British credit crisis of 1772-1773

rdf:langString British credit crisis of 1772-1773

rdf:langString The British credit crisis of 1772-1773 also known as the crisis of 1772, or the panic of 1772, was a peacetime financial crisis which originated in London and then spread to Scotland and the Dutch Republic. It has been described as the first modern banking crisis faced by the Bank of England. New colonies, as Adam Smith observed, had an insatiable demand for capital. Accompanying the more tangible evidence of wealth creation was a rapid expansion of credit and banking leading to a rash of speculation and dubious financial innovation (venture capitalism). In today’s language, they bought shares on margin. In June 1772 Alexander Fordyce lost £300,000 shorting East India Company stock, leaving his partners liable for an estimated £243,000 in debts. As this information became public within two weeks eight banks in London, and later around 20 banks across Europe collapsed. According to Paul Kosmetatos "lurid tales abounded in the press for a time of merchants cutting their throats, shooting or hanging themselves". In 1960 it was believed the boom and subsequent crisis were most pronounced in Scotland. It certainly triggered a liquidity crunch in Amsterdam in December, but the effects were of short duration. In the end, none of them actually lost money. The credit boom came to an abrupt end, and the ensuing crisis harmed the East India Trading Company, the West Indies in general, and the North American colonial planters specifically.