The history of the first in the history of financial pyramids
• The history of the first in the history of financial pyramids
Our People, taught by bitter experience 90, "gave" us "Hopper-Invest", "Russian house Selenga," "Lord," and, of course, Sergei Panteleevicha Mavrodi with his MMM, today, even sometimes on an intuitive level, understand the sign of the words "financial pyramid".
Institution issuing unsecured paper, many might seem the invention of the XX century, "tied" to the market prices and global trade, but the history of "financial pyramids" its roots back to ancient times, when mankind has not subdued the sky and invented the diesel engine - at the beginning of the XVIII century, which later would be known as the Age of Enlightenment.
War of the Spanish Succession (1701-1714), which clashed in the UK and France, at the time of the conclusion of peace is completely emptied of their foreign exchange reserves, putting both states on the brink of bankruptcy. United Kingdom, where the annual budget at that time was equal to 4 million pounds, had a foreign debt of 50 million that is spent its budget by 12, 5 years ahead! Back in 1710, after a series of intrigues in Parliament, came to power Tory party led by Henry St. John, Viscount Bolingbroke and Lord Robert Harley. Tory tried to speed up the conclusion of peace, and to bring the country out of the ruinous war, which made removal from power of leader of the Whig John Churchill, Duke of Marlborough, who was an ardent supporter of the war and the commander of British troops in Europe.
After removal from power of the Whigs, Tories propose to Parliament a draft repayment of external debt. Lord Harley suggested that the draft peace agreement clause on "ASIENTO de Negros" - the exclusive right to import black slaves in the territory of Spanish America. To trade with the Spanish colonies was the public limited company that in return for this exclusive privilege would pledge to repay the government debt in the amount of 10 million pounds. The government, in turn, was to pay the company's 6% per annum, that is a little more than 500 thousand pounds per year.
(Night singer - merchant) selling shares Bzhnyh Seas, Amsterdam, 1720
In 1713, the United Kingdom has concluded a separate peace, and emerged from the war, received under the terms of the peace agreement the right to ASIENTO period of 30 years. However, it soon became clear, the quota for the import of black slaves could not repay the debts the British to the extent in which it seemed to Lord Harley. Besides, he was not able to establish a bank for the restructuring of the public debt, because the exclusive right to issue under the law had only the Bank of England.
"Company of the South Seas" (the so-called new public limited company) nevertheless continued to work and released a package of securities backed by its agreement with the government. Shortly after the start of the company, in June 1714, Lord Harley was forced to resign - the Whigs accused him and Viscount Bolingbroke imprisoned beneficial France separate peace. The new Lord-treasurer of the country became the representative of the Whig Robert Walpole.
Receipt of payment for the shares of the South Seas
Despite the fact that the company has lost its patrons in the government, it regularly choose their quota of ASIENTO, at the same time opening a new way to generate revenue through gambling. In 1719 the company's Board of Directors proposed to the government to take on more than half of the state debt by 5 per cent per annum until 1727, and by 4 per cent per annum - in the coming years. "South Sea Company" quickly became a major creditor governments "asking" in opposition to even the Bank of England, who was not able to kill the final offer of the company management.
Patronage among ruling circles had to buy - 1.3 million pounds went to bribe high-ranking state officials, who supported the proposal of the company. All this resulted in a heated debate in Parliament, during which clashed Chancellor of the Exchequer John Aylebi (supported by the company) and Robert Walpole (holding the side of the Bank of England). In particular Walpole said that the proposal of the company - are the stock exchange speculation, and the stock price will increase based on the hype around them, while in reality it is of unsecured paper. However, proponents of the "South Sea" and she bribed parliamentarians literally shouted down by Lord Walpole.
Playing cards with scenes dedicated to the scam "South Seas"
While statesmen discussed the law, the company chairman Sir John Blunt began a powerful advertising campaign to attract new shareholders. There were various myths (artificially "running" in the nation) that the company has allegedly received a concession for the development of silver mines in Spanish America that soon its turnover will increase many times, and so on. D. Against the backdrop of universal rejoicing Government accepted the proposal "South Sea" and shares of a new tranche of scattered like hot cakes.
If the 100 pounds of share par value in January 1720 was worth 128, in February it was sold already for 175, and in May - for the value of 550. The growth was provided by the continuing inflow of funds, making the company a classic pyramid scheme.
In May, the son of Lord Harley wrote: "The madness of speculation is simply unthinkable This savagery is beyond my understanding, it subordinates all hearts, tongues, minds, as if this is a crazy house, where once there were all the parties - the Whigs, Tories, Jacobites, papists. and others".
However, as is usually the case with the pyramids, drop off is replaced. In the same year the Act was passed to the Royal Exchange, according to which any undertaking was to receive a state charter to do business. In its essence it was a qualification that allows to eliminate questionable "office", but, as later became clear, that this act of pull up the clay feet of the financial colossus. Some members of Parliament asked a reasonable question about ensuring the company's shares since ASIENTO not nearly discouraged turnover "Companies South Seas."
While there was a hearing at London rumors that the shares have no financial security. The Board of Directors tried to artificially increase the value of the securities issued, however, the wave could not be stopped, and in September 1720 the price dropped to 150 pounds per share. Investors rushed into the offices of the company to exchange securities for cash, and by October, came the collapse.
Exchange Alley during the "boom" in the southern seas stocks, sketch artist Granger, 1720
In December of the same year, Parliament has initiated an investigation of "the South Sea Company", seize the property of its directors. They were forbidden to leave the UK, but to find a company accountant managed to escape to France, taking the entire financial statements. In Parliament, the real war broke out, caused by the hearing director Kreggz in the heat even offered to fight him in a duel anyone who dares to question his honesty. John Blunt, who was brought to the hearing under guard, refused to testify against themselves and their colleagues.
As a result, all managed to find inconsistencies in the company's securities and traces of fraud, which made it possible to accuse her of directors of fraud. Criminal prosecution has undergone and Chancellor of the Exchequer John Aylebi, which was sent to the Tower of London on charges of corruption. Director of Kreggz died in prison, without waiting for the verdict. In respect of the remaining Directors "South Sea" failed to articulate a charge, so they got off with only the confiscation of property.
Director of the "South Sea" are trying to escape from the angry depositors
Thousands of people have lost considerable sums, hundreds were destroyed. Among the shareholders of the company who lost their deposits, was a physicist Isaac Newton. However, there was one party that was able to bring the benefits of all this, this party turned out to be the British government, whose debts were exchanged for shares of the distressed, and by 1721 the external debt of the United Kingdom was only 500,000 pounds.
"The scene on the Exchange Alley", a picture by Edward Matthew Ward
And what about France, England opponent in the struggle of the Spanish Succession? Surprisingly, it fared similarly. By the end of the war, France's foreign debt amounted to more than 3 billion livres. The government could not find lenders - the European banks reluctant to lend money to Versailles, and then - just a huge interest and short term. Comptroller General (Minister) of Finance Noayl decided was to "shake" the Jewish community, which controlled most of the banks in France - started a real "witch hunt" when Jews were interrogated with predilection on charges of witchcraft, but they died from torture, but the money the Crown did not give . In an attempt to find additional sources of income, the French government has canceled a number of benefits and freedom of the nobility, significantly reduced the size of the army, however, these measures do not give that effect, which was needed.
The object of desire and speculation: one-tenth share in the Compagnie des Indes (easier speaking - in the Mississippi Company).
Philip Orleans, regent for minor successor and future King Louis XV, in 1715 godu tried devalue livre by overstriking - gold and silver coins withdrawn from circulation and replaced by coins of the same value, but a lower (20%) of the precious metal fractions. Turned fierce struggle against tax evaders, one even telling executed. However, in all this chaos, the lion's share of revenues to the treasury plundered approximate regent, therefore, the situation remained critical.
Salvation came from where no waiting - in 1716, the Scottish adventurer John Law arrived in Paris, who presented the project of Philippe d'Orleans Royal restructuring debt. Scot suggested to gradually withdraw from circulation gold coins and replace them with government bonds. Under this deal the bank was established, which began issuing notes. Due to the massive advertising and dissemination of relevant rumor, the paper soon gained popularity among the population, and soon Lowe was able to buy back the foreign debt of the crown. If the first tickets were backed by gold and silver, then later, in the wake of the success, Lowe became the bank print bank notes without collateral. Thus, this system also has become a classic pyramid scheme.
In 1717, Mississippi Trade Company was founded, whose director was still the same John Lowe, and software ensure that it is the World Bank. The company released a starter pack of 200 million shares valued at 500 livres apiece, which immediately became the subject of fierce demand. Shares can be purchased not only for the money, but in exchange for government bonds. Thus, Lowe was the main creditor of the French crown. The value of shares grew, and soon the paper in denominations of 500 livres was worth more than 10 thousand. Money received from the issue of shares, Lowe's Companies invest in government debt.
At the beginning of 1720 the number of shareholders of the royal family began to gradually withdraw from the bank money in exchange for shares. This triggered a real boom among the courtiers, who decided that the company was something bad, and too hurried to withdraw their deposits. The government tried to stop the collapse, published in February of the same year, a decree forbidding the possession of coins in excess of 500 livres. However, the situation is gathering momentum like a snowball. Soon after the bubble burst.
Dutch caricature of John Lowe and his company, 1720
French society is literally split into two camps - one demanded hang Lowe from the nearest tree as a fraud, others believed that he still can improve the situation, and from his corpse and confiscation of his property to them personally sense will not be any. Regent secretly allowed the Scot to leave France, but has seized all his property and assets, which moved to the Crown. Indemnify simple depositors no one was going. Like the English "South Sea," Lowe's office has been able to do the main thing - to cover almost the entire external debt of France, and, as so often happens, the powers that be again solved their problems at the expense of ordinary citizens purses.
In the hands of brokers becomes first coin in the shares of the Mississippi Company, and then in the bad air. 1720.
In this regard, it is interesting is the relationship of the two pyramids, as in London and Paris were well aware that on the other side of the Channel there is a serious financial structure that guarantees its investors big profits. British investors have followed the Bank Law since 1717, and in May 1719 British Ambassador in Paris, received a confidential letter from his relatives, who asked for them to buy shares of the Mississippi Company. Thousands of Englishmen personally came to France to buy shares of the company Lowe, because of what the ambassador Steyer directly appealed to the government to urgently do something in order to limit the outflow of British money abroad.
Ticket Mississippi Company
While the British were sizing to the French bonds, French and other Europeans to invest in securities of "South Sea". French banker Martin, the trustee group of French investors acquired the shares of the company under the name of Charles Mackay. Dutch banker Kornellius, describing what is happening on the Amsterdam Stock Exchange at the end of April 1720, noted that there must be "on the street let out all the crazy." One can only guess how much "jolted" the European securities markets, when in 1720 these two financial giants burned.
Bernard Piccard. Monument for the edification of future generations (1721).