Beanie Babies Weren't a Craze That Got Out of Hand. They Were Built That Way.

There is a closet in your parents' house, or in your own, with a plastic tub in it. Inside the tub, in individual zip-top bags, are between forty and four hundred small bean-filled animals, each with a stiff red heart-shaped tag preserved inside a little plastic shell — because someone told you, and you believed them, that a bent tag was the difference between five dollars and five thousand.

They are worth five dollars. Most of them are worth less than that. Almost none of them are worth anything at all, and the ones that are worth something are worth it for reasons no one could have predicted in 1998, which is another way of saying nobody won.

The usual telling of this story is that a toy fad got out of hand — that ordinary people lost their minds over beanbags, the way people do, and then came to their senses. That telling is too generous. The mania was not a bug in the product. It was the product.

The nineA toy that was never sold like a toy

Ty Warner showed his first nine animals at the North American International Toy Fair in New York in 1993 — Legs the Frog, Squealer the Pig, Spot the Dog, Flash the Dolphin, Splash the Whale, Chocolate the Moose, Patti the Platypus, Brownie the Bear, Pinchers the Lobster — and put them into Chicago-area stores the following year at around five dollars each.

Then he did the thing that made him a billionaire, which had nothing to do with the toys.

He refused to sell them to chain stores. No Walmart, no Toys "R" Us, no Kmart — only small independent gift shops and card shops and hospital-lobby boutiques. And he capped those shops at 36 of each character per month. Not because he couldn't make more. Because a thing you can always get is a thing you never hurry for.

Then he began retiring designs, without warning, on his own schedule. A retired Beanie was finite by decree. Every retirement converted a $5 toy into a closed edition and every closed edition taught the lesson again: buy it now, because the man in Illinois can end it whenever he wants.

That is not a toy business. That is a central bank issuing a currency, and there was exactly one governor.

Side B: the maniaTen percent of everything on eBay

It worked to a degree that still reads as a misprint. By 1998 a USA Weekend poll found that 64 percent of Americans owned at least one Beanie Baby. Ty, Inc. — a private company with no advertising budget to speak of — was reported to be clearing more than a billion dollars in profit that year. Retired characters changed hands for as much as $13,000, roughly 2,600 times what they'd cost at the register.

At the peak, Beanie Babies accounted for around 10 percent of everything sold on eBay. Not 10 percent of toys. Ten percent of eBay.

In April 1997, McDonald's put miniature versions in Happy Meals. It ordered 100 million of them — ten million each of ten animals — for a promotion planned to run five weeks. They were gone in about ten days. People bought Happy Meals by the dozen and threw the food away, which is the single most efficient image of the whole era: a nation buying hamburgers it had no intention of eating in order to obtain a smaller version of a toy it had no intention of playing with.

The crime blotter from those years reads like a hoax. Twenty thousand dollars' worth taken from a distributor's van in Columbus, Ohio. Two hundred of them stolen in Centerport, New York, in March 1999. People forged checks for them. People were defrauded by auctions for them. There were divorces where the beanbags were itemized and split in front of a judge.

And the families — this is the part that stops being funny — the families who understood it as an investment vehicle, who did the arithmetic and put the college fund into a tub of understuffed bears, because the price line had gone one direction for six straight years and every retirement had proved the man right.

The pinHe ended it himself

Late in 1999, Ty announced that on December 31, at 11:59 p.m. Central, every Beanie Baby would be retired. All of them. Forever.

Read it as the market read it. Scarcity had been the entire engine, and here was the ultimate scarcity event — the final closed edition, announced in advance. It should have been the greatest buying panic yet.

Instead, something happened that had never happened before: nothing. The price didn't spike. And in the silence that followed, every holder of a tub had the same thought at the same time, which is the only thought that has ever ended a bubble —

if it isn't going up, what exactly am I holding?

They went to eBay to sell, all of them, at once, and discovered what the scarcity had been hiding: there were tens of millions of these things, sitting in tubs, in bags, with the tags protected. The floor came out. Values fell by more than 90 percent and did not come back.

Ty reversed the retirement — a public vote was staged, the fans dutifully voted to save them, and production resumed in 2000 with a bear called The Beginning. It didn't matter. You cannot re-scarce something once everyone has seen the warehouse. The spell wasn't in the bears. It was in believing there weren't many.

What happened to itThe tub, and the man

Ty Warner never went bankrupt. In 2013 he pled guilty to federal tax evasion, having opened an account at UBS in Switzerland in 1996 — the same year the machine really got going — and hidden money there for over a decade. He failed to report $24.4 million in income and evaded about $5.6 million in tax. He paid a civil penalty of more than $53 million and was sentenced to two years' probation. No prison. Prosecutors appealed the leniency and lost.

So the ledger closed like this. The man who built the scarcity paid a fine he could afford and kept his billions. The families who believed in the scarcity kept the bears.

It's worth being precise about what the lesson isn't. It isn't that people were stupid. Every signal a reasonable person uses to judge value was present and pointing the same way: six years of rising prices, universal participation, verified rarity, a manufacturer publicly restricting supply, real transactions at real prices. The information was good. The information was just about a market that one person was operating by hand, and he never told anyone that, and he had no obligation to.

We got taught it again with houses in 2008, and with a great many things since, always with the same tell: this one is different because they can't make any more of them. Somebody can always make more of them. Somebody is deciding not to.

Go look in the tub sometime. They're still in there, in their bags, tags immaculate — perfectly preserved evidence that we did exactly what we were told, and did it beautifully, and that the doing of it was the whole point. Same as the mall taught us, and the video store, and most of the confident things on this side of the tape.

Patti the Platypus is worth about three dollars. She was always worth about three dollars.