South Sea Peak
South Sea Company stock peaked near £1,000 in August 1720, up from roughly £128 in January, a tenfold rise in eight months. Directors and insiders unloaded shares privately while publicly promoting the company's 'inexhaustible' South American prospects. Isaac Newton reportedly lost about £20,000, equivalent to several million pounds in modern money. By late September the price had collapsed below £200. The resulting panic spread across London, triggering bank runs and parliamentary inquiry.
The South Sea Company's actual business — a monopoly on trade with Spanish America — was effectively nonexistent. Its profits came entirely from its scheme to convert government debt into its own shares at inflated prices.
01 · The Bubble Act
The South Sea Company crashed in September 1720. Parliament's response, passed that same year, was to effectively ban joint-stock companies altogether. The fraud was stopped — by crippling the legal form that made fraud possible, along with every legitimate use of that form for the next century.
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