[Music] When we last left off Harley, the chancellor of the [exchequer], and Blunt, one of the principal operatives
of the Hollow Sword Blade Company Were looking for something bigger and better
than a simple lottery to keep the government afloat. The scheme
they came up with was the
South Sea Company. It's South Sea Company
by the way, not South Seas
Company. I think I was saying South Seas company
for the entire last episode -- Sorry about that. Anyway, Harley, stymied at every turn and frustrated with the Whig controlled Bank of England's refusal to help finally thought what if we just built a Tory controlled company to do the Bank of England's job; at which point Blunt probably
started seeing dollar signs and hyperventilating. Together they came up
with a plan for a trading company that would assume
all of the government's debt. Here's how
it would work: Anybody who held
British government debt would get to exchange that debt
for Shares in the new Company. The government would pay the newly
formed company roughly 6% interest on that debt or about £500,000, a far lower interest rate than the government had been paying when All the debt was in the hands of private individuals The company
would then turn around and use that money
as a dividend for its investors But in order to make
this offer enticing there had to be
something more and that's where the South Seas
part comes in you see fundamentally to convince anybody holding government debt to give up the principle of their debt -- the amount of money they first lent to the government -- for stock in
an unknown company and the dividend payment that was
probably lower than the interest they were supposed
to be getting anyway You'd have to convince them
that the stock they were getting was going to be worth far more than the debt
they already held. So on top of that half a million pounds the government was going to give the company annually it also gave them a monopoly
on trading in the south Seas, and man did they turn on the hype machine for this? Everybody
from the government to the directors of
the Hollow Sword Blade company to Daniel Defoe
(The guy who wrote Robinson Crusoe) started talking about the unimaginable riches that would flow from the south Seas into Britain once this company was [established] and Everybody in Britain knew how well the Honourable East Indian Company had done for its shareholders Here was a chance [to] get in on the ground floor of something similar there was only one small problem with this scheme: the south seas mentioned in the deal referred to Central and South America and by Central and South America, they meant all the major ports in Central and South America and by all the major ports they meant a bunch of ports that happens to be exclusively owned by Spain and Well Britain was currently at war with Spain like I said last time Britain was at war with like everybody This didn't faze Harley or Blunt though to them the answer was simple They would simply end a decades-long multinational war. This time, they got the guy who wrote Gulliver's Travels to do their propaganda work they laid it on so thick they even got the famous Whig Sir Robert Walpole; and John Churchill, The Duke of Marlborough, a hero of the war of Spanish Succession locked in the Tower of London as part
of their efforts to smear the opposition But for all this they still didn't have the votes
they needed to get past the House of Lords. Funny thing about the house of lords though all you had to do to be a part of it was be a lord. You didn't need to be elected to the House of Lords. Until recently if you were a peer of the realm, you just got a seat. So with a little prodding from Harley, the Queen created 12 new peers and presto! A majority of the house of lords now wanted peace. But oh the irony. By locking themselves into peace they locked themselves
out of the peace they wanted. Britain's push for peace meant that they made
peace independently and earlier
than their war allies, which left them with a little to bargain with when it came time to actually work out the terms of the Peace. In the end, the Spanish gave
the South Sea Company the Questionably lucrative right to trade slaves in the south Seas, and the right to send one ship a year
to each of the Spanish ports. One ship a year! The Honourable
East India Company was sending fleets of ships
every month to maintain the kind of profits
that Blunt and Harley had advertised! So while the public would continue to be told about the riches [of] the South Seas it was now clear to everybody close to the venture that the South Sea Company was really just a financial institution Whose sole business was managing the government debt. Then, in 1714, Queen Anne, the Monarch of England, died without an heir. After much debate, George the First the elector of Hanover, was chosen by Parliament to succeed Anne, and with the new King, came a new government. Harley fell out of favour and the whigs regained dominance, so what did our good Mr. Blunt do in response? He did what any
upstanding citizen would do and promptly booted
his earstwhile ally Harley to the curb, replaced most of the Tory board members in the South Sea Company with wigs and in a stroke of genius Got the King's son, George the Second, to replace Harley as the largely ceremonial Governor of the company. He even got the king, who was desperate for funds for the Royal household, to invest in the company himself To further smooth things over in the transition, and to avoid some of the wrath of the now Resurgent Walpole and Churchill -- the very men the South Sea Company got locked up a few years before -- the South Sea Company agreed to forgive the two years of interest the previous government had owed it, which helped the new administration to keep things afloat. In return, the government allowed the company to issue more stock of an equivalent value to offset the loss Which meant the company had roughly 10 million pounds of stock issued. To put that in perspective, That's about half the total value of stock issued by all companies in England. This for a trading company That's only ever managed to lose money on trading. This wild success led members of the government to decide that it was time to offload more of the government's debt onto the South Sea Company. Because why wouldn't you, right? After all, if one company accounted for more than half of saved the New York stock exchange, With no discernible source of income, clearly the correct play would be to make it bigger instead of you know Investigating its activities. So the new plan was to allow the South Sea Company to issue even more stock and in exchange the company Wait for it would handle the government's debt from running the 1710 lottery -- the lottery Blunt himself had created! Genius! That is a Montgomery Burnsian kind of genius. But make no mistake: The government's strange confidence in the South Sea Company wasn't just due to starry-eyed Politicians desire for somebody else to deal with their mess. There was something else to it. In 1717, the King and his son George II had gotten into a fight. In an act of spite, The King had removed his son as Governor of the South Sea Company, and replaced him with himself! John Blunt now had the King himself as the Company's Royal figurehead . Whoa, right? Not only did this mean that they received a level of trust and prestige that they had never even come close to earning, But it also meant that the company was now, in some ways, too big to fail. If the South Sea Company collapsed, so might faith in the monarch, and they couldn't let that happen. But in 1719, as the lottery debt was being exchanged, another strange occurrence happened There was a brief abortive attempt to overthrow the King by the Jacobites -- the branch of the English monarchy that had itself been overthrown during the Civil war 70 Years before -- it wasn't successful But when that whole affair was put to rest the South Sea Company did everything they could to fuel the sense of jubilation Spreading around England. Going so far as to peddle Fabrications like the fact that the pretender to the throne had been captured, ending the Jacobite threat forever in doing so they managed to crank up the stock of the South Sea Company from a hundred pounds a share to £114 a share. Doesn't this make you just want to hit one of these people? And that stock value increase is important because when the company had agreed With the government on how much stock they were going to issue, They agreed to an amount that would let them cover all the debt they were picking up at a hundred pounds a share But now as the stock price rose, They found themselves paying for that same debt at a hundred and fourteen pounds a share, and at that rate They didn't even need all those shares to cover the debt anymore! What did they do with all those extra shares that they'd issued, but that they've no longer needed to cover the debt they were obligated to pick up? Why, they sold them and pocketed the profit -- because of course they did! This gave Blunt ideas: Very, Very big ideas Join us next time for the meteoric rise of the South Sea Company, the ennobling of John Blunt, and a company valuation higher than all the currency currently in circulation in England! [Music]
Where's the next video?
Chapter 1
https://www.youtube.com/watch?v=k1kndKWJKB8
1 comes before 2.
this videos are so interesting