When $93 Billion In Post-Dated Checks Wasn’t Enough: Lessons From Kuwait’s Souk al-Manakh Stock Bubble Of 1980-1981

Perhaps the greatest speculative mania of all time was Kuwait’s Souk al-Manakh stock bubble in the early 1980s, which is as fascinating as it was devastating. The bull market began when investing in local “Gulf Companies” became in vogue with Kuwaitis who wished to ride the coattails of the Middle East’s oil-driven economic boom of that time. A peculiar Kuwaiti custom allowed traders to pay for stocks using post-dated checks, under the assumption that default would be unthinkable. Unsurprisingly, human avarice prevailed as some traders speculated in stocks paid for by billions of dollars worth of unsecured checks, causing the stock market to inflate like a balloon and pop in a most analogous manner.

How Kuwait’s Souk al-Manakh Bubble InflatedThe rise in oil prices in the late 1970s generated an unprecedented amount of wealth in the oil-rich Persian Gulf countries, with Kuwait receiving a particularly large share of the fortune. As U.S. stocks embarked down a perilous bear market, Kuwaiti shares were experiencing a seemingly unstoppable bull run as nouveau riche Kuwaitis turned to stocks as an investment vehicle to park their wealth. The bull market was abetted by the small supply of publicy-traded Kuwaiti companies, which consisted of “only a few dozen uninteresting companies [that] were traded on the official exchange.” (1) The scarcity was the result of the royal sheiks’ reluctance to grant the corporate charters necessary for companies to become publicly traded for fear that companies “might become vehicles for stock speculation.” (2) Kuwaiti investors, however, weren’t very concerned with risk, as their collective memories recalled a market panic in 1976 and 1977 in which “the government had moved in to support prices, buying heavily for its own account, so that nobody would suffer.” (1) These traders assumed that the government would always be on the

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