The South Sea Company (officially The Governor and Company of the merchants of Great Britain, trading to the South Seas and other parts of America, and for the encouragement of fishing) was a British company founded in 1711 by the Lord Treasurer Robert Harley and John Blunt, the former director of the Sword Blade Company.  The Company was created as a public–private partnership to consolidate and reduce the cost of national debt and was granted exclusive trading rights with colonies in South America in return for the refinancing of government debt at lower rates of interest, for which shares were issued. In 1719, the company agreed a deal to buy up half of all government debt, and with an impressively slick marketing scheme talked up the company’s prospects. The founders of the scheme engaged in insider trading, using their advance knowledge of when national debt was to be consolidated to make large profits from purchasing debt in advance. Huge bribes were given to politicians to support the Acts of Parliament necessary for the scheme.

Company money was used to deal in its own shares, and selected individuals purchasing shares were given loans backed by those same shares to spend on purchasing more shares. The price of the stock went up over the course of a single year from about £100 to almost £1000 per share, and in August 1720, the bubble burst and prices came crashing down. A considerable number of people were ruined by the share collapse, and the national economy greatly reduced as a result. Sir Isaac Newton lost a £20,000 (equivalent to about £268 million in present day value) fortune in South Sea Company shares, causing him to remark, "I can calculate the movement of the stars, but not the madness of men" (Wikipedia, n.d.).

The Bubble Act 1720 (6 Geo I, c 18), which forbade the creation of joint-stock companies without royal charter was promoted by the South Sea company itself before its collapse. This was an effort to prevent the increasing competition for investors, which it saw from companies springing up around it

A parliamentary inquiry was held after the crash to discover its causes. A number of politicians were disgraced, and people found to have profited unlawfully from the company had assets confiscated proportionately to their gains. The ‘South Sea Bubble,’ as it became known, was a huge scandal in London.  Aislabie was found guilty of corruption, stripped of his position and imprisoned in the Tower of London; the rest of the Cabinet members were impeached.

New measures were implemented in order to restore confidence and the estates of the company directors were confiscated in an attempt to remunerate South Sea Company investors. The remaining South Sea Company shares were allocated to the East India Company and the Bank of England.