The Shadow of Great Britain

126: Chapter 86: The Game of Capital (Part 1) 126: Chapter 86: The Game of Capital (Part 1) Lionel sat on the sofa and asked with a smile, “I wonder if you have some basic understanding of the stock and bond markets?”

Arthur recalled that when he first arrived in London from the countryside of Yorkshire, his first stop had been none other than the financial center of the 19th century—the London Stock Exchange.

However, his luck was not too good, or perhaps it was too good, as he witnessed the second major collapse of the London stock market since its inception, with the previous collapse tracing back to the South Sea Company bubble of 1720.

In 1720, the South Sea Company, which monopolized Britain’s trade with Spain’s South American colonies, had driven up trading enthusiasm on the London Stock Exchange with various dazzling investment trade plans and a mix of true and false insider news.

When the directors of the South Sea Company realized that making money from the stock market was much easier than the arduous task of selling slaves, they felt as though they had opened the doors to a new world.

Starting from April 1720, the South Sea Company continually released various schemes and heavily promoted the company’s grand blueprint in newspapers.

According to statistics analyzed later, during that period, the board of directors of the South Sea Company announced 11 fishing projects, 10 insurance schemes, plans to establish 2 international exchange companies in the future, 12 American colonial or trade companies, 20 real estate and construction firms, 8 companies specifically supplying coal, livestock, feed, and infrastructure for roads and canals in London, 12 textile companies dealing with silk, cotton, and mulberry, 15 mining companies, and over 60 other inexplicable enterprises, and they even audaciously announced a 60% dividend to be paid by the South Sea Company on Christmas.

However, these visions, which any rational person would find dubious, managed to completely bewilder the sharpest minds in all of Great Britain.

In the eyes of those investors, the South Sea Company’s initial purpose was to form a massive monopoly enterprise aimed at developing trade in the South Atlantic, for which the South Sea Company even undertook about 10 million British pounds of floating government debt.

This was a giant company backed by the British government; how could their promises deceive the investors?

Thus, blinded by immense profits, investors completely lost their rationality and judgement, frantically buying up the company’s stocks and ultimately causing the South Sea Company’s share price to rise rapidly from 120 pounds to 1020 pounds within three months.

However, it did not take long for the financial fairy tale of the South Sea Company to meet its end.

By the end of July, companies began to sue the South Sea Company in court, accusing them of severe breaches of debt.

Other companies in debt relations with the South Sea Company also gradually sensed something was amiss, and after airing their grievances among each other, they finally realized that they had been duped by a grand scam.

To minimize losses, they eventually decided to jointly petition Parliament, demanding that the Treasury and the Supreme Court intervene to audit the accounts of the South Sea Company.

Once news of the South Sea Company’s alleged account fraud broke out, from the moment the London Stock Exchange opened on August 25, 1720, the share price of the South Sea Company plummeted, with its stocks falling from a peak of 1020 pounds to 190 pounds in just one month.

Countless investors went bankrupt, and almost overnight, the rooftops of London were filled with shareholders of the South Sea Company.

The scandal of the South Sea Company also directly caused political turmoil in London.

King George I issued several orders from the Privy Council, demanding a thorough investigation into the South Sea affair.

Parliament nearly immediately arrested all the members of the board of directors of the South Sea Company and seized all their properties, incarcerating George Caswall, a director directly responsible, in the Tower of London, and then urgently passed the Bubble Companies Act, forming a special committee of 13 members to investigate the bankruptcy incident of the South Sea Company.

But regardless, the bankruptcy of the South Sea Company still caused losses of millions of British pounds and led the London Stock Exchange into decades of prolonged stagnation.

One of its few positive impacts was possibly inspiring the birth of Britain’s first de facto Prime Minister, as Robert Walpole, then Chancellor of the Exchequer, secured his leading position in the cabinet and established the tradition of the Chancellor leading the cabinet in Britain through his adept handling of the South Sea affair.

The crisis Arthur encountered was the banking crisis of 1825-1826.

The cause of this crisis was also very simple, and in essence, not much different from the South Sea affair.

Simply put, before the Bank Act of 1826, all banks established in the region of England could freely issue banknotes.

These so-called banknotes were essentially British pounds, and any depositor could demand the bank to exchange gold of equivalent value with these notes.

However, in the 19th century, the extraction of gold could not keep up with the growth of British wealth, which led numerous banks to recklessly print money without sufficient gold reserves.

The consequence of printing baseless banknotes was obvious, as when customers came with bundles of banknotes demanding their gold, the bank tellers could only stare back at them helplessly.

Once such news spread, it naturally triggered a run on the banks by the British public, with everyone rushing to demand immediate redemption of their notes, nearly trampling the thresholds of major banks.

Facing this situation, 70 banks with insufficient gold reserves had no choice but to declare a suspension of payments.

The government had no choice but to urgently deploy military police to maintain order everywhere, keeping a tight watch to prevent riots from breaking out.

To plug this hole, the Bank of England, the largest in Great Britain, had to tap into its own gold reserves for assistance.

However, helping turned out to be almost disastrous as the bank nearly collapsed in the process.

In a desperate moment, a few partners at the Bank of England were nearly at the point of kneeling to Nathan Rothschild and Alexander Baring, two London bankers who controlled significant gold reserves.

In this critical time, under the persuasion and appearance of Tory Party heavyweights such as Lord Liverpool, Duke Wellington, and Sir Peel, Rothschild Bank and Barings eventually decided to urgently transfer most of their controlled gold reserves to the Bank of England.

As the financial supporter of Duke Wellington, the Rothschild Family, in demonstration of loyalty to the Tory Party, went so far as to mobilize almost their entire gold reserves from their major branches in Paris, Naples, Frankfurt, and Vienna.

They even managed to procure a significant amount of gold from Russia at a high price, aggregating to a tightly squeezed 11 million British Pounds worth of gold to barely cover the Bank of England’s shortfall.

Though the crisis was shakily weathered, afterwards, as many as seventy banks announced their bankruptcy and delisting from the London Stock Exchange.

Thus, the London Stock Exchange, barely emerging from the shadows of the South Sea Company affair, sank into another period of decline.

At that time, Arthur was just a poor youngster who had come from the countryside, yet even so, seeing the faces of the financial magnates in the London Stock Exchange resembling mourning relatives, he couldn’t help but feel a thrill in his heart.

Millions upon hundreds of millions of British Pounds, although being lost, still thrilling nonetheless.

If it weren’t his money being lost, it would be even more thrilling.

Arthur picked up his teacup, pondered for a moment, and said sparingly, “I do have some doubts about stock trading.”

The comment was brief, but it was enough to let Lionel understand Arthur’s tacit reluctance.

Lionel said with a smile, “That’s alright.

If you don’t plan on investing in stocks, I still have many other options for you to consider.

Let me first list the pros and cons of several types of asset allocation — real estate, bonds, stocks.

You can judge for yourself which one suits you best.

“And really, stocks aren’t as terrifying as the public in Britain might think.

According to our analysis, the London Stock Exchange is currently at its lowest point in recent years and could rebound at any time.

It really won’t go lower than this in the future.”

Upon hearing this, Arthur couldn’t help but slightly frown.

He felt like he had heard this rhetoric before.

The Red Devil, seeing him still hesitating, couldn’t help but urge, “Arthur, don’t hesitate!

Mammon is beckoning you; quickly, buy in at the bottom, do it fiercely!”

When Arthur heard this, he finally understood where the catch was.

A simple doubt arose in his heart — which generation had greener investors, the 19th century or the 21st?

However, seeing Lionel’s enthusiasm, he became slightly interested.

He asked, “So what do you think is a good investment direction at this time?”

Seeing Arthur finally relent, Lionel’s smile grew wider as he began to respond.

“Rest assured, you are not the first client to use Rothschild’s private financial services.

Although we usually do not disclose personal information of our clients, this matter is no secret, and I can tell you straightforwardly: Duke Wellington is also one of our key clients, and your superior, the Home Secretary Sir Peel, also has some of his funds managed by us.”

Lionel had just finished speaking, and before Arthur could be moved, Great Dumas was the first to yield.

He asked, “Then, may I know how much personal funds are needed for Rothschild Bank’s private financial services?”

Lionel replied with a smile, “I think that primarily depends on whether we have a good transactional relationship with the client.

Personal funds are always our secondary consideration.

However, if you’re a friend of Mr.

Hastings, I think 1000 pounds would suffice.”

Upon hearing this, Great Dumas did some quick thinking.

The plump Frenchman bit his lip and said, “Wait for me, I’ll try my best.”

Hearing this, Lionel turned to Arthur with a smile, asking, “So, Mr.

Hastings, may I begin the introduction now?”

Arthur nodded and replied, “Of course, please do.”