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Wall Street

The financial mecca of the U.S. (and the world)

What is Wall Street?

There are two major 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, running east to west from Broadway to South Street in the heart of the financial district. In terms of representing the heart of capitalism in the country, Wall Street is home to the New York Stock Exchange (NYSE), as well as a number of banks and other financial institutions and corporations.

The phrase, “Wall Street,” is sometimes taken as generally representative of the investment banks, investment companies, securities traders, hedge funds, and portfolio managers in the entire country. It is a symbolic term used to refer to both the people and the places that govern the world of finance for the country as a whole.

 

Wall Street

 

Early History of Wall Street

Wall Street gets its name from a literal, physical wall built in New York when the town was really 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 their business. In 1792, the traders and buyers met and formalized rules to authorize and legitimize their business, leading to the eventual formation of what is known today as the NYSE.

 

Crashes on Wall Street

Though not the first economic depression or market crash in the U.S., the Stock Market Crash of 1929 triggered what quickly became known as the Great Depression. While 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 right and left, dropping stock prices and triggering the market as a whole to crash. The catastrophic event is highlighted by the fact that the Dow Jones lost all its previous gains for 1929 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 entire economic system in the country, which led to many pulling all their money from banks and subsequently causing the collapse of many financial institutions as well. The stock market crash and subsequent depression led to the first major regulation of stock market trading with close government oversight by the newly-created Securities and Exchange Commission. It wasn’t truly until major government spending on World War II and the New Deal that the U.S. economy began to recover.

 

Wall Street Trading

 

Housing Market Crash

The second most significant – and the most recent – market crash came in 2008. The housing market crash was the result of the eventual collapse of hundreds of billions of dollars of mortgage-backed securities 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 second greatest economic depression for Wall Street since 1929. It wasn’t until the end of 2008, with the Troubled Asset Relief Program (TARP), and the Economic Stimulus Package in 2009 that the financial mecca bounced back after hefty federal loans bailed out many of the leading financial institutions on Main Street.

Despite its humble beginnings and its numerous ups and downs throughout history, Wall Street has continually been regarded as the center for capitalism and finance, both within the country and by the world at large. The future successes and failures of the financial mecca remain to be seen.

 

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 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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