"Tulip Mania"



I just finished watching a movie "Wall Street: Money Never Sleep". In the movie, a character mentioned on "Tulip Mania", which he described as a classic example of economic bubble/ burst. I did some exploration, and here is my finding:

• Tulip Mania : a period in the Dutch Golden Age, whereby contract prices for bulbs of the recently introduced tulip reached extraordinarily high levels,and suddenly collapsed.
• Generally considered as the first recorded speculative/ economic bubble (despite the record was not that complete).
• At the peak of tulip mania (around Feb. 1637), the price of a single tulip bulbs could reach as high as an annual income of a skilled craftsman.
• Some researcher claims that at one point a 12 acres (5 ha) of land was offered for a Semper Augustus bulb.
• What exactly happened before and when Tulip Mania started?
• Tulip was beleived to be introduced to Europe from Ottoman Empire in the mid of 16h century.
• It rapidly became a luxury item and a status symbol. There were various types, but the multicolored became the most sought-after. 
• During its high popularity period, traders would sign contracts before a notary to purchase tulips at the end of the season (effectively futures contracts)
• The Dutch created a market for durable tulip bulbs. Short selling was banned by an edict - Short sellers' contracts were deemed unenforceable
• As its popularity grew, professional growers paid higher and higher prices for bulbs.
• By 1634, speculators began to enter market as a result of demand from French.
• In 1636, the Dutch  created a type of formal futures markets where contracts to buy bulbs at end of season were bought and sold. Traders met at taverns and buyers were required to pay a 2.5% "wine money" fee up to a maximum of three florins per trade. Neither party paid an initial margin nor a mark-to-market margin, and all contracts were with individual counterparties rather than with exchange.
• Contract price of rare bulbs continued to rise throughout 1636
• February 1637, tulip bulb contract prices suddenly collapsed and trade of tulips fall to the ground.
• No deliveries were ever made to fulfill these contracts due to the market collapsed.
• What had caused the bubble burst?....many theories were established in the modern era. The followings can be referred:
• Extraordinary Popular Delusions and the Madness of Crowds, published in 1841 by Charles Mackay
• Tulipmania, by Anne Goldgar (2007)