Tulipmania was the first major financial bubble, When people traded their homes for the tulip bulb.
After tulips became so expensive that the cost of a single bulb exceeded that of an average home, the price collapsed, and many investors went bankrupt.
The tulip was introduced in the Netherlands in 17th century when Holland was a wealthy country. Rich merchants had enough money and started trading bulbs on the stock market, similar to futures.
Investors began to madly purchase tulips, pushing their prices to unprecedented highs; the average price of a single flower exceeded the annual income of a skilled worker. Tulips sold for over 4000 florins, the currency of the Netherlands at the time. As prices drastically collapsed over the course of a week, many tulip holders instantly went bankrupt.
Dealers refused to honor contracts and people began to realize they traded their homes for a piece of greenery; panic and pandemonium were prevalent throughout the land.
The government attempted to step in and halt the crash by offering to honor contracts at 10% of the face value, but then the market plunged even lower, making such restitution impossible.
No one emerged unscathed from the crash. Even the people who had locked in their profit by getting out early suffered under the following depression.
The effects of the tulip craze left the Dutch very hesitant about speculative investments for quite some time.
Today, the tulipmania serves as a parable for the pitfalls that excessive greed and speculation can lead to.
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