Wall Street: The Legend, Lies and Leverage Home of the New York Stock Exchange

Gayle Kurtzer-Meyers

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Photo by Sophie Backes on Unsplash

If you can make it here, you can make it anywhere.

One of the most famous streets in the world, Wall Street is located in Lower Manhattan. It is home to the New York Stock Exchange (NYSE) in New York City. It’s historically renowned for being the location for major U.S. brokerages and investment banks. Often known as just “The Street,” it is known for representing big businesses and major financial institutions worldwide.

Not only is Wall Street, an integral part of the global financial system, but it has also been portrayed several times in movies and literature over the years. From financial crime thrillers to stories about making it big in the States with ‘The American Dream,’ Wall Street is an evergreen topic of interest.

Generally, Wall Street is home to several financial markets, such as stocks, bonds, commodities, futures exchange, and foreign exchange, as well as companies that are trading publicly on exchanges all over the States. The biggest financial companies in the U.S. are all located somewhere on Wall Street.

The history of Wall Street

How did Wall Street begin? Initially, an actual wall came into existence back when New York was still a Dutch Colony. It was made in 1652 because the Dutch settlers in Manhattan were afraid of England attacking them. It was a 10-foot-high, wooden wall that the Governor at the time, Peter Stuyvesant, had gotten made to create a barrier between them and the British.

It took 5,000 guilders to build the wall, which extended over 2,300 feet. It had cannons to ward off attacks and two gates on either end. One of the gates is at what we call Wall Street and Pearl Street's corner, while the second one is at Wall Street and Broadway.

As time went on, traders would gather under a buttonwood tree near the wall, which eventually turned the area into a street bazaar. Finally, in 1792, the New York Stock Exchange was made.

You’ve probably heard of the Great Depression. One of the biggest stock market crashes in 1929 started the beginning of one of the darkest times in American history. Stock prices kept falling, and nothing the Wall Street bankers did could stop it. Investors started pulling their savings out of the banks when the stock markets crashed, which caused the banks to crumble as well.

Because of its vast influence, Wall Street could make or break the economy. To come out of the Great Depression, the government spent an enormous amount on the New Deal and World War II to restart the economy. It still took the marketplace all of the 1930s to recover from this depression.

In 2008, another significant financial recession took place. This crisis began when house prices started plummeting in 2006. The mortgage-backed securities and credit default swaps used as trade at the secondary market, but when housing prices fell, the mortgages began defaulting. People could no longer figure out how to price the mortgage-backed securities. The number of defaults rose so high that the companies that guaranteed debt, even major ones such as AIG, had no more money left.

Once again, this put a halt on bank lending and created the recession. The federal government had to intervene, similar to how it had at the time of the Great Depression. It bailed Wall Street out using the 2008 TARP Program.

These crises eventually led to the Dodd-Frank Wall Street Reform Act in 2010, passed by the Congress. Enforcement took place to stop a financial crisis from destroying the economy by having the federal government be more involved in Wall Street. Along with other aspects, agencies had to establish a derivatives clearinghouse, such as the stock exchange, making transactions transparent.

The Dodd-Frank Reform wasn’t the only way people reacted to the 2008 crisis. Unlike during the Great Depression, people were now more connected, and a single idea could travel much faster through the public. The historical “Occupy Wall Street Movement” came about. Starting on September 17, 2011, this non-violent movement had no leader in particular.

The aim was to occupy Liberty Square in New York’s famous financial district, but 1,500 cities worldwide became part of the occupation. The reason behind this movement was income inequality, where the distribution of wealth differed vastly among the world’s population. Income inequality meant that 40% of global wealth lay in the hands of 1% of the community.

People started accusing Wall Street of being responsible for starting the crisis, then the recession that followed. A large number of the population was jobless for an extended period. The movement claimed that money played a role in politics and the democratic process because of Wall Street's capital, network, and power structure.

Due to the influence of this movement, some changes in the financial structure occurred. The bar for minimum wage rose in several cities and individual organizations. The government also started reconsidering the policies behind repaying student debt.

The legends of Wall Street

By May 17, 1792, security traders had been meeting and making transactions under a Buttonwood tree for the past year. On May 17, they decided to make an official agreement known as the Buttonwood Agreement, which underlined that the government and outsiders would stay out of their trading. If anyone from outside their group were interested in investing in stocks, they would need a verified broker's help.

The Tontine Coffee House, at the corner of Wall Street and Water Street, became the location for the offices of the initial signees. Eventually, they would transfer to the Merchant’s Exchange building.

By March 8, 1817, the Buttonwood traders had visited the Philadelphia Merchants’ Exchange and decided to use the same model for their New York Stock and Exchange Board. They went on to formulate a proper constitution and elected Anthony Stockholm as their first president. Every morning, Stockholm called out the stocks that traded as a way to start the day.

Because of its vast influence, Wall Street could make or break the economy. To come out of the Great Depression, the government spent an enormous amount on the New Deal and World War II to restart the economy. It still took the marketplace all of the 1930s to recover from this depression.

In 2008, another significant financial recession took place. This crisis began when house prices started plummeting in 2006. The mortgage-backed securities and credit default swaps used as trade at the secondary market, but when housing prices fell, the mortgages began defaulting. People could no longer figure out how to price the mortgage-backed securities. The number of defaults rose so high that the companies that guaranteed debt, even major ones such as AIG, had no more money left.

Once again, this put a halt on bank lending and created the recession. The federal government had to intervene, similar to how it had at the time of the Great Depression. It bailed Wall Street out using the 2008 TARP Program.

These crises eventually led to the Dodd-Frank Wall Street Reform Act in 2010, passed by the Congress. Enforcement took place to stop a financial crisis from destroying the economy by having the federal government be more involved in Wall Street. Along with other aspects, agencies had to establish a derivatives clearinghouse, such as the stock exchange, making transactions transparent.

The Dodd-Frank Reform wasn’t the only way people reacted to the 2008 crisis. Unlike during the Great Depression, people were now more connected, and a single idea could travel much faster through the public. The historical “Occupy Wall Street Movement” came about. Starting on September 17, 2011, this non-violent movement had no leader in particular.

The aim was to occupy Liberty Square in New York’s famous financial district, but 1,500 cities worldwide became part of the occupation. The reason behind this movement was income inequality, where the distribution of wealth differed vastly among the world’s population. Income inequality meant that 40% of global wealth lay in the hands of 1% of the community.

People started accusing Wall Street of being responsible for starting the crisis, then the recession that followed. A large number of the population was jobless for an extended period. The movement claimed that money played a role in politics and the democratic process because of Wall Street's capital, network, and power structure.

Due to the influence of this movement, some changes in the financial structure occurred. The bar for minimum wage rose in several cities and individual organizations. The government also started reconsidering the policies behind repaying student debt.

The legends of Wall Street

By May 17, 1792, security traders had been meeting and making transactions under a Buttonwood tree for the past year. On May 17, they decided to make an official agreement known as the Buttonwood Agreement, which underlined that the government and outsiders would stay out of their trading. If anyone from outside their group were interested in investing in stocks, they would need a verified broker's help.

The Tontine Coffee House, at the corner of Wall Street and Water Street, became the location for the offices of the initial signees. Eventually, they would transfer to the Merchant’s Exchange building.

By March 8, 1817, the Buttonwood traders had visited the Philadelphia Merchants’ Exchange and decided to use the same model for their New York Stock and Exchange Board. They went on to formulate a proper constitution and elected Anthony Stockholm as their first president. Every morning, Stockholm called out the stocks that traded as a way to start the day.

There was a dress code for the exchange, where every member needed to wear a top hat and a dress coat. If someone wanted to be a part of the trade, they had to get voted into the group but still had to pay $25 to confirm their seat. Over the years, this cost rose and went all the way to $400 in 1848.

In 1903, the world-renowned New York Stock Exchange building finally debuted on 18 Broad Street. It was one of the first in the States to have air conditioning, thanks to the engineer Alfred Wolff. Below the building, there were hundreds of vaults where the exchange filed away everyone’s stock certificate.

The lies and the leverage

After the major financial crises that Wall Street was at the center of, regulators attempted to secure the financial system to prevent similar occurrences. Banks could no longer take on the extensive leverage that they could before.

However, it may not have eliminated the risks the way they were anticipating. Currently, interest rates are at an all-time low yet again. Companies are knee-deep in debt because banks are more than willing to encourage deals, while investors are keenly focused on getting the highest returns.

These investors started borrowing to amplify their profits for mortgages, municipal and government bonds, and junk debt. The more the leverage, the higher the losses.

The pandemic hasn’t made trade any easier. To manage the spread, hundreds of businesses have stopped functioning, and millions of Americans are out of jobs expecting that both consumers and organizations will default on their loans.

The lowered prices of risky debt have created a sense of urgency in investors. They have had to decide to unwind leveraged trades or settle the collateral. The liquidations, happening much quicker than before, have lowered the prices even more, leading to increased margin sales and calls. All of this combines with the other factors that are causing a drop in the market.

Trading on Wall Street

It takes time to get used to trading on Wall Street. You have to keep in mind several different aspects, which all play a role in the prices. Market makers are at the core of trading exchanges because they’re built into the trading system to help with money and trading.

Most people investing in Wall Street will tell you that traded securities depend on news, corporate activities, and management changes. However, market makers and any traded security’s supply and demand on a particular day will influence its trading price as well.

One crucial factor to remember while trading on Wall Street is that insight and experience can significantly impact your success. Financial expert Warren Buffet — one of the richest men in the world — owes a part of his fortune to his decision not to invest money at the start of the internet boom. Another stock market success story, James Simons, became a billionaire after learning how to use algorithms and computers to analyze the better investment options.

Hedge funds are a risky business, and you shouldn’t be venturing into investing in them if you aren’t prepared to take a risk. The people who make it big on Wall Street are always those that can make bold choices and are willing to put their money on the line. There are still chances of a loss, but you’ll never succeed if you don’t make that first move.

It’s also about being faster than other traders. The longer you wait around before deciding to invest, the more chances there are that someone already has what you wanted. There’s always someone who misses out when another person gains. The only way you win is when you have years of experience that help you make split-second decisions about where to invest.

People are likely to forget about past statistics and repeat the same mistakes if you don’t have a substantial amount of financial knowledge and experience about what strategies work and which ones are bound to fail and trap in the same cycle of failure as those before you.

While in the heat of the moment, it may seem like a particular stock or market cycle will turn out differently, you have to understand why individual stocks failed in the past to navigate away from attractive options. When you realize that the same cycle is repeating, you’ll find it easier to determine what is and what isn’t going to work. To do this, you should read up on previous financial crises' intricacies and understand how and why they occurred.

Compounding, something that Warren Buffet is famous for, can go a long way. Many people say that his luck with compounding isn’t the norm because people generally don’t compound at such high rates. If not adequately equipped with ways to tackle the numerous different hurdles that trading on Wall Street will throw your direction, there are more chances that you’ll lose your money rather than make more.

Final thoughts

Trading in financial markets is risky because of the uncertainty surrounding the economy. During the current times, when the pandemic has nearly put half the businesses at a standstill, investment and stocks are more complicated than ever.

The strange aspect of understanding the stock market in this pandemic is the lack of previous experience. While financial crises have taken place before, there has never been a pandemic that has caused widespread disturbances in markets worldwide. Before investing in the current market, it would be wise to wait and understand the uncertainty around how the economy will recover.

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I am a Licensed Community Association Manager for the State of Florida and a published author. My top articles are about Florida RE, property management, and the many beautiful venues and activities available in the Sunshine State. Thank you for reading my work and joining me on the journey.

Kissimmee, FL
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