Does the World Need Wall Street? Why?/why Not?
Does the world need Wall Street? Why?/Why Not?
History of Wall Street
Wall Street is many things to many people and the perception of what it really is depends on who you ask. People’s view of Wall Street defers widely but what is beyond dispute is the enduring impact it has, not only on the American economy but the global one as well. So to answer the question above; yes, the World needs Wall Street because that’s what makes it prosperous.
Wall Street is the symbolic and geographic center of American capitalism. It refers to all the banks, hedge funds and securities traders that drive the American financial system. Wall Street is located at the center of Manhattan’s financial district, physically but its influence extends worldwide. The term “Wall Street” was initially used to refer to large groups of independent brokerage firms that dominated the investment industry. Wall Street is a symbol for U.S financial markets which includes stock, bond, commodities and foreign exchange markets; yet its history goes back much further than the New York Stock Exchange.
Wall Street is a direct reference to a wall that was built by Dutch settlers on the southern tip of Manhattan in the 17th century. The wall was built as a defense to keep out the British and pirates, although never used for its purpose, its removal left a legacy behind with the street being named after it. The area became famous for being America’s financial center in 1792 when the Buttonwood agreement that outlined the common commission based form of trading securities was signed. In 1817, the Buttonwood agreement was revised, the organizations of brokers renamed themselves as The New York Stock and Exchange Board which gave birth to what is now the modern day New York Stock Exchange (NYSE). Today, Wall Street is used to describe the country’s financial sector; it is also home to the headquarters of numerous brokerage houses and financial institutions. Wall Street’s central role as a hub of activity affecting the economy has led its very name to be synonymous with high finance and all manners of investing and general economic prosperity.
How does Wall Street work?
Wall Street is largely based on a single idea: markets. A market can exist for anything but the main thing people work with are contracts, it allows people to trade all sorts of things without always dealing with the physical details of a transaction like stocks, bonds and futures for example. Fundamentally, the main role of Wall Street is to figure out who should get what in our society and since this task is too much for any one person or group; it is solved by using distributed computing where each individual firm and trader works on a small part at a time. Wall Street firms are also very big on fundamental research. They look into various commodities, technologies and companies to figure out who is going to need what and based on that, they can trade on information and make money. Based on the research, another fundamental task of Wall Street is price discovery which figures out how much things should cost which leads us back to Wall Street being a market for capital. You either raise capital to grow a business, sell your business to the public or let other businesses put surplus capital in exchange for some kind of benefit.
Essentially, Wall Street firms managed to put themselves in the middle of the flow of money. They’ve taken advantage of their position as intermediaries by creating a business model which generously benefits them by getting a piece of this money flow. So, companies that need cash go to Wall Street to sell partial ownership, investors go to Wall Street to purchase companies and company ownership is divided into shares (common stock) and those shares are bought and sold on Wall Street. The rest is a lot of analysis and numbers.
Wall Street has such an impact on the economy because it is the trading hub of the biggest financial markets in the world’s richest nation. Wall Street is home to the New York Stock Exchange which is the undisputed leader worldwide in terms of average daily share trading volume and market capitalization. NASDAQ is the second largest globally and also has its headquarters on Wall Street. The U.S. is the world biggest economy with a GDP comprising 22.4% of global economic output. It is twice the size of China which is the second biggest economy. And these are reasons why Wall Street has such an impact.
How Wall Street has an impact?
The most important ways Wall Street has such an impact is based on Wealth Effect, floating stock markets influence a wealth effect in consumers. Consumer confidence, when economic conditions are favorable to growth and consumers and business are confident about the outlook of the future and business investment, companies can use their pricey stock to raise capital which is then used to acquire assets or competitors. Increased business investments leads to higher economic output and generates more employment.