ABSTRACT
Introduction Economics has dominated the study of asset price bubbles and produced the rich literature described in the previous chapter. Yet this dominance has also obscured the legal and political dimensions of bubbles. With a few notable exceptions,1 economists have focused scant attention either on the legal environment in which bubbles develop or on the legal aftermath after they burst. The legal dimensions of bubbles and the complex feedback mechanisms between legal rules and market booms and busts represent the central concerns of this book. This chapter begins to explore these legal aspects of bubbles and feedback mechanisms by selecting and examining the legal history of several bubble periods:2
1 the 1690 English stock market boom, which represented arguably the first stock market bubble and crash in history;
2 the French Mississippi bubble that imploded in 1720; 3 the South Seas bubble of 1719-1920, a “copycat” bubble in England
inspired by the Mississippi episode; 4 the Panic of 1825, arguably the first cross-border and emerging market
bubble, which was stoked by English investments in South American companies;
5 a subsequent cycle of nineteenth century English stock manias that struck in ten year intervals after the Panic of 1825 and gave rise to the Panic of 1837, the Crisis of 1847, the Crisis of 1857, and the Overend, Gurney Crisis in 1866, respectively;
6 the Panics of 1869 and 1873, in which railway booms in the United States ended in stock market crashes;
7 the Panic of 1873 in Germany and Austria, in which a railway mania (Gründerboom or “Founder’s boom”) and crash (Gründerkrach or “Founder’s crash) paralleled the 1873 boom and bust in the United States;
8 the 1920s stock market and real estate booms in the United States, including a largely overlooked bubble in Florida real estate, which ended in the Great Depression;
9 the 1980s Japanese real estate bubble (which is summarized in this chapter and discussed in more detail in Chapters 5 and 6); and
10 the 1990s U.S. technology stock bubble.
