1. Berkan ROUISSI ESCOFFIER, Paris II – Assas.
Market Bubbles
Berkan ROUISSI ESCOFFIER, Paris II – Assas.

2. Graph and definition « An economic cycle characterized by rapid
expansion, followed by a contraction. »

3. Market bubbles through history
***********, 1637
French and English crisis, 17th century
The « Railwaymania », 19th century
European crisis, 1873
The real estate bubble in Florida, 1926
The 1929 crisis,
Nickel crisis in Australia, 1970
Wall street debacle, 1987
Dot com bubble, 2000
Subprime crisis, 2007

4. What is this ?

5. Tulip Bulbs

6. Tulipomania, 1637 Discovered in Turkey Luxurious product
Massive investment in the industry  strong rise in prices
1 bulb = 20 years of a worker’s salary
Protests from the Dutch people against such prices, back to reality.

7. Market bubbles through history
French and English crisis, 17th century
Low return on investments from colonial firms
The « Railwaymania », 19th century
Deception regarding profits earned from rail development in the US.
European crisis, 1873
Disastrous Universal Exposition in Vienna
The real estate bubble in Florida, 1926
A classic real estate bubble

8. Who is an expert in 1929 ?
A. Between 1921 and 1929, the Dow Jones Index rose by: % % % %

9. Who is an expert in 1929 ?
A. Between 1921 and 1929, the Dow Jones Index rose by: %
Right after the war, the economy and especially industry were booming.
The profits made by huge companies such as Wright Aeronautical, Texas Company or Nash Motors were so attractive that lots of people invested all of their savings, leading the rate to rise in such enormous proportions.

10. Who is an expert in 1929 ?
B. The Wall Street crash of 1929 is also called… :
1. « U.S Failure »
2. « In between Crisis »
3. « Black Thursday »
4. « Post-War Depression »

11. Who is an expert in 1929 ? 3. Black Thursday
B. The Wall Street crash of 1929 is also called… :
3. Black Thursday
The crash started on Thursday, October 28. That day, no one wanted to buy shares anymore, conscious of the lack of payback. Worse yet, everyone wanted to sell them. The day was dark but, a few rich investors and banks saved the Dow Jones, promising to buy what they had to to keep the rate high enough and avoid big loses.
Unfortunately, the following Monday called “Black Monday” and Tuesday called “Black Tuesday”, people kept on selling while nobody wanted to buy, the Dow Jones collapsed.

12. Who is an expert in 1929 ?
C. The speculation on companies shares started in... :

13. Who is an expert in 1929 ?
C. The speculation on companies shares started in... :
Speculation : practice of engaging in risky financial transactions in an attempt to profit from short or medium term fluctuations in the market value of a tradable good such as a financial instrument, rather than attempting to profit from the underlying financial attributes embodied in the instrument such as capital gains, interest, or dividends.
“Now, it’s time to get out of debt. We do not urge that you sell securities indiscriminately, but we do advise that you take advantage of the present high stock prices and put your own financial house in order.”
Charles Merrill, in letter to his customer before the crash.

14. Who is an expert in 1929 ?
D. Between 1921 and 1929, US industrial production rose by:
1. 10% %
3. 50% %

15. Who is an expert in 1929 ?
D. Between 1921 and 1929, the US industrial production raised of : %
After the war, Europe’s economies wer devastated. The U.S economy took the lead, becoming the first car producer or manufactured-product producer for example, taking advantage of the return of liberalism with peace.
The decade from 1920 to 1929 is also called the “roaring twenties”

16. Who is an expert in 1929 ?
E. The stock market crash turned into a bank system crisis. The worst for the economy happened in …:

17. Who is an expert in 1929 ? 2. 1932 What is the worst ?
E. The stock market crash turned into a bank system crisis. The worst for the economy happened in … :
What is the worst ?
people out of work
people being made redundant everyday
companies had gone bankrupt
1616 banks had gone bankrupt
1 farmer in 20 evicted
people committed suicide in a year – the highest ever.

18. TOP 5 : Biggest losers that week
Category : FIRMS
Share price in :
1. GOLDMAN SACHS
104 $ 1,75$
2. American Founders Group $ 0,75 $
3. U.S Steel $ 22 $
4. General Motors $ 40 $
5. General Electrics $ $

19. TOP 5 : Biggest losers that week
Category : PERSONAL INVESTORS
1. J.P Morgan Jr $
2. Vanderbilt Family $
3. Rockefeller Family $
4. Eddie Cantor $
5. Winston Churchill $

20. Market bubbles through history
Nickel crisis in Australia, 1970
An Australian firm, Poseidon, discovered interesting fields in terms of raw materials. The investments that followed disconnected the prices from the reality.
Wall Street debacle, 1987
Due to a rise in long term interest rates, the algorithmic trading system failed and investors sold massively. Enough to bring down the Dow Jones of 22,6% in a day.

21. Dot com bubble Interest in Internet
and IT companies, such as Yahoo or AOL was waning.
Beginning of the bubble : 1995.
Reasons : speculation and optimism :
“Technology is unlimited”

22. Role play – Who is who ? A. Government B. Bank (J.P Morgan)
C. Unemployed worker
D. Bank (Lehman Brothers)
E. Bank (BNP PARIBAS)
F. House buyer (in Detroit for example)
H. Financial Intermediary
G. Entrepreneur

23. Role play – Who is who ? F. House buyer (in Detroit for example)
H. Financial Intermediary
D. Bank (Lehman Brothers)
B. Bank (J.P Morgan)
E. Bank (BNP PARIBAS)
G. Entrepreneur
C. Unemployed worker
A. Government

24. What is « go for chicken » ?
New way of managing a country :

25. Webographie