India Company was already selling bonds and stocks.
Limited supply, plus an appetite for rare bulbs, made prices skyrocket. At one point, a single rare bulb could be exchanged for dozens of items, including oxen, swine and sheep, according to Mr. Mackay. The bulb market reached its peak in 1636 and 1637 before collapsing, pushing some investors into financial ruin.
South Sea Company
In the 1700s, Britain issued the South Sea Company an exclusive charter to trade with South America and elsewhere after the company lent millions to a British war effort. Shares quickly rose.
Demand remained steady. But then new players set up ventures for everything from “encouraging the breed of horses in England” to merely, “A company for carrying on an undertaking of great advantage, but nobody to know what it is,” Mr. Mackay wrote. The government eventually passed the Bubble Act, which prevented the creation of companies without government permission and limited existing companies to the activities laid out in their charters. Shares in the new companies crashed, as did the South Sea Company’s stock.
Fueled by breakneck economic growth, cheap debt and a roaring stock market, companies in 1980s Japan began using financial engineering to inflate profits. Businesses could get low-interest loans and raise the same amount of money in the stock market, then spend it on speculative investments. At the same time, the price of land in Japan was surging. Immense speculation, plus limited usable land, pushed property prices to the point where 10 square feet in the popular Ginza shopping district cost more than $200,000. At one point, the land under Tokyo’s Imperial Palace was valued at more than all of the land in Florida. As both stocks and real estate soared, the Japanese government grew increasingly worried and raised interest rates. Eventually, prices burst, leading to the “lost decade.”
New technology often causes a stir, but the dot-com bubble shows just how much outsize attention can cause outsize crashes. In the late 1990s, new companies were capitalizing on the internet and raising huge amounts of money, often with no earnings or clear business models. Even
the Federal Reserve chairman at the time, warned of “irrational exuberance” in the market, but investors kept buying. Venture capitalists plowed money into ill-fated companies such as Pets.com, Webvan and eToys, hoping they would make a profit eventually. The Nasdaq Composite Index hit a record in March 2000, but as investors began to shy away and the Fed raised interest rates, many of the once-booming dot-com companies started to fail. By mid-2002, the Nasdaq had fallen around 75% from its peak.
Around the time of the dot-com bubble, an entirely different craze was sweeping toy stores. Ty marketed its Beanie Baby collection—which included Patti the Platypus, Princess the Bear and Claude the Crab—as collectibles by releasing only a determined amount of each model and retiring older models. People formed huge lines at toy stores and resold the stuffed animals on a new website called
At one point, the most coveted Beanie Babies, which sold for about $5 in stores, were worth about $5,000. As the fad faded and supply grew, the bubble imploded. In 1999, Beanie Baby sales dropped 90%, according to Zac Bissonnette, author of “The Great Beanie Baby Bubble.”
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