wars float financial
"When new money is forged, its effect is not felt
instantaneously across all market sectors. The effect moves from one individual
to another individual and thus from one market to another market. Monetary
pumping generates bubble activities across all markets as time goes by. Once,
however, the bank tightens its monetary stance, i.e. reduces monetary pumping,
this undermines various bubble activities. The bubble bursts. Since monetary
pumping generates bubble activities across all markets, obviously the eventual
bursting of the bubbles will permeate all markets." - Frank Shostak
the Mississippi bubble
"Imagine the following: a collection of debts owed
by a highly leveraged borrower with a bad credit record is magically
transformed into marketable securities with triple-A yields.
this miracle performed?
It is through the power of financial innovation
and free capital markets!
It could be the story of subprime mortgages
in the US; but it is not.
It is, in fact, the story of government debt
in France in the early 18th century.
a financial whirlwind even
more dramatic than anything witnessed today swept through France.
Shares in the Compagnie d'Occident, or the Mississippi Company, rose
1,000 per cent and then fell by 90 per cent in less than two years.
story illuminates current events." - James Macdonald, Financial Times (London)
March 6, 2008 HOW THE FRENCH INVENTED SUBPRIME IN 1719
By the end of the War of Spanish Succession in 1714 public
debt had risen to over 100 per cent of national income and was subjected to
forced reductions of interest and principal. Confidence collapsed and
government paper sold for discounts of up to 75 per cent and the economy was in
Louis XIV, the "Sun King," had consolidated French power in
Europe but the Nine Year War and the War of Spanish Succession had effectively
bankrupt France by 1715 the year of Louis XIV's death. France defaulted on its
debt, high taxes burdened the economy and the value of gold and silver currency
fluctuated wildly. Louis XV turned to, the Duke of Orleans who turned to John
Law, a Scottish adventurer, economic theorist, and financial wizard/engineer.
John Law lived by his wits at the gambling table and had never held any post
related to public finance.
The government would issue a new series of
bonds, paying only 3 per cent in exchange for its old debts which paid 4-5 per
cent, in exchange for shares in the Mississippi Trading Company, which held
monopoly trading rights to the French colonies. For the government, the cost of
servicing the debt would fall sharply and the budget would look rosier. The
trading rights to the French colonies were largely worthless, for there were no
profits at the time and the Mississippi Company had existed for a while without
exciting public interest.
The market for government
debts was moribund. John Law's aim was to make Mississippi shares as actively
traded as possible. This provided an incentive to swap - to get a more liquid
security and the prospect of speculative gains. In other words, Law repackaged
a collection of "subprime" debts as marketable securities under a different
name and thereby increased their investor appeal. Law claimed that Mississippi
shares would be so actively traded that they would constitute "a new form of
money." For this governmnet debt reduction plan to succeed a new bank must be
founded to provide a massive monetary stimulus of easy money to get bond
holding creditors to convert government bonds into Mississippi trading company
1716 John Law established the Banque
Générale, a bank with the authority to issue fiat bank notes. In
1717 John Law established the Compagnie d'Occident ("Company of the West") and
obtained a 25-year monopoly to develop the vast French territories in the
Mississippi River valley of North America. John Law's company soon monopolized
the French tobacco and African slave trades, and by 1719 the Compagnie des
Indes ("Company of the Indies"), as it had been renamed, held a complete
monopoly of France's colonial trade.
John Law took over the collection
of French taxes and the minting of money; in effect, John Law controlled both
the country's foreign trade and its finances. An effective marketing scheme was
developed describing the Compagnie des Indes as a future profit generator due
to its monopolistic controls of the exaggerated the wealth of Louisiana. This
marketing scheme sent the price for a share from 500 to 10,000 livres ,
completely out of all proportion to earnings. The debt was exchanged and became
worth many times its previous value as Mississippi shares continued their
dizzying ascent. The economy recovered and
everyone was happy -- even though the underlying reality was an unsustainable
1719 John Law had issued
approximately 625,000 stock shares, and he soon afterward merged the Banque
Générale with the Compagnie des Indes. In 1719 the Compagnie
bought the right to collect all French indirect taxes, took over the collection
of direct taxes, purchased the right to mint new coinage. The center piece of
this financial plan was the retirement of Louis XIV's debt. Shares of the
Compagnie des Indes were exchanged for state-issued public securities, or
billets d'état, which consequently also rose sharply in value.
The French government debt, 1,000% of the annual budget, became
property of the Compagnie des Indes.
A frenzy of
wild speculation ensued that led to a general stock-market boom across
Europe. The French government took advantage of this situation by printing
increased amounts of paper money, which was readily accepted by the state's
creditors because it could be used to buy more shares of the Compagnie. The
underlying assets of the Mississippi Company were still questionable royal
debts that did not provide enough income to pay its promised dividends.
Excessive issue of
paper money stimulated galloping inflation, and both the paper money and the
billets d'état began to lose their value. Moreover, like many
holders of collateralized debt
obligations, speculators in Paris relied heavily on borrowed money. The
rise in Mississippi shares in 1719 was reversed in 1720 and the bewildered
French found themselves still holding subprime paper, merely relabelled toxic
1720 The value of the shares of the
Compagnie plummeted, causing a general stock market crash in France and other
countries. The financial engineer John Law was made the
scapegoat and was forced to flee
France. The enormous debts of his company and bank were soon afterward
consolidated and taken over by the state, which raised taxes in order to retire
the South Sea bubble
1711 South Sea Company,
a joint stock
incorporation is granted a monopoly to trade in the South American colonial
possessions of Spain as part of a treaty during the War of Spanish Succession.
The South Sea Company assumes the bonded debt England incurred during
the war in return for the monoploy.
Speculation in corporate stock led
to a great economic bubble known as the South Sea Bubble in 1720.
primary trading business of the South Sea Company was transporting slaves from
Africa to America.
1719 South Sea Company
proposed a scheme by which it would assume half the bonded debt of Britain
(£30,981,712) with new shares and contractually promises to the
government that the debt will be converted to a lower interest rate, 5% until
1727 and 4% per year thereafter.
The purpose of this is to allow a
conversion of high-interest bonded debt into low-interest marketable debt as
shares of the South Sea Company.
The South Sea Company then set to
marketing the stock with "the most extravagant rumours" of the value of its
potential trade in the New World which was followed by a wave of "speculating
1720 The share price rises from
£128 in January to £890 in early June even though trade with
Spanish colonies is limited to one ship carrying not more than 500 tons of
cargo and the slave trade.
When the speculative adventure collapsed the
estates of the directors of the incorporation were confiscated and used to
repay some creditors, and the stock of the South Sea Company was divided
between the major creditors - the
England and British East India
"A Satire of Tulip Mania" by Jan Brueghel the
Younger (ca. 1640)
depicts speculators as brainless monkeys in contemporary
tulip mania bubble Tulip mania or tulipomania (Dutch names include tulpenmanie,
tulpomanie, tulpenwoede, tulpengekte, and bollengekte) was a period in the
Dutch Golden Age during which contract prices for bulbs of the recently
introduced tulip reached extraordinarily high levels and then suddenly
At the peak of tulip mania in February 1637, tulip contracts
sold for more than 10 times the annual income of a skilled
The mosaic virus spreads only through buds, not seeds, and so
cultivating the most appealing varieties takes years. Propagation is greatly
slowed down by the virus. Tulips bloom in April and May for only about a week,
and the secondary buds appear shortly thereafter. Bulbs can be
uprooted and moved about from June
to September, and thus actual purchases (in the spot market) occurred during
these months. During the rest of the year, traders signed contracts before a
notary to purchase tulips at the end of the season (effectively futures
Short selling was banned by an edict of 1610, which was
reiterated or strengthened in 1621 and 1630, and again in 1636. Short sellers
were not prosecuted under these edicts, but their contracts were deemed
unenforceable. In 1636, the Dutch forged a type of formal futures markets where
contracts to buy bulbs at the end of the season were bought and sold. Traders
met in "colleges" at taverns and buyers were required to pay a 2.5% "wine
money" fee, up to a maximum of three florins, per trade.
paid an initial margin nor a mark-to-market margin, and all contracts were with
the individual counterparties rather than with the exchange. No deliveries were
ever made to fulfill these contracts because of the market collapse in February
On February 24, 1637, the self-regulating guild of Dutch
florists, in a decision that was
later ratified by the Dutch Parliament, announced that all futures contracts
written after November 30, 1636 and before the re-opening of the cash market in
the early Spring, were to be interpreted as option contracts.
change of law was done at the behest of major Dutch tulip investors who were
trying to recoup lost money because of a German setback in the Thirty Years'
War. They did this by simply relieving the futures buyers of the obligation to
buy the future tulips, forcing them merely to compensate the sellers with a
small fixed percentage of the contract price. This trade was centered in
Haarlem during the height of a
epidemic, which may have contributed to a culture of fatalistic risk
In summation all three of
these speculative run-ups in the value of tulip bulbs or 'stock' was caused
directly by war.
Tulip investors were trying to recoup loses from
betting on Germany winning the Thirty Years War while both the South Sea and
Mississippi bubbles were designed to retire onerous government debt due
primarily to the expenses involved in the War of Spanish Succession.
This web site is not a commercial web site and
is presented for educational
This website defines a
new perspective with which to engage reality to which its author adheres. The
author feels that the falsification of reality outside personal experience has
forged a populace unable to discern propaganda from reality and that this has
been done purposefully by an international corporate cartel through their
agents who wish to foist a corrupt version of reality on the human race.
occurs when any group refuses to tolerate religious practices, religious
beliefs or persons due to their religious ideology. This web site marks the
founding of a system of philosophy named The Truth of the Way of Life - a
rational religion based on reason which requires no leap of faith, accepts no
tithes, has no supreme leader, no church buildings and in which each and every
individual is encouraged to develop a personal relation with the Creator and
Sustainer through the pursuit of the knowledge of reality in the hope of curing
the spiritual corruption that has enveloped the human spirit. The tenets of The
Truth of the Way of Life are spelled out in detail on this web site by the
author. Violent acts against individuals due to their religious beliefs in
America is considered a "hate crime."
This web site in no way condones
violence. To the contrary the intent here is to reduce the violence that is
already occurring due to the international corporate cartels
desire to control the human
race. The international corporate cartel already controls the world
economic system, corporate media worldwide, the global industrial military
entertainment complex and is responsible for the collapse of morals, the
elevation of self-centered behavior and the destruction of global ecosystems.
Civilization is based on cooperation. Cooperation does not occur at the point
of a gun.
American social mores and values have declined precipitously
over the last century as the corrupt international cartel has garnered more and
more power. This power rests in the ability to deceive the populace in general
through corporate media by pressing emotional buttons which have been
preprogrammed into the population through prior mass media psychological
operations. The results have been the destruction of the family and the
destruction of social structures that do not adhere to the corrupt
international elites vision of a perfect
world. Through distraction and coercion the direction of thought of the
bulk of the population has been directed toward solutions proposed by the
corrupt international elite that further consolidates their power and which
further their purposes.
All views and opinions presented on this web
site are the views and opinions of individual human men and women that, through
their writings, showed the capacity for intelligent, reasonable, rational,
insightful and unpopular thought. All factual information presented on this web
site is believed to be true and accurate and is presented as originally
presented in print media which may or may not have originally presented the
facts truthfully. Opinion and thoughts have been adapted, edited, corrected,
redacted, combined, added to, re-edited and re-corrected as nearly all opinion
and thought has been throughout time but has been done so in the spirit of the
original writer with the intent of making his or her thoughts and opinions
clearer and relevant to the reader in the present time.
Fair Use Notice
This site may contain copyrighted material the use of which has
not always been specifically authorized by the copyright owner. We are making
such material available in our efforts to advance understanding of criminal
justice, human rights, political, economic, democratic, scientific, and
social justice issues, etc. We
believe this constitutes a 'fair use' of any such copyrighted material as
provided for in section 107 of the US Copyright Law. In accordance with Title
17 U.S.C. Section 107, the material on this site is distributed without profit
to those who have expressed a prior interest in receiving the included
information for research and educational purposes. For more information see:
www.law.cornell.edu/uscode/17/107.shtml. If you wish to use copyrighted
material from this site for purposes of your own that go beyond 'fair use', you
must obtain permission from the copyright owner.
© Lawrence Turner
All Rights Reserved