What is the 18th century scam the southsea bubble, southsea wrexham?

Question

the souhsea scam is mentioned in an article and is refering to the southsea inn near wrexham.

Answer 1

The South Sea Company (1711 – c1850s) was an English company granted a monopoly to trade with South America under a treaty with Spain. Following the The South Sea Company Act 1720, it became better known for the "South Sea Bubble", an economic bubble that occurred through overheated speculation in the company shares. The stock price collapsed after reaching a peak in September 1720.

Initial stages

The company, established in 1711 by the Lord Treasurer, Robert Harley, was granted exclusive trading rights in Spanish South America. The trading rights were pre-supposed on the successful conclusion of the War of the Spanish Succession, which did not end until 1713, and the actual granted treaty rights were not as comprehensive as Harley had originally hoped.

Harley needed to provide a mechanism for funding government debt incurred in the course of that war. However, he could not establish a bank, because the charter of the Bank of England made it the only joint stock bank. He therefore established what, on its face, was a trading company, though its main activity was in fact the funding of government debt.

In return for its exclusive trading rights the government saw an opportunity for a profitable trade-off. The government and the company convinced the holders of around £10 million of short-term government debt to exchange it with a new issue of stock in the company. In exchange, the government granted the company a perpetual annuity from the government paying £576,534 annually on the company's books, or a perpetual loan of £10 million paying 6%. This guaranteed the new equity owners a steady stream of earnings to this new venture.

The Treaty of Utrecht of 1713 granted the company the right to send one trading ship per year (though this was in practice accompanied by two 'tenders') and the 'Asiento', the contract to supply the Spanish colonies with slaves.

The company did not undertake a trading voyage to South America until 1717 and made little actual profit. Furthermore, when ties between Spain and Britain deteriorated in 1718 the short-term prospects of the company were very poor. Nonetheless, the company continued to argue that its longer-term future would be extremely profitable.

[edit] Debt for equity

In 1717 the company took on a further £2 million of public debt. The rationale in all these transactions was to the

Government: lower interest rate on its debt

South Sea Company (owners): a steady stream of earnings

Government Debt Holder: upside potential in a promising enterprise

[edit] Slave trading

Most commentary on the South Sea Company focuses on the money lost by English investors. The primary trading business of the company was the forced transportation of people purchased in West Africa and then selling them into slavery in the Americas. In fact, the most important aspect of the company's monopoly trading rights to the Spanish empire was the 1713 Treaty of Utrecht's slave trading 'Asiento' which granted the exclusive right to sell slaves in all of Spain's American colonies.

The Asiento set a quota of selling 4800 slaves a year. Despite its problems with speculation, the South Sea Company was relatively successful in this task (it was unusual for other, similarly chartered companies to fulfill their quotas). According to records compiled by David Eltis et al, during the course of 96 voyages in twenty-five years, 34,000 slaves were purchased of whom 30,000 survived the voyages across the Atlantic.

The mortality rate of about 15% was not unusual for ships participating in the middle passage and indicates that the organization was not only strongly interested, but also relatively efficient as a slave trader. Employees, directors and investors overcame major obstacles in order to pursue the slave trade, including two wars with Spain and the 1720 bubble. Indeed, the company's most successful slave trading year was in 1725, five years after the bubble burst.

Answer 2

No, it was the South Sea, ie the Pacific. Speculative investment on trade and colonisation missions, most of which had not even been conceived. It was a pre-courser of the dot com bubble. Lots of cash being invested in enterprises that had no tangible assets. Some who cashed in early made lots of money, but when it burst, thousands were ruined.