The economy is a much more complex system than I pretend to understand. I’m fascinated to listen to business programs which explain how one small tremor in one sector of the economy can have a major impact on another.
And like a row of dominos, the aftereffects of those interrelated actions can have profound impacts on people who have nothing invested in that sector of the economy.
Most recently and most famously, the real estate bubble – an period of time in which values rose steadily to a point where they were unstable – burst. That had a major impact on the banking industry, which called in loans of all kinds of creditors. Pretty soon, money was scarce and worried business owners shrank their business, cutting costs by laying off workers. Suddenly out-of-work consumers didn’t have money for the luxuries of life and in a lot of cases, they didn’t have the money for many of the basic needs of life. That caused government programs to swell, requiring more tax money from taxpayers. You get the idea.
A lot of the complexity of the economy can be traced back to a moment 223 years ago today.
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May 17, 1792 was the day the New York Stock Exchange was created. It seems 24 business leaders in New York City, concerned with the growing practice of buying and selling stocks, signed what is known as the Buttonwood Agreement.
That agreement, created and negotiated in secret, bound the signatories to trade stock only amongst themselves. They also agreed to pay a set commission on the sale of those stocks and they agreed not to participate in auctions. The agreement was named after the group’s traditional meeting place under a Buttonwood tree.
After a couple years, the group of people participating in the group gew large enough that it was impractical to meet under the tree, so they purchase a building on a little street called Wall Street. In a flash, America’s financial district was established just a few blocks away from that old Buttonwood tree.
Today, many blame greedy “Wall Street” money men for the collapse of the economy that came home to roost in 2008. The stock exchange had become a place where people could transact million-dollar and billion-dollar transaction at the touch of a keystroke. Fortunes were there to be made. But at some point, money managers started betting on losers and advising their clients to invest money in companies they knew were destined to fail. Banks took on higher and higher debt loads with real estate loans made to people who were bad risks from the beginning, but got loans anyway because there was so much money to be made.
Those men who signed the Buttonwood Agreement 223 years ago today were actually intent on imposing some self-regulation on the sale of securities. Somehow I doubt they envisioned the massive changes that would take place in their stock exchange over the next 200 years or so. I suspect they’d be surprised to find out their exchange was at the epicenter of a giant financial collapse.