The History of Wall Street
The early US stock market had no set rules and little trust. Con men masqueraded as brokers and deals were frequently reneged on.
The Origin Story
So, how did Wall Street get its name?
It’s the late 17th Century. The Dutch have settled in downtown Manhattan, known then as New Amsterdam. In the thick of the first Anglo-Dutch War, they anticipated a British-led attack at any moment. To keep their attackers at bay, the construction of a defensive wall running 9 feet high and 2300 feet long was ordered.
Although historians differ on the details, it is believed that when British settlers later claimed New Amsterdam and renamed it New York, they continued to refer to the area of lower Manhattan as Wall Street. The future of Wall Street as a financial center was cemented in 1711 when it became the location for New York City’s slave market, stretching from Pearl Street to Water Street. Today, the original wall is long gone but Wall Street remains synonymous around the globe with the wider American financial market.
The Fable of the Buttonwood Tree
The early US stock market had no set rules and little trust. Con men masqueraded as brokers and deals were frequently reneged on. Dubbed the first insider trader, William Duer is said to have sparked the Financial Panic of 1792 which left people wary of investing. To rebuild trust and reduce the panic, the idea for an agreement that would govern traders with the same set of rules was born.
The 1792 Buttonwood Agreement was signed by 24 stockbrokers and merchants under the quiet shade of a Manhattan buttonwood tree. With two short sentences, the Buttonwood Agreement provided guiding principles and formed the beginning of the existing trading system.
“We the Subscribers, Brokers for the Purchase and Sale of Public Stock, do hereby solemnly promise and pledge ourselves to each other, that we will not buy or sell from this day for any person whatsoever, any kind of Public Stock, at a less rate than one quarter percent Commission on the Specie value and that we will give a preference to each other in our Negotiations. In Testimony whereof we have set our hands this 17th day of May at New York. 1792.“
By 1817, the group had been renamed the New York Stock and Exchange Board, later becoming the New York Stock Exchange as we know it.
The 1920 Bombing of Wall Street
A mystery that remains unsolved to this day, the 1920 Wall Street bombing killed more than 30 people and injured hundreds more. A dynamite-packed horse drawn carriage detonated outside the office of financier J.P. Morgan shortly after noon on September 16th, killing Wall Street’s vendors, clerks, and street workers. Despite extensive investigations and hundreds of interviews conducted by the New York Police and Fire Departments, the Bureau of Investigation, and the Secret Service, the bomber (or bombers) were never identified. Over a century later, there have been no convictions and the remnants of shrapnel marks remain visible on the wall of J.P. Morgan’s building.
Black Thursday (and Monday, and Tuesday)
By all accounts the roaring twenties was a fabulous time to be alive and an even better time for the New York Stock Exchange. During this economic boom, ordinary families scrambled to raid savings and borrow cash to invest in stocks and bonds, hoping the unprecedented levels of share prices would secure their future wealth. President Hoover’s Bull Market saw countless people mortgaging their homes and borrowing funds from brokerage houses and investment trusts in order to pile more cash into the explosive market.
By September of 1929 the Dow Jones Industrial Average had reached 381 and stock prices reached unimaginable highs. At the same time, unemployment was rising, production was declining, and wages were low. By mid-October of 1929 the market had gone into a freefall and people rushed to sell their recently acquired stocks. Black Monday (October 28), saw the DOW decline by 13 percent. By Black Tuesday it had dropped by 12 percent with billions of dollars lost and public confidence plummeting. Millions of investors and thousands of banks were suddenly wiped out and in the years to follow investment continued to drop while the unemployment rate soared. America had officially entered the Great Depression which would last for over a decade and see more than twenty percent of Americans unable to find employment.
The Birth of the SEC
In the early 1930s, President Roosevelt was determined to overhaul America’s financial system, repair the economy, and restore public confidence. In 1934 he signed the Securities Exchange Act which ultimately created the Securities and Exchange Commission (SEC) as we know it today.
The idea behind the Act was to regulate the stock market and enforce federal securities law in order to prevent a repeat of the devastating crash of 1929. The SEC now had the power to charge anyone who violated securities laws. In the decades since it was implemented the SEC has worked with the US Department of Justice to prosecute individuals and companies that have engaged in securities fraud, helping to protect investors and bring renewed transparency to the industry.
Wall Street Today
As well as the New York Stock Exchange, Wall Street is home to the Federal Reserve Bank of New York, as well as many investment banks, securities dealers, trust companies, utilities, insurance companies, and brokerage firms. Wall Street symbolizes the entire US financial industry and is often used to refer to the industry as a whole, as opposed to simply the 8 short blocks that it occupies.
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