The South Sea Bubble

After the passive aggressive 'show trials' in the UK and the US, giving the profligate bankers a grilling on television, the politicians showing that they actually do care about the interests of the everyday person, and that they didn't encourage banks overextending themselves on both sides of the pond, people looked back to the earlier financial crises, the early 1990s, the big one between the wars, and the South Sea Bubble. When everybody was excited about piling into a rather large pyramid scheme, thousands of speculators lost, and then the normal people were stiffed by the banks caught up in the bubble. The Lords passed a bill that allowed the South Sea Company to underwrite Britain's debt. Everybody piled in, shares exploded, and then...exploded. Leaving thousands destitute.

The greatest satirist of the time, Jonathan Swift, wrote:

...Thus when a Whale hath lost the Ride,
The Coasters crowd to seize the Spoil;
The Monster into Parts divide,
And strip the Bone, and melt their Oil.

Oh! may some Western Tempest sweep
These Locusts, whom our Fruits have fed,
That Plague, Directors, to the Deep,
Driven from the South-Sea to the Red.

May He, whom Nature's Laws obey,
Who lifts the Poor, and sinks the Proud,
Quiet the Raging of the Sea,
And still the Madness of the Croud.

But never shall our Isle have Rest,
Till those devouring Swine run down,
(The Devil's leaving the Possest)
And headlong in the Waters drown.

The Nation too too late will find,
Computing all their Cost and Trouble,
Directors Promises but Wind,
South-Sea at best a mighty Bubble.

-The Bubble, 1720

No, Swift is not known to have invested in the South Sea Company, but like the rest of Britain has it in for the directors of the South Sea Company, and the bankers who lent the money. Unfortunately there is no universal moral law (God) that will strike them down, as Swift urges.

Writing in the 19th century in his book Extraordinary Popular Delusions and the Madness of Crowds, CharlesMackay noted:

"Nobody blamed the credulity and avarice of the people,-the degrading lust of gain, which had swallowed up every nobler quality in the national character, or the infatuation which had made the multitude run their heads with such frantic eagerness into the net held out for them by scheming projectors. These things were never mentioned. The people were a simple, honest, hard-working people, ruined by a gang of robbers, who were to be hanged, drawn, and quartered without mercy."

Fast-forward to 2009. The bankers were not solely to blame for the credit crunch, and we, put in their positions at the time would probably act much the same, for the rewards. Many 'normal' people wanted to feather our own nest with other people's money through extravagant lending, is that so very different to what the bankers did? The difference is that we are poor, out of power, and they are rich, and in power. The difference is not a moral absolute but one of position and perspective. Blame is a powerful salve for the dizzying complexity of the crisis and any feeling of guilt in oneself. The show trials of the bankers in the UK and the USA is similar to the demand that ancient punishments be brought back for the South Sea company directors - like modern bankers they had not actually broken any laws.

And lest you think that it was only the stupid who were taken in, Sir Isaac Newton, he of gravity, lost £20,000. In today's terms that's about £2.6m. More than apples to worry about on that morning.