Millionaire - Janet Gleeson [65]
We do not know if anyone at the meeting had enough direct contact with the colony to have an inkling of the true situation. Nor can we tell how many, even without such knowledge, sensed that this was a smoke screen or that Law had decided the dividend not according to company profits but according to the market share price to sustain the public’s confidence in their investment—another ingenious marketing ploy. But behind closed doors, in assorted cabinets and boudoirs, a handful of cannier investors were questioning what Saint-Simon later scathingly termed “the chimera of the Mississippi, its shares, its lingo, its science . . . its hocus pocus for taking money from some and giving it to others.” Rumors relating to Louisiana added to the ripples of disquiet. “I have spoken to a Frenchman who is lately come from the Mississippi. . . . The account he gives of the French settlement in that country would not encourage me to put my money into that stock,” Pulteney reported to Whitehall. Law’s charm and the dividend announcement were not enough to stanch the niggling insinuations. Even Saint-Simon could read the writing on the wall. “As the company possessed neither mines nor philosopher’s stone it was obvious that its shares, in the long run, must decline in value.” This comment calls to mind a remark made by Warren Buffett during the 1980s stock market downturn: “In the end, alchemy, whether it is metallurgical or financial, fails.”
The climbing share price had been nourished by the injection of vast sums of paper money into the economy. Law realized the pitfalls of continuing on this route: the bank’s reserves of coin could not keep pace with such expansion. If faith in paper wavered, supplies would run out. Everything rested on the willing suspension of disbelief. The system would self-destruct if people began to doubt it. Confidence—or credulousness—was all. But confidence was increasingly fragile.
Meanwhile, in the dingy alleyways and offices of the rue Quincampoix, the bonanza continued. Dealers taking advantage of the unregulated market became greedier and more daringly unscrupulous. Shady practices proliferated and futures trades—contracts whereby an investor agreed a share price and made a down payment for delivery at some future date—were, as far as Law was concerned, a particular problem. During the autumn of 1719, shares officially trading for around 10,000 livres were being sold in various forms of forward contracts for 15,000. Law saw that investors believed that share prices would rise still further. He knew that they would have to be controlled. He himself had caused the great dip and upward turn in the market in December 1719 by refusing loans, in an attempt to curb the money supply, then realizing how quickly the tide could turn and revoking the instruction.
To curtail the dubious dealings in the rue Quincampoix, company sales offices were opened in the new year to buy and sell shares at fixed prices. To satisfy the public hunger for shares and restrict the trade in futures, a new investment opportunity, called primes, was launched. The equivalent of what traders would today term a call option, a prime allowed investors to pay a deposit of 1,000 livres for the right to buy a share priced at 10,000 livres for delivery within the next six months.
Most investors still thought that shares would go above 10,000 livres. Lured by the leverage opportunity, they scram-bled to sell their mères, filles, petites filles, and cinq-cents to increase their gearing. One share sold for 10,000 livres enabled them to multiply their future holding tenfold. Within four days of the launch of the primes, the shares plummeted from 10,000 to 7,000 livres as people sold out to reinvest in primes. Law was forced into a position where he had to pay out large sums to buy up shares for which demand had evaporated.
Aside from vacillating share prices, Law