As we all struggle to recover from the negative speculations of some of our financial institutions, I thought it might be fun in an ironic way to look at a similar situation that occurred in Europe in the 17th century.
Tulipomania was the name attached to the period of time early 1600’s in northern Europe. The Dutch were one of the first to go nuts over the tulip which came from Turkey. (The Ottoman Empire in later years will be so enthralled by the flower, that the period from 1718-1730 will be called the Tulip Era.) What one has to realize with Tulipomania is that tulips were so different from every other flower know to horticulturalist. The colors were more intense and concentrated than other blooming plants up to then.
In the Netherlands, the development of the range of tulips was reflected in the number of books produced on the subject. Prospective clients and country estate owners decided on what to buy from watercolors bound together in catalogue form, and often times painted by well-known artists. This paralleled the great American pastime of window shopping. The prices for these tulip books were sometimes exorbitant. The most expensive book sold for an equivalent of 1.5 million US dollars of today.
Around 1630, lured by big profits, the market grew quickly while the number of tulips to be harvested did not. It takes 7 years to grow 1 bulb from seed. Bulb prices rose, and the futures market in bulbs began. Some bulbs were changing hands 10 times a day. Tulip trader were found doing business in across the Netherlands in many of the Dutch taverns.
Speculation in the years 1634 to 1637 grew to the extent that bulbs were sold faster than they could grow. Consequently they were sold in advance, on paper (sound familiar?). These papers were re-sold before harvesting making prices higher and at a ridiculous level. Sometimes neither the seller nor the buyer had seen the flower. This tulip mania got out of hand so badly that bulb growers asked the government to ban the trade, but not before the market crashed. A compromised was agreed upon with brokers, where most traders were able to settle their debts for a small portion of their liability. The overall harm out to the Dutch economy however was negligible.
I hope we can make the same statement in a few years for our predicament to date.