In August 1717 Scottish businessman John Law acquired a controlling interest in the then derelict Mississippi Company and renamed it the Compagnie d'Occident [sic] (or Compagnie du Mississippi). Scotland ( Gaelic: Alba) is a Country in northwest Europethat occupies the northern third of the island of Great Britain. John Law (usually pronounced Jean Lass by contemporary French ( bap Its initial goal was to trade and do business with the French colonies in North America, which included much of the Mississippi River drainage basin, and the French colony of Louisiana. France was a dominant empire in the world from the 1600s to the late 1960s possessing many colonies in various locations around the world The Mississippi River is the second longest River in the United States, with a length of from its source in Lake Itasca in Minnesota to The State of Louisiana ( or, État de Louisiane, pronounced) is a state located in the southern region of the United States of America
As he bought control of the company he was granted a 25-year monopoly by the French government on trade with the West Indies and North America. The Caribbean (ˌkærəˡbiən kæ'rəbiən Cariben|Caraïben or Caraïben; Caraïbe or more commonly Antilles; Caribe is a Region consisting In 1719 the company acquired the Compagnie des Indes Orientales, the Compagnie de Chine, and other French trading companies and became the Compagnie des Indes (or Compagnie Perpétuelle des Indes). The French East India Company ( French: La Compagnie française des Indes orientales or Compagnie française pour le commerce des Indes orientales) was a In 1720 it acquired the Banque Royale, which was founded by John Law as Banque Générale in 1716. The Banque de France is the Central bank of France; it is linked to the European Central Bank (ECB The Banque de France is the Central bank of France; it is linked to the European Central Bank (ECB
Law exaggerated the wealth of Louisiana with an effective marketing scheme, which led to wild speculation on the shares of the company in 1719. Speculation, in a financial context is making an investment that increases the overall risk in a portfolio In financial markets, a share is a Unit of account for various financial instruments including Stocks Mutual funds Limited partnerships Shares rose from 500 to 15,000 livres, but by summer of 1720, there was a sudden decline in confidence, and the price was back to 500 livres in 1721. By the end of 1720 the Regent Philippe II of Orléans dismissed Law, who then fled from France. A regent, from the Latin regens "who reigns" is a person selected to act as Head of state (ruling or not because the ruler is a minor Philippe II Duke of Orléans ( August 2, 1674 &ndash December 2, 1723) was a member of the royal family of France
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Debt conversion
The number of outstanding shares of the company was probably around 500,000 in 1720. Shares outstanding are common Shares that have been authorized issued and purchased by investors A stock price of 15,000 livres would have given the company a market capitalization of 7. The livre was the currency of France until 1795 Several different livres existed some concurrently Market capitalization/capitalisation (aka market cap, mkt cap or capitalized/capitalised value) is a measurement of Corporate or Economic 5 billion livres. After the share price collapsed to 500 livres in September 1721, the company was valued at only 250 million livres. As a comparison, the French government expenses was 150 million livres in 1700, while their debt in 1719 was 1. 6 billion livres.
With the demand for company shares being high, the government and John Law set out to buy back the whole 1. 6 billion livres government debt for shares in the company. The plan was successful and in 1720 the whole government debt was acquired by the company, before the company's market capitalization began to collapse during 1720 and 1721. Compare this with the debt acquisition by The South Sea Company of England that acquired 80% of the 50 million pound government debt during 1720. For the Noel Coward play see South Sea Bubble (play. The South Sea Bubble of 1720 was an Economic bubble that occurred England is a Country which is part of the United Kingdom. Its inhabitants account for more than 83% of the total UK population whilst its mainland The South Sea Company reached a highest share price of 1,000 pounds in August 1720, a few months later than the Compagnie des Indes.
As the creditors bought shares in the company with their Bonds and debt papers, the whole government debt became property of the company (debt-for-equity transaction). In Finance, a bond is a Debt security, in which the authorized issuer owes the holders a debt and is obliged to repay the principal and Interest Debt restructuring is a process that allows a private or public company - or a sovereign entity - facing cash flow problems and Financial distress, to reduce and renegotiate And the company became property of the former creditors, but effectively controlled by the government. Primarily the government paid an annual 3% interest to the company, which amounted to 48 million livres. Through these transactions the French government had successfully unloaded their whole gigantic debt of 1,000% the annual budget (perhaps 200% - 400% of GDP) and was basically debt free.
Reopened in 1722
The company sought bankruptcy protection in 1721. Bankruptcy is a legally declared inability or impairment of ability of an individual or organization to pay their Creditors Creditors may file a bankruptcy petition against It was reorganized and open for business in 1722. In 1723 it was granted fresh privileges by Louis XV. Louis XV (15 February 1710 &ndash 10 May 1774 ruled as King of France and of Navarre from 1 September 1715 until his death in 1774 Among these were the monopoly of sale of tobacco and coffee, and the right to organise national lotteries. Tobacco is an Agricultural product recognized as an addictive drug processed from the fresh Leaves of plants in the genus Nicotiana. CoFFEE is an Open source Software for computer supported collaborative learning (CSCL in a digital classroom A lottery is a form of Gambling which involves the drawing of lots for a prize It could again tap the capital markets and raise capital by issue of shares and bonds.
From 1726 to 1746 the company flourished from its overseas trade and domestic business. It brought wealth to the port cities it was operating from: in Bordeaux, Nantes, Marseille, and, in particular, its home port of Lorient (initially called L'Orient). ( Gascon: Bordèu) is a port city in southwest France, with one million inhabitants in its metropolitan area at a 2008 estimate Nantes (Naoned Gallo: Naunnt) is a city in western France, located on the Loire River, from the Atlantic coast Marseille, ( English alt Marseilles mɑrˈseɪ — French: maʁsɛj locally — Provençal Occitan: Marselha maʀˈsijɔ Lorient, or L'Orient, (An Oriant is a commune and a Seaport in the Morbihan département, of Brittany. During this period it lost its trading rights for the western hemisphere but it kept trading with the east and could prosper from that business. Its main goods of trade during the period were porcelain, wallpapers, lacquer and tea from China, cotton and silk cloth from China and India, coffee from Mocha, Yemen), pepper from Mahé (South India), gold, ivory and slaves from West Africa. Porcelain is a Ceramic material made by heating raw materials generally including Clay in the form of Kaolin, in a Kiln to temperatures This page refers to the material used for Interior decoration. In a general sense lacquer is a clear or coloured Varnish, that dries by solvent evaporation and often a curing process as well that produces a hard durable finish in any Tea refers to the cured agricultural product of the leaves leaf buds and internodes of Camellia sinensis, which have been prepared and cured for the market China ( Wade-Giles ( Mandarin) Chung¹kuo² is a cultural region, an ancient Civilization, and depending on perspective a National Cotton is a soft staple Fibre that grows around the seeds of the cotton plant ( Gossypium sp Silk is a natural Protein Fiber, some forms of which can be woven into Textiles The best-known type of silk is obtained from cocoons India, officially the Republic of India (भारत गणराज्य inc-Latn Bhārat Gaṇarājya; see also other Indian languages) is a country Mocha ( Arabic: المخا) is a port city on the Red Sea coast of Yemen. Black pepper ( Piper nigrum) is a flowering Vine in the family Piperaceae, cultivated for its Fruit, which is usually dried South India is the area encompassing India 's states of Andhra Pradesh, Karnataka, Kerala and Tamil Nadu as well as the union Gold (ˈɡoʊld is a Chemical element with the symbol Au (from its Latin name aurum) and Atomic number 79 Ivory is formed from Dentine and constitutes the bulk of the Teeth and Tusks of animals such as the Elephant, Hippopotamus, Slavery is a social-economic system under which certain persons — known as slaves — are deprived of personal freedom and compelled to perform labour or services West Africa or Western Africa is the Westernmost Region of the African Continent.
After 1746 the spendthrift policies of the French Government began to hurt the Company, and the Seven Years' War (1756–1763) brought severe losses. A spendthrift (also called profligate) is someone who spends money prodigiously and who is extravagant and recklessly wasteful The Seven Years' War (1756&ndash1763 involved all of the major European powers of the period causing 900000 to 1400000 deaths In February 1770 an edict required the Company to transfer to the state all its properties, assets and rights, then valued to just 30 million livres, while the King accepted to pay all the Company's debts and annuity (rente) obligations. An edict is an announcement of a Law, often associated with monarchism. In Business and Accounting, assets are everything owned by a person or company (all tangible and intangible property that can be converted into cash. A right is a legal or moral Entitlement or Permission. Rights are of vital importance in theories of Justice and deontological ethics An annuity contract is a Financial product typically offered by a Financial institution, that may accumulate value and take a current value and pay it out over The company was officially dissolved in 1770, although its liquidation dragged on into the 1790s.
Compagnie des Indes share price
- 1719 May: 500 livres
- 1720 February: 10,000 livres
- 1721 September: 500 livres
Financials
When the whole debt was converted at the end of 1719 their 1720 financials may have looked like this: ([1])
| Period Ending | 31-Dec-1720 |
|---|---|
| Revenue | |
| Collection of indirect taxes | 15,000,000 |
| Collection of other taxes | 1,500,000 |
| Tobacco | 2,000,000 |
| The mint | 4,000,000 |
| Trading | 10,000,000 |
| Interest income | 48,000,000 |
| Total | 80,500,000 |
| Expenses | |
| ? | ? |
| Net Income | |
| ? | ? |
| Period Ending | 31-Dec-1720 |
|---|---|
| Assets | |
| Government bonds | 1,600,000,000 |
| Liabilities | |
| ? | ? |
See also
- John Law
- The South Sea Company
- Economic bubble
- Extraordinary Popular Delusions and the Madness of Crowds
External links
- "The Compagnie des Indes" -)By Howard Shakespeare)
- "Famous First Bubbles - Mississippi Bubble"
- "Learning from past investment manias" -(AME Info FN)
- "The South Sea Bubble and Law's Mississippi Scheme" -(from The Daily Reckoning)
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