Farm Ireland

Saturday 16 December 2017

Will we be stupid enough to fall for the next 'this will get you rich' sell?

Joe Barry

Joe Barry

I was fortunate to grow up in a family where the cattle trade and stock markets were constantly discussed. Rogues and tricksters were well known and played a large part in both businesses.

To have survived the Economic War and the booms and busts was no mean feat, and I can still hear my father's words regarding the banks, who would "give you an umbrella when the sun is shining and look for it back when it starts to rain".

History constantly repeats itself yet, listening to the news, anyone would think the current crisis was something new. What about the 1930s? Or even the Great Famine? That one must have been tough, and I would rather owe the bank €500,000 and lose my home than watch my children starve. But then the Famine was not of our own doing, whereas, in the past decade, we borrowed silly amounts of money for imprudent investments.

We are great at blaming others for our current woes but we are all adults and are better educated than ever before.

Economic busts are nothing new. They regularly happen, usually helped along by greedy politicians and financiers, but it is only when we, the public, join in that trouble really starts. Does anyone remember back in the 1950s when Shanahan Stamps was the hottest investment going and how thousands of people lost their savings when it collapsed? Like all such schemes, it made a lot of money for those who got in early and then had the sense to take their profit and exit. Those who got out early were few as most couldn't resist the lure of riches.

Greed kept most investors involved and, like every over-hyped investment, latecomers were the ones to lose the most.

Canals were another bubble that cost thousands of citizens their life savings. At first they were hugely successful and this continued until the railways came along. The railways then lost out to roads and, yet again, fortunes went up in smoke.

It is fascinating to read the history of economic crashes. The astonishing thing is how they keep recurring and they will, of course, happen again as long as we are silly enough to follow each new craze.

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One of the most famous crashes was in the early 1700s when the South Sea Company collapsed, bringing down with it the banks and savings of much of the British population. During the height of that investment mania, companies were formed with the craziest aims simply because the public would buy almost anything.

There was one instance where a company was formed "for carrying out an undertaking of great advantage but no one knows what it is" -- and a lot of people invested in it.

The list is long but they all had one thing in common: they all eventually went bust.

Things were so bad in the early 1700s that the British government outlawed the issuing of stock certificates, a law that was not repealed until 1825. They also, in a move similar to NAMA, had to bail out the banks to prevent a total economic collapse. It eventually worked then and, hopefully, will do so for us this time around.

When the South Sea Company's stock increased 10-fold in one year, Isaac Newton was asked what he thought, and he answered: "I can calculate the movements of the stars but not the madness of men." The value of its stock fell from a high of £1,000/share to nothing.

More recently, Lloyds of London had to pay out huge sums to meet insurance business claims. This, in turn, bankrupted many 'names' who, in return for a large annual dividend, agreed to use their assets' value as a means of providing backing for the insurance market.

'Names' included many Irish farmers and their misfortune is yet another example of how apparent gilt-edge investments are often nothing of the kind.

So what will be the next hot investment once the dust has settled? Some say green energy is to become our saviour. We will have to wait and see.

Irish Independent