British credit crisis of 1772–1773
British banking crisis / From Wikipedia, the free encyclopedia
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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.[1] It has been described as the first modern banking crisis faced by the Bank of England.[2] 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.[3]
In June 1772 Alexander Fordyce lost £300,000 shorting East India Company stock, leaving his partners Henry Neale, William James, and Richard Down liable for an estimated £243,000 in debts.[4] As this information became public, within two weeks, eight banks in London and later around 20 banks across Europe collapsed.[5][6] According to Paul Kosmetatos "lurid tales abounded in the press for a time of merchants cutting their throats, shooting or hanging themselves".[7] In 1960, it was believed the boom and subsequent crisis were most pronounced in Scotland.[1] It triggered a liquidity crunch in Amsterdam in December, but the effects were of short duration. [3] 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.[8]