OFFICIAL6 What is the professor's opinion about the dot-com crash?

[00:00.00]Narrator: Listen to part of a lecture in an economics class.
[00:08.45]FEMALE PROFESSOR: Now, when I mention the terms “boom” and “bust,” what does that bring to mind?
[00:12.43]MALE STUDENT: The dot-com crash of the 90s!
[00:14.32]FEMALE PROFESSOR: OK. The boom in the late 1990s when all those new Internet companies sprang up and were then sold for huge amounts of money. [00:22.09]Then the bust around 2000…2001, when many of those same Internet companies went out of business. [00:30.15]Of course, booms aren’t always followed by busts—[00:33.07]we’ve certainly seen times when local economies expanded rapidly for a while then went back to a normal pace of growth.
[00:39.56]But, there's a type of rapid expansion, what might be called a “hysterical” or irrational boom that pretty much always leads to a bust. [00:48.22]See, people often create and intensify a boom when they get carried away by some new industry that seems like it'll make 'em lots of money, fast. [00:57.99]You'd think that by the 90s, people would’ve learned from the past. [01:01.91]If they did—well, look at tulips.
[01:05.46]MALE STUDENT: Tulips…? You mean, like, the flower?
[01:08.30]FEMALE PROFESSOR: Exactly. For instance, do you have any idea where tulips are from? [01:12.76]Originally, I mean.
[01:14.08]MALE STUDENT: Well, the Netherlands, right?
[01:15.96]FEMALE PROFESSOR: That’s what most people think—but no, [01:18.33]they're not native to the Netherlands, or even Europe. [01:21.36]Tulips actually hail from an area the Chinese call the “Celestial Mountains” in central Asia—a very remote mountainous region.[01:30.83]It was Turkish nomads who first discovered tulips and spread them slowly westward.
[01:36.75]Now, around the sixteenth century, Europeans were traveling to Istanbul in Turkey as merchants and diplomats. [01:45.04]And the Turks often gave the Europeans tulip bulbs as gifts, which they would carry home with them. [01:51.05]For the Europeans, tulips were totally unheard of, a great novelty. [01:55.78]The first bulbs to show up in the Netherlands, the merchant who received them roasted and ate them—[02:01.08]he thought they were a kind of onion.
[02:02.89]It turns out that the Netherlands was an ideal country for growing tulips. [02:07.89]It had the right kind of sandy soil, for one thing, but also it was a wealthy nation with a growing economy, willing to spend lots of money on new, exotic things—[02:18.09]plus the Dutch had a history of gardening. [02:20.79]Wealthy people would compete, spending enormous amounts of money to buy the rarest flowers for their gardens.
[02:27.59]Soon tulips were beginning to show up in different colors as growers tried to breed them specifically for colors which would make them even more valuable, [02:36.77]but they were never completely sure what they would get. [02:39.66]Some of the most prized tulips were white with purple streaks or red with yellow streaks on the petals—even a dark purple tulip that was very much prized.
[02:50.53]What happened then was a craze for these specialized tulips. [02:55.13]We call that craze “tulip mania.”[02:57.69]So—here we’ve got all the conditions for an-an irrational boom: a prospering economy, so more people had more disposable income—money to spend on luxuries—but they weren’t experienced at investing their new wealth.
[03:13.16]Then along comes a thrilling new commodity—[03:16.15]sure, the first specimens were just plain old red tulips, but they could be bred into some extraordinary variations—like that dark purple tulip. [03:24.14]And finally, you have an unregulated marketplace—no government constraints—where prices could explode. [03:32.29]And explode they did, starting in the 1630s.
[03:36.31]There was always much more demand for tulips than supply. [03:40.00]Tulips didn’t bloom frequently like roses; [03:43.30]tulips bloomed once in the early spring [03:45.91]and that was it for the year. [03:47.97]Eventually, specially bred, multicolored tulips became so valuable… [03:53.51]Well, according to records, one tulip bulb was worth 24 tons of wheat or a thousand pounds of cheese. [04:02.44]One particular tulip bulb was sold in exchange for a small ship! [04:07.07]In other words, tulips were literally worth their weight in gold.
[04:12.00]As demand grew, people began selling promissory notes guaranteeing the future delivery of prized tulip bulbs. [04:20.83]The buyers of these pieces of paper would resell the notes at marked-up prices. [04:25.28]These promissory notes kept changing hands—from buyer to buyer—until the tulip was ready for delivery.
[04:31.75]But it was all pure speculation, because, as I said, there was no way to know if the bulb was really going to produce the variety, the color, that was promised. [04:40.43]But that didn't matter to the owner of the note, [04:43.12]the owner only cared about having that piece of paper, so it could be traded later at a profit. [04:48.21]And people were borrowing—mortgaging their homes, in many cases—to obtain those bits of paper because they were sure they’d found an easy way to make money.
[04:58.19]So now you've got all the ingredients for a huge bust—[05:02.24]and bust it did, when one cold February morning in 1637, a group of bulb traders got together and discovered that suddenly there were no bidders—[05:13.37]nobody wanted to buy. [05:15.51]Panic spread like wildfire, and the tulip market collapsed totally.