10 ATaleofTwoMarkets
But the excitement of “getting in” on these deals got out of hand,
more and more money was allocated to futures contracts on tulip
bulbs and shares of the South Sea Company, and the more money
that was led there, the more money seemed to follow—until the
music stopped and panic set in. In Holland, the price got so high
that speculators could not afford to pay for the bulbs they had
bought the rights to. In Britain, the company simply did not generate
the great gains from Spanish trade everyone had obviously been ex-
pecting.
If EMT were true, the U.S. stoc kmar kets would be unique
among all markets throughout human history and across the con-
temporary globe.^8 Consider this selection from the writings of the
market observer Joseph de la Vega from the late 1600s about the
Amsterdam stoc kexchanges of his day, in the style of a tongue-in-
chee kdialogue between a merchant and an investor:
Merchant: These stock-exchange people are quite silly, full of in-
stability, insanity, pride and foolishness. They will sell
without knowing the motive; they will buy without
reason.
Investor: They are very clever in inventing reasons for a rise in the
price of the shares on occasions when there is a declining
tendency, or for a fall in the midst of a boom. It is par-
ticularly worth remarking that in this gambling hell there
are two classes of speculators. The first class consists of
the bulls. The second faction consists of the bears. The
bulls are like the giraffe which is scared by nothing. They
love everything, they praise everything, they exaggerate
everything. They are not impressed by a fire or disturbed
by a debacle. The bears, on the contrary, are completely
ruled by fear, trepidation, and nervousness. Rabbits be-
come elephants, brawls in a tavern become rebellions,
faint shadows appear to them as signs of chaos. The fall
of prices need not have a limit, and there are also unlim-
ited possibilities for the rise. Therefore the excessively
high values need not alarm you.^9Sound familiar? Why, apart from hubris and chutzpah, should
we believe the U.S. stoc kmar kets are so special in the history of the
world?