What was the “South Sea Bubble”, one of the most important financial crises in history

In the midst of a political race for control and dominion of America and the new worldmany powers contracted an important public debt. Among them, France, Spain and England.

In this last kingdom comes into play the South Sea Companyan organization that bought parts of the kingdom’s debt, issued shares and with that financing lent to the State in exchange for favorable deals. Not only that, but in an agreement it was established that Mares del Sur would be the only one to have the power to trade with the South American colonies of Spain.

Speculation, error and crisis: the dynamics of a financial bubble

This exclusivity soon caught the attention of English investors, who They bought shares en masse of the companywhich by 1717 would again contract a part of England’s debt.

In the middle, The relationship with Spain deterioratedand two years later France would copy the same model for its supposed Louisiana gold deposits, which were left in charge of the Mississippi company. Likewise, in England more exclusivity concessions were granted to Mares del Sur to compete with France.

At that time, the British company offered to buy all the public debtand prices took off; from being worth less than 130 pounds in the early 1720s to being worth more than 550 pounds in the spring.

The euphoria and speculation in England, where stocks had reached their peak 1000 lb peak. Meanwhile, the Mississippi project failed, leaving France in a financial crisis.

In July 1720, some investors began to sell their shares, something that started weakening chain inevitable of the company. By September 30, the value of the shares became worth £150.

But what was the problem? South Seas, like Mississippi, He did not carry out any activity that would support him to offer those shares. In that sense, the kingdom reaped mere speculation, with nothing that had anything to do with what was being promoted. Like walking on air.

After a few years, Mares del Sur closed its doors, a deep crisis began in England and thousands of people were left in ruin.. Among them, the famous scientist Isaac Newton.