Wall Street

What is Wall Street?

There are two ways to look at what Wall Street is. It is both a geographical location and the financial mecca of the U.S. (and, arguably, of the world). In terms of geography, Wall Street takes up eight blocks in Manhattan, New York. It runs east to west from Broadway to South Street, in the heart of the financial district. Representing the heart of capitalism, Wall Street is home to the New York Stock Exchange (NYSE), numerous banks, other financial institutions, and corporations.

The phrase, “Wall Street,” is sometimes taken as generally representative of investment banks, securities traders, hedge funds, and portfolio managers. It refers to both the people and places that govern the world of finance.

Early History of Wall Street

Wall Street got its name from a literal, physical wall built in New York when the town was still a Dutch colony. Governor Peter Stuyvesant called for a 10-foot wall to be built, protecting the lower part of the peninsula from Native Americans.

Later on, the street became known for being a marketplace where traders and buyers met to conduct business. In 1792, the traders and buyers formalized rules to authorize and legitimize their business, leading to the eventual formation of the NYSE.

Crashes on Wall Street

Though not the first economic depression or market crash in the U.S., the Crash of 1929 triggered what quickly became known as the Great Depression. There’s not one specific explanation of what precisely triggered the massive stock sell-off in the fall of 1929. The sharpest stock traders – men such as Jesse Livermore – realized that the stock market had been hugely overbought for quite some time.

Eventually, a small sell-off rolled into a major panic and investors began selling indiscriminately, dropping stock prices and triggering the market as a whole to crash. The Dow Jones lost all of its previous gains for the year – and nearly 25% of its total gains for the decade – in a matter of hours at the end of October.

The event is important historically when looking at Wall Street for a number of reasons. Many individuals lost faith in the country’s entire economic system. This led to many pulling all their money from banks, subsequently causing the collapse of many financial institutions. The stock market crash and the following depression led to the first major regulation of stock market trading. Close government oversight was instituted by the newly-created Securities and Exchange Commission. Though many credit Roosevelt’s “New Deal” government spending for ending the depression, it wasn’t until the outbreak of World War II made the country’s unemployment problem vanish overnight that the U.S. economy really began to recover.

Housing Market Crash

The second most significant – and most recent – market crash came in 2008. The housing market crash was the result of the collapse of hundreds of billions of dollars of mortgage-backed securities, many traded as credit default swaps. When the underlying mortgages went into default, the defaults piled up to the point that major lenders ran out of financing and started to go under.

The response was quick and devastating: Wall Street traders, lenders, and brokers panicked. Markets around the world started to plummet and banks stopped lending to one another to pick up the slack. Eventually, many banks filed for bankruptcy. It is, historically, the greatest economic depression since 1929. It wasn’t until the implementation of the Troubled Asset Relief Program (TARP) and the Economic Stimulus Package in 2009 that the financial mecca bounced back. Hefty federal loans bailed out many of the leading financial institutions on Wall Street.

Despite its humble beginnings and numerous ups and downs throughout history, Wall Street remains regarded as the world center for money, capitalism, and finance.

Related Readings

We hope you enjoyed reading CFI’s explanation of Wall Street. CFI is the official provider of the global Financial Modeling & Valuation Analyst certification program, designed to help anyone become a world-class financial analyst. The following CFI resources will be helpful in furthering your financial education:

• Financial Intermediary
• Key Players in the Capital Markets
• Retail Bank Types
• List of Top Investment Banks
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