Last we left off, South Sea shares were at an all time high.
But under the surface, things were amiss.
The company had burnt through much of the money it made
selling stock by giving people ridiculous terms on shares
and offering loans to anyone wanting to buy into South Sea;
legislating its rivals out of business
had caused bankrupt business owners to sell South Sea shares to cover their debt,
and to cap it all the company still hadn't made a single cent selling goods in the South Sea.
As August came to a close, these cracks had started to show.
the company had ceased its meteoric rise and in fact was starting to go south
and Blunt knew that if the shares began to fall
people would start to take a closer look at South Sea house
and realize just how bad a shape it was in.
So Blunt did the only thing Blunt could do:
sell more shares at an even higher price. This was Blunt at his Blunt-iest.
He opened up a new round of stock for purchase at the impossible price
of 1000 pounds a share… while, at the same time,
quietly beginning to sell off what stock he owned in his own company.
He pushed that fresh batch of stocks hard, though.
This time, he offered even more ridiculous incentives,
asking for only 10% up front and no payments for a year.
I mean, at this point, that sounds more like a late night TV ad than a stock sale.
But, lucky for Blunt, the hype around the South Sea company was still so strong
that he was able to sell all of the new stock, bringing in about a million more pounds.
This was the last time, though. As Blunt sold these absurdly expensive shares,
he had to know that anyone buying in was bound to lose their shirt.
The South Sea cash reserves were just too low
and the stock price too high for them to conceivably continue to inflate the share value.
He’d pushed this monster as far as it could go.
And, ironically, the bump in share price that Blunt created with this new inflated round of stock
was just what some of the earlier investors were looking for in order to get out.
As those who had invested early and taken advantage
of the 20% down deal had the rest of their payment come due,
many found it to be a good time to walk away
rather than reinvest their profits back into the company.
One such investor was Robert Walpole.
Remember him? The great opponent of the South Sea Company?
The man Blunt got locked up way back when they were first forming South Sea?
Well despite the whole getting-locked- in-the-tower-of-London incident,
he had been making a tidy profit off South Sea stock this whole time
and was, in fact, planning to reinvest when his friend and personal financial manager,
Robert Jacomb interceded and stopped him from putting money back into South Sea
tThis not only saved Walpole his personal fortune but, as we’ll see next week,
cemented his reputation in days to come.
As South Sea stock inevitably began to droop again,
Blunt, having no cash left in the reserves to prop up the share price,
tried one last desperate gamble.
He offered a dividend of 30% on the stock,
with the dividend moving up to 50% for the next ten years.
This was meant to be too attractive to pass up,
but instead it just made all of those investors who were still dreaming
the South Sea dream snap awake.
Just to cover this dividend, the company would have to make
roughly 15 million pounds a year,
or roughly a quarter of the gross domestic product of Great Britain.
At long last, the British population thought to themselves:
“that seems a little unrealistic...”
With confidence in the company vanishing and nothing left in its coffers,
the stock began to plummet.
It fell hundreds of pounds a week and, by the middle of September,
was barely over 150 pounds a share.
This, down from Blunt’s 1000 pound shares sale just some three weeks earlier.
Anybody who had invested late, and especially anybody who had taken out loans to do so,
was ruined.
Bankruptcies were rampant and suicides only slightly less so.
Soon, even the old Hollow Sword Blade Company closed up shop
with nothing more than a nice note on the door saying
they would certainly cover any of their existing obligations,
so just, please, check back... uh... later...
Unfortunately, no one informed the king, who was on holiday in his native Hannover.
So, as the South Sea Company fell apart, so did the royal finances.
Which leads us nicely to the final chapter of this tale: the fallout.
Do you remember how Walpole had originally tried to convince the government
to lock the shares that South Sea could swap for debt to a fixed value?
And remember earlier how his friend, Jacomb,
had made him divest himself of all of his stock before the collapse?
Well, Walpole saw an opportunity in this.
he presented himself as the righteous defender of the public against the madness of markets,
attempting to seize this chance to get the public on his side
and to finally get even with those who had locked him up so many years ago
But Walpole was a man of wheels within wheels,
and beneath this new public persona and only slightly-veiled chance for revenge,
he was secretly playing at a much greater opportunity:
a chance to take over the government.
It would be a dicey game, because he'd have to make it look
like he was helping his fellow Whigs while, at the same time,
making sure that the current leaders of the Whig party
got caught in the blast radius from the South Sea scandal.
He would also need to save the King from the fallout,
because he would need the King’s favor if he was going to take over.
Besides, if the King went down with the South Sea company,
the Whigs might lose everything, and that wouldn’t fit Walpole’s plans at all.
Luckily for him, the Whig leadership had only one real plan:
to have the Bank of England bail out their hated rival, South Sea.
And, even more luckily, he still had friends in the Bank of England
from back when he first tried to have the government give the debt to the Bank instead of South Sea.
Walpole negotiated a much better deal with the Bank than the rest of the leadership could,
convincing them and the East India Company to offer to swap their stock
for the now nearly worthless South Sea stock people were stuck with.
He also got all outstanding debt that people owed the South Sea company
for buying stock on credit canceled, which made him a public hero.
Many people still lost their shirts, but at least now they wouldn't lose their whole wardrobe.
The British public was still in a fervor though,
and a parliamentary inquiry was demanded.
This complicated Walpole’s plans somewhat.
On the one hand, he needed to appear to be all for rooting out
the insidious corruption that had ruined so many.
On the other hand, if anyone started looking closely at what had really gone on,
the Whigs, the King, and even perhaps Walpole himself, would soon be implicated.
This juggling act was about to get complicated.
and it was all about to come to a head around a man named
Robert Knight and his little green ledger.
Join us next week for the conclusion of the South Sea bubble
as we dive into the fallout from the collapse of the South Sea Company,
find out the ultimate fate of all of our actors,
and learn the wild tale of the small green book
that had the power to take down the most powerful government in the world.