The NYT quick crossword yesterday had an interesting clue about the flower which caused the first ever economic bubble in the 1630s!
So if you have not solved it yet; you can solve it and then read the blog! It was yesterday’s crossword though! So if you have not been able to get into it then let it go!
The flower is Tulip!
I did not know it at first but since I got the first and last letter; the answer was clear!
Of course that line was enough to investigate! A flower causes an economic bubble!
First you must know what is an economic bubble!
Of course many of your financially literate folks out there know it too well but for people like me here it goes!
An economic bubble is a period of rapidly rising asset prices that significantly exceed their intrinsic value, followed by a dramatic collapse known as a “bubble burst”.
So coming back to the Tulip induced economic bubble which was also known as Tulip Mania!
Now, Tulips were introduced to the Netherlands in the late 16th century and quickly became prized luxury items, especially rare varieties with vivid colors!
This demand led to a speculative market where bulbs were traded at increasingly higher prices, with many trading contracts (futures) for bulbs that would be delivered in the future! It is like selling the ticket on the space ship to Mars in the future!
Now as the prices skyrocketed, people from all social classes bought bulbs not for their beauty but for the expectation of reselling them at even higher prices, a concept known as the “Greater Fool Theory”!
Yes that is a concept like that which is familiar to people who invest regularly!
For others like me! The theory is a speculative investment strategy where one buys an overvalued asset, believing they can sell it to a “greater fool” for a higher price. This strategy focuses on the hope of finding a buyer willing to pay more, rather than on the asset’s fundamental value, and is often associated with market bubbles that eventually burst, leaving the last buyer holding a worthless asset!
Anyway at the height of the mania in 1637, a single tulip bulb could sell for more than the price of a house! The bunch of Tulips in front of your house could have bought a Villa in a prime locality!
Then as usual, after every rise comes the eventual fall!
With severe loss of confidence, eventually, buyers stopped paying the inflated prices, leading to a drastic price drop over a short period!
The market crash resulted in many speculators who had borrowed money to buy bulbs going bankrupt!
But still it was a historical lesson! The Tulip Mania serves as the first recorded example of an asset bubble, demonstrating how speculation and irrational exuberance can drive prices to unsustainable levels!
In short, Tulips were not worth the hype! Try Rose next time!?
The flower in English made those who followed the trend a flower in Hindi (Fool!)!
Then you have one who can fool (the angrezi one!) you with his impeccable acting skills! That is Sanjay Mishra!
Now if you have some Tulips then if it was 1635; you are a millionaire! Stop dreaming! Then again, its sleeping time; so start dreaming!
Shubh ratri!
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