Bespoke – Grant Thornton

INVESTMENT
King George Ibecame the governor of the fledgling
South Sea Company in 1718, providing credibility and
aboost to the shares. His mistresses, the countess of
Darlington and Duchess of Kendall, were heavily involved
and suffered harsh criticism when the bubble burst
THE BUBBLE ITSELF
In 1711 agroup of merchants had
formed the South Sea Company and
were granted exclusive trading rights
in Spanish South America. At that
time, when the whole of America was
being explored and settled, the ‘South
Seas’ was what we called South
America and its surrounding waters.
In return for its trading monopoly,
the company guaranteed to
underwrite £9 million of UK
government debt incurred by war,
assured by the government of a6%
interest rate –£540,000 guaranteed
annually. Despite very little real trade
being conducted with the Spanish in
the following years, fanciful talk of
golden opportunities, encouraged by
the merchants in the company, led to
acontinual increase in the value of the
stock. In 1718 King George became
governor of the company, and its
success was assured. Buying into the
South Seas became the fashionable
way to riches.
THE ART OFSPIN
In early 1720 the stock started to
soar. Parliament had accepted the
company’s proposal to take over
the national debt and the company
expected to recoup itself from
expanding trade as well as the increase
in value of shares. On the latter point,
at least their hopes were well founded:
fuelled by continuing extravagant
tales of treasure in Spanish America,
the shares went into overdrive, rising
from £128 in January to more than
£1,000 in August.
KEEPING THE PLATES
IN THE AIR
Fortunes were made overnight and
no investor, itseemed, could afford
to miss out. The company cannily
passed on stock to politicians and
aristocrats to ensure that they would
keep talking up their shares: stock
in the company was ‘sold’ to them at
the going market price. However,
rather than paying for the shares, they
simply held on to what shares they
had been offered, sold them back to
the company when and as they chose,
and received as profit the increase in
market price. Their interest was
bound to the fortunes of the
company: in order to secure their
own profits, they had to help drive
up the stock.
The Prince of
Wales became
the governor
of one company
and is said to
have cleared
£40,000 –the
equivalent of
£61m nowadays
LITTLE BUBBLES
OF ACRAZY NATURE
Agreat froth of speculative projects,
soon dubbed ‘Bubbles’, sprang up in
the wake of the South Sea Company’s
success, some genuine and some
frankly preposterous. These included
heat-resisting paint; trading wool
with Barbary and ‘preserving our
countrymen from being carried into
slavery’; dealing in hair; trading in
woad; importing broomsticks from
Germany; extracting silver from lead;
and that favourite of the truly
hopeful, the perpetual motion
machine –‘capital, one million’. More
than 100 were advertised in June 1720
alone. The Bubble Bill had to be
devised by Parliament, most of whose
members were in the scam up to
their necks, to suppress them before
they diverted too much cash from
the South Sea Company itself. The
Bubble Bill required all new joint
stock companies to have aRoyal
Charter as ameans of preventing
the fraudulent ‘Bubbles’ that were
springing up.
‘TOTAL REVOLUTION
IN THE ART OFWAR’
Among the characters of the
moment was James Puckle, aveteran
‘Projector’ (the name given to
those who spent their time devising
money-making schemes) who
promoted afiendish machine gun
that could fire both round and square
bullets. The latter were to be
employed against the Turks as they
hurt more. He then added apatent
for asword he had invented, writing
to Charles Stanhope, Secretary to
the Treasury, that it was ‘worth
avictory to the army that first has it’.
THE MADDEST ONE OF ALL
The most outrageous scam of all was
an advertisement for abusiness
proposition ‘for carrying out an
undertaking of great advantage, but
nobody to know what it is’.
Enthusiastic crowds are said to have
surrounded the company’s office in
Cornhill, snapping up £100 shares for
deposits of £2 each. By three o’clock
the unknown author of the ploy had
sold 1,000 shares, and he shut up
shop. That same evening he was on
the boat to the Continent, never to
be seen again.
GETTING SATIRICAL
Pamphleteers and the newspapers
mocked the absurdities and came up
with their own, confusing the
situation further. Among those listed
in apamphlet called ‘The Battle of the
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