Bubbles and bankruptcy: a British history

Bubbles and bankruptcy: a British history

We review the Bubbles and Bankruptcy exhibition at the British Museum, which charts four hundred years of British bank collapses and the frenzied asset bubbles that all too often beguiled investors.

UK history – as the British Museum reveals in its “Bubbles and Bankruptcy” exhibition – is crammed with examples of wily banking scams, bailouts and asset bubbles.

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Steve Bell’s ‘Bank Levy’ at the British Museum

By Helia Ebrahimi, Senior City Correspondent

2:47PM GMT 27 Mar 2013

No man is an island. But try telling General Gregor MacGregor that.

He invented one, the Principality of Poyais, which he claimed to rule before selling shares in the South American colony. It turned out to be totally uninhabitable.

He also pre-fixed his name with “Sir”. As you do. His honour, as it turned out, was also fictitious.

Still, in many ways, the general was a prototype investment banker. Not that far removed, perhaps, from those who packaged up sub-prime mortgages known to be worthless before selling them to hapless investors.

In fact, UK history – as the British Museum reveals in its “Bubbles and Bankruptcy” exhibition – is crammed with examples of wily banking scams, bailouts and asset bubbles.

From the South Sea bubble, to tulip speculation, it turns out that naughty bankers have always had a knack of getting rich while others pick up the bill. Not least the Old Lady of Threadneedle Street – aka the Bank of England.

The exhibition takes an amusing look at Northern Rock’s collapse, which is placed alongside a collage of defunct credit cards from HBOS, RBS and Lloyds – now propped up only by taxpayer funds.

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In an exhibition case stands an illuminated champagne bottle, presented to Northern Rock employees in 1997. The bottle, given to celebrate the switch from building society to bank, provides an ironic reminder that demutualisation was supposed to allow Northern Rock to expand and grow. Northern Rock did that all right – only far too quickly. Within a decade it had failed, triggering the first run on a UK bank since 1866.

The exhibition also proves, that even the Chancellor can be at it, at least in the case of Britain’s first incumbent – John Aislabie.

He ended up in the Tower of London but not before collecting a tidy profit.

In 1715 he was tasked with managing legislation designed to reduce the national debt. A few years earlier the South Sea Company had been formed to allow people to buy shares in the trading venture, which itself bought government debt.

The South Sea Company had been granted the monopoly to trade with South America. That would have been impressive if it wasn’t for the fact that the Spanish had basically blocked all English interests in South America.

Nevertheless, thanks in part to Aislabie’s efforts, shares soared in the South Sea Company. Prices escalated out of control, say for example like shares in Enron jumping 80pc on the back of future promises, and eventually the whole scheme collapsed.

But not before Aislabie had sold his personal shares.

There is also a fantastic example (below) of an 1890 Punch magazine cartoon entitled Same Old Game! In it employees of Barings Bank are dressed up like errant schoolboys. It turns out they have gambled away the bank’s capital through poor investment decisions and sheepishly ask the ‘Old Lady of Threadneedle Street’ for a bailout. The Old Lady reluctantly acquiesces: ‘For this once!!’

Her statement, which is intentionally ironic, rather pre-dates the £60bn bailout Britain’s banks have received in the latest round of rescues.

The exhibition succinctly warns: “An asset bubble occurs when the price of an asset increases beyond the actual value.”

Simple enough to understand but, as history proves time and again, just the thing for a proper chancer.

Bubbles and Bankruptcy is on at the British Museum until May 5. Entrance is free of charge.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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