The world has a long history of Bursting Bubbles. They come and they go like creatures in the nigh. . It wasn’t so many years ago we experienced the dot-com Burst. People were riding high on Tech Stocks and then - Whamo.
Now we are experiencing the aftermath of the Housing Bubble. Some people got rich off the debacle but the majority of us took it in the shorts. The housing crisis has wreaked havoc all across the socio-economic spectrum. Those who had it yesterday just don’t have it no more. People are struggling with negative equity and joblessness. Hey, what happened to my Lexus? That was a beautiful car. What am I doing riding around in a Hyundai Accent – I can’t get the thing to go into fourth gear. Where’s my beautiful house – my beautiful wife… and I ask myself…
Bubbles are not new. During the 1600s there was a bubble in Holland. People started buying up tulips. Tulips were traded blindly like Real Estate Portfolios on the Stock Exchange.
One day people got tired of trading Tulips and the bottom fell out. Those who got caught holding to many bulbs had to sell their wooden shoes and hock their windmills. The Tulip Crash of 1637 was a mighty sad day.
When a Bubble starts some kind of justification creeps into the picture to allow prices to keep going up and up on what ever item sits inside of the Bubble. Then one day the perception of what sits inside of the Bubble changes and the Bubble Busts. It’s kind of like getting tired of your old girlfriend. She used to be great and suddenly she’s Chicken Liver.
Another Bubble came along called The South Sea Bubble in the 1700s which was created by The South Sea Company of England. The South Sea Company made a treaty with Spain to have exclusive rights of trade with South America and lots of folks in England got a tickle up their shorts to but stock in this company. But The South Sea Company was basically worthless before the deal with Spain and after the deal with Spain. The trading exclusive created an illusion which led to a perception of let’s get rich quick, so people jumped on the bandwagon and invested. The stock rose, the stock fell, and most everybody lost their shirts.
The interesting thing about Bubbles is the time factor. It takes just about as long to create a Bubble as is does to blow one up. So, if you look back in History at all these Bubbles that have occurred in the past you can get a pretty clear picture of how long it will take the Bubble to come and go by knowing how long it took to get set up in the first place.
Bubbles have acted the same for centuries. They are shaped and manufactured by human emotions, optimism, hope and fear. Nothing has really changed. People have not really changed they just dress a little different.
People go all excited when houses started to go up and up in value. Equity was going up so fast in some cities that people had a change of lifestyle almost overnight. Then one day the Bubble Burst and all that wealth you had locked up in your home fell away. It’s just a matter of history repeating itself. The difference between our current Housing Bubble Burst had an historical magnitude that makes other Bubbles, beside the 1929 Stock Market Crash look like Soap Foam.
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