The South Sea Bubble was the 1720 British speculative collapse that followed the South Sea Company’s assumption of government debt.
The company received a valuable trading monopoly and persuaded Parliament to let it convert government debt into company shares. Its directors promoted the prospect of commercial riches from trade with Spanish South America, although the company’s actual trading opportunities were severely limited. Share prices rose rapidly as investors bought into the story.
The boom ended in 1720 when confidence weakened and investors sold. Falling prices damaged the finances of many shareholders and exposed misleading promotion and insider dealing. Parliament investigated the scandal, and several politicians and company officials faced accusations of corruption.
The South Sea Bubble is often grouped with France’s Mississippi Bubble, which collapsed in the same year. Neither event was a modern stock-market crash in the technical sense, but both became lasting examples of speculative manias and financial bubbles.