Financial Management 607 – Professor Tran
Does the world need Wall Street? Why? / Why Not?
The world does not need Wall Street, because Wall Street is not a necessity. It may seem like Wall Street is a necessity because of how it compliments capitalism very well. For instance, we seem to confuse financial security as need because how immediate and ethical stocks and bonds appear to be. Without Wall Street it is evident that it will be difficult for new businesses to become established and it would be harder for people to make purchases because that would normally be made with credit. For us to understand that Wall Street is necessity we will have to discern needs from wants in our life to distinguish exactly what is considered a need.
Based on the article Does America Need Wall Street, Alfred Chandler argued persuasively that most investments during the nation’s industrialization came from corporate profits and not capital raised by bankers on Wall Street. Madrick believes that “we have come to believe that we need a stock market to set a price for a new company and find buyers for it. In fact, prices are typically set in a back room by manipulative investment bankers and driven to irrational levels by individual investors” (Madrick). The statements both Chandler and Madrick make are noteworthy, because they address how indispensable we have perceived Wall Street to be when we can set our own prices for companies. Wall Street which is perceived to be the heart of our capitalistic society even though it has had its fair flaws in the past.
During the 1970’s the Federal Reserve had bailed out bankers for bad South American loans. The Savings and Loans Crisis in the 1980’s caused interest rates to skyrocket because loans were not governed by Regulation Q at the time. The East Asian financial crisis in the 1990’s stemmed from the currency markets failing in Thailand, which resulted in the government to no longer “peg” the local currency to the United States Dollar. In Southeast Asia declines in currency spread fast which caused the stock market to go down, reduce import revenues, and government turmoil (Investopedia). The bursting of the dot-com boom in 2000 caused several companies to go bankrupt or merge with other companies due to rapid growth of equity markets (Geier). Lastly, the 2008 collapse of the housing and financial markets all has made Wall Street chiefly responsible for financial calamity in the last century.
I am not attempting to discredit Wall Street for its accomplishments, because Wall Street has certainly made advancements in regards to how capitalism operates. The initial purpose of having the securities market was to raise funds for companies to grow, and create jobs. Capitalism seemed to be a disaster prior to the creation of Wall Street and may have not become as advanced like it is now if Wall Street did not exist. We have had more archaic forms of Capitalism like Mercantilism during the Middle Ages when skil...