Market bubbles and crashes have had profound effects on global economies throughout history. These events often arise as a result of speculative investments, leading to unsustainable price spikes followed by rapid declines. Here are the 10 biggest market bubbles and crashes, each of which reshaped the financial landscape.
1. Tulip Mania (1636-1637)
The first major market bubble, the tulip bubble, occurred in the Netherlands when prices for rare tulips soared.
Key point: Tulip mania exemplifies the risks posed by speculative bubbles in emerging markets.
2. South Sea Bubble (1720)
At the height of the British Empire worldwide in the 18th century, the South Sea Company bought the rights to all trade in the South Seas with a £10 million bond from the British government. During the empire’s heyday, the company easily attracted investors who ignored the shortcomings of the South Sea’s management and kept buying up new issues of its stock. When the management team realized the company’s fragile financial position and the low intrinsic value of its stock, they sold their shares in 1720, and other investors followed suit, causing panic selling as the company collapsed.
3. Panic of 1907
In October 1907, a failed attempt by two men to corner the United Copper Company stock market sparked a wider financial crisis that worsened. As the panic spread, a flood of money into several major banks that had lent money to the monopoly scheme caused them to close after withdrawing millions of dollars. The New York Stock Exchange fell by about 50 percent from its peak the previous year. As the panic spread across the country, with the continued flood of money into banks and trust companies, many state and local banks and corporations went into bankruptcy. J. Pierpont Morgan quelled the panic when he and other New York bankers shored up the banking system with pledges of their own money.
Key takeaway: The Panic of 1907 demonstrates the critical role that confidence and liquidity play in financial stability.
4. Stock Market Crash of 1929 (Great Depression)
After a six-year rally that saw the Dow Jones Industrial Average increase five-fold, prices on the New York Stock Exchange peaked on September 3, 1929. Over the next month, the market fell sharply, losing 17%. Over the next week, the market recovered more than half of its losses, then fell again. On “Black Thursday,” October 24, 1929, a record 12.9 million shares were traded, and stock prices collapsed. They continued to fall at an unprecedented rate for a month, setting off the Great Depression of the next twelve years.
Key Point: The Great Depression underscored the importance of market regulation and risk management.
5. Silver Thursday (1980)
In an attempt to control the silver market, Texas brothers Nelson Bunker Hunt and William Herbert Hunt invested heavily in futures contracts through several brokers. Silver jumped from $6 an ounce to a record high of $48.70 in 1979, and it was estimated that the Hunt brothers owned a third of the world's silver supply that was not held by governments. When short-term weaknesses in the silver price caused it to fall below the minimum margin requirement, and they were unable to meet a $100 million margin call, a sharp sell-off occurred on Thursday, March 27, 1980.
Key Point: Silver Thursday exposed the dangers of market concentration and margin trading.
6. Stock Market Crash of 1987 (Black Monday)
When the U.S. Securities and Exchange Commission launched a series of investigations into insider trading in early 1987, nervous investors began to leave the stock market. The New York Stock Exchange’s computer system couldn’t keep up with their sell orders, and as panic spread, investors began dumping their stocks without knowing the outcome. On Black Monday—October 19, 1987—stock markets around the world crashed, starting in Hong Kong and spreading westward to Europe and the United States. The Dow Jones Industrial Average fell 508 points (22.6%).
Key Point: Black Monday exposed the weaknesses of computerized trading systems and market sentiment.
7. Japanese Asset Price Bubble (1986-1991)
Japan's asset bubble in the late 1980s saw property and stock prices soar.
Key Finding: Japan's asset bubble highlights the risks of excessive credit expansion and deregulation.
8. Dot-com Bubble (1995-2001)
Property and stock prices in Japan experienced massive inflation from 1986 to 1991, as a result of postwar government policies that made large amounts of money available for investment. Financial market liberalization and monetary easing by the Bank of Japan led to aggressive speculation, especially in the Tokyo Stock Exchange and real estate markets. The Nikkei stock index hit an all-time high on December 29, 1989, banks made increasingly risky loans, and prime real estate in Tokyo’s Ginza district sold for as much as $93,000 per square foot.
Key point: The dot-com bubble highlights the dangers of overvaluing emerging technologies with
9. The Russian financial crisis of 1998
In 1998, fears of a depreciating ruble and domestic debt defaults led to a collapse in Russian financial markets. The government defaulted on its debt, leading to widespread inflation and economic instability.
Key point: The 1998 crisis highlights the risks associated with political instability and external debt management.
10. Global Financial Crisis 2007-2008
The subprime mortgage crisis in the United States was the catalyst for the broader credit crisis of 2007. The subprime mortgage crisis was characterized by a surge in mortgage defaults and foreclosures, and a consequent decline in mortgage-backed securities. Although the effects of the subprime mortgage crisis were initially limited to the residential real estate market, they spread throughout the U.S. economy and into global markets. The impact was particularly felt in the financial services sector, where many investment banks used mortgage-backed securities to spread risk and free up additional capital.
Final Thoughts
Market bubbles and crashes are a stark reminder of the risks associated with speculative investments, poor management, and lack of regulation. Understanding the lessons from these requires strategic risk management, increased transparency, and sustained governance.