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The Secret History of the South Sea Bubble: The World's First Great Financial Scandal
The greatest financial scandal in history was not the collapse of Enron or WorldCom, not a piece of insider trading from the 1980s, not a hedge fund leveraged to a trillion dollars or a crooked offshore account. It was bigger than all of them combined. The fraud entangled royalty, politicians, professional classes, gamblers and con-men. It effects were so widespread, finally, that it became easier to cover it up thanpublicly to point the finger of blame. A few years later, the only sign that it had happened at all was a phrase that entered the language to describe unsound financial speculation, a "bubble".
The South Sea Bubble was a share scheme allowed to run crazily out of control. It was masterminded by an unscrupulous Englishman who saw a route to untold riches selling shares in a valueless company. The South Sea Company was supposed to establish a lucrative trade in silver and spices between England and the Americas. But there was a problem hidden from investors: for almost the entire duration of its sorry history the Company didn't own a boat.
For the first time Malcolm Balen tells the dramatic full story of how the fraud was carried out and covered up. The pipe dream of wealth in the Americas and Mississippi is the mother of all share scandals that follow. Every time a company falsifies its accounts, misstates its business strategy, attempts to corrupt public officials, and, above all else, lies about its level of indebtedness, it is following the story of the South Sea Company.
272 pages, Hardcover
First published January 1, 2002
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Displaying 1 - 14 of 14 reviews
April 13, 2018
A tale of financial trickery and political intrigue. Balen plots the rise and fall of the South Sea Company and the fortunes of those who went with it.
My favorite detail is that each chapter begins with a quote that, while it would apply to the South Sea Company, is actually about a contemporary economic issue.
We haven't learned and probably never will.
My favorite detail is that each chapter begins with a quote that, while it would apply to the South Sea Company, is actually about a contemporary economic issue.
We haven't learned and probably never will.
September 10, 2015
I thought this was a fantastic book - outlining the twin bubbles in France & England in the 1720s, which were the first financial bubbles and each of which collapsed disastrously.
A Scotsman named John Law orchestrated the Mississippi debacle in Paris - trying to get the value of money removed from its connection to metal, selling shares in a trading enterprise in Mississippi, which never panned out as planned. Credit became paramount and for a while France was transformed but eventually the bubble collapsed, Law lost all his power etc.
In England, John Blunt arranged to sell shares in the national debt, assuring investors of immense returns. The only way he could keep the game going was by pumping up the value of the shares. He used dishonesty to do so, hype, and also bribing many government figures. When the share prices began to fall, the game was up - eventually the value of shares became virtually worthless. There followed a trial in the Commons, several suicides of figures who knew that the "enterprise" (South Seas meant the West Indies - supposedly the company would trade at Spanish ports, but this never happened) was based on absolutely nothing. The long-term legacy of the South Sea bubble was a long period of drabness in England, of distrust of stocks, and bubbles in general. The exuberance of the boom period when the value of the stock was rising and it seemed that anyone could become rich, led to inventions, innovations, and myriad new enterprises. But that was all over as depression and introspection set in after the crash.
The lesson of the story is that people are so eager to get rich, they will believe anything, any story about a company that will make them rich. They'll invest what they have, even what they don't. The sad stories of country gentlemen mortgaging their farms to buy stock, and then trying to deal with the aftermath of losing their property when the price of stock fell are recounted, as are stories of those who wisely cashed out before the stock began to tumble.
This was an extremely well-written book - I'd recommend it to anyone who is interested in finding out about the first stock market crash.
A Scotsman named John Law orchestrated the Mississippi debacle in Paris - trying to get the value of money removed from its connection to metal, selling shares in a trading enterprise in Mississippi, which never panned out as planned. Credit became paramount and for a while France was transformed but eventually the bubble collapsed, Law lost all his power etc.
In England, John Blunt arranged to sell shares in the national debt, assuring investors of immense returns. The only way he could keep the game going was by pumping up the value of the shares. He used dishonesty to do so, hype, and also bribing many government figures. When the share prices began to fall, the game was up - eventually the value of shares became virtually worthless. There followed a trial in the Commons, several suicides of figures who knew that the "enterprise" (South Seas meant the West Indies - supposedly the company would trade at Spanish ports, but this never happened) was based on absolutely nothing. The long-term legacy of the South Sea bubble was a long period of drabness in England, of distrust of stocks, and bubbles in general. The exuberance of the boom period when the value of the stock was rising and it seemed that anyone could become rich, led to inventions, innovations, and myriad new enterprises. But that was all over as depression and introspection set in after the crash.
The lesson of the story is that people are so eager to get rich, they will believe anything, any story about a company that will make them rich. They'll invest what they have, even what they don't. The sad stories of country gentlemen mortgaging their farms to buy stock, and then trying to deal with the aftermath of losing their property when the price of stock fell are recounted, as are stories of those who wisely cashed out before the stock began to tumble.
This was an extremely well-written book - I'd recommend it to anyone who is interested in finding out about the first stock market crash.
August 8, 2021
Often dismissed as an old story from dusty leather bound tomes that couldn’t possibly happen today, the book does well to chronicle the building absurdity as the company grew from a humble plan to trade with South America to ships erroneously taking woollens to the tropics, to a royally endorsed multi-million pound multinational corporation that consumed the national debt and began to eclipse the Bank of England – only to disappear completely under a sea of worthless share certificates. Each chapter is wittily opened with an extract from recent economic farces (Black Wednesday, The National Lottery, Barings Bank, E-trading, the Dot-Com Boom). Sadly since this edition was published we can add the massive 2008 financial crash that caused years of recession and possibily a cryptocurrency and property crash in due course.
Such things aren't inevitable but are driven by a lack of oversight, incompetence, greed, unlimited credit…and an ignorance of the past. Sadly the South-Sea Bubble isn’t “history”.
Such things aren't inevitable but are driven by a lack of oversight, incompetence, greed, unlimited credit…and an ignorance of the past. Sadly the South-Sea Bubble isn’t “history”.
April 11, 2014
I read this book on recommendation of a friend that had to read it in college for an auditing class. I have to say, I was astounded that I had never heard of the topic before. I feel like this should be required reading for every accredited business curriculum and would fit nicely in either Macro Economics or Finance.
It's a pretty standard book as far as writing goes. You can definitely tell it's an English author. It seems well researched and is straight forward enough to read for a lay person. I only had to look up a few words. You may want a rudimentary knowledge of finance terminology.
It definitely goes to show that cheaters never win, and frauds like Bernie Madoff are not a creation of "internet times."
It's a pretty standard book as far as writing goes. You can definitely tell it's an English author. It seems well researched and is straight forward enough to read for a lay person. I only had to look up a few words. You may want a rudimentary knowledge of finance terminology.
It definitely goes to show that cheaters never win, and frauds like Bernie Madoff are not a creation of "internet times."
January 7, 2019
Didn't need to juxtapose it with the modern day throughout as that dated quicker and your mind does that anyway as you realise how history repeats itself.
Very interesting and worthy read.
Very interesting and worthy read.
February 21, 2021
A timeless tale of the seduction and corruption of money.
December 28, 2022
Brilliantly shows how this was not just a financial crisis, but one which could have ended the monarchy and bankrupted Britain. Slow moving in parts, but a darn good story.
April 5, 2016
Fancy buying shares in a trading company which never does any trade, promising vast profits to its investors through the purchasing huge debt?
Amazingly, in 1720 just about everybody did, with disastrous consequences for some and, such is the nature of the market, tremendously good fortune for others.
How did this happen?
Put simply, by virtue of confidence bought with bribes. John Blunt was the man behind the South Sea Company, who conned a nation willing to be conned, after buying off those who needed persuasion.
MPs, Dukes, even the king himself, George I, who was appointed Governor-General of the company. With the great as good signed up, investors were lured in, fortunes made overnight, then lost when the bubble burst.
This was only the first time in history that investors lost their heads over the promise of a surefire way to get rich overnight, as Balen accentuates by the contemporary newspaper articles and quotations about the national lottery and the dot-com bubble etc.
He tells the story engagingly enough, padding it out with an account of a concurrent fix being attempted in France at that time and of how Robert Walpole stage-managed the aftermath in order to save the reputation of the king and secure his own, but it's still largely a tale of high finance, so by its very nature difficult to sex-up.
In actual fact, what happened in France was a whole lot more interesting, where a genuinely brilliant economist and charismatic Scotsman, John Law, attempted a socio-economic revolution through his own Mississippi Company with the complete backing of government, resulting in the same catastrophic outcome.
I might look a bit more into that at some point.
Amazingly, in 1720 just about everybody did, with disastrous consequences for some and, such is the nature of the market, tremendously good fortune for others.
How did this happen?
Put simply, by virtue of confidence bought with bribes. John Blunt was the man behind the South Sea Company, who conned a nation willing to be conned, after buying off those who needed persuasion.
MPs, Dukes, even the king himself, George I, who was appointed Governor-General of the company. With the great as good signed up, investors were lured in, fortunes made overnight, then lost when the bubble burst.
This was only the first time in history that investors lost their heads over the promise of a surefire way to get rich overnight, as Balen accentuates by the contemporary newspaper articles and quotations about the national lottery and the dot-com bubble etc.
He tells the story engagingly enough, padding it out with an account of a concurrent fix being attempted in France at that time and of how Robert Walpole stage-managed the aftermath in order to save the reputation of the king and secure his own, but it's still largely a tale of high finance, so by its very nature difficult to sex-up.
In actual fact, what happened in France was a whole lot more interesting, where a genuinely brilliant economist and charismatic Scotsman, John Law, attempted a socio-economic revolution through his own Mississippi Company with the complete backing of government, resulting in the same catastrophic outcome.
I might look a bit more into that at some point.
July 9, 2016
An excellent example of how history repeats itself over and over again. Quite technically complicated, but worth persisting as it tells the story of two very different men similarly captivated by creating financial systems in England and France in the 1700's.
October 22, 2012
Very interesting history, well-written, not too complex.
March 24, 2017
I enjoy a little economic history from time to time, and this is a pretty good 'un. It's about a seventeenth century Ponzi scheme, a result of the beginnings of the modern capitalist economy. No one really knew what they were doing -- France had just introduced the first modern currency, and the sudden fluidity of money brought momentary affluence which everyone thought would go on forever. England wanted in on the same thing, so Parliament agreed to a wild scheme for paying off the national debt with shares of an essentially fictitious overseas trading company. The price of shares ran up wildly, and for a few months people appeared to get rich suddenly. Everyone thought it was magic, until the bubble burst. Unfortunately, it's a story that has repeated itself many time. Pretty good read, worth checking out.
April 20, 2017
A short and interesting overview of the South Sea Bubble of 1720. Balen strews quotes from the dotcom bubble as chapter headings, but there’s no clear-cut connection between the two. If nothing else, the connections between the South Sean the very recent housing bubbles are clearer. Among them, the lack of regulation (due to outright corruption in the older mess) and the presence of very easy credit.
Displaying 1 - 14 of 14 reviews