Tulipomania
The first modern stock market appeared in Amsterdam at the beginning of the 17th century. In Holland in the 1630s, there was one of the first and most extraordinary speculative explosions in history. It was not in stocks and shares, in real estate or in fine paintings, as you might expect, but in tulip bulbs. It has become known by the name Tulipomania. People from all classes invested in the bulbs. Many sold their property so that they could pay for the bulbs they had bought in the tulip market. Foreigners joined in the rush to buy the flowers and money poured into Holland from other countries. In 1637, the boom in the market ended. No one knows why, but people began to sell. Others followed suit. Soon there was a panic among investors and the tulip market collapsed. Many people who had offered their property as security for credit went bankrupt. People who had agreed to buy tulips at inflated prices were unable to pay their debts. When sellers took legal action to recover their money, the courts were not helpful because they saw such investment as a kind of gambling. It is not surprising that the collapse in prices led to a severe economic recession in Holland.
The Wall Street Crash The stock market crash in the United States in 1929 was huge and it led to a severe and lasting economic crisis in the world. Many bankers and industrialists lost their money and reputations. Some went to prison and others committed suicide. Share prices on the New York stock exchange had begun rising in 1924, and in 1928 and 1929 they rocketed to unbelievable levels. In spring 1929 there was a break in the rising prices when the Federal Reserve Bank said it might raise interest rates to slow down the boom. However, a major bank, the National City Bank, assured investors that it would continue to lend money to them at affordable rates. Soon the market took off again. People could buy stock for 10% of its value and borrow the remaining 90%. The lending rate varied from 7% to 12%. Almost everyone was optimistic. One economist, at the peak of the boom, said that people generally agreed ”stocks are not at present overvalued”. It all ended on 21 October, 1929. The market opened badly and there was heavy selling. Confidence in the market disappeared. There was a rumour that the big bankers were getting out of the market. Share prices fell dramatically and kept on falling. The boom was over. But its consequences would last for years to come. 1. Read the three texts and complete the chart below:
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