Episode 3: The Strange Story Behind the Beanie Babies Bubble

was a good time. Well, I was making money to a little differently. I was still in middle school. I was going to garage sales and selling old toys and one of the things I sold was a tie dyed beanie baby lizard. I sold it for two hundred dollars to a forty year old man, and at the time, me as an eleven year old, I thought this was amazing money and I was rolling in it. That is amazing money object for any age selling a stuffed animal for two dollars, right, So why are we talking about

this today? We're going to delve into what can drive seemingly rational people to spend hundreds sometimes thousands of dollars on stuffed animals. We're going to talk about the beanie baby bubble, and we're going to talk about something more than that. We're going to talk about bubbles in general, the Internet bubble, and the psychology behind speculative mania. So here with us today is Zach Bissonett. He's the author of The Great Beanie Baby Bubble, Mass Delusion, and the

Dark Side of Cute. It's a book that came out earlier this year and I just happened to finish it this morning. Zach, thanks for joining us. So why did you write a book about beanie babies animals? I like you. I I was in middle school when the beanie baby craze hit, and I was kind of a nerd, and I was into like old books and antiques and that kind of thing. And every weekend I would go to this flea market on Cape Cob with my mother, and

we had never heard of beanie babies. And then all of a sudden, out of nowhere, that flea market was like beanie baby dealers, and they were wearing like Fannie packs and visors and talking just really really excitedly about how much they were going up in value and how this one they just paid five dollars for was now worth forty and they're not going to sell it this

week because next week it'll be worth fifty. And that was like that for about two years, and then all of a sudden it was gone and no one ever

talked about it again. I just I just want to say, uh, during those same years that my mother was dating a guy who was an antique dealer, and so I also went to a lot of flea markets in New England and I actually saw all the exact same thing where suddenly there were these flea markets where that used to be people bringing out their old stuff from their barns and then it's just people of stuff down and used

to be traditionalist antique dealers hated it. Yeah, there was there was one guy I talked to who who he was so proud of this. He was a traditionalist antique dealer who had just railed against beanie babies. He would go on CNN. I would say, I'm not in kidding.

CNN would have these like debates between this guy who they called the beanie Meanie and the beanie baby experts who were making millions of dollars selling one of them sold a million copies a month of a beanie baby magazine that she was publishing, and they would have these debates in this and this. A group of antique dealers in Indiana gave him a crucified skunk beanie baby with a certificate thanking him for being a traditionalist who stood

up for traditional antiques. So this is the amazing thing. Walk us through how the beanie baby bubble came into existence and how we at one day actually got to the point where people were debating the value of stuffed animals on CNN. So it starts out with this this very sort of eccentric toymaker named Tie Warner, who dropped out of Kalamazoo College, tried to become an actor, failed at that, then became a toy salesman, was wildly successful with that, but then he got fired from that and

decided to start his own stuffed animal company. And he started to create these beanie babies initially because he thought at a five dollar price point they would be irresistible and that it would help him the sort of a foot in the door with large accounts, and that he would then be able to kind of upsell bigger stores on selling his larger stuffed animal line, and it didn't work at all. I remember talking to talking to to the sales reps for Tye who remember just there was

no interest in these beaning babies. People worried they were cheap, they thought they looked cheap. They worried people would buy the beanie babies instead of a more expensive product. He was just not getting any interest in them. But Ty Warner, the guy created them, really really believed in this product. And he combined that belief with an extremely sort of eccentric, obsessive approach to the product and the people who had who had worked with him, which at the beginning was

just his girlfriend. But but she remembered when I when I talked with her, he would keep her up until like four in the morning debating one color of the ribbon on a bear should be. And then she'd think they would finally be done debating the color, and he would say, well what if it was tied this way instead of the other way, And then they would have to go back through the iterations of different colors again for hours. So he had this really really obsessive approach

to the product. This is how the retirement came into being right precisely. So sometimes he would come out with a product and then a few months after he chipped a few thousand of them, he would like wake up in the middle of the night basically and decide that it should be a different color. So like one of his first beanie babies, not not one of the very first, but one of the one of the first was Peanut

the Elephant, who was originally a royal blue color. And then after a few months of that, I think he chipped I think, like I can't remember the fourteen hundred or so of the of this beanie baby, and he decided it shouldn't be royal blue, it should be baby blue. And so the fact that they would get retired and never made again, there were never more than that, that's how they became collectible that people would see is going

up in value entirely accidentally. So because this is happening before anyone cares about these his annual sales are like four million dollars a year at this point, mostly not from beanie babies. No one cares about beanie babies. Then all of a sudden, this small group of people suburban Chicago who lived on one cul de Sac started collecting beanie babies. They saw them in stores because they were near where Ty was headquartered, so that he had a

big presence in stores there. And they decided they liked these beanie babies and that they wanted to assemble complete collections for their kids. And they became very obsessive. These were soccer mons. They came very very obsessive with trying to assemble complete collections, and so they would call stores and other towns to ask them what beanie babies they had,

and then they remembered this. They would realize that there would be like these weird variations and these were the ones that he had retired, just changed the design because he took a few thousand and then changed entirely accidentally. And they started paying each other more for these kind of beanie babies. Started this small market for them just

in this town. As this started to happen, as this kind of starts in this small town, this woman Peggy Gallagher and her sister Dr. Paula Brinko had this idea, you know, we're just calling stores like in the Chicago area where this all started, but we call stores in like other states will be able to find beanie babies that are really rare that no one else has, so they go to start going local chambers of commerce and

getting lists of all of the gift shops. The woman who's a doctor at the same time that she's doing this, she's doing this study on women who were like diabetic or something where she had to call hospitals to talk to their researchers, and after she called the researcher, she would ask to be transferred to the gift shop to ask about beanie babies so she could try to order

the rare one. But this is the part of the story that I love because we eventually go from this like small group of soccer mom collectors who professionalize themselves as beanie baby dealers and beanie baby market experts. I mean, one of them had a Beanie World magazine. She was a self described Chicago suburban soccer mom. She had a magazine with the circulation of more than one million million a month and more ads per copy than Glamour. These

were like thick magazines full of ads. So people start seeing the priceless for these beanies, and they all figure prices are going to go up forever. These are good investments right, and the stores that are hearing all of a sudden out of nowhere start getting calls from these out of state collectors are like, oh my gosh, beanie babies are really hot. It starts out as like two people did the did the magazine that published the prices?

Because I remember I used to collect baseball cards when as a kid, and there was the Beckett magazine, and there was like a crucial avenue by which the baseball card bubble, which also burst, everyone checked the prices each month. So did the magazine for beanie babies serve a similar purpose hugely, so that there's a reflexivity. I think two price guides where they impact prices as much as they report on them. And the first price let's which trebo

this lady Peggy Gallagher, which she started to circulate. She put an ad in like a magazine for other collectors, saying he sent her self addressed stamped envelope, she would send you this checklist, and she was like, well, what should I do? Her prices? She just made them up. Basically, she told me this that she said this one's rare,

so that one should be worth twenty dollars. These were not really based on anything, and then she kind of sat back and watched on like the A O. L message boards, is these priceless she was making up kind of became the the price and so talk about that how the internet and those are the early days of the Internet helped stoke that bubble, so that this is a bean babies were ten percent of ebays sales. In

the early days of ebays. eBay disclosed in the risk factors to its sec FI lanes, a dependence on the contain crazy yes, and so people were getting computers and beanie babies more than anything. Really gave people a reason to go on eBay and to do online trading and actually just e commerce in general, not just there was also trader and message wards. In the early days of e commerce, there were a lot of stories that it was not growing as quickly as people thought it would.

People weren't comfortable with it. Stuff was too expensive to ship with beanie babies something that had a kind of weird you weren't sure exactly what they were worth. They were easy to ship, and they were really hard to find locally. It brought people onto econ ummers in a way that other more mundane products like pets dot Com, we're not able to. So even though it's a completely pointless bubble of ultimately worthless stuffed animals, it actually did help.

It had a beneficial effect on the development of these Internet markets. Meg Whitman has said in interviews that that eBay and I think Pierre Omyard said the same thing, that eBay may not have gotten off the ground without beanie babies. So, Joe, I know, you remember what the late nineties were like. When we look back on Beatie babies, it seems amazing that people spent all this money on them. All this time. We had one, at least one instance of a guy committing murder because of a soured Beatie

baby deal. Do you remember how nuts it was? Are you talking about beanie babies? Are just the late nineties and gems? I mean, I would say they're linked, right, They're absolutely the people who when they think back and they talk about the nineties bubble, it's often referred to as a tech bubble or the Internet bubble or the dot com bubble. It completely misses the point. Yes, I

was so much, It was so much bigger. It was such a big It was a sense of optimism about everything all at the same time, and so there's so many wonderful stories about people completely losing their mind. My single favorite story of the late nineties bubble was when a car dealership in Nevada. It was called Uniprime Capital Acceptance, And I remember this very vividly because I was on the message boards at the time. It was a penny

stock maybe you traded trading, I was. They put out a press release that said they had a cure for AIDS. A car dealership in Nevada. The like was someone we've worked with or if we licensed this thing from a scientist. They just straight up we have a cure for AIDS.

And you know, even in the craziest times, like that's kind of a skeptical belief, but enough people believed that that the stocks surged, it doubled, and then it doubled again because just on the possibility that maybe a car dealership in Nevada had found a cure for aid the people were so optimis stick of everything that it seemed

not unbelievable. There was a people talk about the internet stocks anything that was that breathed on the Internet, people are going crazy for One of my favorite facts is the fact that k Tell, the company that makes really cheesy compilation CDs of like seventies DISCOMs, they sold their CDs online, Big whoop. The stock grew tenfold at one point, and then over the span of a few months, people were losing their minds. The other fact that I love is the fact that the segue that you know didn't

really take off, but people still go tours around. People really thought the entire cities were going to be redesigned because of how the segue I got people around. So basically it was a time of just incredible optimism about everything. So, Zach, I'm curious. In your book you quote a lot from existing you know, economic and financial literature. You quote people like Robert Schiller on the optimism that precedes bubbles when

it comes to beanie babies. If you could kind of pinpoint one thing that flipped it into speculative mania, what would it be. It's people seeing prices rise. That that is what drives what drives speculative bubbles is that as soon as there's you know, this insignificant phenomenon of someone who's trying to complete a set for their kid, as soon as they pay a hundred dollars for a beanie

baby that someone paid five dollars for. That's what sets in motion, or at least can set in motion certainly this kind of chain, because that becomes a story and beanie babies, and I think all bubbles are spread by by narrative, by people saying I bought this beanie baby for five dollars and sold it for a hundred. Anyone who did that told a thousand people about it because it was so weird. So how big did it get in?

Is there an estimate of what the total outstanding value of beanie babies was at the TIS annual sales peaked it around one point five billion dollars um. And that was just wholesale. Other people who there must be but have a bunch and held it all the way down and now just they live in a house filled with it. There is a retired soap opera star in Arizona. I think,

remember what's come so long as I talked to him. Um, there's a retired soap opera star who lost his kids six figure college funds on them and has like thirty thousand of them still in his home. That's Graham. We talked about how these sort of bubbles began, at least in the case of beanie babies, how did it end? Because it did start to fizzle out in and within a couple of years the secondary market value of thousands

millions of stuffed animals was gone. This was one of the funniest things about the reporting on this, and I think there's a lot of very similar stuff with the reporting on the housing bubble and the Internet stock bubble, is that I would kind of pose this question to the collectors anti executives about kind of how this thing had ended, and they all had these really specific explanations for it, these kind of linear cause and effect things.

You know that there was one saying, oh, you know, the counterfeits really invaded the market and people were paying you know, six hundred dollars and if it hadn't for pieces they're trying to be fake, and if it hadn't been for all the fraud this, you know, it wouldn't

have ended that way. A lot of people felt, you know, Ty got greedy and made too many, too many styles and overproduce them, and I'm like, okay, you know, maybe kind of, but you know, if he hadn't done that, then being would they still be temper cent and based

sales and we'd all be rich. I Mean, these things end because they're stupid, right, Like that's ultimately they're they're unsustainable, and eventually there is something that nixed them and causes that kind of that kind of cascade of confidence that started it to just crescendo down and and that's what happened. Um, there's this thing. At the end of nine. Everything is

still basically going well. Secondary market sales still good, top pieces still valuable, some overproduction on some of the newer pieces, those are stacking up a little bit, but basically still a strong market. No one's saying this thing's ending. Collectors still confident, magazine still selling. Tie announces at the end of that on that on January one, all of the beanie Babies will be retired and that they won't be made anymore. Theoretically, prices should have gone through the roof

at that point for a minute. Yeah, they did for a minute, and people were very excited, and people are like, what's going on. This is going to do a different product and uh. And then he announced that he would do a vote to raise money for AIDS on whether people wanted to Beanie Babies to continue, and you would log in and online and don't and donate that there was some other stuff going on in his life. But where you could donate a dollar forty nine, I think

it was to vote on whether Beanie Babies should be continued. First, I'll raise the question of who would spend a dollar fifty to vote to end Beanie Babies here that kind

of like. But so he does this and almost no one voted, ended up just having to donate all the money himself because he hadn't gotten so many votes as he claimed he had, and announced that Beanie Babies would be continued and that all the new releases there will be all these new millennium collection coming out, and no one cared, and the whole thing just every month after that, the sales collapsed and people started to That caused your out crisis of confidence about the right and then what

causes and then what happened was so these retire Beanie Babies. I remember talking to one of the first collectors who was underway back from speaking in a Beanie Baby convention as a paid expert, you know, like a keynote speaker on beanie babies, and she was at the O'Hare airport and she saw a stack of beanie babies. There were still five dollars in the store. But we're retired, and

this was like mind blow. I mean, people thought it was a law of physics that a retired beanie baby was worth more than five dollars and that that was just true. And uh, I mean, you know, kind of like you know, hoving prices don't go down. None of the models included that. None of their models include the idea that a retired beanie baby could conceivably still just be worth the retail price. Um. One of my favorite saying on Wall Street is that something becomes a bubble.

Once the bubble bursts, anything else is a great trade, right, he just made tons of money. When you look around the world, it seems like we are continuously seeing warnings about bubbles again in tech, lots of other areas and financial markets. Having studied, uh, the science of stuffed animals, do you have any wisdom for how we can spot

bubbles before they burst and before they burst? I think the thing, just behaviorally is that when wood is driving, it is entirely stories about how much money people have been making on it. That's something to be really concerned about. And I think any time you have a kind of surge of interest in new entrants into a field based on sort of past successes of other ones, there was

a ton of that with the Internet bubble. You had legitimate companies go public first and then the next one you know, this is going to be the next that, and that was a piece of crap. So I think, well, to me, you know, to bring your point to the current era. You know, we've been hearing about a possible tech bubble for the last ten years. I mean, when Facebook was valued at a billion dollars, people said tech bubble,

and now it's worth hundreds of times that. But I did see an ad on Instagram this week that was promising how to make your billion dollar app, like a service that would teach people how to make an app that would be worth a billion dollars, And that reminds me of like telling stories just about the money. It was like, is the next level of the euphoria. I always love those like JP Morgan Shoeshine Bobbie stories about bubble.

So I think, I mean, I remember when I was in high school, my bus driver and this was dangerous because he was driving a bus full of kids, and he had to cell phones and he was flipping houses while he was driving, talking to his like real estate ass and his manager, and I just so I always look for things like that. I remember when that year at a summer job, we'd go to the pizza place and they would allo so while it was just a little pizza shop, and they would also have a rival

financial network to Bloomberg on TV all the time. That was what the pizza guys were watching was CNBC rival network. Well, said Joe, you actually managed to make some money from internet stocks. How did you time it? Because it seems like the timing is key here. Lots of people did get rich off beanie babies, and lots of people got really poor. It was really it was the best luck I've ever had. I was trading through UM the basically Christmas break of two thousand and then I had to study.

I studied abroad in Switzerland in the spring of two thousand and Before I left, I sold all my stocks because like, I'm not gonna be able to trade while I'm studying abroad. That it didn't seem plausible. And then the bubble birth while I was studying abroad, so out of pure luck with no insight, you need to craft that into a narrative about your own foresight. No, it was just the opposite. That's just pure luck. That just happened to sell like a couple of months before the peak,

so that that worked out well. All right, So you made thousands off internet stocks and I made two bucks from a single beanie baby, but you got to cuddle it, so that's I'm not sure. Um, all right, Zach. It was lovely having you on the show. Thank you so much. This was fun. That's great, Thank you, all right, Joe. We just had a really interesting, entertaining conversation. What did

you learn? I actually think my favorite single fact was that point about the magazine and the relationship between seeing prices written down and seeing prices move and then the effect that has on actual prices. I think that's a

fascinating point, right. I just love the idea that this group of soccer moms in Chicago became market and tycoons, and I hadn't thought about that before, this idea of their being there needing to be a complete set of them, um, and so it sort of creates this inherent scarcity to them that drives up demand. That was an aspect of the beanie baby boom that I had not realized before. Artificial scarcity is a hot topic in economics right now.

Maybe that's something for another podcast. This is Tracy Alloway. You can find me at Tracy Alloway on Twitter, and I'm Joe Wisenthal. Find me at The Stalwart on Twitter. And if you want to follow Zack, he's on Twitter too at Zach Pissinet. And thank you for listening to odd Locks. Tune Indective