Anatomy Of A Bubble (Part 1)

“I can calculate the motion of heavenly bodies, but not the madness of people”- Issac Newton.

Even the greatest minds of all, Sir Issac Newton, fell for the first-ever stock market speculation mania known as the “South Sea Bubble” in the 1720s. This frenzy took place a century after the most advanced economy in the world at that time; the Dutch experienced a speculative orgy never seen in the world before. Such big was the “Tulip Mania” that people of all grades converted their real estate into cash and invested it in flowers known as “bulbs”. Nobles, farmers, mechanics, seamen, footmen, maid-servants, even chimney sweeps and old clothes women wanted a slice of their newfound love, the tulips.

According to William Quinn and John.D Turner, a financial bubble is analogous to a fire triangle consisting of oxygen, fuel and heat. Marketability is the oxygen for the boom, Money and Credit are the fuel, and Speculation is the heat. The fire triangle is true to some extent, but what we will di…