South+Sea+Bubble

South Sea Bubble Diana,Jackie, Elisabeth The South Sea Company was granted a monopoly over trade in Spain's South American colonies in 1711 in hopes of helping improve the British Government's finances by paying back 10,000,000 pounds of debt from the war. From the beginning, the company was seen as very profitable and everyone began investing money into the company expecting to gain huge profits in the future. However, the price the stock was selling for was much less than what it was actually worth, so eventually in 1720 the bubble burst and investors began taking out their investments at values much less than what they originally invested.
 * 1.When the Bubble began and ended? **

In 1711 the British joint-stock company was granted a monopoly to trade in Spain’s South American colonies. In return, the company incurred England’s national debt from the War of Spanish Succession. Due to speculation in the company’s stock, poor management and misinformed investors, a great economic bubble was created known as the South Sea Bubble. Eventually the company realized the shares value was much greater than their actual worth. When investors realized the real value of the stocks, they pulled out their investments, creating a complete crash in the banking industry.
 * 2.What was the cause of the Bubble and what broke the Bubble? **



During the bubble, people who invested in the South Sea Company believed that British companies could not fail and were in a frenzy to buy stocks. Also at the same time there was a company, the Mississippi Company, which was trying to popularize paper money. Investors put their money made from the South Sea Company into this newer company, making the Mississippi stock was worth 80 times than gold and silver. This convinced people that the economy was doing very well and encouraged them to buy more stocks in both companies.
 * 3.What was life like during the Bubble? Be very specific and find specifics examples. Provide some economic indicators to show how great the economy was. **



Eventually the management team of SSC (South Sea Company) took a step back and realized that the value of their personal shares in no way reflected the actual value of the company or its dismal earnings. After the bubble, the British government outlawed the issuing of stock certificates, a law that was not repealed until 1825. In times of great prosperity that have followed the South Sea Bubble, there has generally been a tendency to over-speculation. If people are too anxious to receieve profit without any real foundation to their enterprises, their finances can drop. Parliament then ordered that anyone who had borrowed money from the South Sea Company secured at the time of borrowing on stock transferred to the Company, would be free of their debt after payment of ten percent of the sum borrowed.
 * 4.What happened after the Bubble? Be very specific and find specifics examples. Provide some economic indicators to show how great the economy was. **

====At the time, the company owners and investors believed they could achieve prosperity through the unlimited expansion of credit without facing the reality that real value of the stock is much less than what it is sold for and built up to be.====
 * 5.What role did credit play in the beginning of the Bubble? **

The government originally gave the South Sea Company the rights to all trade in the South Seas for a debt of 10 million pounds. However, during the bubble, the South Sea Company took on some of the government’s debt to convert to a lower interest rate. After the crash, the government helped stabilize the banking industry and outlawed issuing stock certificates. However, the South Sea Company stopped trading and continued to manage public debt until the 1850s.
 * 6.What role did the government play before and after the crisis? **



People say this is different because the government did a good at “fixing” the problem. Also, this wasn’t considered a crash. A complete crash, which would be heralded by the folding of banks, was avoided due to the prominent economic position of the British Empire and the government's help in stabilizing the banking industry. Another difference is that instead of having government regulation occur after the bubble collapsed, the Bubble Act, which required a royal charter for all joint-stock companies. This was in response to other bubble collapses the same year, but did not prevent the South Sea Bubble.
 * 7.In your opinion, why was it said that this event/bubble was different? **

**8.What was done after the bubble burst? What did they do to ensure this would not happen again**? After the bubble burst, the British government outlawed the issuing of stock certificates to ensure this would not happen again. The government also began an investigation and found that many government officials and company members had been corrupt. These men were punished, mostly to answer the public outcry due to the collapse of the bubble and loss of wealth for many. The Bubble Act, although issued before the collapse of the South Sea Bubble, helped to prevent similar companies from forming and also made the jobs of stockjobbers and stockbrokers illegal. The government enforced these laws more and controlled the number of joint-stock companies in the future.