The Wall Street
The History of Wall Street
When people in the media, or just people in the know, refer to the various stock markets in lower Manhattan in New York City, they usually just refer to Wall Street. The now famous financial district has become synonymous with large amounts of money, power and influence. But how did one street manage to evolve into such an important address?
Ironically, most major investment firms that helped to build Wall Street into the financial force that it is today aren’t even headquartered there anymore. Thanks to technology advancements, these companies are usually headquartered in other parts of Manhattan or in neighbouring New Jersey or Connecticut. One of the most influential companies in Wall Street history, J.P. Morgan moved from the address that they helped make famous in late 2001.
The name Wall Street was actually given to the street since it formed a boundary to the New Amsterdam settlement in the early 1600’s. To help ward off the British, a 12-foot wall was built around the street to keep out invaders in 1653. In 1792, the Buttonwood agreement started the New York Stock Exchange and its headquarters would be on Wall Street.
In 1889, a newspaper that would eventually become the Wall Street Journal began publication. The paper took its name from the fact that a growing financial district was sprouting around the stock exchange and many companies that would go on to be powerful forces in the United States economy were headquartered there.
One of the most well known symbols of Wall Street, the JP Morgan headquarters, was built in 1914. The building still stands today, but is now owned and run by Deutsche Bank.
Wall Street has seen its fair share of history over the years, with the 1920 bombing that killed around 40 people and injured 400 to the great crash of 1929 that saw some people kill themselves. Today, if you check the front façade of the JP Morgan building, you can still see pock marks of the 1920 terrorist attack.
The construction of the World Trade Centers were the only real major architectural change to the financial district in the last half of the 20th century, and their subsequent destruction has left a void in the hearts and minds of many that work and live near there.
The history of Wall Street is a collage of incredible highs and devastating lows. As the center for American and some would say world finance, you can bet that there will be plenty of memories made on the most famous street in the world.
The Wall Street Crash of 1929
Maybe no event in American financial history is better known and more infamous than Black Tuesday, the day the stock market crashed and ushered in a depression that would grip the United States through the first half of the next decade. But what caused such a horrible event and what can be learned from it?
The stock market crash that most people associate with Black Tuesday, was actually a multi-day process. The previous Thursday, the market began its downward slide, with trading setting an all time record with 13 million shares trading hands that day. The Dow had reached an all-time high just a month earlier in September of 1929 with a close of 381.17. A group of bankers met during that Thursday to try to figure out how to stop the slide and they decided to take the same tact that worked to stop the last market panic in 1907. They began to buy massive amounts of blue chip stock to try to reassure investors that the market was holding steady and that they shouldn’t sell everything they had and make matters worse.
The bankers, led by Tom Lamont of Morgan Bank, Chase National Bank’s Albert Wiggin and Charles Mitchell of National City Bank thought that this method had worked, but it only led to a quieter Friday. The downfall would continue early next week.
On Monday, spurred on by negative newspaper accounts of Thursday’s crash, investors sold more and more stock off, sending the Dow into another tailspin. At the end of Monday’s trading, approximately 13 percent of the value of the Dow had been lost. Black Tuesday led to more losses that some believed were spurred on by President Herbert Hoover’s insistence that he would not veto a tariff bill that many on Wall Street thought would hurt the economy.
So, what caused the crash? Most believe an artificial economic bubble is to blame for the crash. The bubble was formed during the 1920’s and the great amount of speculative investing that happened during that time. The downturn in stock prices after the high in September saw a chain of events happen that led to the Great Depression of the 1930’s.
While no one can predict the future, it’s safe to assume that while our current economy is healthy, a possible stock market crash can happen again. But only if we learn from history can we avoid another long-term depression that shakes the American economy down to its very foundation.
What a stock exchange does
The stock market is on the news every day. Even on days when there isn’t trading, like a weekend or a holiday, there are people on TV and in the newspaper that are talking about what they think individual stock are going to do and why you should or shouldn’t invest your money right now. We know that a stock market trades stocks. But why? And what good does it provide to the economy?
The stock market is seen by many to be the engine that drives the economy. Businesses and corporations and even governments use the stock market to create capital or wealth. They create this wealth by offering stock, or shares, which are like little pieces of ownership of the company or corporation, and then they trade them. The value of the stock depends on how well the company is doing. The company sells the stock to investors who buy the stock based on if they think the company is going to be making a lot of money or not. This brings in a huge amount of cash into the corporation. IPO’s or initial price offerings are when a company offers stock to the public for the first time ever. A big corporation can make hundreds of millions of dollars or even billions of dollars during their IPO. If the company continues to do well and make money, the stock price goes up, everyone that has shares makes money and more stock is sold to people who want to own a piece of that company.
The same method works if the company is doing badly. The stock loses value as the company does badly, and people then begin to sell the stock and the value of it goes down.
Every company, even the most successful ones, have their stocks go up and down on a monthly basis based on things like earning reports. There is no 100% safe stock, but there are stock that is referred to as “blue chip” stocks, or ones that are the most reliable.
But it isn’t just stock that is traded on a stock exchange like the NYSE. Bonds, securities and commodities are also traded, creating wealth in many different sectors as well as helping the flow of goods and services over the globe. The role of the NYSE and other stock exchanges around the world cannot be overstated in their importance to the world economy.
The Wall Street Crash of 1929
Maybe no event in American financial history is better known and more infamous than Black Tuesday, the day the stock market crashed and ushered in a depression that would grip the United States through the first half of the next decade. But what caused such a horrible event and what can be learned from it?
The stock market crash that most people associate with Black Tuesday, was actually a multi-day process. The previous Thursday, the market began its downward slide, with trading setting an all time record with 13 million shares trading hands that day. The Dow had reached an all-time high just a month earlier in September of 1929 with a close of 381.17. A group of bankers met during that Thursday to try to figure out how to stop the slide and they decided to take the same tact that worked to stop the last market panic in 1907. They began to buy massive amounts of blue chip stock to try to reassure investors that the market was holding steady and that they shouldn’t sell everything they had and make matters worse.
The bankers, led by Tom Lamont of Morgan Bank, Chase National Bank’s Albert Wiggin and Charles Mitchell of National City Bank thought that this method had worked, but it only led to a quieter Friday. The downfall would continue early next week.
On Monday, spurred on by negative newspaper accounts of Thursday’s crash, investors sold more and more stock off, sending the Dow into another tailspin. At the end of Monday’s trading, approximately 13 percent of the value of the Dow had been lost. Black Tuesday led to more losses that some believed were spurred on by President Herbert Hoover’s insistence that he would not veto a tariff bill that many on Wall Street thought would hurt the economy.
So, what caused the crash? Most believe an artificial economic bubble is to blame for the crash. The bubble was formed during the 1920’s and the great amount of speculative investing that happened during that time. The downturn in stock prices after the high in September saw a chain of events happen that led to the Great Depression of the 1930’s.
While no one can predict the future, it’s safe to assume that while our current economy is healthy, a possible stock market crash can happen again. But only if we learn from history can we avoid another long-term depression that shakes the American economy down to its very foundation.
The Skinny on Online Investing
The world of stock trading has changed dramatically over the last 20 years. Trades that use to take more than a week to process now take only moments. While once you needed to have a stock broker to make a trade for you, now, from the comfort of your own computer, you can make as many trades as you like, and at a much lower commission than your grandfather would have paid to make the same trade 50 years earlier. The world of online trading can be very tempting to many. Investing is a lot like gambling, with possible huge profits and even bigger losses possible. But how do you know if online investing is for you?
The first question you need to answer is do you have money to burn? Of course, none of us want to toss our money down the drain, but you have to be prepared for the worst. Most online investors are armed with a copy of the New York Times, online subscriptions to several investment websites as well as strong word of mouth from family and friends, but even with all this information, some investments don’t go the way you want them to. Make sure you have room in your budget so that you can afford to lose some and still be secure. Online investing can be addictive, so you should know when to stop.
Be prepared to arm yourself with as much information as possible. While it’s true that even the most informed traders make mistakes, the more you know, the less likely this will happen. This means immersing yourself in reliable, timely and knowledgeable advice. If you’re not willing to take the time to properly educate yourself, you might want to leave investing to your broker.
A good investor has to learn to be patient. While it is tempting to take on the human herding instinct and put your money on the latest trend or the most fashionable stock, those investors that are confident and patient usually come out on top.
If you’re new, stick to blue chip stocks. There is a reason they are called blue chips, they have shown slow and steady growth over long periods of time. There is no such thing as a safe stock, but blue chips are the closest thing you’ll find. A good tip is to always leave a portion of your investments in blue chips, so if the rest of your investments go south, you’ll have something to fall back on.
Online investing can be exciting and fun, but it can also be terrifying for a newbie. Do the research, develop some patience and stick to familiar ground and online investing can be a great way to develop your portfolio without having to bow to mainstream brokers.
The October 27th 1997 Mini-Crash
The mini-crash of 1997 is remembered better today for what didn’t happen than what did. For the first time in New York Stock Exchange history, trading was halted for the day for the first time ever due to losses in stock prices.
What made this event so controversial is that the “circuit-breaker” system that was used for the first time that day was run on the idea that once the market has lost a certain number of points, trading would be halted. This was seen to be short-sighted since the actual percentage of value lost when trading was halted was relatively minor compared to other market crashes and corrections in the past. The circuit breaker system has since been corrected to only stop once 10 percent, 20 percent and finally 30 percent of the market value has been lost.
As is always the case with trading on the American stock markets, the ripple effect that would turn into a tidal wave started with the Hong Kong market. The Hang Seng Index fell about six percent the night before, but many experts in the US didn’t bear it much mind since the Nikkei average lost only two percent that same day. As markets opened in Europe, they followed suit with their Asian counterparts, with the FTSE losing about 2 percent and the DAX exchange in Frankfurt falling, as well.
As markets opened in the United States, most predicted a bad day, but no one predicted what ended up happening. The NASDAQ, S&P and the Dow Jones all opened lower, and it was pretty much all down hill from there. Just after 2:30 in the afternoon, the Dow had dropped 350 points, causing the first level of the “circuit-breaker” to go off, halting trading. While a 350 point drop is significant, many did not feel a stoppage in trading was warranted at that time, since a drop of that size is relatively small, percentage-wise. Thirty minutes later, trading began again, only to see the 550 point window smashed around 3:30. This second circuit breaker level usually causes a one-hour break in trading, but since there was only 30 or so minutes left, trading for the day was ended.
This correction was seen as a slight bump in what was otherwise a good year for the Dow. The 550 point drop was just over a 7% loss for the day. It turned out to be the 12th biggest percentage loss in a single day in Dow history and third biggest point loss.
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