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Prometheus ShackledGoldsmith Banks and England's Financial Revolution after 1700$
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Peter Temin and Hans-Joachim Voth

Print publication date: 2013

Print ISBN-13: 9780199944279

Published to Oxford Scholarship Online: January 2013

DOI: 10.1093/acprof:oso/9780199944279.001.0001

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The South Sea Bubble

The South Sea Bubble

Chapter:
(p.95) 5 The South Sea Bubble
Source:
Prometheus Shackled
Author(s):

Peter Temin

Hans-Joachim Voth

Publisher:
Oxford University Press
DOI:10.1093/acprof:oso/9780199944279.003.0006

This chapter begins by connecting the South Sea Bubble with the British government's need to finance its wars. It explored the use of a debt-equity swap to lower its interest cost. The bubble resulted from a good idea badly designed and administered. Hoare's Bank made a healthy profit from buying and selling stock in the South Sea Company in 1720. Examination of the bank's lending to other investors reveals that the bank understood it was riding a bubble. The bank required more and more collateral for loans as the price of South Sea shares rose. Hoare's Bank sold out in time to retain its profits; Isaac Newton was not so lucky.

Keywords:   South Sea Bubble, Bubbles, speculation, debt-equity swap, Bubble Act

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