Initial equity for the South Sea Company had come from conversion of  short-term government debts into shares of the new company. In 1719 another part of government debt was converted into South Sea shares (the 1710 Lottery). In January 1720 the South Sea Company launched the ambitious plan to convert more than half of British government debt. British government debt in 1720 was approx. 50 million pounds: 18.3 million held by 3 large corporations (3.4 Bank of England, 3.2 East India Company, 11.7 South Sea Company). Privately held redeemable debt amounted to 16.5 mln. An additional 15 mln consisted of irredeemable annuities, long fixed-term annuities of 72-87 years and short annuities of 22 years remaining maturity. At the time, British long-term debt was issued in odd sums and difficult to trade, because debt was not divisible and some issues could only be paid if the original debtor (!!) was proven to be still alive. Furthermore, the government was running into difficulties with servicing its debt. A debt conversion program would allow a conversion of high interest, but difficult to trade debt, into low interest, readily marketable debt/shares of the South Sea Company. All parties could gain.

 

 

 

 

 

 

 

 

In July 1720, with company shares at a vastly inflated, unrealistic and unsustainable level, confidence collapsed (as did the share price).

Investors lost considerable amounts and some even committed suicide. Despite the Bubble bursting, the company survived into the 1850s.

http://www.bbc.co.uk/history/timelines/britain/geo_s_seabubble.shtml