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?