Bubbles on the South Sea Essay Example | Topics and Well Written Essays - 1250 words

Bubbles on the South Sea - Essay Example This is a significant drop in the total value of a market, almost undoubtedly to the popping of a bubble, creating a situation wherein the majority of investors are trying to flee the market at the same time and consequently incurring massive losses. And terribly affects everyone. The inevitable crash came and the strain proved too much to many joint stock companies. The immediate cause was the activities of the South Sea Company. It had been formed to engage in trading in the South Seas, but it also has engaged in the funding of the national debt in return for monopolistic privileges. The bad repute of this joint-stock companies had led to the passage of the Bubble Act for the regulation of companies in the main attempt to prevent panic. Bubble Act declared that only companies formed by charter or by a private act of parliament were legal. The South Sea Company was reasonably successful. It was chartered by the government for trade in South America and the South Sea. The relationship between the government and the company created confidence and high expectations. In the history, they were given the monopoly of trading in the Pacific Ocean and along the coast of South America, made an offer to the government to pay off the whole National Debt and to buy up the irredeemable annuities, according to Melville amounting of â€Å"â‚ ¤800,000 a year, provided the different public securities were consolidated into one fund in their hands and the government gave the company certain exclusive commercial privileges†. In spite of the limited privileges conceded to it in the Asiento by Spain, been highly successful in the slave trade. This means according to (Colliers Encyclopedia) â€Å"that they have the right for 30 years to supply Spanish-America colonies with 4,800 slaves annually and to send to Porto Bello and Vera Cruz a trading ship of 500 tons a year†.