(Roughly) Daily

“Fortune’s bubbles rise and fall”*…

 

Gordon Gekko talks tulips. Wall Street: Money Never Sleeps / scottab140

Right now, it’s Bitcoin. But in the past we’ve had dotcom stocks, the 1929 crash, 19th-century railways and the South Sea Bubble of 1720. All these were compared by contemporaries to “tulip mania,” the Dutch financial craze for tulip bulbs in the 1630s. Bitcoin, according some sceptics, is “tulip mania 2.0”.

Why this lasting fixation on tulip mania? It certainly makes an exciting story, one that has become a byword for insanity in the markets. The same aspects of it are constantly repeated, whether by casual tweeters or in widely read economics textbooks by luminaries such as John Kenneth Galbraith.

Tulip mania was irrational, the story goes. Tulip mania was a frenzy. Everyone in the Netherlands was involved, from chimney-sweeps to aristocrats. The same tulip bulb, or rather tulip future, was traded sometimes 10 times a day. No one wanted the bulbs, only the profits – it was a phenomenon of pure greed. Tulips were sold for crazy prices – the price of houses – and fortunes were won and lost. It was the foolishness of newcomers to the market that set off the crash in February 1637. Desperate bankrupts threw themselves in canals. The government finally stepped in and ceased the trade, but not before the economy of Holland was ruined.

Yes, it makes an exciting story. The trouble is, most of it is untrue…

Drawing on ten years of research for her new book, Tulip mania: Money, Honor and Knowledge in the Dutch Golden AgeAnne Goldgar tells a different story, one that’s just as illuminating, but very different: “Tulip mania: the classic story of a Dutch financial bubble is mostly wrong.”

Like most trends, at the beginning it’s driven by fundamentals, at some point speculation takes over. What the wise man does in the beginning, the fool does in the end.”  The world went mad. What we learn from history is that people don’t learn from history.   — Warren Buffett, 2006 Berkshire Hathaway annual meeting

* John Greenleaf Whittier

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As we curb our enthusiasm, we might recall that it was on this date in 1933 that banks began to re-open after the “Bank Holiday” declared by the Roosevelt Administration to calm the market after bank runs had threatened the nation’s financial system during the Depression.

 source

 

Written by LW

March 13, 2018 at 1:01 am

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