South Sea Company Case Study

In the early ‘700 while France was going through the Mississippi Bubble, in parallel Great Britain was going through the South Sea Bubble.
The South Sea Company was founded in 1711 with the aim of detecting the British public debt, which amounted to 10 million pounds. The company bore the English public debt and in return received an annual interest paid by the state and the monopoly of trade with the Spanish colonies in South America. To finance the transaction, the company issued, in different tranches, their stocks and each issue took place at rising prices. The eupho-ria towards the issue of stocks and other equity placements occurred in the same period, pushing up the value of the shares and enriching the compa-ny's directors and several politicians (holders of shares and rights on shares of the company). But if, against of a constant …show more content…
So only a limitless and irrational confidence on future earnings of the company could justify the continued growth of stock prices: so this was a speculative bubble, fueled by the burning desire to get easy money, by substantial interests of the directors and politicians that prevented any regulation of emissions. Like any speculative bubble, when the demand for government ceased to be strong and, in this case, it ceases to be stimulated in every way by the leaders of the company interested in speculating on the price of the shares, when it burst there were many vic-tims. Among these is the famous scientist Newton. The bursting of the bub-ble had devastating effects on the economy and in the world of British poli-tics. After the insurrections, a law was passed, the Bubble Act, which until 1862 (when the Joint Stock company Act was promulgated) prohibited the free establishment of joint-stock company, subordinating the birth explicit grant of the Crown or of the English Parliament. The