AIG Greed Redux: John Law and the Mississippi Bubble
A national outcry of public outrage has forced the Obama administration to take action on the large bonuses that AIG has given to a group of its executives. The bonuses that AIG has distributed went to the very group of employees whose risky trades brought the company to the brink of collapse. “It’s hard to understand how derivative traders at AIG warranted any bonuses, much less $165 million in extra pay,” Obama said at the outset of an appearance to announce help for small businesses hurt by the deep recession. “How do they justify this outrage to the taxpayers who are keeping the company afloat,” the president said.
The whole debacle of the greed displayed by AIG, as well as by some large banks that recently received large sums of bailout money from the government, is reminiscent of the simultaneous collapse of both the French trading arm and royal bank in the early 1700s. That collapse has been described as “John Law and the Mississippi Bubble.” John Law was a Scottish economist who believed that money was only a means of exchange that did not constitute wealth in itself and that national wealth depended on trade. During the reign of Louis XIV, John Law set up France’s Banque Générale Privée (“General Private Bank”), which developed the use of paper money. Many have considered Law to be little more than a colorful con man, responsible for the Mississippi Bubble and the chaotic economic collapse in France.
Richard Condie’s 1978 animated short film, John Law and the Mississippi Bubble, offers up a history lesson about that sensational get-rich-quick scheme, which took place in France over 200 years ago. The film won the Best Film Award at the 1980 International Short Film Festival in Tampere, Finland. With economist John Law at the helm, the plan was to open a national French bank and exchange bank notes for gold at wildly inflated share prices to mask the fact that the country’s gold had been depleted in the building of Louis XIV’s palace. In the film, when the inevitable rush to cash in the notes takes place, poor John Law is left broke and broken-hearted.
It was one of the most sensational get-rich-quick schemes heard of in a long time, but it eventually burst over the head of its originator, John Law. This “rags to riches to rags” story, in which the plan was to open a bank and exchange banknotes (paper!) for gold at wildly inflated share prices, ends when John Law, having been cleaned out as a result of a rush to cash in the notes, is left broke and broken-hearted.
John Law and the Mississippi Bubble
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