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A study of bubbles is clearly necessary in any real educational system.

The famous South Sea Bubble – a textbook bubble was “only” a 750%.  In modern times the Poseidon Bubble (1969) was 34,900% and the eDigital was 45,400%.  Even the famous Tulip Bubble (1647 A.D.) was only 5,900%.  And to that extend, Fannie Mae, a government chartered company, became of bubble status going up 12,696% (now trades at $0.23 in January 2012 from an all time high of

 

e.Digital Corporation 

e.Digital is perhaps best known for a phenomenal rise in the price of its stock during the dot-com bubble from a low of $0.06 in January 1999 to an intra-day peak of $24.50 on January 24, 2000, fuelled primarily by speculation on multiple internet message boards, most prominently the Raging Bull forum that the stock would become listed on the NASDAQ stock exchange. The share price quickly receded and NASDAQ eventually denied the listing. The price of its stock dropped back to a low of $0.025 and has traded between $0.025 – $0.125 from September 1, 2010 – September 1, 2011.

The Company was originally  under in British Columbia, Canada on February 11, 1988 under the name 340520 B.C. Ltd. and changed its name to Norris Communications Corp. on April 7, 1988. On November 22, 1994 the Company changed its jurisdiction to the Yukon Territory. In August, 1996, jurisdiction was changed to the State of Wyoming.  then finally the company was reincorporated in the State of Delaware USA in September, 1996 as Norris Communications, Inc. In January, 1999 the name was finally changed to e.Digital Corporation.  Throughout its over 22-year history, e.Digital / Norris Communications continuously lost money.

The accumulated deficit at March 31, 2010 was $80 million. Although the company reported its first annua profit for its fiscal year ending March 31, 2009  settlements with six of eight defendants of its patent infringement lawsuits which resulted in one-time licensing fees totalling $10.1 million, the company returned to an unprofitable status in fiscal year 2010, posting a net loss of $985,000. Revenue for products totalled $205,000 with service revenue totalling $749,000. Patent infringement settlement income totalled $1,600,000 for total revenue of $2,554,000.  Today, e. Digital Corporation  is a public company based in San Diego California traded as (OTCBB: EDIG).

Poseidon bubble

The Poseidon bubble was a stock market bubble classical modern speculative stock bubble in which the price of an Australian mining shares soared in late 1969, then crashed in early 1970. It was triggered by the Poseidon NL company’s discovery of a promising site for  nickel mining in September 1969.

All bubbles have the same result but their details are always dressed as a “this time is different” and this one started in the late 1960s, nickel was in high demand due to the Vietnam War, but there was a shortage of supply due to industrial action  against the major Canadian supplier Inco. These factors pushed the price of the nickel mineral to record levels, peaking at around £7,000/ton on the London market early in November 1969. In September 1969, the mining company Poseidon NL made a major nickel discovery at Windarra in the Shire of Laverton, West Australia. In early September their shares had been trading at $0.80, but as information about the discovery was released, the price rose until it was trading at $12.30 on October 1. After this, very little further information came to light, but the price continued to climb due to speculation; at one point, a UK broker suggested a value of up to $382 a share.

The price of Poseidon shares quickly became too high for many investors, so some turned to other nickel stocks, stocks in other mines near Windarra, and eventually other mining stocks in general. As the price of mining shares grew, new companies were listed by promoters looking to cash in. Mining stocks peaked in January 1970, then immediately crashed. Poseidon shares peaked at an intraday high of $280 in February 1970, and fell rapidly thereafter.

By the time Poseidon actually started producing nickel, the price of nickel had fallen. Also, the nickel ore was of a lower grade than originally thought, so extraction costs were higher. Profits from the mine were not sufficient to keep Poseidon afloat, and in 1976 it delisted. Western Mining then took over the mine, operating it until 1991.

In 1974, The Rae Committee handed down its report on the Poseidon bubble, in which it documented numerous cases of improper trade practices. It recommended a number of changes to the regulation of stock markets, which ultimately led to Australia’s national companies and securities legislation.

In the late 1980s Robert Champion de Crespigny took over the Poseidon Company and it became part of  Normandy Mining, the largest gold miner in Australia. In 2001 Normandy Mining, including Poseidon, was taken over by the Newmont Mining Corporation, which also at that time acquired Canadian company Franco-Nevada. The acquisitions made Newmont the world’s largest producer of gold at that time and now Newmont is famous not for the nickel but for the gold.

Fannie Mae

The Federal National Mortgage Association (FNMA; OTCBB: FNMA), commonly known as Fannie Mae, was founded in 1938 during the Great Depression  as part of the New Deal. It is a government-sponsored enterprise (GSE), though it has been a publicly traded company since 1968. The corporation’s purpose is to expand the second-mortgage market by securitizing mortgages  in the form of mortgage-backed securities (MBS), allowing lenders to reinvest their assets into more lending and in effect increasing the number of lenders in the mortgage market by reducing the reliance on  thrifts.   Fannie Mae was not per se a speculative bubble but the creator or the real estate bubble and the eventual resipient of its effect.  It cause government, tax payers and major non-speculative institutions and investors to be involved in the bubble.

As a result of the Financial Crisis in 2007 due to the real estate bubble, the U.S. Treasury used its full authority to advance funds for the purpose of stabilizing Fannie Mae, or Freddie Mac it did so to no practical limit, only the limit by the amount of debt that the entire federal government is permitted by law to commit to. The July 30, 2008 law enabling expanded regulatory authority over Fannie Mae and Freddie Mac increased the national debt ceiling US$ 800 billion, to a total of US$ 10.7 Trillion in anticipation of the potential need for the Treasury to have the flexibility to support the federal home loan banks

On Oct 21, 2010 FHFA estimates revealed that the bailout of Freddie Mac and Fannie Mae will likely cost taxpayers $224–360 billion in total, with over $150 billion already provided.  On June 16, 2010, Fannie Mae and Freddie Mac announced their stocks would be delisted from the NYSE. The Federal Housing Finance Agency directed the delisting after Fannie’s stock traded below $1 a share for over 30 days. Their stocks will continue to trade on the Over-the-Counter Bulletin Board as long as there is trader interest. Reports from the finance agency specified that the delisting had nothing to do with current or future company performance.