Bursting Your Bubble

Mike Dash's Tulpomania is a fascinating read, but perhaps a drop in the bucket of literature on the Holland Tulip Bubble. Some interesting facts about the book's place in academia, the book as been cited a bit more than 100 times (source: Google Scholar), in contexts as varied as Emily Martin's 2007 book Bipolar Expectations: Mania and depression in American culture and Evelyn Brannon's 2005 book Fashion Forecasting: Research, Analysis, and Presentation.

Since 1980, the "tulip bubble" has gained in popularity, even outstripping the housing bubble sometime during the mid-1990s. But wait, wasn't the housing bubble a product of the 21st-century? Not exactly, UK Prime Minister Margaret Thatcher's legacy included riding the wave of several asset bubbles (source: The Guardian). In fact, if anything, Dash's book reminds us that asset bubbles have been with us since at least the 16th-century.

In case you were wondering, these are tulips....

Chris Martenson offers his "crash course" on the collapse of the housing market in the U.S. in the 21st-century as well as bubbles over on his website in a series of informative videos. He discusses the tulip bubble as well, in fact this is where I first heard about this historical event. I highly recommend taking a weekend to watch his videos, it might help answer any questions you have about bubbles, exponential growth, Federal monetary policy, etc.

I have first hand experience of this most recent asset bubble, working as a bankruptcy paralegal in central Florida, specifically the Middle District, which is one of the busiest districts in the nation. During the housing bubble years (c. 2007-2012) over 213,000 Chapter 7 bankruptcies were filed. This is roughly 6% of the total population of central Florida. Interestingly, only some of our firm's clients at this time were speculators. Mostly, we helped people who worked in industries connected to the housing market: construction, sales, repairs, etc. There were also several small business owners who used the new found equity in their homes to capitalize an expansion of their businesses. When their homes lost equity, in many cases falling below its original value, these individuals wound up paying interest on undersecured loans. Not a great situation to be in.

So when I read about the housing bubble or the tulip bubble, I think about all of the people who were either raised up or dashed to bits by these things. Dash talks about the charity that used a tulip auction as a means to amass a small fortune. This would be akin to a nonprofit organization taking out an equity loan on its real estate holdings in order to expand its facilities only to suddenly find that the value of these holdings have fallen dramatically. Perhaps not as dramatically as tulips, which are of course still flowers, but a shallow drop on an economic roller coaster can still turn stomachs.