UK Faces Worst Economic Down Turn in 300 Years

Reopened October 2019 - includes archived threads from pre-2019

UK Faces Worst Economic Down Turn in 300 Years

Postby toucana on May 7th, 2020, 7:02 am 

A new report by the Bank of England released today predicts that the UK economy will contract by a historic 30% by the the second quarter of the year (14% over the year). This will be the worst British economic down turn in 300 years - matched only by the notorious ‘South Sea Bubble’ debacle of 1720. On that occasion panicked bankers, goldsmiths and merchants who were facing financial ruin stormed the British parliament, and were only dispersed after the Riot Act had been read to them.

The “South Sea Bubble” scandal developed between 1711 and 1720. The South Sea Company had been given a monopoly charter as a joint stock company by the House of Lords to help manage the national debt which stood at some £30 million on a promise of 5% interest from the government. It was supposedly meant to be financed by its exclusive rights to fishing and trading activities in the the South Americas. In reality a significant part of of its known commercial activity relied on the slave trade

Given that Britain was actually at war with both Spain and Portugal in 1711 as part of the War of the Spanish Succession (1701-1714) when the company was created, any astute observer might have deduced that the prospects of lucrative commercial trading opportunities in the South Americas were likely to be somewhat limited.

Rampant insider trading fuelled a truly insane speculative frenzy that drove the stock price of the company up from £100 a share to almost £1000 per share by 1720.
Its success caused a country-wide frenzy herd behavior as all types of people, from peasants to lords, developed a feverish interest in investing: in South Seas primarily, but in stocks generally. Among the many companies to go public in 1720 is—famously—one that advertised itself as "a company for carrying out an undertaking of great advantage, but nobody to know what it is".

By the end of September the stock had fallen to £150. Company failures now extended to banks and goldsmiths, as they could not collect loans made on the stock, and thousands of individuals were ruined, including many members of the aristocracy.

With investors outraged, Parliament was recalled in December and an investigation began. Reporting in 1721, it revealed widespread fraud amongst the company directors and corruption in the Cabinet. Among those implicated were John Aislabie (the Chancellor of the Exchequer), James Craggs the Elder (the Postmaster General), James Craggs the Younger (the Southern Secretary), and even Lord Stanhope and Lord Sunderland (the heads of the Ministry).

Craggs the Elder and Craggs the Younger both died in disgrace; the remainder were impeached for their corruption. The Commons found Aislabie guilty of the "most notorious, dangerous and infamous corruption", and he was imprisoned.

One consequence of this fiasco was that the Bank of England which was also a private company at that time subsequently acquired the sole prerogative of managing the national debt, and The Bubble Act of 1720 forbade the creation of new joint-stock companies without a royal charter.

The scientific genius Sir Isaac Newton who lost £20,000 in the financial mayhem of the South Sea Bubble reportedly muttered that he "could calculate the motions of the heavenly bodies, but not the madness of the people."
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