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When greed takes over and reason flies out the window, entire economies can collapse overnight. Join us as we count down the most devastating economic bubbles in history, where unchecked speculation and blind optimism left millions financially ruined and struggling to survive!
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00:00Now, it's exactly a week since one of the biggest, supposedly most stable cryptocurrencies took a massive tumble.
00:06Welcome to WatchMojo, and today we're exploring moments in history when common sense went out the window,
00:11prices went through the roof, and the resulting crash left millions of regular people with nothing but empty pockets and
00:17broken dreams.
00:18It seems amazing that a business as huge as this can fail in this way.
00:27South Sea Bubble
00:28In September, when the bubble burst, England was plunged into an economic and political crisis.
00:34This was one of the first examples of a financial boom and bust,
00:38and was the event that gave rise to the use of the term bubble to describe a spectacular market failure.
00:45In 1711, the South Sea Company was established to assume a portion of Britain's national debt
00:50in exchange for exclusive trading rights to Spanish South America.
00:53The lore of this supposedly vast, untapped wealth ignited an unprecedented speculative fervor.
00:58It's worth remembering that the South Sea Bubble occurred when the concept of hands-off investing was quite new.
01:05The development of the joint stock company in Britain allowed businesses to attract large amounts of capital from investors
01:13who could easily sell their shares to someone else if they needed their money back.
01:17The success spawned a proliferation of absurd bubble companies, including one famously described as a company
01:23for carrying out an undertaking of great advantage, but nobody to know what it is.
01:27Parliament passed the Bubble Act to curb these rival firms, but this ironically drew attention to the South Sea Company's
01:32own questionable value.
01:33As insiders began to sell, public confidence evaporated, and the price of shares collapsed,
01:38leading to widespread bankruptcies and a massive political scandal.
01:42In Britain, the South Sea Company was kept alive, but scaled back significantly,
01:47and kept under stricter government control.
01:50It was broken up with some of its capital being transferred to the Bank of England.
01:55The venturing arm was split off too, and they continued to do some trade with South America,
02:01and even entered the whaling business with little success.
02:05Mississippi Bubble.
02:06I'll open a bank. You've never heard of a bank? Well, here's how it works. It's simple.
02:12People who have gold bring it to me.
02:17I give them a receipt, a banknote, a piece of paper, but it's just as good as gold.
02:25Following the War of Spanish Succession, France found itself in a dire financial predicament with crippling national debt.
02:31Enter John Law, a Scottish economist with a radical solution.
02:35Replace metallic currency with paper money backed by the wealth of the French colonial territories.
02:39I see the Mississippi River, and that land they named after King Louis, Louisiana.
02:48It belongs to France.
02:51It's rich in diamonds.
02:53Gold, furs, rubies, who knows?
02:56In 1717, Law established the Compagnie d'Occident, granting it a monopoly on trade with the vast Louisiana territory.
03:03However, the perceived wealth of Louisiana proved largely illusory, and actual profits were meager.
03:08As astute investors began to cash out their paper money for gold and silver, public confidence wavered.
03:13When the bubble burst, the value of the shares and the paper money they backed evaporated almost overnight.
03:17John Law slipped across the border in disguise, broke and brokenhearted, never to set foot in France again.
03:25Railway Mania
03:26How soon before it was converted to steel rails for a proper steam railway?
03:32Well, the railways converted in the 1830s, it becomes part of a network and part of the mania that's sweeping
03:39Britain throughout the 19th century.
03:40The Industrial Revolution was in full swing, and railways were the undeniable future of transport.
03:45This fertile ground for innovation quickly morphed into a speculative frenzy.
03:49Is there any single figure that stands out in this great expansion of the railway?
03:55If you're talking about railways, we have to talk about George Hudson of York, the railway king as he became
04:01styled through the 1840s.
04:03And Hudson really came from nowhere.
04:05Thousands of railway companies, some legitimate but many outright fraudulent, sprang up.
04:09Each promising lucrative routes and unimaginable returns.
04:13But the tracks led many straight to ruin.
04:15By 1847, the bubble of over-speculation and unrealistic projections began to deflate.
04:20He had his own money, but even so, how could he have afforded this?
04:24It's where a little bit of sharp practice came in, and this was the beginning of Hudson's downfall, really.
04:30He was found that he was falsifying accounts, he was selling land that wasn't his to sell.
04:35So, was Hudson a crook?
04:37Yes.
04:37The Bank of England, facing a gold drain and a broader credit crunch, aggressively raised interest rates, reaching 8%
04:43by October.
04:44This move further squeezed the over-leveraged market.
04:47Countless nascent railway companies ran out of funds or were exposed as pure fronts.
04:51Shares then plummeted, wiping out entire fortunes in a matter of weeks.
04:55What does the rise and fall of George Hudson and the whole railway mania that you've described, what does that
05:02tell us about the Victorians?
05:04What the railway mania tells us is there was an appetite for everywhere to be connected.
05:09It's unifying the country in a way that nothing else can do.
05:12The Great Depression.
05:13Men take to the streets, offering themselves and their skills for $1 a week.
05:24Suddenly, for millions of Americans, nothing to do, and all day to do it.
05:33When all hope of getting a job is gone, eyes are lowered, hands held out, as the unemployed shuffle along
05:40and accept a quarter.
05:42The so-called Roaring Twenties were a period of unprecedented optimism in the United States.
05:46Speculation ran rampant, with citizens buying stocks on margin, meaning borrowing heavily to finance purchases, convinced that prices would never
05:53fall.
05:54The illusion shattered over a terrifying week in October, culminating on the 29th, better known as Black Tuesday.
05:59Panic selling decimated portfolios, but the real disaster began when the panic spread to the banks.
06:045,000 banks shut their doors to depositors, now in greatest need of their savings.
06:10Many would never reopen.
06:12Massive runs broke the system, wiping out the life savings of millions.
06:16Unemployment soared to an unprecedented 25% in the U.S., with families facing destitution and homelessness.
06:23The Great Depression remains the ultimate warning of what happens when the dream of easy wealth curdles into a nightmare
06:28of bread lines and shanty towns.
06:30Private industry joins with relief agencies, such as the Red Cross, to do what they can, filling food baskets and
06:37setting up soup kitchens.
06:39Japanese asset price bubble.
06:40Plaza Accord was a kind of agreement which accomplished much more than everybody expected for the meeting.
06:51When we went to Plaza meeting, we were quite prepared to see substantial increase in yen's value.
06:59In the late 1980s, Japan was a manufacturing titan.
07:02Following the Plaza Accord, the economy was awash with cheap credit, leading to an extravagant binge in real estate and
07:08stocks.
07:08Land prices in Tokyo soared to unimaginable levels.
07:11At one point, the Imperial Palace grounds were rumored to be worth more than the entire state of California.
07:16I felt great about it.
07:18I thought it was the East's revenge on Western capitalism.
07:22If it comes to it, I thought, we should buy all of the United States.
07:28We really should have bought more of America.
07:31The Nikkei 225 stock index reached nearly 39,000 on December 29, 1989.
07:36Everything changed for the worse in 1990, when the Bank of Japan jacked up interest rates.
07:41The aftermath ushered in Japan's lost decades, a period of prolonged economic stagnation and deflation.
07:47Banks were saddled with dud loans, and the bubble's burst led to decades of job insecurity and a decline in
07:52Japanese living standards.
07:53This site has soaked up so much money.
08:02We worked it out at the time, in the bubble years, that as a piece of real estate, Japan was
08:08worth the whole of the United States seven times over.
08:11Dotcom bubble.
08:12Every day, America Online is making it easier for people to live, work and play.
08:17Hey, Dan. Ready for the game?
08:18I'm just finishing up here with my new kayaking friends.
08:21Kayaking friends on your computer?
08:22Yeah, I just got America Online.
08:24The dawn of the internet promised a new economy where traditional business models no longer applied.
08:28Any company with dotcom and its name could attract enormous investment, regardless of profitability.
08:34The peak of this irrational exuberance arrived on March 10, 2000, when the Nasdaq Composite Index reached its zenith.
08:40A year ago, there were hundreds of internet companies being floated here on the Nasdaq, but not now.
08:45The rose-tinted spectacles have come off.
08:47The emperor's new clothes have been seen through.
08:50The lunatics have been put back in the asylum, and the internet bubble, well, it's burst.
08:55Beneath the surface, many internet startups were burning through cash at an alarming rate.
08:59The ensuing crash was swift and brutal.
09:01Trillions of dollars in market value evaporated, wiping out the fortunes of countless investors.
09:06While the ashes of the bubble eventually gave rise to today's tech giants,
09:09For many entrepreneurs and investors, the internet bust was a period of total financial devastation.
09:14The internet is not a hallucination at all, and it's not, unfortunately, a panacea that is going to create 400
09:22companies that work.
09:23It'll probably create 40.
09:24You had a period where money was essentially free, and anybody could raise it.
09:28You say, I have an idea, people would throw money at you.
09:30In fact, a year ago, your biggest concern was being drowned in the capital and annoying people because you wouldn't
09:36let them invest.
09:37Asian financial crisis.
09:38Affection for the prime minister is rare in Thailand today, where most regard him as irredeemably incompetent.
09:46But even as the Thai economy collapses around him, General Chevalet remains a consummate money politician.
09:53His party's been busing in rural supporters to Bangkok.
09:57They get all expenses paid trips to the capital, and in exchange, they shower praise on the premier.
10:04The mid-1990s saw the Asian tiger economy celebrated as paragons of rapid growth.
10:09Foreign capital poured into Thailand, Indonesia, and South Korea, attracted by high interest rates and booming real estate.
10:14However, the success masked underlying fragilities, weak financial regulations, and an over-reliance on short-term foreign loans.
10:22If you don't push forward political reform by the adoption of the new constitution, Thailand would face an impasse politically
10:33and economically.
10:35The pinprick came on July 2, 1997, when Thailand ran out of the cash needed to prop up its currency
10:41and was forced to devalue the baht.
10:43The crisis led to widespread corporate bankruptcies and political upheaval, notably the fall of President Suharto in Indonesia.
10:50The International Monetary Fund stepped in with massive bailouts, but these came with harsh austerity measures that exacerbated the suffering
10:57of ordinary citizens.
10:59I am very worried. I have no money. I am concerned about my children. My husband used to send me
11:07money every month, but lately, nothing at all.
11:10Irish property bubble.
11:12I think if I'd known that the mortgage would actually have increased so much over the year, I don't think
11:17I would have actually taken the 100% mortgage out.
11:22We would talk to a few of the brokers and it's just very difficult for them to give you anything
11:26that would actually buy your house anywhere, beside work or anything like that.
11:30Fueled by low interest rates and a belief that property prices never fall, Irish property became the ultimate investment.
11:35Ordinary citizens were encouraged to take out massive loans to buy homes and investment properties.
11:40Construction boomed and banks offered increasingly lax lending criteria, making it easy for almost anyone to get a mortgage they
11:46could barely afford.
11:47What's been driving the Irish housing market, particularly over the last few years, has been expectations or sentiment.
11:55After all, we've seen interest rate increases in 2006, yet house prices rose by about 12%.
12:02How can one justify a big increase in house prices in an environment where interest rates are increasing?
12:08It's got to be sentiment. And once sentiment changes, it tends to go downhill very quickly.
12:15The euphoria ended with the 2008 global financial crisis.
12:18Property prices plummeted by over 50% in many areas, wiping out billions in equity overnight.
12:24Ireland's banking system collapsed, forcing the government to implement massive bailouts that hamstrung the national debt.
12:30Thousands of homeowners found themselves in negative equity, leading to widespread repossessions, which skyrocketing unemployment did little to help.
12:37In relation to Pfizer, I understand that 65 people are to be made redundant, and that two plants are to
12:42be sold as going concerns.
12:44So all the jobs are gone.
12:45Pfizer workers are reeling tonight after they were told 545 jobs are under threat.
12:52In the early stages of it, 25-year mortgage, three or four years into that, two small children, a wife
12:59at home.
12:59United States housing bubble.
13:01It's a scene enough to inject fear into any financier, banker, and the odd politician, too.
13:07Staff from what was America's fourth largest investment banking titan arrive not knowing if their jobs still exist.
13:15In the early 2000s, low interest rates and financial deregulation turned U.S. housing into a guaranteed path to wealth.
13:21Lenders offered risky subprime loans to borrowers with poor credit, which were then hidden inside supposedly safe investment packages and
13:28sold to investors worldwide.
13:29The belief that housing prices would always rise became an article of faith.
13:33The market reached its peak in 2006, and as prices began to fall, the house of cards tumbled.
13:50Foreclosures shot up, and the complex web of mortgage-backed securities unraveled, exposing systemic risk.
13:55This culminated in the September 2008 bankruptcy of Lehman Brothers, sending shockwaves through the global economy.
14:01The resulting Great Recession led to millions losing their homes, widespread job losses, and a credit crunch that destroyed retirement
14:08savings and left a generation scarred.
14:10I was very happy in Lehman, so yeah, I like this company, and I'm just disappointed for everybody.
14:17I think it was a great company, and I'm just, yeah, sad.
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14:38Cryptocurrency Bubble
14:39One popular token, Terraluna, lost 99% of its value, from a high of $118 to just $0.09 spooking
14:47investors and sending cryptocurrency markets plummeting.
14:51The entire crypto market's now reportedly worth just over a trillion dollars, just a third of its value six months
14:57ago.
14:58What began as a niche interest in blockchain exploded into mainstream consciousness during the COVID-19 pandemic?
15:04Cryptocurrency, with its promise of democratized finance, became the new frontier.
15:08Bitcoin, Ethereum, and countless altcoins surged in value, and the total crypto market capitalization soared past an astonishing $2.9
15:16trillion by late 2021.
15:18The euphoria, however, was built on speculation.
15:20I think the bubble really fell down around mid-last year is when retail dollars, mums and dads and ordinary
15:28people looking to get ahead, when they got out of it.
15:32And ever since then, it's sort of, the industry has been frantically trying to recruit new customers, doing ads at
15:39the Super Bowl and so on.
15:40As central banks began to tighten the belt as a way to combat inflation in 2022, the flow of easy
15:46money dried up.
15:47The collapse of the Terra Luna ecosystem wiped out billions, followed by the bankruptcies of major platforms like Celsius.
15:53The final devastating blow came with the implosion of crypto exchange-slash-hedge fund FTX, which was later revealed in
15:59court as a massive, orchestrated fraud.
16:01Just moments ago, FTX founder Sam Bankman-Fried was sentenced to 25 years in federal prison.
16:07He was found guilty back in November of orchestrating a multi-billion dollar fraud that led to the collapse of
16:13his company.
16:14A jury convicted him on all seven counts of wire fraud as well as conspiracy.
16:18Which economic bubble shocked you the most?
16:20Be sure to let us know in the comments below.
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