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Financial Bubbles

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Financial bubble is the condition in which the market drastically become “bullish” (bubbles) in one or interrelated sectors. This is caused by speculative investors who aim to get a quick back. However, the market soon becomes “bearish” (bursts) drastically due the same speculation on the future price of the same security. That is to say that the market become extremely good the extremely bad causing financial crisis when the bubble bursts.

Tulip Bubble ( Dutch Tulip Bubble)

Introduced from the Ottoman Empire in early 16 century, tulip flower started being grown in Holland in towards the end of the century. It is believed to have been introduced by Charles de l'Écluse who received a few bulbs from Ferdinand I of the Roman Empire. As varieties:  Couleren, Violetten, Bizarden, came so did   its luxury and status increase (Goldgar p. 33).  The sales shot up sharply in the 1636-37 winter; merchants signed contracts witnessed by a legal representative to purchase tulips at the end of the season. Bulb would sell for 3000 guilders (US $2022.95) while a couple of bulbs would go for a piece of land. The market crumpled in 1637 February when a bidder failed to turn up in a sold out auction. This trade boomed Haarlem in the middle of bubonic outbreak, a conditioned strongly believed to have caused culture uncalculated adventuresome (Garber, 44–47).

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Tech bubble of 1999

A apparently began in 1995, reaching the zenith on March 10, 2000. Stock market saw a rapid growth in the internet sector by huge margins in the values of the equities. The advent of “World Wide Web”, boosted market confidence in the profitability of the “Dotcom” companies. Individual market speculation pushed stock prices to the ceiling. Willing investors overlooked the conventional metrics and readily availed venture capital to entrepreneurs’ .The NASDAQ hit 5132.52 in trading and close d 5048.62. However  the NASDAQ  drastically fell immediately Microsoft was declared a monopoly in a court case; spiraling form  4,283 points to 3,649.Another  visible cause was  huge multi-billion-dollar sell orders for the big players such IBM, Cisco, and Dell. Companies that fully rely on road and rail network had their stock drop extensively. The “Dot-com companies” were liquidated or sold to mega companies, causing a market crash of close to $ 6 trillion in 2002.

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US housing bubble of 2006

The Security Price Index dropped from 1576 in October 2007 a low of 676 in March. This was precipitated by the early 2000 Tech-Bubble. The global saving glut saw a surge in investment craze meeting an extended Federal Reserve at low interest rates.  Consequently investors’ interest in high risk investments hit its highest causing a one sided market target. These excess savings were invested in mortgages which are high risk long term investment. Duet lack of natural market balance (of high and low investments return variations), it couldn’t sustain it with the short term Federal Strategic Reserve. The market collapsed. The mortgage supported securities declined drastically leaving banks with huge losses. As a result Lehman Brothers ended bankrupt. The US government moved aggressively to save major banks from collapsing. It gave $700billion bailout and proposed nationalization of The Citigroup and Bank of America. This saved the eminent total crash. Still, it caused the worst global economy recession since the Second World War (Investopedia, 13)

Dubai Housing bubble of 2008

Approximately 20% functional construction cranes were in Dubai by 2006.With an open economy in the Arab world, everyone wanted to be in Dubai. This in retrospect, shot up the price; both residential commercial property in Dubai. The freehold policy which limited foreigners to only particular areas further aggravated the situation. People had money but nowhere to live. This meant that the new units had to cost double in order to meet the new growing demand. Overzealous investors seized the opportunity to invest in the construction sector with an amazing speed. Soon there were too many expensive units. As the cash crunch hit   Dubai people decided to leave for wherever they had come from. They packed their cars at the airport. With no one to occupy the new units, the developers resorted to giving Bentleys and BMWs to whoever buys the property (Money Week). By 2010 the Price Index in Dubai hit  a low of 41% average, compared to a 4% drop of 2008 ( Colliers Dubai House Price Index, 2010) .

China Tech bubble

China had $5 billion Internet Company’s market capitalization. However, the report given in the 2010 fiscal year gives a massive $ 50 billion (Morgan Stanley Internet analysis). Out of top 20 worldwide China currently has 41% market share of the public traded Internet companies. They include: Industrial and Commercial Bank of China, China Life, China Mobile and Petro china among others. This is a far cry compared to 27% it shared with Japan after the US had taken a whooping 77% top 20 in 1999. (Floyd Norris: NYT, 2011). China’s hand sets is sold virtually everywhere they have market right.

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