Sunday, February 15, 2009

it started with tulip!!!

Ever wondered how it started... or lets say its first official beginning?
I am talking about the most talked after hero(villain) of the century(as of now), the FINANCIAL CRISIS which has slowed down the entire world economy and led us to recession…

It all started with tulip (that’s what I read). Sounds very romantic and interesting isn’t it? It happened in Holland in 1637.

In 16th century, Tulips(a kind of flower) were very rare and expensive. At that time Dutch tulips got affected by a disease called mosaic which resulted in color variations in form of flames. This made Dutch tulips more sought- after. People started speculating on the blooming tulip market. They were not only bidding on the actual tulip harvest but on future blooms too!!! Actually this could be considered as one of the First Commodity investing Markets. The Tulips bulb prices zoomed so high and fast that at one point of time the price of tulip bulb was equivalent to one’s estate!!!

There was a general notion among Dutch investors that whatever be the prices in domestic markets there will always be a demand in foreign market and that bulbs could be sold to them at any price!!! This could be the one of the first example for the “greater fool” theory which states that : no matter how much ever I pay, there will be always someone who will pay EVEN MORE!!!

At this stage some prudent investors started to sell their bulbs in order to realize the profits. The selling slowly resulted in decrease in price of bulbs and in no time people were selling off their tulip bulbs even in losses so as to prevent major losses!!! The future contracts were breached and the panic rose in the country. Instead of cushioning, the government’s offer to buy the contracts at 10% face value increased the panic. Even those “wise” people who stayed away from tulip romance were effected as the entire country dipped into economic depression which lasted for years…

Some more interesting facts about recession to follow in next posts…

Reference:

http://www.crash2.com/modules/smartsection/item.php?itemid=1

Business line

1 comment:

  1. That was really amazing!!! Great show! Continue with the good work....

    ReplyDelete