Everyone except the very youngest readers here will be familiar with the stock market crash of 2008 where the complex deals relating to mortgages between banks turned out to be worthless. Before that in 2001 the dot com crash happened when internet based companies failed to deliver the profits they had hoped for.
When the crashes occur newspaper headlines are filled with doomsday prophecies and “end of the world as we know it” rhetoric. Looking back through history tells us these events are not one-offs. Stock market crashes are common and and here to stay. The story of the first crash in the UK is crazy enough to make the recent ones look sensible.
The UK stock market began roughly in 1801, the first “crash” happened in 1825 and can be blamed entirely on one man: Gregor MacGregor
On returning to Scotland in 1921 after travelling with the army he convinced people that he had been made the ruler of a new country in south America named Poyais. He toured Scotland selling bonds for this new country to anyone interested. Sources say he raised between £200,000 and £300,000 which in todays money translates to between 1.9 and 2.9 billion pounds.
Not only that but to further add authenticity to his ruse he convinced 250 eager settlers to get on a boat and travel to this made up country to help build it. On their arrival they found nothing but unsettled jungle. By the time they had given up waiting for the government of Poyais to appear and returned home to the UK fewer than 50 remained.
It may seem dubious to some that so many people put their belief in a country that didn’t exist. but in 1825 there weren’t too many ways for people to authenticate claims from the other side of the globe. Just like in modern manias people were caught up in the fear of missing out on this once in a life time opportunity and thought if they didn’t throw all their money at it then they would look silly when their neighbours grew rich whilst they remained poor.
When the scam was eventually exposed and all the “value” that had been added to investors and banks portfolios vanished the stock market saw its first crash. many went bankrupt and troubles caused 70 banks to close.
Its unlikely that the next crash will come as a result of a fake country in South America. I’ve no idea when or what will cause it. I just know that I wont be surprised by whatever causes it.