Saturday, 18 June 2011

Hubble Bubble

The year is 1720 and we are in a coffee shop off Exchange Alley.

"Can I interest you in in a joint stock offering in a discount voucher scheme?" says the nice jobber sipping a latte.

"What's a discount voucher scheme?" we ask.

"It's an enterprise so secret and mystifying yet exciting that I cannot tell you but if you miss out on this IPO you will look stupid," says the jobber.

"Count me in then, although it sounds awfully familiar," we say.

It sounds really stupid but in 1720 a few people caught a bath in what came to be known as The South Sea Bubble. Even intelligent people like Sir Isaac Newton who knew a thing or two about making money as he ran the Mint lost money. The organisers of the company, by some spooky coincidence all sold at the top and made literally millions.

As Alexander Pope put it at the time:

A bubble is blown up in air,
On which fine prospects do appear;
The bubble breaks, the prospect's lost,
Yet some bubble pay the cost.
Hubble Bubble all is smoke,
Hubble Bubble, all is broke,
Farewell your houses, lands and flocks,
For all you have is now in stocks.

This resonates to the modern day. Not that we learn any as we went through Web 1.0 and we even have been through the worst financial crisis since the Depression (by the way, we are by no means clear of that after papering over the cracks, Greece might yet pull us all back in), now we are web x.0 and we are talking up the valuations yet again.

The odd thing is this about things like Facebook. It's run by a loathable person about who there is more than a modicum of doubt about his provenance on the idea, in order to get at the 'riches' trapped within they will probably have to break data privacy laws, and the whole fad is getting passé as new and better networks emerge. But Facebook hangs on hoping for yet bigger valuations before going public. In their wake comes Groupon with a $20 billion tag that only has 481 competitors, two of which are Amazon and Google, and with a business model that you and I could copy tomorrow. And there's plenty more on the way.

The bubble is being inflated. Alexander Pope would be as wise today as he was all those years ago. People will make and lose fortunes, but when the dust has settled we will all marvel over the really trivial ideas all of these things were.

Just like the fever pitch in Exchange Alley in 1720.

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