The Great Wall Street Crash of 1929 vs. Wall Street crisis of 2008
By Daniel at 10 December, 2008, 12:49 am
What’s wall street?
Wall Street is the historical center of the Financial District. Wall Street was the first permanent home of the New York Stock Exchange; over time Wall Street became the name of the surrounding geographic neighborhood. Wall Street is also shorthand for the “influential financial interests” of the American financial industry, which is centered in the New York City area. Several major U.S. stock and other exchanges remain headquartered on Wall Street and in the Financial District, including the NYSE, NASDAQ, AMEX, NYMEX, and NYBOT.
Bankers, brokers and traders earned an average salary and bonus of $340,312 (U.S.) a year in 2006, Brown said. Wall Street’s total compensation amounts to almost 35 per cent of all salaries and wages earned in the city.
Wall Street employment peaked at 200,300 in December 2000, nine months before the Sept. 11 attacks.
The Great Wall Street Crash of 1929 vs. Wall Street crisis of 2008
“Anyone who bought stocks in mid-1929 and held onto them saw most of his or her adult life pass by before getting back to even.”
—Richard M. Salsman
Economists and historians disagree as to what role the crash played in subsequent economic, social, and political events. The Economist writes, “Briefly, the Depression did not start with the stockmarket crash.”
The Economist asked: “Can a very serious Stock Exchange collapse produce a serious setback to industry when industrial production is for the most part in a healthy and balanced condition? … Experts are agreed that there must be some setback, but there is not yet sufficient evidence to prove that it will be long or that it need go to the length of producing a general industrial depression.”
“Many people blamed the crash on commercial banks that were too eager to put deposits at risk on the stock market. ” As mass production has to be accompanied by mass consumption, mass consumption, in turn, implies a distribution of wealth — not of existing wealth, but of wealth as it is currently produced — to provide men with buying power equal to the amount of goods and services offered by the nation’s economic machinery.
Instead of achieving that kind of distribution, a giant suction pump had by 1929-30 drawn into a few hands an increasing portion of currently produced wealth. This served them as capital accumulations. But by taking purchasing power out of the hands of mass consumers, the savers denied to themselves the kind of effective demand for their products that would justify a reinvestment of their capital accumulations in new plants. In consequence, as in a poker game where the chips were concentrated in fewer and fewer hands, the other fellows could stay in the game only by borrowing. When their credit ran out, the game stopped.
IN THE early 1930s, three holding companies in the United States controlled almost half the utility industry. One alone owned 130 utilities.
The holding companies controlled the utilities through complicated pyramid structures, with a few investors at the top controlling shares of many subsidiaries.
The structure led to many problems: for example, subsidiaries of the holding company could charge each other inflated rates for services and hide the charges in their regulated rates. Also, since the holding company was legally separate from the subsidiary, it was not liable for debts.
Some people believed that abuses by utility holding companies contributed to the Wall Street Crash of 1929 and the Depression that followed. Holding companies were “fair weather” corporations and, because of their shaky finances, many went under when the Depression came.
Similar case but different day. American financials are overpriced, banks are too eager to loan, housing bubble, supply of goods are overheated cause this crisis.
The financial crisis of 2007–2008, initially referred to in the media as a “credit crunch” or “credit crisis”, began in July 2007 when a loss of confidence by investors in the value of securitized mortgages in the United States resulted in a liquidity crisis that prompted a substantial injection of capital into financial markets by the United States Federal Reserve and the European Central Bank. The TED spread, an indicator of perceived credit risk in the general economy, spiked up in July 2007, remained volatile for a year, then spiked even higher in September 2008, reaching a record 4.65% on October 10, 2008. In September 2008, the crisis deepened, as stock markets world-wide crashed and entered a period of high volatility, and a considerable number of banking, mortgage and insurance company failures in the following weeks. Share in GDP of US financial sector since 1860.
U.S financials bubble is start to bust
Initially the companies affected were those directly involved in home construction and mortgage lending such as Northern Rock and Countrywide Financial. Financial institutions which had engaged in the securitization of mortgages such as Bear Stearns then fell prey. Later on, Bear Stearns was acquired by JP Morgan Chase through the deliberate assistance from the US government. Its stock price fell from the record high $154 to $3 in reaction to the buyout offer of $2 by JP Morgan Chase, subsequently the acquisition price was agreed on $10 between the US government as well as JP Morgan. On July 11, 2008, the largest mortgage lender in the US, IndyMac Bank, collapsed, and its assets were seized by federal regulators after the mortgage lender succumbed to the pressures of tighter credit, tumbling home prices and rising foreclosures. That day the financial markets plunged as investors tried to gauge whether the government would attempt to save mortgage lenders Fannie Mae and Freddie Mac, which it did by placing the two companies into federal conservatorship on September 7, 2008 after the crisis further accelerated in late summer.
Banks are too eager to loan, people are heavily consume in debt, supply increases by this fake demand. The whole bubble start to bust when the consumers accumulated huge debt and unable to consume and then filing bankruptcy case increases. Demand drops sharply, and the production cuts, company filled with full inventory. Banks collapse as people unable to pay back the loans. Banks stop funding new investment or business. Economic growth ends. Recession began.
Dow Jones Industrial Average Jan 2006 - Nov 2008
Since 1929, these cycles continuous and will never end.
What are these cycles?
The Boom-Bust economic cycle
The boom and bust cycle describes the cycle of economic upswings and downswings in the business economy.
An economic boom is typically characterized by an increased level of economic output, a corresponding increase in aggregate demand, rising employment, and often, a rise in the inflation rate. During busts, or recessions, aggregate demand is low, inflation decreases, unemployment rises and national income falls. In extreme recessions deflation (a sustained fall in the general price level) may occur. The causal relations between these indicators have been the subject of much debate from which ideas such as the NAIRU (non-accelerating inflation rate of unemployment) have emerged.
Where are wall street now?
If hiring is happening anywhere on Wall Street, more likely than not it is at buy-side institutions like hedge funds looking to pick up talent on the cheap.
“Whether it is hedge funds or other boutique organizations, they see this as an opportunity to upgrade their in-house skills base,” said Benson.
Job postings at hedge funds, in fact, climbed 38% during the second quarter from a year ago, based on the latest figures from eFinancialCareers.
However, most of the workers that land on their feet tend to be those with some significant experience or expertise.
Within that group are senior and mid-level bankers who may boast numerous business relationships.
And in a strange twist of fate, demand is strong for the senior staff who had experience dealing with some of the structured mortgage and credit products that have fueled billions of dollars in losses and writedowns at the nation’s largest financial institutions.
Realizing that there could be plenty of opportunities to get good assets on the cheap, distressed opportunity investors want people who can assess the value of these toxic products, notes Pat Wieser, partner and co-head of the global banking and markets practice of the executive recruitment firm Rhodes Associates.
“People who know where the bodies are buried are pretty good hires,” said Wieser.
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