1634 - 1637: Tulip Mania - The Formation and Collapse of the first documented Bubble in Modern Market History
Disclaimer - While it is a documented story. It may not be a well-documented one (or shall I say credibly documented one)
Overview
The story is about pricing of a commodity that underwent a hysterical rise, forming the first known bubble in history and then eventually prices crashing down to earth and with it bringing down all those who had bought it with the only hope of selling it at a higher price, and thus making a fortune in the process. The commodity in this question were tulip bulbs. The phenomenon happened in The Netherlands.
Timeline
1566 - 1648: Netherlands become independent from Spain. This transition happens via the means of the Eighty Years War
Early 1600s: The recently independent state doesn't have a right social and market structure and starts to create a relatively free market system. The free market gives rise to a merchant class in the society and investing and trading becomes a norm of that society
1602: Dutch leads the world in financial innovations including the first stock exchange and the first joint-stock company/multinational corporation - the Dutch East India Company
Early 1630s: Tulip’s popularity continues to grow and along with it Tulip bulb prices start to climb
1634: Rise in Tulip bulb prices become noticable
1636: Rapid rise and approaching peak
November - Tulip bulb prices see increases of multiple times. Price rise chart almost takes a vertical pitch.
December - Tulip bulb prices continue to rise, but the rate of increase of Tulip bulb prices start to show a slowdown
1637: Peaking and collapse
January - Tulip bulb prices start to plateau
February - Prices start to drop, first slowly and then precipitously
May - Prices continue to collapse, showing a vertical decline - the decline is much faster than the ascent upward
Impact
This is the area where the most of the contention is. By some accounts (written more than a century after the bubble and the burst), the bursting of the bubble was a catastrophic event for the Dutch society and the economy, resulting in unbelievable losses for traders and speculators - many completely being wiped out while others having to take on huge burdens of debt. However, more modern take on the event is less dramatic - per this perspective, while the event did occur and some people did loose a lot, the loss was not a major event from a system point of view.
Irrespective of that debate, the event highlights the point that while markets do many good in society, it can get off the rails for temporary periods of time, and that could result in major impact to people, especially those who take on too much risk and/or are less informed - a lesson that would be taught by the markets again and agin in history.