The most recent example of economic recession is the housing bubble crisis in the US in 2007. When a financial bubble bursts it leads to a period of recession. Even though it’s difficult to prevent recessions, we can surely take lessons from some of the biggest bubbles in history. Raltin rounded up a few of the most famous bubbles, starting with the Tulip Mania in Netherlands in as early as 1636:

1. Tulip Mania of 1636


Famous Financial Bubbles

Also popularly known as Tulipomania, it is one of the earliest examples of a financial bubble. Tulip plants, obtained from the Ottoman Empire was an exotic possession used as a status symbol by Dutch high-society. By the 1630’s tulip prices escalated, leading a lot of speculators to buy them and later sell at very high prices. Eventually, prices imploded, bankrupting a huge number of speculators and throwing the Netherlands in an economic depression.

2. The Mississippi Bubble or the South Sea Bubble of 1716


Famous Financial Bubbles

This was a speculative stock bubble that happened in France in the early 18th century. In Britain it was known as the South Sea Bubble. It happened when the newly set up French national bank started issuing much more paper currency in exchange for the gold and silver currency people deposited to it. This created a “bubble boom”. Scottish economic theorist John Law - who suggested the setting up of a national bank - saw the shares for its trading company “Compagnie des Indes” skyrocketing. This short-lived growth however soon popped as the value for paper bank noted plunged. It threw France into one of the greatest economic crisis in its history.

3. The British Railway Mania Bubble of the 1840’s


Famous Financial Bubbles

The British are considered to be the brain behind the first railway system, and the architects of many railway systems around the world. In the 1840’s a frenzy surrounding British railways started a speculative economic bubble. Stocks soared and railroad companies overbuilt thousands of kilometers of rail tracks. When the bubble popped many companies were out of business and enormous debts infested the country.

4. Wall Street Crash of 1929


Famous Financial Bubbles

It is difficult to find a more suitable recent example of a financial bubble, than the stock market crash of 1929 that led to the horrors of the Great Depression. During the 1920’s the US stock market expanded at astronomical speed, before Black Tuesday arrived (October 29, 1929). 16 million shares were traded in a single day, destroying thousands of investors and leading to a loss of billions of dollars.

5. Japan’s Real Estate and Stock Market Bubble of 1985


Famous Financial Bubbles

In the 1980’s the value of yen surged by 50%. This triggered an era of the recession in 1986. To counter this, the Japanese government started financial programs offering monetary and fiscal benefits. These measures, in turn, encouraged unchecked speculations, resulting in the sky-rocketing of the country’s stocks and land values, between 1985 and 1989. The bubble finally burst in early 1990’s, ushering Japan to its “lost decades” of the 1990’s and early 2000’s.

6. Stock Market Crash of 1987


Famous Financial Bubbles

Just like the stock market crash of 1920 was demarcated by a “Black Monday” and then a “Black Tuesday”, the 1987 stock market crash was also similarly marked by a Black Monday on October 19, 1987, when the Dow Jones Industrial Average fell by 22.6% - the biggest single-day percentage loss in US history till date. Some heavy speculation, hostile takeovers, IPO’s, insider tradings and junk bonds funded leveraged buyouts all may have played a part in causing the catastrophic. But the nail in the coffin was probably something known as portfolio insurance, because of which big institutions started selling stock-indices to counter falling prices.

7. Internet or Dot Com Bubble of the 1990’s


Famous Financial Bubbles

Internet, in its nascent state lured investors into buying firms involved with the world wide web. Webvan, Pets.com etc were invested on, the market reached a state of mass hysteria, and valuations went through the roof. The profits were not correspondingly high. NASDAQ index showed astronomical profits by March 2000, before plummeting. Very soon the markets plunged into a period of recession, known now as - the “dot com bubble”.

8. Housing Bubble and Credit Crisis of 2007


Famous Financial Bubbles

Shortly after the recession of the late 1980s, the financial world lapsed into a period called “The Great Moderation”. Global financial markets started getting above-average returns and below-average volatility. This period coincided in the US with a housing boom, where prices soared rapidly and so did real estate speculation and spending on homes. House prices had nearly doubled between 1996 and 2006. When home prices plummeted soon, many of the banks and other financial institutions suffered ruination - culminating ultimately in the bankruptcy of the Lehman Brothers. Soon the losses started creeping on to other assets, thus denting people’s confidence in the top banks of the country.