Bubbles


The South Sea Bubble was an over-inflation of shares in the South Sea Company in the UK during the 18th Century.  There they were re-financing Government debt through private funds, in a way that was ‘hidden’ and which led people to believe they were becoming wealthy. Linking their sales of shares to the ‘high ups’ who had been given free shares, the poor suckers bought in to it all in droves. The sad reality was when the ‘bubble’ burst; many lost everything.

Just recently we have seen similar bubbles across the world. Largely funded by companies lending money for bonds on houses to people who couldn’t really afford the loans, hiding the issues in layers of financial double-talk. Then selling on the unsecured debt as though it had a real value. People buying in to this at second or third hand, as the financial spin-doctors talked it up and up. The financial ratings agencies gave these deals high ratings, as though they were solid and safe. Never bothering to check up what they were actually based on. (Or were they paid not to tell the truth – after all it was only the small people whose money would be lost.)

When people started just walking away from these loans (after all they had got 100% loan and had no money of their own invested in the property) the whole pack of cards started to crumble. We are still feeling the aftershocks.

I think it’s good to call these quick get-rich or get-rich-quick schemes bubbles. Just like bubbles, while they start they look so good, when they pop, poof! Nothing is left but a little splat.

Bubbles in themselves are delightful, soapy outsides, glistening, reflecting many colours in the sunlight. The physics of why they seek to become round has to do with the shortest distance between two points on the whole of the outside, or something like that.  Is there something to learn from the physics of bubbles to apply to finances? Maybe someone a lot smarter than I am can help?

 

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21 thoughts on “Bubbles

  1. Why not find a simple way to explain debt and serving debt? Some sort of work and production always needs to be done. If you have work, you are likely to have an income. If you have an income, you can pay off your debt. It is important to be prudent about how much you can go into debt for with the sort of income you have. If you borrow money, it should be for investment, not for spending on things that you don’t really need in order to survive. I reckon people should refrain from speculating with money, trying to make gains that are too good to be true. On the other hand the money people have saved they shoul invest so that it can circulate and help to keep the economy going. If you can afford a certain style of living you should use your money for things you can enjoy and that are of value for society and give people jobs.
    Anyhow, this is how I think. Most economists would probably find my thinking too simplistic.

    1. I think sometimes they complicate things to cover up the fact that they have let the basics slip. The base of it all is you can’t make money when there is nothing real behind it all.

  2. That bubble certainly gave the South Sea a bad name!
    Let me see, a bubble is nice and rounded and reminds me of something. Ah, if I take the top half off the ‘l’ and leave just a speck, I get ‘bubbie’ …
    Hmmm … 🙂

  3. We all know to be leery of the con man and his Ponzi schemes. But why do we still fall for them when the megabanks and megacorps and our governments still pull them off? Perhaps we have no choice.

  4. Interesting insight on an interesting topic, thanks Sidey! My first thought on bubbles is far more frivolous…along the lines of studio shoots with toddlers and weddings and things 🙂

  5. Don’t know if anyone can help – but don’t the ‘victims’ need to take some responsibility for their plight?… I mean, really, if a deal sounds to good to be true, maybe it is?

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