09.27.08

Tulip Crisis

Posted in home life at 11:39 pm by Administrator

In 1633, a rumor circulated that a house had been sold in the Port of Hoorn, for three rare tulips. Tulips became a form of money and the futures market began. In 1637 a single tulip bulb of Semper Augustus sold for enough Dutch guilders to buy the biggest house in Amsterdam (Learning through History, vol. 6, 2008, p12). A month later, on a cold Tuesday afternoon a florist auction closed due to the refusal to buy a single tulip. Panic followed and the tulip bubble soon burst. The major tulip growers held an emergency meeting to discuss how to resolve the crisis. Unable to due so it was left to the Dutch courts.

In 2005, housing was like tulips. Investors rushed into a market where home prices were doubling and everyone wanted to share in the substantial profits. What makes a home double in value seemingly overnight? Homes were the place that previous generations lived in and labored about for many years, even a lifetime. It was a home first and an investment that was realized, even earned, over time.

In 1636, bankers warned about the practice of windhandel, “trading in the wind”. In 2005, bankers, investors, and insurers were quite. Homes could be “flipped” for large profits before…the bubble burst. The problem is no individual party really intended to pay for over priced homes. That would be for someone else, some imaginary being or rich uncle. Honorable real people or future tax payers will spend years paying off inflated home loans. Those unable or unwilling will walk.

History has a way of repeating itself. The Amsterdam stock exchange discussed new rules after 1637. American leaders are discussing new housing and banking rules today. Dutch tulip growers extended their market across Europe and turned an embarrassment into a national asset. Will Americans be shipping their homes to a world market (oops, we already did, sold the notes)? Will we be able to turn a debacle into a national asset? The Semper Agustus Tulip, was later found by botanists to be the result of a flower virus, the virus eradicated, this tulip is no longer available. What housing practices will be eradicated or is the lure of get rich quick just mutating for another day? History has shown when we place a home before riches we save our honor and become rich over time. When we place riches before home it ends in crisis.

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