Tulip Mania! What's that?

The first stock exchange in the world was the Amsterdam Stock Exchange, established in 1602. Amsterdam was also the site of the worlds FIRST SPECULATIVE BUBBLE, TULIP MANIA, which appeared shorly thereafter, 1621- 1636.



This is from Wikipedia's recounting of Tulip Mania:

http://en.wikipedia.org/wiki/Tulip_mania:



. . .traders signed contracts before a notary to purchase tulips at the end of the season (effectively futures contracts). Thus the Dutch, who developed many of the techniques of modern finance, created a market for durable tulip bulbs.



Short selling was banned by an edict of 1610, which was reiterated or strengthened in 1621 and 1630. Short sellers were not prosecuted under these edicts, but their contracts were deemed unenforceable. . .



As the flowers grew in popularity, professional growers paid higher and higher prices for bulbs with the virus (a tulip-specific virus that caused more spectacular colored tulips). By 1634, in part as a result of demand from the French, speculators began to enter the market.



In 1636, the Dutch created a type of formal futures markets where contracts to buy bulbs at the end of the season were bought and sold. Traders met in "colleges" at taverns and buyers were reauired to pay a 2.5% "wine money" fee, up to a maximum of three florins, per trade.



Neither party paid an initial margin nor a mark-to-market margin, and all contracts were with the individual counterparties rather than with the exchange. No deliveries were ever made to fulfill these contracts because of the market collapse in February 1637.



The contract price of rare bulbs continued to rise throughout 1636. That November, the contract price of common bulbs without valuable mosaic virus also began to rise in value. The Dutch derogatorily described tulip contract trading as windhandel (literally "wind trade") because NO bulbs were actually chaning hands. However in February 1637, tulip bulb contract prices collapsed abruptly and the trade of tulips ground to a halt!



It is clear that today's "complex and sophisticated" markets are not as unique as some would believe. What is new, however, are the circumstances and consequences of the current collapse. Today, financial markets are a global phenomena; and so, too will be the consequences.



The invention of the stock market in Amsterdam in 1602 combined with the issuance of the Bank of England's credit-based paper money in 1694 was to change the course of human history for the next three hundred years. That epoch is now ending.



The world that crdit gave rise to is collapsing as is its credit-based foundation, turning the proverbial carriage into a pumpkin at midnight, as the hoped for financial fairy tale turns instead into a nightmare of defaulting debt in 2009.



The collapse of global markets and global trade is a sign we have reached the end of this epoch. The current financial collapse is the beginning of the end. When it is over, so, too, will be the era it spawned. Human history moves in waves. Another is about to begin.