Paul Anthony Samuelson, the brilliant economist, was once misquoted to himself: "How come you're smart and not rich?" Samuelson clarified that what he said was "How come you're rich and still dumb?"

Isaac Newton wouldn't have minded both versions! He "complained that while he could precisely compute the path of celestial bodies to the minute and the centimeter, he was unable to predict how high or low a crazy crowd could drive the stock quotations."

Newton lost a fortune in the seminal 18th century event: South Sea Bubble. This c. 1720 event had another parallel called the Mississippi Bubble, across the Atlantic. Both bubbles involved companies that traded across the seas, un-correlated rise in their share prices, unprecedented frenzy and boom; and eventually, a burst.

In 1716, France was crumbling under wars and its finances were badly bruised. Then came in a Scotsman, John Law who persuaded the French of his theory: a national bank issuing paper currency will help revive the economy. Law went onto set up Banque Générale in 1716.

"In 1717 he launches a separate venture, the Louisiana Company, to develop the French territories in the Mississippi valley.

"At first both enterprises thrive, and Law acquires ever greater responsibilities and commercial power. All the French chartered trading companies, to the East Indies and China, to Africa and the West Indies, are brought under his control, as also is the national mint and the collection of taxes. As more and more people rush to invest in this octopus of an enterprise, Law has the power and the freedom to issue shares and bank notes at will to keep his creature alive and well.

"The result, by 1719, is rapid inflation and speculative hysteria. The price of Law's shares rise 36-fold, from 500 to 18000 livres. At the end of 1720 the bubble bursts. Law flees from France, dying in penury nine years later in Venice."

Assume a modern-day American banker big-shot, standing at the cusp of a bubble. More than fleeing, the Government may provide a haven to re-stimulate his business. How far have we come in progress of the human civilization?

If this was the case in France, their contemporary arch-rivals Great Britain would not want to be left behind!

Much before Banque Général's founding, a company was set up in 1711 to have a monopoly of British trade to South America and the Pacific.

"It first becomes a fashionable share to buy in 1718, when the king becomes a governor.

"The bubble begins only in 1720, prompted by a scheme for the company to take over much of the national debt. This is done by offering holders of government bonds the chance to exchange them, at an extremely beneficial rate, for shares in the company. The price of the shares begins to rise, in a self-perpetuating frenzy of excitement which takes no account of any underlying value.

"By August the price is eight times higher than in January, but the slump once it begins is even more rapid. In December the shares are back to their January level, representing a fall of nearly 90% in a few months.

"As many fortunes are made on the way up as are lost on the way down. But in an age without financial regulation the turmoil and the pain inevitably raise suspicions of corruption."

Of course, as was the case with the recent financial crisis, clean-up acts follow!

"The bad taste left by these experiences leads to the rapid passing of the Bubble Act before the end of the year. For a little over a century, until repealed in 1825, it restricts the forming of joint-stock companies, harming the honest entrepreneur as much as deterring the confidence trickster. In practice legal loopholes are found. Many joint-stock companies are set up under other names in Britain during the 18th century, particularly in insurance.

"The Bubble Act is repealed in England in 1825 because it is a time of economic boom and there is increasing public pressure to invest. But the act is repealed without any alternative regulation to replace it.

"The public is exposed anew to the dangers inherent in fraudulent schemes, particularly with the Industrial Revolution gathering pace and requiring ever more capital. Not until the Joint-Stock Companies Act of 1844 are effective regulations introduced."