The Hidden Pattern behind all Financial Bubbles

tulip Mania imagine spending the equivalent of a luxury house on a flower welcome to the 1630s Netherlands where tulips became the world's first documented Financial bubble and taught us lessons about Market psychology that we're still ignoring today these exotic Turkish Imports were already popular among the wealthy but when a virus caused rare color patterns in the pedals they became the ultimate status symbol the Dutch who had pioneered modern Banking and stock markets were about to be undone by flowers at its peak in 1637 a single Seer Augustus bulb sold for 6,000 Florin equivalent to 15

years salary for a skilled Craftsman the market evolved Beyond physical bulbs into Futures Trading with some bulbs Changing Hands 10 times daily without ever leaving the ground but on February 3rd 1637 a routine auction had no buyers show up within weeks prices crashed 90% The Dutch learned their lesson establishing the world's First Financial regulations well at least until the next get-rich quick scheme came along speaking of schemes the Mississippi bubble remember how the Dutch at least had actual flowers to show for their bubble France was about to prove that you don't even need a real

asset to crash an entire economy by 1716 France was drowning in war debt when John Law a Scottish Economist and professional Gambler convinced the French Regent he had a brilliant solution his plan create a national Bank issuing paper money backed by shares in a trading company with exclusive rights to exploit France's Louisiana Territory think tulip Mania but with an entire colony's worth of imaginary gold the Mississippi company shares skyrocketed from 500 to 18,000 lever in Just 2 years at its peak the company was worth 80% of France's entire GDP imagine if one company today was

worth $20 trillion the company's Paris offices became so crowded that a local Hunchback made a fortune renting out his back as a writing desk then investors started asking for real money instead of paper law desperately printed more currency but that just led to hyperinflation by 1720 shares crashed 97% and France's economy collapsed law fled the country disguised as a woman not exactly the exit strategy they teach in economics class speaking of questionable Financial schemes England was watching closely and thought they could do even better South Sea bubble if you thought the French scheme was bad

the British said hold my tea and created an even bigger disaster 1720 the south sea company had a seemingly foolproof plan take over Britain's national debt in exchange for Monopoly rights to trade with South America just one tiny problem Spain actually controlled South American trade and and was at war with Britain oops but who needs actual trade when you have marketing the company promised riches Beyond imagination and even gave politicians shares to promote the stock we wouldn't see that kind of manipulation again until well crypto shares Rose from 100 to 1,000 in months even Isaac

Newton invested saying I can calculate the motion of heavenly bodies but not the madness of people this from the man who discovered gravity about to experience a different kind of falling by September 1720 the stock crashed 90% the aftermath was so severe that the British government banned the creation of new companies without Royal Charter the world's first Market regulations though as we'll see with Railways in about 120 years regulations don't always stop human nature and speaking of human nature let's fast forward to see what happens when you combine speculation with the next big technology Railway

Mania from Trading imaginary Colonial riches to well at least Railways were real welcome to the 1840s Britain where the Industrial Revolution was transforming everything and investors were convinced that laying train tracks would be like printing money unlike our previous bubbles Railways actually did revolutionize the world trains could transport goods and people faster than anyone thought possible the first Railways were so profitable able that investors rushed to fund any track that anyone proposed sound familiar we'll see the same pattern with the internet in about 150 years at its peak Parliament approved 272 Railway companies in a

single year track proposals were drawn on maps like a child with a crayon one line was even approved to run straight through Windor Castle whoops the British poured more money into Railways in 1847 than they spent fighting Napoleon when the crash came over half the proposed Railways were never built turns out just because something will change the world doesn't mean every investment in it will make money the dotom investors would learn this lesson the hard way but we're getting ahead of ourselves speaking of getting ahead of ourselves the Great Depression while the British were learning

their Railway lessons across the Atlantic America was busy creating the perfect conditions for the mother of all crack es The Roaring 20s were in full swing the war was over the economy was booming and everyone was convinced stocks could only go up sounds familiar yet by 1928 ordinary Americans were borrowing money just to buy stocks Banks were happy to lend letting people buy shares with just 10% down think of it as a mortgage but for stocks what could possibly go wrong meanwhile sketchy investment trusts were popping up faster than speak easys during prohibition our October

24th 1929 the market wobbled October 28th it fell October 29th Black Tuesday it collapsed the Dow lost 25% in 2 days equivalent to A1 trillion loss today those borrowed shares Banks wanted their money back forcing investors to sell at any price but unlike our previous bubbles this crash infected the entire economy by 1932 stocks had lost 89% of their value unemployment hit 25% and 5,000 Banks collapsed the world learned you couldn't just let markets regulate themselves well at least until the 1980s when Japan decided to give it a try Japanese asset bubble welcome to the

1980s Japan where they weren't content with just one bubble they created two at once the economy was booming so hard that experts predicted it would overtake America Japanese companies were buying up everything from Hollywood Studios to the Rockefeller Center remember how we mentioned Market psychology way back in the Tulip crisis the Japanese stock market soared 450% in the 80s but that was nothing compared to real estate Tokyo real estate got so expensive that the grounds of the Imperial Palace were theoretically worth more than all the real estate in California one square meter in Tokyo's Ginza

District $300,000 a parking spot could could cost $1.5 million the perfect Financial storm was brewing Japanese Banks were lending money against inflated real estate which was used to buy more stocks which were used as collateral for more loans to buy more real estate if this sounds like a circular problem waiting to happen well you're getting better at spotting bubbles by 1989 reality finally caught up the crash was so severe that Japan's economy still hadn't recovered 30 years later they even have a a name for it the Lost decades but while Japan was dealing with its

hangover the rest of Asia was about to learn some hard lessons Asian financial crisis just when everyone thought Asian economies were Invincible Thailand decided to teach the world a lesson about hidden risks it started with something seemingly boring Thailand's currency the bot was pegged to the US dollar local companies were borrowing in dollars and Living Large the problem their income was in bot they of it like taking out a loan in Gold to buy a house but getting paid in Monopoly money it works great until the exchange rate moves when Thailand's export growth slowed investors

started questioning if the bot was really worth what the government claimed on July 2nd 1997 Thailand ran out of dollars defending the bot the currency crashed 50% almost overnight and companies suddenly owed twice as much on their dollar loans but here's where it gets interesting investors looked at neighboring countries and thought hey they're doing the same thing like dominoes Malaysia Indonesia and South Korea watched their currencies collapse Indonesia's rupia lost 80% of its value in months the IMF had to step in with $40 billion in bailouts the world learned that in a connected economy one

country's problem can quickly become everyone's problem a lesson the world would need to relearn in 2008 when American mortgages triggered a global meltdown but before we get there Silicon Valley was about to show us how interconnected the world could really become com bubble remember how Railway Mania convinced investors that tracks to Nowhere were worth a fortune in the 1990s Silicon Valley proved that you didn't even need tracks just add to your company name and watch the money roll in the internet was revolutionary no doubt but investors were so scared of missing out on the next

Microsoft that they threw money at anything with a website companies were going public without ever making a profit some without even having a product pets.com raised $82 million in an IPO despite losing money on every sale but hey growth over profits right the NASDAQ soared from 500 to 5,000 between 1990 and 2000 internet entrepreneurs were becoming billionaires overnight at its peak a tiny software company called Qualcomm saw its stock rise 2600% in one year that makes our Dutch tulet prices look reasonable March 2000 reality kicked in by October 2002 the NASDAQ had lost 78% of

its value Amazon's stock fell from $17 to $7 most Dooms disappeared entirely just like Railways though the technology that sparked the Mania did change everything even if most investors lost their shirts betting on the wrong companies with tech stocks and ruins investors started looking for something more real to put their money in oil gold wheat surely Commodities couldn't crash like internet stocks right Commodities bubble after getting burned by imaginary profits from dotom companies investors wanted something real oil you could touch gold you could hold wheat you could eat what could be safer than actual physical

stuff by 2006 everyone from Pension funds to small investors was piling into Commodities oil soared from $50 to $147 a barrel gold doubled to over $1,000 an ounce rice prices tripled causing food riots in some countries even basic metals like copper hit all-time highs the story was simple China's booming economy would need endless raw materials and supplies couldn't keep up Wall Street saw an opportunity creating complex Financial products that let anyone bet on commodity prices suddenly your retirement fund could speculate on wheat futures because what could go wrong mixing pensions with food speculation by mid2

2008 the bubble burst spectacularly oil crashed back to $30 gold tumbled food prices collapsed but this crash wasn't happening in isolation it was just one part of a perfect storm brewing in the Global Financial system remember all those fancy Financial products Wall Street created they had some other ideas about housing too the housing crisis while Commodities were booming Wall Street had discovered something even better the American dream itself after all house prices never go down right it started innocently enough low interest rates meant more people could afford homes Banks were happy to lend they just

bundle those mortgages into complex Securities and sell them to investors worldwide soon they ran out of qualified borrowers but why let that stop a good thing enter the subprime mortgage loans to anyone with a pulse remember how Japanese banks used real estate as collateral for more loans Wall Street said hold my Champagne by 2006 you could get a million dooll mortgage with no job no down payment and no proof of income they called them ninja loans no income no job no assets mortgage brokers were making thousands per loan Banks were making millions bundling them and

rating agencies were paid to look the other way when housing prices finally started falling in 2007 the whole house of cards collapsed by 2008 major Banks were failing and $8 trillion in housing wealth vanished the Global Financial system nearly collapsed triggering the Great Recession the world learned you can't build an economy on bad debt well at least until crypto exchanges discovered leverage trading crypto bubble welcome to the digital age where we managed to recreate 400 years of financial mistakes in about 5 years Bitcoin launched after the 2008 crisis as an alternative to Banks was about

to show that you don't need Banks to create a financial disaster the 2017 rally saw Bitcoin Surge from $1,000 to $119,000 just like the south sea company the market ran on promises and speculation companies could add blockchain to their name and see their stock price triple overnight Long Island IC te became long blockchain Corp and its shares jumped 289 per. who needs a business plan when you have buzzwords but 2017 was just the warm-up by 2021 crypto exchanges were offering the same toxic mix that crashed the housing market leverage derivatives and questionable loans the industry

peaked at $3 trillion nfts were selling for Millions one cryptocurrency inspired by a dog meme was worth more than Ford Motor Company November 2022 FTX the poster child of crypto collapsed spectacularly like the Mississippi bubbles John Law CEO Sam bankman fried fled as his Empire crumbled customer funds vanished Bitcoin crashed 70% the entire crypto Market lost $2 trillion different Century same story when something seems too good to be true it probably is now I had to leave some bubbles out of this video the Chinese real estate bubble is still unfolding the 2015 Chinese stock market

crash needs more historical perspective and don't even get me started on the Florida land boom of the 1920s want more financial history explained like subscribe and let me know in the comments what you'd like to see next