1.
Stock
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The stock of a corporation is constituted of the equity stock of its owners. A single share of the stock represents fractional ownership of the corporation in proportion to the number of shares. In liquidation, the stock represents the residual assets of the company that would be due to stockholders after discharge of all senior claims such as secured and unsecured debt. Stockholders equity cannot be withdrawn from the company in a way that is intended to be detrimental to the companys creditors, the stock of a corporation is partitioned into shares, the total of which are stated at the time of business formation. Additional shares may subsequently be authorized by the shareholders and issued by the company. In some jurisdictions, each share of stock has a certain declared par value, in other jurisdictions, however, shares of stock may be issued without associated par value. Shares represent a fraction of ownership in a business, a business may declare different types of shares, each having distinctive ownership rules, privileges, or share values. Ownership of shares may be documented by issuance of a stock certificate. A stock certificate is a document that specifies the amount of shares owned by the shareholder. Stock typically takes the form of shares of common stock or preferred stock. As a unit of ownership, common stock typically carries voting rights that can be exercised in corporate decisions, shares of such stock are called convertible preferred shares. New equity issue may have specific legal clauses attached that differentiate them from previous issues of the issuer. Some shares of stock may be issued without the typical voting rights, for instance, or some shares may have special rights unique to them. Often, new issues that have not been registered with a governing body may be restricted from resale for certain periods of time. Preferred stock may be hybrid by having the qualities of bonds of fixed returns and they also have preference in the payment of dividends over common stock and also have been given preference at the time of liquidation over common stock. They have other features of accumulation in dividend, Rule 144 Stock is an American term given to shares of stock subject to SEC Rule 144, Selling Restricted and Control Securities. Under Rule 144, restricted and controlled securities are acquired in unregistered form, investors either purchase or take ownership of these securities through private sales from the issuing company or from an affiliate of the issuer. Investors wishing to sell these securities are subject to different rules than those selling traditional common or preferred stock and these individuals will only be allowed to liquidate their securities after meeting the specific conditions set forth by SEC Rule 144
2.
Stock market
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Examples of the latter include shares of private companies which are sold to investors through equity crowdfunding platforms. Stock exchanges list shares of equity as well as other security types, e. g. corporate bonds. Stocks can be categorised in various way, one way is by the country where the company is domiciled. S. At the close of 2012, the size of the stock market was about US$55 trillion. By country, the largest market was the United States, followed by Japan, as of 2015, there are a total of 60 stock exchanges in the world with a total market capitalization of $69 trillion. Of these, there are 16 exchanges with a capitalization of $1 trillion or more. Apart from the Australian Securities Exchange, these 16 exchanges are based in one of three continents, North America, Europe and Asia, a stock exchange is a place where, or an organization through which, individuals and organisations can trade stocks. Many large companies have their stock listed on a stock exchange and this makes the stock more liquid and thus more attractive to many investors. It may also act as a guarantor of settlement, other stocks may be traded over the counter, that is, through a dealer. Some large companies will have their stock listed on more than one exchange in different countries, Stock exchanges may also cover other types of securities, such as fixed interest securities or derivatives, which are more likely to be traded OTC. Trade in stock markets means the transfer for money of a stock or security from a seller to a buyer and this requires these two parties to agree on a price. Equities confer an ownership interest in a particular company and their buy or sell orders may be executed on their behalf by a stock exchange trader. Some exchanges are physical locations where transactions are carried out on a trading floor and this method is used in some stock exchanges and commodity exchanges, and involves traders shouting bid and offer prices. The other type of exchange has a network of computers where trades are made electronically. An example of such an exchange is the NASDAQ, a potential buyer bids a specific price for a stock, and a potential seller asks a specific price for the same stock. Buying or selling at the means you will accept any ask price or bid price for the stock. When the bid and ask prices match, a sale takes place, on a first-come, the purpose of a stock exchange is to facilitate the exchange of securities between buyers and sellers, thus providing a marketplace. The exchanges provide real-time trading information on the securities, facilitating price discovery
3.
Panic
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Panic may occur singularly in individuals or manifest suddenly in large groups as mass panic. The word derives from antiquity and is a tribute to the ancient god, one of the many gods in the mythology of ancient Greece, Pan was the god of shepherds and of woods and pastures. From this aspect of Pans nature Greek authors derived the word panikon, “sudden fear, ” the ultimate source of the English word, prehistoric humans used mass panic as a technique when hunting animals, especially ruminants. Herds reacting to unusually strong sounds or unfamiliar visual effects were directed towards cliffs, the most effective methods are often non-intuitive. An influential theoretical treatment of panic is found in Neil J. Smelsers Theory of Collective Behavior, the science of panic management has found important practical applications in the armed forces and emergency services of the world. Many highly publicized cases of panic occurred during massive public events. The layout of Mecca was extensively redesigned by Saudi authorities in an attempt to eliminate frequent stampedes, how it works and What To Do About It — by Bruce Tognazzini. — Professor Lee Clarke, Contexts Magazine,2002
4.
Speculation
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Speculation is the purchase of an asset with the hope that it will become more valuable at a future date. Many speculators pay little attention to the value of a security. Speculation can in principle involve any tradable good or financial instrument, Speculators are particularly common in the markets for stocks, bonds, commodity futures, currencies, fine art, collectibles, real estate, and derivatives. The number of shareholders increased, perhaps, from 4.4 million in 1900 to 26 million in 1932, the view of what distinguishes investment from speculation and speculation from excessive speculation varies widely among pundits, legislators and academics. Some sources note that speculation is simply a higher form of investment. Others define speculation more narrowly as positions not characterized as hedging, the agency emphasizes that speculators serve important market functions, but defines excessive speculation as harmful to the proper functioning of futures markets. According to Ben Graham in The Intelligent Investor, the prototypical defensive investor is. one interested chiefly in safety plus freedom from bother, Speculation is condemned on ethical-moral grounds as creating money from money and thereby promoting the vices of avarice and gambling. When a harvest is too small to satisfy consumption at its rate, speculators come in. Their purchases raise the price, thereby checking consumption so that the supply will last longer. Producers encouraged by the price further lessen the shortage by growing or importing to reduce the shortage. On the other side, when the price is higher than the speculators think the facts warrant and this reduces prices, encouraging consumption and exports and helping to reduce the surplus. If any market, such as pork bellies, had no speculators, with fewer players in the market, there would be a larger spread between the current bid and ask price of pork bellies. By contrast, a commodity speculator may profit the difference in the spread and, in competition with other speculators, some schools of thought argue that speculators increase the liquidity in a market, and therefore promote an efficient market. This efficiency is difficult to achieve without speculators, a very beneficial by-product of speculation for the economy is price discovery. On the other hand, as more speculators participate in a market, underlying real demand and supply can diminish compared to trading volume, Speculators also perform a very important risk bearing role that is beneficial to society. For example, a farmer might be considering planting corn on some unused farmland, however, he might not want to do so because he is concerned that the price might fall too far by harvest time. By selling his crop in advance at a price to a speculator, he is now able to hedge the price risk. Thus, speculators can actually increase production through their willingness to take on risk, hence, they make the prices better reflect the true quality of operation of the firms
5.
Stock market bubble
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A stock market bubble is a type of economic bubble taking place in stock markets when market participants drive stock prices above their value in relation to some system of stock valuation. Behavioral finance theory attributes stock market bubbles to cognitive biases that lead to groupthink, bubbles occur not only in real-world markets, with their inherent uncertainty and noise, but also in highly predictable experimental markets. Other theoretical explanations of stock market bubbles have suggested that they are rational, intrinsic, two famous early stock market bubbles were the Mississippi Scheme in France and the South Sea bubble in England. Both bubbles came to an end in 1720, bankrupting thousands of unfortunate investors. Those stories, and many others, are recounted in Charles Mackays 1841 popular account, Extraordinary Popular Delusions, the 1920s saw the widespread introduction of an amazing range of technological innovations including radio, automobiles, aviation and the deployment of electrical power grids. The 1990s was the decade when Internet and e-commerce technologies emerged, stock market bubbles frequently produce hot markets in initial public offerings, since investment bankers and their clients see opportunities to float new stock issues at inflated prices. These hot IPO markets misallocate investment funds to areas dictated by speculative trends, emotional and cognitive biases seem to be the causes of bubbles, but often, when the phenomenon appears, pundits try to find a rationale, so as not to be against the crowd. Thus, sometimes, people will dismiss concerns about overpriced markets by citing a new economy where the old stock valuation rules may no longer apply and this type of thinking helps to further propagate the bubble whereby everyone is investing with the intent of finding a greater fool. Still, some cite the wisdom of crowds and say that price movements really do reflect rational expectations of fundamental returns. Large traders become powerful enough to rock the boat, generating stock market bubbles, the bubble in closed-end country funds in the late 1980s is instructive here, as are the bubbles that occur in experimental asset markets. According to the hypothesis, this doesnt happen, and so any data is wrong. For closed-end country funds, observers can compare the prices to the net asset value per share. For experimental asset markets, observers can compare the prices to the expected returns from holding the stock. In both instances, closed-end country funds and experimental markets, stock prices clearly diverge from fundamental values. Nobel laureate Dr. Vernon Smith has illustrated the closed-end country fund phenomenon with a chart showing prices, at its peak, the Spain Fund traded near $35, nearly triple its Net Asset Value of about $12 per share. It only took a few months for the premiums in closed-end country funds to back to the more typical discounts at which closed-end funds trade. Those who had them at premiums had run out of greater fools. For a while, though, the supply of greater fools had been outstanding, a rising price on any share will attract the attention of investors
6.
Economy
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An economy is an area of the production, distribution, or trade, and consumption of goods and services by different agents in a given geographical location. Economic agents can be individuals, businesses, organizations, or governments, Economic transactions occur when two parties agree to the value or price of the transacted good or service, commonly expressed in a certain currency. Monetary transactions only account for a part of the economic domain. Economic activity is spurred by production which uses resources, labor. It has changed over time due to technology, innovation such as that which produces intellectual property and these factors give context, content, and set the conditions and parameters in which an economy functions. In other words, the domain is a social domain of human practices. A command-based economy is where political agents directly control what is produced and how it is sold, a green economy is low-carbon, resource efficient, and socially inclusive. Today the range of fields of the examining the economy revolve around the social science of economics, but may include sociology, history, anthropology. All professions, occupations, economic agents or economic activities, contribute to the economy, consumption, saving, and investment are variable components in the economy that determine macroeconomic equilibrium. There are three sectors of economic activity, primary, secondary, and tertiary. Alternate and long-standing terminology distinguishes measures of an economy expressed in real values, such as real GDP, the English words economy and economics can be traced back to the Greek word οἰκονόμος, a composite word derived from οἶκος and νέμω by way of οἰκονομία. The first recorded sense of the economy is in the phrase the management of œconomic affairs. Economy is later recorded in more senses, including thrift. The most frequently used current sense, denoting the system of a country or an area. As long as someone has been making, supplying and distributing goods or services, there has some sort of economy, economies grew larger as societies grew. The Babylonians and their city state neighbors developed forms of economics comparable to currently used civil society concepts and they developed the first known codified legal and administrative systems, complete with courts, jails, and government records. The ancient economy was based on subsistence farming. The Shekel referred to an ancient unit of weight and currency, the first usage of the term came from Mesopotamia circa 3000 BC. and referred to a specific mass of barley which related other values in a metric such as silver, bronze, copper etc
7.
Positive feedback
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Positive feedback is a process that occurs in a feedback loop in which the effects of a small disturbance on a system include an increase in the magnitude of the perturbation. That is, A produces more of B which in turn more of A. In contrast, a system in which the results of an act to reduce or counteract it has negative feedback. Both concepts play an important role in science and engineering, including biology, chemistry, mathematically, positive feedback is defined as a positive loop gain around a closed loop of cause and effect. That is, positive feedback is in phase with the input, Positive feedback tends to cause system instability. When the loop gain is positive and above 1, there will typically be exponential growth, increasing oscillations, system parameters will typically accelerate towards extreme values, which may damage or destroy the system, or may end with the system latched into a new stable state. Positive feedback may be controlled by signals in the system being filtered, damped, or limited, Positive feedback is used in digital electronics to force voltages away from intermediate voltages into 0 and 1 states. On the other hand, thermal runaway is a positive feedback that can destroy semiconductor junctions, Positive feedback in chemical reactions can increase the rate of reactions, and in some cases can lead to explosions. Positive feedback in mechanical design causes tipping-point, or over-centre, mechanisms to snap into position, for example in switches, out of control, it can cause bridges to collapse. Positive feedback in systems can cause boom-then-bust cycles. Positive feedback enhances or amplifies an effect by it having an influence on the process gave rise to it. For example, when part of an output signal returns to the input, and is in phase with it. The feedback from the outcome to the process can be direct. Such systems can give rich qualitative behaviors, but whether the feedback is positive or negative in sign has an extremely important influence on the results. Positive feedback reinforces and negative feedback moderates the original process, Positive and negative in this sense refer to loop gains greater than or less than zero, and do not imply any value judgements as to the desirability of the outcomes or effects. A key feature of positive feedback is thus that small disturbances get bigger, when a change occurs in a system, positive feedback causes further change, in the same direction. A simple feedback loop is shown in the diagram, if the loop gain AB is positive, then a condition of positive or regenerative feedback exists. If the functions A and B are linear and AB is smaller than unity, then the system gain from the input to output is finite
8.
Optimism
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The term is originally derived from the Latin optimum, meaning best. Being optimistic, in the sense of the word, is defined as expecting the best possible outcome from any given situation. This is usually referred to in psychology as dispositional optimism and it thus reflects a belief that future conditions will work out for the best. Theories of optimism include dispositional models, and models of explanatory style, variation in optimism and pessimism is somewhat heritable and reflects biological trait systems to some degree. It is also influenced by environmental factors, including family environment, Optimism may also be linked to health. Researchers operationalize the term differently depending on their research, as with any trait characteristic, there are several ways to evaluate optimism, such as the Life Orientation Test. Dispositional optimism and pessimism are typically assessed by asking whether they expect future outcomes to be beneficial or negative. The LOT returns separate optimism and pessimism scores for each individual, behaviourally, these two scores correlate around r =0.5. Optimistic scores on this scale predict better outcomes in relationships, higher social status, health preserving behaviors are associated with optimism while health-damaging behaviors are associated with pessimism. Some have argued that pessimism and optimism are ends of a single dimension, confirmatory modelling, however, supports a two-dimensional model and the two dimensions predict different outcomes. Explanatory style is distinct from theories of optimism. In addition, the measures distinguish attributions for positive and for negative events, an optimistic person is one who attributes internal, stable, and global explanations to good things. Pessimistic explanations are those which attribute these traits of stability, globality and internality to negative events, there is much debate about the relationship between explanatory style and optimism. Some researchers argue that optimism is simply the lay-term for what researchers know as explanatory style, more commonly, it is found that explanatory style is quite distinct from dispositional optimism, and the two should not be used interchangeably as they are marginally correlated at best. More research is required to bridge or further differentiate these concepts and it has been suggested that optimism may be indirectly inherited as a reflection of underlying heritable traits such as intelligence, temperament and alcoholism. Many theories assume optimism can be learned, and research supports a modest role of family-environment acting to raise optimism, there are eight items and four filler items. Four are positive items and four are negative items e. g, if something can go wrong for me, it will. The LOT has been revised twice—once by the creators and also by Chang, Maydeu-Olivares
9.
New York Stock Exchange
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The New York Stock Exchange, is an American stock exchange located at 11 Wall Street, Lower Manhattan, New York City, New York. It is by far the worlds largest stock exchange by market capitalization of its companies at US$19.3 trillion as of June 2016. The average daily trading value was approximately US$169 billion in 2013, the NYSE trading floor is located at 11 Wall Street and is composed of 21 rooms used for the facilitation of trading. A fifth trading room, located at 30 Broad Street, was closed in February 2007, the main building and the 11 Wall Street building were designated National Historic Landmarks in 1978. The NYSE is owned by Intercontinental Exchange, an American holding company that it also lists, previously, it was part of NYSE Euronext, which was formed by the NYSEs 2007 merger with Euronext. NYSE and Euronext now operate as divisions of Intercontinental Exchange, the NYSE has been the subject of several lawsuits regarding fraud or breach of duty and in 2004 was sued by its former CEO for breach of contract and defamation. The earliest recorded organization of securities trading in New York among brokers directly dealing with each other can be traced to the Buttonwood Agreement, previously securities exchange had been intermediated by the auctioneers who also conducted more mundane auctions of commodities such as wheat and tobacco. In 1817 the stockbrokers of New York operating under the Buttonwood Agreement instituted new reforms, after sending a delegation to Philadelphia to observe the organization of their board of brokers, restrictions on manipulative trading were adopted as well as formal organs of governance. Several locations were used between 1817 and 1865, when the present location was adopted, the invention of the electrical telegraph consolidated markets, and New Yorks market rose to dominance over Philadelphia after weathering some market panics better than other alternatives. The Civil War greatly stimulated speculative securities trading in New York, by 1869 membership had to be capped, and has been sporadically increased since. The latter half of the century saw rapid growth in securities trading. Securities trade in the nineteenth and early twentieth centuries was prone to panics. The Stock Exchange Luncheon Club was situated on the floor from 1898 until its closure in 2006. The main building, located at 18 Broad Street, between the corners of Wall Street and Exchange Place, was designated a National Historic Landmark in 1978, as was the 11 Wall Street building. The NYSE announced its plans to merge with Archipelago on April 21,2005, NYSEs governing board voted to merge with rival Archipelago on December 6,2005, and became a for-profit, public company. It began trading under the name NYSE Group on March 8,2006, Wall Street is the leading US money center for international financial activities and the foremost US location for the conduct of wholesale financial services. It comprises a matrix of wholesale financial sectors, financial markets, financial institutions, the principal sectors are securities industry, commercial banking, asset management, and insurance. Prior to the acquisition of NYSE Euronext by the ICE in 2013, Marsh Carter was the Chairman of the NYSE, presently, the chairman is Jeffrey Sprecher
10.
Stock market index
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A stock index or stock market index is a measurement of the value of a section of the stock market. It is computed from the prices of selected stocks and it is a tool used by investors and financial managers to describe the market, and to compare the return on specific investments. An index is a construct, so it may not be invested in directly. But many mutual funds and exchange-traded funds attempt to track an index, Stock market indices may be classified in many ways. A world or global stock market index — such as the MSCI World or the S&P Global 100 — includes stocks from multiple regions, regions may be defined geographically or by levels of industrialization or income. A national index represents the performance of the market of a given nation—and by proxy. Other indices may be regional, such as the FTSE Developed Europe Index or the FTSE Developed Asia Pacific Index, indexes may be based on exchange, such as the NASDAQ-100 or NYSE US100, or groups of exchanges, such as the Euronext 100 or OMX Nordic 40. The concept may be extended well beyond an exchange, russell Investment Group added to the family of indices by launching the Russel Global Index. More specialized indices exist tracking the performance of specific sectors of the market, some indices, such as the S&P500, have multiple versions. These versions can differ based on how the components are weighted. The difference between the full capitalization, float-adjusted, and equal weight versions is in how index components are weighted, an index may also be classified according to the method used to determine its price. In contrast, an index such as the Hang Seng Index factors in the size of the company. Thus, a small shift in the price of a large company will heavily influence the value of the index. Traditionally, capitalization- or share-weighted indices all had a full weighting, recently, many of them have changed to a float-adjusted weighting which helps indexing. An equal-weighted index is one in all components are assigned the same value. For example, the Barrons 400 Index assigns a value of 0. 25% to each of the 400 stocks included in the index. A modified capitalization-weighted index is a hybrid between capitalization weighting and equal weighting, moreover, in 2005, Standard & Poors introduced the S&P Pure Growth Style Index and S&P Pure Value Style Index which was attribute-weighted. For these two indexes, a score is calculated for every stock, be it their growth score or the value score, one argument for capitalization weighting is that investors must, in aggregate, hold a capitalization-weighted portfolio anyway
11.
Market trend
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A market trend is a perceived tendency of financial markets to move in a particular direction over time. These trends are classified as secular for long time frames, primary for medium time frames, a trend can only be determined in hindsight, since at any time prices in the future are not known. The terms bull market and bear market describe upward and downward market trends, respectively, the names perhaps correspond to the fact that a bull attacks by lifting its horns upward, while a bear strikes with its claws in a downward motion. A secular market trend is a trend that lasts 5 to 25 years. A secular bear market consists of bull markets and larger bear markets. In a secular bull market the prevailing trend is bullish or upward-moving, in a secular bear market, the prevailing trend is bearish or downward-moving. An example of a bear market occurred in gold between January 1980 to June 1999, culminating with the Brown Bottom. During this period the nominal gold price fell from a high of $850/oz to a low of $253/oz, a primary trend has broad support throughout the entire market and lasts for a year or more. A bull market is a period of rising prices. The start of a market is marked by widespread pessimism. This point is when the crowd is the most bearish, the feeling of despondency changes to hope, optimism, and eventually euphoria, as the bull runs its course. This often leads the cycle, for example in a full recession. Indias Bombay Stock Exchange Index, BSE SENSEX, had a bull market trend for about five years from April 2003 to January 2008 as it increased from 2,900 points to 21,000 points. More than 6 fold rise in 5 years, notable bull markets marked the 1925-1929, 1953–1957 and the 1993-1997 periods when the U. S. A bear market is a decline in the stock market over a period of time. It is a transition from high investor optimism to widespread investor fear, according to The Vanguard Group, While there’s no agreed-upon definition of a bear market, one generally accepted measure is a price decline of 20% or more over at least a two-month period. A bear market followed the Wall Street Crash of 1929 and erased 89% of the Dow Jones Industrial Averages market capitalization by July 1932, after regaining nearly 50% of its losses, a longer bear market from 1937 to 1942 occurred in which the market was again cut in half. Another long-term bear market occurred from about 1973 to 1982, encompassing the 1970s energy crisis, yet another bear market occurred between March 2000 and October 2002
12.
Black Monday (1987)
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In finance, Black Monday refers to Monday, October 19,1987, when stock markets around the world crashed, shedding a huge value in a very short time. The crash began in Hong Kong and spread west to Europe, the Dow Jones Industrial Average fell exactly 508 points to 1,738.74. In Australia and New Zealand, the 1987 crash is referred to as Black Tuesday because of the time zone difference. The stock market advanced significantly, with the Dow peaking in August 1987 at 2,722 points, further financial uncertainty may have resulted from the collapse of OPEC in early 1986, which led to crude oil price decreasing by more than 50% by mid-1986. On October 14, the DJIA dropped 95.46 points to 2,412.70, on Thursday, October 15,1987, Iran hit the American-owned supertanker, the Sungari, with a Silkworm missile off Kuwaits main Mina Al Ahmadi oil port. The next morning, Iran hit another ship, the U. S. -flagged MV Sea Isle City, with another Silkworm missile. On Friday, October 16, when all the markets in London were unexpectedly closed due to the Great Storm of 1987, then-Treasury Secretary James Baker stated concerns about the falling prices. Later that morning, two U. S. warships shelled an Iranian oil platform in the Persian Gulf in response to Irans Silkworm missile attack on the Sea Isle City. By the end of October, stock markets in Hong Kong, Australia, Spain, the United Kingdom, New Zealands market was hit especially hard, falling about 60% from its 1987 peak, and taking several years to recover. The Black Monday decline was—and currently remains—the largest one-day percentage decline in the DJIA, however, the economy was barely affected and growth actually increased throughout 1987 and 1988, with the DJIA regaining its pre-crash closing high of 2,722 points in early 1989. This, along with the demise of the leveraged buyout craze brought a five-year depression late that year. Possible causes for the decline included program trading, overvaluation, illiquidity, a popular explanation for the 1987 crash was selling by program traders, most notably as a reaction to the computerized selling required by portfolio insurance hedges. However, economist Dean Furbush points out that the biggest price drops occurred when trading volume was light, in program trading, computers perform rapid stock executions based on external inputs, such as the price of related securities. Common strategies implemented by program trading involve an attempt to engage in arbitrage, as computer technology became more available, the use of program trading grew dramatically within Wall Street firms. After the crash, many blamed program trading strategies for blindly selling stocks as markets fell, some economists theorized the speculative boom leading up to October was caused by program trading, and that the crash was merely a return to normalcy. Either way, program trading ended up taking the majority of the blame in the eye for the 1987 stock market crash. Congressman Edward J. Markey, who had been warning about the possibility of a crash, New York Universitys Richard Sylla divides the causes into macroeconomic and internal reasons. Macroeconomic causes included international disputes about foreign exchange and interest rates, the internal reasons included innovations with index futures and portfolio insurance
13.
Financial history of the Dutch Republic
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The financial history of the Dutch Republic involves the interrelated development of financial institutions in the Dutch Republic. Institutions like the Amsterdam stock exchange, the Bank of Amsterdam, in the course of time the invested capital stock generated its own income stream that caused the capital stock to assume enormous proportions. The Netherlands came to dominate the international capital market up to the crises of the end of the 18th century that caused the demise of the Dutch Republic, in contrast to that general history this is a sectoral history, concerning the fiscal and financial sector. Ironically, the Habsburg rulers themselves pushed through the reforms that gave the rebellious provinces the wherewithal to resist the power of the sovereign. Emperor Charles V needed to increase the capacity of his government to finance his many military adventures. To that end it was necessary to put in place a number of reforms that would ensure that the public debt could be adequately serviced. These permanent taxes, collected by the provinces, would enable the provinces to pay enlarged subsidies to the central government. Holland was now able to credit of its own, as the province was able to retire bond loans previously placed under compulsion as enforced loans. By this it demonstrated to potential creditors it was worthy of trust and this brought a market for voluntary credit into being that previously did not exist. This enabled Holland, and other provinces, to float bonds at a reasonable interest rate in a pool of voluntary investors. The central government did not enjoy this good credit, on the contrary, its financing needs increased tremendously after the accession of Philip II, and this led to the crisis that caused the Revolt. This brought about a revolt in the Netherlands, particularly in the northern provinces. Those were able to withstand the onslaught of the royalist forces militarily, of course, they now withheld the subsidies to the central government their taxes were supposed to finance. That central government was forced to finance the war by transfers from other Habsburg lands. This led to an increase in the size of the Spanish public debt, which that country was ultimately unable to sustain. The constitution of the new Republic, the Union-of-Utrecht treaty of 1579 and it put in place a rudimentary confederal budget system that charged the Raad van State with drafting an annual Staat van Oorlog. This budget was presented in a General Petition to the States-General for approval, the treaty next required that the tax revenues for the financing of this budget would be levied. equally in all united provinces, and at the same rate. Furthermore, it prohibited internal tariffs and other taxes discriminating against residents of other provinces, alas, these two latter provisions were never implemented
14.
Tulip mania
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Tulip mania or tulipomania was a period in the Dutch Golden Age during which contract prices for bulbs of the recently introduced tulip reached extraordinarily high levels and then suddenly collapsed. At the peak of tulip mania, in March 1637, some single tulip bulbs sold for more than 10 times the income of a skilled craftsworker. The term tulip mania is now often used metaphorically to refer to any large economic bubble when asset prices deviate from intrinsic values, the 1637 event was popularized in 1841 by the book Extraordinary Popular Delusions and the Madness of Crowds, written by British journalist Charles Mackay. According to Mackay, at one point 12 acres of land were offered for a Semper Augustus bulb, Mackay claims that many such investors were ruined by the fall in prices, and Dutch commerce suffered a severe shock. Although Mackays book is a classic, his account is contested, many modern scholars feel that the mania was not as extraordinary as Mackay described and argue that not enough price data are available to prove that a tulip bulb bubble actually occurred. Research is difficult because of the economic data from the 1630s—much of which come from biased. Some modern economists have proposed rational explanations, rather than a speculative mania, for the rise, for example, other flowers, such as the hyacinth, also had high initial prices at the time of their introduction, which immediately fell. The high asset prices may also have driven by expectations of a parliamentary decree that contracts could be voided for a small cost—thus lowering the risk to buyers. Tulip bulbs were soon distributed from Vienna to Augsburg, Antwerp and he planted his collection of tulip bulbs and found they were able to tolerate the harsher conditions of the Low Countries, shortly thereafter the tulip began to grow in popularity. The tulip was different from other flower known to Europe at that time. The appearance of the tulip as a status symbol at this time coincides with the rise of newly independent Hollands trade fortunes. No longer the Spanish Netherlands, its resources could now be channeled into commerce. Amsterdam merchants were at the center of the lucrative East Indies trade, as a result, tulips rapidly became a coveted luxury item, and a profusion of varieties followed. They were classified in groups, the tulips of red, yellow, or white were known as Couleren, the multicolored Rosen, Violetten, and the rarest of all. The multicolor effects of intricate lines and flame-like streaks on the petals were vivid and spectacular, growers named their new varieties with exalted titles. Many early forms were prefixed Admirael, often combined with the growers names, generael was another prefix used for around thirty varieties. Later varieties were given even more extravagant names, derived from Alexander the Great or Scipio, or even Admiral of Admirals, however, naming could be haphazard and varieties highly variable in quality. Most of these varieties have now died out, tulips grow from bulbs, and can be propagated through both seeds and buds
15.
East Indiaman
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East Indiaman was a general name for any sailing ship operating under charter or licence to any of the East India Companies of the major European trading powers of the 17th through the 19th centuries. The term is used to refer to vessels belonging to the Danish, Dutch, English, French, Portuguese. Some of the East Indiamen chartered by the British East India Company were known as tea clippers, English East Indiamen usually ran between England, the Cape of Good Hope and India, where their primary destinations were the ports of Bombay, Madras and Calcutta. The Indiamen often continued on to China before returning to England via the Cape of Good Hope, when the company lost its monopoly, the ships of this design were sold off. A smaller, faster ship known as a Blackwall Frigate was built for the trade as the need to carry heavy armaments declined and these include the Danish, Dutch, English, French, Portuguese and Swedish East India companies. East Indiamen carried both passengers and goods, and were armed to defend themselves against pirates, initially, the East Indiamen were built to carry as much cargo as possible, rather than for speed of sailing. The East India company had a monopoly on trade with India and China, East Indiamen were the largest merchant ships regularly built during the late 18th and early 19th centuries, generally measuring between 1100 and 1400 tons burthen. Two of the largest were the Earl of Mansfield and Lascelles being built at Deptford in 1795, the Royal Navy purchased both, converted them to 56-gun fourth rates, and renamed them Weymouth and Madras respectively. They measured 1426 tons on dimensions of approximately 175 feet overall length of hull,144 feet keel,43 feet beam,17 feet draft, in England, Queen Elizabeth I granted an exclusive right to the trade to one company in 1600. The company grew to more than the trade between England and India, but the ships described in this article are the type used in the 17th to the early 19th centuries to carry the trade. The Royal Navy acquired several East Indiamen, turning them into fourth rates, in some cases the East Indiamen successfully fought off attacks by the French. The ships normally had two decks for accommodation within the hull and a raised poop deck. The poop deck and the deck below it were lit with square-windowed galleries at the stern, to support the weight of the galleries, the hull lines towards the stern were full. Later ships built without this feature tended to sail faster, which put the East Indiamen at a disadvantage once the need for heavy armament passed. These ships were used for the China run, until the coming of steamships, these Indian-built ships were relied upon almost exclusively by the British in the eastern seas. None sailed to Europe and they were banned from English ports, many hundreds of Indian-built Indiamen were built for the British, along with other ships, including warships. Notable among them were Surat Castle, a 1, 000-ton ship with a crew of 150, Lowjee Family, of 800 tons and a crew of 125, and Shampinder, of 1,300 tons. Another significant East Indiaman in this period was the 1176-ton Warley that John Perry built at his Blackwall Yard in 1788, and which the Royal Navy bought in 1795 and renamed HMS Calcutta
16.
Dutch East India Company
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It is often considered to be the worlds first truly transnational corporation and the first company in history to actually issue bonds and shares of stock to the general public. In other words, the VOC was officially the first publicly traded company of the world, the company was also considered by many to be the very first major and the greatest corporation in history. Statistically, the VOC eclipsed all of its rivals in international trade for almost 200 years of existence. Between 1602 and 1796 the VOC sent almost a million Europeans to work in the Asia trade on 4,785 ships, the VOC enjoyed huge profits from its spice monopoly through most of the 17th century. Having been set up in 1602, to profit from the Malukan spice trade, in 1619 the VOC established a capital in the city of Jayakarta. Over the next two centuries the Company acquired additional ports as trading bases and safeguarded their interests by taking over surrounding territory and it remained an important trading concern and paid an 18% annual dividend for almost 200 years. Around the world and especially in English-speaking countries, the VOC is widely known as the Dutch East India Company, the name ‘Dutch East India Company’ is used to make a distinction with the East India Company and other East Indian companies. The abbreviation VOC stands for Vereenigde Oost-Indische Compagnie or Verenigde Oostindische Compagnie in Dutch, the VOC monogram was possibly the first globally-recognized corporate logo. The logo of the VOC consisted of a large capital V with an O on the left and it appeared on various corporate items, such as cannon and coins. The first letter of the hometown of the conducting the operation was placed on top. An Australian vintner has used the VOC logo since the late 20th century, the flag of the company was orange, white, and blue, with the company logo embroidered on it. Before the Dutch Revolt, Antwerp had played an important role as a centre in northern Europe. At the same time, the Portuguese trade system was unable to supply to satisfy growing demand. Demand for spices was relatively inelastic, and therefore each lag in the supply of pepper caused a rise in pepper prices. These three factors motivated Dutch merchants to enter the spice trade themselves. Further, a number of Dutchmen like Jan Huyghen van Linschoten and Cornelis de Houtman obtained first hand knowledge of the secret Portuguese trade routes and practices, thereby providing opportunity. The stage was set for Houtmans 1595 four-ship exploratory expedition to Banten, the main pepper port of West Java. Houtmans expedition then sailed east along the north coast of Java, losing twelve crew to a Javanese attack at Sidayu, half the crew were lost before the expedition made it back to the Netherlands the following year, but with enough spices to make a considerable profit
17.
United East India Company
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It is often considered to be the worlds first truly transnational corporation and the first company in history to actually issue bonds and shares of stock to the general public. In other words, the VOC was officially the first publicly traded company of the world, the company was also considered by many to be the very first major and the greatest corporation in history. Statistically, the VOC eclipsed all of its rivals in international trade for almost 200 years of existence. Between 1602 and 1796 the VOC sent almost a million Europeans to work in the Asia trade on 4,785 ships, the VOC enjoyed huge profits from its spice monopoly through most of the 17th century. Having been set up in 1602, to profit from the Malukan spice trade, in 1619 the VOC established a capital in the city of Jayakarta. Over the next two centuries the Company acquired additional ports as trading bases and safeguarded their interests by taking over surrounding territory and it remained an important trading concern and paid an 18% annual dividend for almost 200 years. Around the world and especially in English-speaking countries, the VOC is widely known as the Dutch East India Company, the name ‘Dutch East India Company’ is used to make a distinction with the East India Company and other East Indian companies. The abbreviation VOC stands for Vereenigde Oost-Indische Compagnie or Verenigde Oostindische Compagnie in Dutch, the VOC monogram was possibly the first globally-recognized corporate logo. The logo of the VOC consisted of a large capital V with an O on the left and it appeared on various corporate items, such as cannon and coins. The first letter of the hometown of the conducting the operation was placed on top. An Australian vintner has used the VOC logo since the late 20th century, the flag of the company was orange, white, and blue, with the company logo embroidered on it. Before the Dutch Revolt, Antwerp had played an important role as a centre in northern Europe. At the same time, the Portuguese trade system was unable to supply to satisfy growing demand. Demand for spices was relatively inelastic, and therefore each lag in the supply of pepper caused a rise in pepper prices. These three factors motivated Dutch merchants to enter the spice trade themselves. Further, a number of Dutchmen like Jan Huyghen van Linschoten and Cornelis de Houtman obtained first hand knowledge of the secret Portuguese trade routes and practices, thereby providing opportunity. The stage was set for Houtmans 1595 four-ship exploratory expedition to Banten, the main pepper port of West Java. Houtmans expedition then sailed east along the north coast of Java, losing twelve crew to a Javanese attack at Sidayu, half the crew were lost before the expedition made it back to the Netherlands the following year, but with enough spices to make a considerable profit
18.
Robert J. Shiller
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Robert James Bob Shiller is an American Nobel Laureate, economist, academic, and best-selling author. He currently serves as a Sterling Professor of Economics at Yale University and is a fellow at the Yale School of Managements International Center for Finance and he is also the co‑founder and chief economist of the investment management firm MacroMarkets LLC. Shiller is ranked among the 100 most influential economists of the world, Eugene Fama, Lars Peter Hansen and Shiller jointly received the 2013 Nobel Memorial Prize in Economic Sciences, for their empirical analysis of asset prices. Shiller was born in Detroit, Michigan, the son of Ruth R. and Benjamin Peter Shiller and he is married to Virginia Marie, a psychologist, and has two children. He was raised as a Methodist, Shiller studied at Kalamazoo College and the University of Michigan where he received his B. A. degree in 1967. His book Macro Markets won TIAA-CREFs first annual Paul A. Samuelson Award and he currently publishes a syndicated column. In 1981 Shiller published an article in The American Economic Review titled Do stock prices move too much to be justified by subsequent changes in dividends, in which he challenged the efficient-market hypothesis, which was the dominant view in the economics profession at the time. Shiller argued that in a stock market, investors would base stock prices on the expected receipt of future dividends. Shiller concluded that the volatility of the market was greater than could plausibly be explained by any rational view of the future. The behavioral finance school gained new credibility following the October 1987 stock market crash, much of this survey data has been gathered continuously since 1989. In 1991 he formed Case Shiller Weiss with economists Karl Case, the company produced a repeat-sales index using home sales prices data from across the nation, studying home pricing trends. The index was developed by Shiller and Case when Case was studying unsustainable house pricing booms in Boston, the repeat-sales index developed by Case and Shiller was later acquired and further developed by Fiserv and Standard & Poor, creating the Case-Shiller index. His book Irrational Exuberance – a New York Times bestseller – warned that the market had become a bubble in March 2000 which could lead to a sharp decline. In February, Lereah had put out his book Are You Missing the Real Estate Boom, signaling the market top for housing prices. In 2003 Shiller co-authored a Brookings Institution paper called Is There a Bubble in the Housing Market, Shiller subsequently refined his position in the 2nd edition of Irrational Exuberance, acknowledging that “further rises in the markets could lead, eventually, to even more significant declines. A long-run consequence could be a decline in consumer and business confidence, is not inevitable, but it is a much more serious risk than is widely acknowledged. ”His work has been influential in the development of the theory as well as its implications for practice and policy making. His contributions on risk sharing, financial market volatility, bubbles and crises, have received attention among academics, practitioners. In 2010, he was named by Foreign Policy magazine to its list of top global thinkers, in 2011 he made the Bloomberg 50 most influential people in global finance
19.
Euronext Amsterdam
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The Amsterdam Stock Exchange is the former name for the stock exchange based in Amsterdam. It merged on 22 September 2000 with the Brussels Stock Exchange and the Paris Stock Exchange to form Euronext, the Amsterdam Stock Exchange was established in 1602 by the Dutch East India Company for dealings in its printed stocks and bonds. It was subsequently renamed the Amsterdam Bourse and was the first to begin trading in securities. Although it is considered to be the first stock market, Fernand Braudel argues that this is not precisely true, It is not quite accurate to call the first stock market. The statutes of Verona in 1318 confirm the existence of the settlement or forward market, in 1428, the jurist Bartolomeo de Bosco protested against the sale of forward loca in Genoa. All evidence points to the Mediterranean as the cradle of the stock market, but what was new in Amsterdam was the volume, the fluidity of the market and publicity it received, and the speculative freedom of transactions. That said, it remains the first incarnation of what we could today recognize as a stock market, the European Option Exchange was founded in 1978 in Amsterdam as a futures and options exchange. In 1983 it started a market index, called the EOE index. It should be noted that forward contracts, options, and other sophisticated instruments were traded on the Amsterdam Stock Exchange well before this, in 1997 the Amsterdam Stock Exchange and the EOE merged, and its blue chip index was renamed AEX, for Amsterdam EXchange. It is now managed by Euronext Amsterdam, on 3 October 2011, Princess Máxima opened the new trading floor of the Amsterdam Stock Exchange. The former Stock Exchange building was the Beurs van Berlage, the Amsterdam stock exchange is considered the oldest “modern” securities market in the world. It was shortly after the establishment of the Dutch East India Company in 1602 when equities began trading on a basis as a secondary market to trade its shares. Prior to that, the market existed primarily for the exchange of commodities, in that year, the States General of the Netherlands granted the VOC a 21-year charter over all Dutch trade in Asia and quasi-governmental powers. The monopolistic terms of the charter granted the VOC complete authority over trade defenses, war armaments. The first multi-national corporation with significant resource interests was thereby established, in addition, the high level of risk associated with trade in Asia gave the VOC its private ownership structure. In the Amsterdam East India House alone,1,143 investors subscribed for over ƒ3,679,915 or €100 million in today’s dollars, the subscription terms of each stock purchase offered shareholders the option to transfer their shares to a third party. Quickly a secondary market arose in the East India House for resale of this stock through the official bookkeeper. After an agreement had been reached between the two parties, the shares were transferred from seller to buyer in the “capital book. ”The official account, held by the East India House, encouraged investors to trade
20.
Stock exchange
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A stock exchange or bourse is an exchange where stock brokers and traders can buy and/or sell stocks, bonds, and other securities. Stock exchanges may also provide facilities for issue and redemption of securities and other financial instruments, Securities traded on a stock exchange include stock issued by listed companies, unit trusts, derivatives, pooled investment products and bonds. Stock exchanges often function as continuous auction markets, with buyers and sellers consummating transactions at a central location, to be able to trade a security on a certain stock exchange, it must be listed there. Trade on an exchange is restricted to brokers who are members of the exchange, the initial public offering of stocks and bonds to investors is by definition done in the primary market and subsequent trading is done in the secondary market. A stock exchange is often the most important component of a stock market, supply and demand in stock markets are driven by various factors that, as in all free markets, affect the price of stocks. There is usually no obligation for stock to be issued via the exchange itself. Such trading may be off exchange or over-the-counter and this is the usual way that derivatives and bonds are traded. Increasingly, stock exchanges are part of a securities market. The idea of debt dates back to the ancient world, as evidenced for example by ancient Mesopotamian clay tablets recording interest-bearing loans, there is little consensus among scholars as to when corporate stock was first traded. Some see the key event as the Dutch East India Companys founding in 1602, economist Ulrike Malmendier of the University of California at Berkeley argues that a share market existed as far back as ancient Rome. One such service was the feeding of geese on the Capitoline Hill as a reward to the birds after their honking warned of a Gallic invasion in 390 B. C. Participants in such organizations had partes or shares, a concept mentioned various times by the statesman, in one speech, Cicero mentions shares that had a very high price at the time. Such evidence, in Malmendiers view, suggests the instruments were tradable, the societas declined into obscurity in the time of the emperors, as most of their services were taken over by direct agents of the state. Tradable bonds as a used type of security were a more recent innovation, spearheaded by the Italian city-states of the late medieval. While the Italian city-states produced the first transferable government bonds, they did not develop the other ingredient necessary to produce a fully fledged capital market, the Dutch East India Company became the first company to offer shares of stock. Control of the company was held tightly by its directors, with shareholders not having much influence on management or even access to the companys accounting statements. However, shareholders were rewarded well for their investment, the company paid an average dividend of over 16 percent per year from 1602 to 1650. Financial innovation in Amsterdam took many forms, by the 1620s, the company was expanding its securities issuance with the first use of corporate bonds
21.
Speculative bubble
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An economic bubble or asset bubble is trade in an asset at a price or price range that strongly deviates from the corresponding assets intrinsic value. It could also be described as a situation in which asset prices appear to be based on implausible or inconsistent views about the future, Asset bubbles date back as far as the 1600s and are now widely regarded as a recurrent feature of modern economic history. Because it is difficult to observe intrinsic values in real-life markets, bubbles are often conclusively identified only in retrospect. Such a drop is known as a crash or a bubble burst, prices in an economic bubble can fluctuate erratically, and become impossible to predict from supply and demand alone. While some economists deny that bubbles occur, the cause of bubbles remains disputed by those who are convinced that asset prices often deviate strongly from intrinsic values. Many explanations have suggested, and research has recently shown that bubbles may appear even without uncertainty, speculation. In such cases, the bubbles may be argued to be rational and these approaches require that the timing of the bubble collapse can only be forecast probabilistically and the bubble process is often modelled using a Markov switching model. Similar explanations suggest that bubbles might ultimately be caused by processes of price coordination, more recent theories of asset bubble formation suggest that these events are sociologically driven. For instance, explanations have focused on emerging social norms and the role that culturally-situated stories or narratives play in these events and this was one of the earliest modern financial crises, other episodes were referred to as manias, as in the Dutch tulip mania. The metaphor indicated that the prices of the stock were inflated and fragile – expanded based on nothing but air, and vulnerable to a sudden burst, as in fact occurred. The impact of economic bubbles is debated within and between schools of thought, they are not generally considered beneficial, but its debated how harmful their formation. Political economist Robert E. Wright argues that bubbles can be identified before the fact with high confidence. A protracted period of low risk premiums can simply prolong the downturn in asset price deflation as was the case of the Great Depression in the 1930s for much of the world and the 1990s for Japan. Not only can the aftermath of a crash devastate the economy of a nation, another important aspect of economic bubbles is their impact on spending habits. Market participants with overvalued assets tend to spend more because they feel richer, many observers quote the housing market in the United Kingdom, Australia, New Zealand, Spain and parts of the United States in recent times, as an example of this effect. In an economy with a bank, the bank may therefore attempt to keep an eye on asset price appreciation. This is usually done by increasing the interest rate, in the 1970s, excess monetary expansion after the U. S. came off the gold standard created massive commodities bubbles. These bubbles only ended when the U. S, central Bank finally reined in the excess money, raising federal funds interest rates to over 14%
22.
Log-normal distribution
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In probability theory, a log-normal distribution is a continuous probability distribution of a random variable whose logarithm is normally distributed. Thus, if the random variable X is log-normally distributed, then Y = ln has a normal distribution, likewise, if Y has a normal distribution, then X = exp has a log-normal distribution. A random variable which is log-normally distributed takes only positive real values, the distribution is occasionally referred to as the Galton distribution or Galtons distribution, after Francis Galton. The log-normal distribution also has associated with other names, such as McAlister, Gibrat. A log-normal process is the realization of the multiplicative product of many independent random variables. This is justified by considering the limit theorem in the log domain. The log-normal distribution is the maximum entropy probability distribution for a random variate X for which the mean and this relationship is true regardless of the base of the logarithmic or exponential function. If log a is normally distributed, then so is log b , likewise, if e X is log-normally distributed, then so is a X, where a is a positive number ≠1. On a logarithmic scale, μ and σ can be called the location parameter, in contrast, the mean, standard deviation, and variance of the non-logarithmized sample values are respectively denoted m, s. d. and v in this article. The two sets of parameters can be related as μ = ln , σ = ln , a random positive variable x is log-normally distributed if the logarithm of x is normally distributed, N =1 σ2 π exp . A change of variables must conserve differential probability, All moments of the log-normal distribution exist and E = e n μ + n 2 σ22 This can be derived by letting z = ln − σ within the integral. However, the expected value E is not defined for any value of the argument t as the defining integral diverges. In consequence the moment generating function is not defined, the last is related to the fact that the lognormal distribution is not uniquely determined by its moments. In consequence, the function of the log-normal distribution cannot be represented as an infinite convergent series. In particular, its Taylor formal series diverges, ∑ n =0 ∞ n n, a relatively simple approximating formula is available in closed form and given by φ ≈ exp 1 + W where W is the Lambert W function. This approximation is derived via a method but it stays sharp all over the domain of convergence of φ. The geometric mean of the distribution is G M = e μ. By analogy with the statistics, one can define a geometric variance, G V a r = e σ2
23.
Benoit Mandelbrot
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He referred to himself as a fractalist. He is recognized for his contribution to the field of fractal geometry, in 1936, while he was a child, Mandelbrots family migrated to France. He spent most of his career in both the United States and France, having dual French and American citizenship, in 1958, he began a 35-year career at IBM, where he became an IBM Fellow, and periodically took leaves of absence to teach at Harvard University. At Harvard, following the publication of his study of U. S. commodity markets in relation to cotton futures, he taught economics and he showed how visual complexity can be created from simple rules. He said that things typically considered to be rough, a mess or chaotic, like clouds or shorelines, toward the end of his career, he was Sterling Professor of Mathematical Sciences at Yale University, where he was the oldest professor in Yales history to receive tenure. Mandelbrot also held positions at the Pacific Northwest National Laboratory, Université Lille Nord de France, Institute for Advanced Study, during his career, he received over 15 honorary doctorates and served on many science journals, along with winning numerous awards. His autobiography, The Fractalist, Memoir of a Scientific Maverick, was published in 2012, Mandelbrot was born in Warsaw during the Second Polish Republic. Although his father made his living trading clothing, the family had a strong academic tradition and he was first introduced to mathematics by two of his uncles, one of whom, Szolem Mandelbrojt, was a mathematician who resided in Paris. According to Mandelbrots autobiography, The Fractalist - Memoir of a Scientific Maverick, the family emigrated from Poland to France in 1936, when he was 11. The fact that my parents, as economic and political refugees, joined Szolem in France saved our lives, Mandelbrot attended the Lycée Rolin in Paris until the start of World War II, when his family then moved to Tulle, France. He was helped by Rabbi David Feuerwerker, the Rabbi of Brive-la-Gaillarde and this happened to a close friend from Paris, Zina Morhange, a physician in a nearby county seat. Simply to eliminate the competition, another physician denounced her, in 1944, Mandelbrot returned to Paris, studied at the Lycée du Parc in Lyon, and in 1945 to 1947 attended the École Polytechnique, where he studied under Gaston Julia and Paul Lévy. From 1947 to 1949 he studied at California Institute of Technology, returning to France, he obtained his PhD degree in Mathematical Sciences at the University of Paris in 1952. From 1949 to 1958, Mandelbrot was a member at the Centre National de la Recherche Scientifique. During this time he spent a year at the Institute for Advanced Study in Princeton, New Jersey, in 1955 he married Aliette Kagan and moved to Geneva, Switzerland, and later to the Université Lille Nord de France. In 1958 the couple moved to the United States where Mandelbrot joined the staff at the IBM Thomas J. Watson Research Center in Yorktown Heights. He remained at IBM for 35 years, becoming an IBM Fellow, from 1951 onward, Mandelbrot worked on problems and published papers not only in mathematics but in applied fields such as information theory, economics, and fluid dynamics. Mandelbrot found that changes in financial markets did not follow a Gaussian distribution
24.
Nonlinear system
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In mathematics and physical sciences, a nonlinear system is a system in which the change of the output is not proportional to the change of the input. Nonlinear problems are of interest to engineers, physicists and mathematicians, nonlinear systems may appear chaotic, unpredictable or counterintuitive, contrasting with the much simpler linear systems. In other words, in a system of equations, the equation to be solved cannot be written as a linear combination of the unknown variables or functions that appear in them. Systems can be defined as non-linear, regardless of whether or not known linear functions appear in the equations. In particular, an equation is linear if it is linear in terms of the unknown function and its derivatives. As nonlinear equations are difficult to solve, nonlinear systems are approximated by linear equations. This works well up to some accuracy and some range for the input values and it follows that some aspects of the behavior of a nonlinear system appear commonly to be counterintuitive, unpredictable or even chaotic. Although such chaotic behavior may resemble random behavior, it is not random. For example, some aspects of the weather are seen to be chaotic and this nonlinearity is one of the reasons why accurate long-term forecasts are impossible with current technology. Some authors use the term nonlinear science for the study of nonlinear systems and this is disputed by others, Using a term like nonlinear science is like referring to the bulk of zoology as the study of non-elephant animals. In mathematics, a function f is one which satisfies both of the following properties, Additivity or superposition, f = f + f, Homogeneity. Additivity implies homogeneity for any rational α, and, for continuous functions, for a complex α, homogeneity does not follow from additivity. For example, a map is additive but not homogeneous. The equation is called homogeneous if C =0, if f contains differentiation with respect to x, the result will be a differential equation. Nonlinear algebraic equations, which are also called polynomial equations, are defined by equating polynomials to zero, for example, x 2 + x −1 =0. For a single equation, root-finding algorithms can be used to find solutions to the equation. However, systems of equations are more complicated, their study is one motivation for the field of algebraic geometry. It is even difficult to decide whether a given system has complex solutions
25.
Chaos theory
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Chaos theory is a branch of mathematics focused on the behavior of dynamical systems that are highly sensitive to initial conditions. This happens even though these systems are deterministic, meaning that their behavior is fully determined by their initial conditions. In other words, the nature of these systems does not make them predictable. This behavior is known as chaos, or simply chaos. The theory was summarized by Edward Lorenz as, Chaos, When the present determines the future, Chaotic behavior exists in many natural systems, such as weather and climate. It also occurs spontaneously in some systems with components, such as road traffic. This behavior can be studied through analysis of a mathematical model, or through analytical techniques such as recurrence plots. Chaos theory has applications in several disciplines, including meteorology, sociology, physics, environmental science, computer science, engineering, economics, biology, ecology, the theory formed the basis for such fields of study as complex dynamical systems, edge of chaos theory, self-assembly process. Chaos theory concerns deterministic systems whose behavior can in principle be predicted, Chaotic systems are predictable for a while and then appear to become random. Some examples of Lyapunov times are, chaotic electrical circuits, about 1 millisecond, weather systems, a few days, in chaotic systems, the uncertainty in a forecast increases exponentially with elapsed time. Hence, mathematically, doubling the forecast time more than squares the proportional uncertainty in the forecast and this means, in practice, a meaningful prediction cannot be made over an interval of more than two or three times the Lyapunov time. When meaningful predictions cannot be made, the system appears random, in common usage, chaos means a state of disorder. However, in theory, the term is defined more precisely. Although no universally accepted mathematical definition of chaos exists, a commonly used definition originally formulated by Robert L, in these cases, while it is often the most practically significant property, sensitivity to initial conditions need not be stated in the definition. If attention is restricted to intervals, the second property implies the other two, an alternative, and in general weaker, definition of chaos uses only the first two properties in the above list. Sensitivity to initial conditions means that each point in a system is arbitrarily closely approximated by other points with significantly different future paths. Thus, a small change, or perturbation, of the current trajectory may lead to significantly different future behavior. C. Entitled Predictability, Does the Flap of a Butterflys Wings in Brazil set off a Tornado in Texas, the flapping wing represents a small change in the initial condition of the system, which causes a chain of events leading to large-scale phenomena
26.
George Soros
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George Soros is a Hungarian-American investor, business magnate, and philanthropist. Soros is considered by some to be one of the most successful investors in the world, as of February 2017, Soros has a net worth of $25.2 billion making him one of the 30 richest people in the world. Born in Budapest, he escaped Nazi Germany-occupied Hungary and emigrated to England in 1947 and he attended the London School of Economics graduating with a bachelors and eventually a masters in philosophy. He began his business career by taking jobs at merchant banks before starting his first hedge fund, Double Eagle. Profits from his first fund furnished the money to start Soros Fund Management, his second hedge fund. Double Eagle was renamed the Quantum Fund and was the principal firm Soros advised, at its founding, the Quantum Fund had $12 million in assets under management, and as of 2011 it had $25 billion, the majority of his overall net worth. He is a supporter of American progressive and American liberal political causes and dispenses his donations through his foundation. Between 1979 and 2011 Soros donated more than $11 billion to philanthropic causes. Soros was born in Budapest in the Kingdom of Hungary to a well-to-do non-observant Jewish family, Soros has described his home as anti-Semitic. His mother Elizabeth came from a family owned a thriving silk shop. His father Tivadar was a lawyer and had been a prisoner of war during and after World War I until he escaped from Russia, Tivadar was an Esperantist writer and taught Soros to speak Esperanto in his childhood. In 1936 Soross family changed their name from the German-Jewish Schwartz to Soros, Tivadar liked the new name because it is a palindrome and because of its meaning. In Hungarian, soros means next in line, or designated successor, Soros was 13 years old in March 1944 when Nazi Germany occupied Hungary. Jewish children were barred from attending school by the Nazis, and Soros, Soros later described this time to writer Michael Lewis, The Jewish Council asked the little kids to hand out the deportation notices. I was told to go to the Jewish Council, and there I was given these small slips of paper. I took this piece of paper to my father and this was a list of Hungarian Jewish lawyers. He said, You deliver the slips of paper and tell the people if they report they will be deported. Soros did not return to that job, his family purchased documents to say that they were Christians, thereby allowing them to survive the war
27.
Massachusetts Institute of Technology
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The Massachusetts Institute of Technology is a private research university in Cambridge, Massachusetts, often cited as one of the worlds most prestigious universities. Researchers worked on computers, radar, and inertial guidance during World War II, post-war defense research contributed to the rapid expansion of the faculty and campus under James Killian. The current 168-acre campus opened in 1916 and extends over 1 mile along the bank of the Charles River basin. The Institute is traditionally known for its research and education in the sciences and engineering, and more recently in biology, economics, linguistics. Air Force and 6 Fields Medalists have been affiliated with MIT, the school has a strong entrepreneurial culture, and the aggregated revenues of companies founded by MIT alumni would rank as the eleventh-largest economy in the world. In 1859, a proposal was submitted to the Massachusetts General Court to use newly filled lands in Back Bay, Boston for a Conservatory of Art and Science, but the proposal failed. A charter for the incorporation of the Massachusetts Institute of Technology, Rogers, a professor from the University of Virginia, wanted to establish an institution to address rapid scientific and technological advances. The Rogers Plan reflected the German research university model, emphasizing an independent faculty engaged in research, as well as instruction oriented around seminars, two days after the charter was issued, the first battle of the Civil War broke out. After a long delay through the war years, MITs first classes were held in the Mercantile Building in Boston in 1865, in 1863 under the same act, the Commonwealth of Massachusetts founded the Massachusetts Agricultural College, which developed as the University of Massachusetts Amherst. In 1866, the proceeds from sales went toward new buildings in the Back Bay. MIT was informally called Boston Tech, the institute adopted the European polytechnic university model and emphasized laboratory instruction from an early date. Despite chronic financial problems, the institute saw growth in the last two decades of the 19th century under President Francis Amasa Walker. Programs in electrical, chemical, marine, and sanitary engineering were introduced, new buildings were built, the curriculum drifted to a vocational emphasis, with less focus on theoretical science. The fledgling school still suffered from chronic financial shortages which diverted the attention of the MIT leadership, during these Boston Tech years, MIT faculty and alumni rebuffed Harvard University president Charles W. Eliots repeated attempts to merge MIT with Harvard Colleges Lawrence Scientific School. There would be at least six attempts to absorb MIT into Harvard, in its cramped Back Bay location, MIT could not afford to expand its overcrowded facilities, driving a desperate search for a new campus and funding. Eventually the MIT Corporation approved an agreement to merge with Harvard, over the vehement objections of MIT faculty, students. However, a 1917 decision by the Massachusetts Supreme Judicial Court effectively put an end to the merger scheme, the neoclassical New Technology campus was designed by William W. Bosworth and had been funded largely by anonymous donations from a mysterious Mr. Smith, starting in 1912. In January 1920, the donor was revealed to be the industrialist George Eastman of Rochester, New York, who had invented methods of production and processing
28.
Power law
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For instance, considering the area of a square in terms of the length of its side, if the length is doubled, the area is multiplied by a factor of four. Few empirical distributions fit a power law for all their values, acoustic attenuation follows frequency power-laws within wide frequency bands for many complex media. Allometric scaling laws for relationships between biological variables are among the best known power-law functions in nature, one attribute of power laws is their scale invariance. Given a relation f = a x − k, scaling the argument x by a constant factor c causes only a proportionate scaling of the function itself and that is, f = a − k = c − k f ∝ f. That is, scaling by a constant c simply multiplies the original power-law relation by the constant c − k, thus, it follows that all power laws with a particular scaling exponent are equivalent up to constant factors, since each is simply a scaled version of the others. This behavior is what produces the linear relationship when logarithms are taken of both f and x, and the straight-line on the plot is often called the signature of a power law. With real data, such straightness is a necessary, but not sufficient, in fact, there are many ways to generate finite amounts of data that mimic this signature behavior, but, in their asymptotic limit, are not true power laws. Thus, accurately fitting and validating power-law models is an area of research in statistics. This can be seen in the thought experiment, imagine a room with your friends. Now imagine the worlds richest person entering the room, with an income of about 1 billion US$. What happens to the income in the room. Income is distributed according to a known as the Pareto distribution. On the one hand, this makes it incorrect to apply traditional statistics that are based on variance, on the other hand, this also allows for cost-efficient interventions. For example, given that car exhaust is distributed according to a power-law among cars it would be sufficient to eliminate those very few cars from the road to reduce total exhaust substantially. For instance, the behavior of water and CO2 at their boiling points fall in the universality class because they have identical critical exponents. In fact, almost all material phase transitions are described by a set of universality classes. Similar observations have made, though not as comprehensively, for various self-organized critical systems. Formally, this sharing of dynamics is referred to as universality, scientific interest in power-law relations stems partly from the ease with which certain general classes of mechanisms generate them
29.
Didier Sornette
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Didier Sornette is Professor on the Chair of Entrepreneurial Risks at the Swiss Federal Institute of Technology Zurich. He is also a professor of the Swiss Finance Institute, in 2004, Sornette used Amazon. com sales data to create a mathematical model for predicting bestseller potential based on very early sales results. This was further developed to characterise the dynamics of success of YouTube videos and he is known for his work on financial bubbles, and has set up the Financial Crisis Observatory. He has developed the Dragon King Theory of extreme events, the social bubble hypothesis does not cast any value system, however, notwithstanding the use of the term bubble, which is often associated with a negative outcome. Rather, it identifies the types of dynamics that shape scientific or technological endeavors, in other words, according to the social bubble hypothesis, major projects do in general proceed via a social bubble mechanism. In other words, it is claimed that most of the disruptive innovations go through such a social bubble dynamics. ”Drawing from his experience as a venture capitalist. To address these two issues, he has proposed an effort to rejuvenate the nuclear industry to overcome the current dead-end in which it finds itself. He is advocating a shift from a low probability of incidents/accidents to a zero-accident technology. He estimates the effort to be about 1% GDP investment over a decade in the main nuclear countries could boost economic growth. He proposes to mine Swiss francs to stabilise the exchange against the euro to an economically and politically consensus and buy as much euros, a full English version and a presentation can be found at. A summary of the arguments has been presented in the German speaking media, scale invariance and beyond, EDP Sciences and Springer, Berlin,1997,286 pages. Why Stock Markets Crash Princeton University Press,2003, ISBN 0-691-09630-9 Critical Phenomena in Natural Sciences, Chaos, Fractals, Self-organization and Disorder, Concepts and Tools, Second edition, Springer Series in Synergetics, Heidelberg,2004. Theory of Zipfs law and beyond, Lecture Notes in Economics and Mathematical Systems, Volume 632, Springer, ISBN 978-3-642-02945-5 Man-made Catastrophes and Risk Information Concealment. Springer, 1st ed.2016 edition, DOI10. 1007/978-3-319-24301-6, Hardcover ISBN 978-3-319-24299-6, eBook ISBN 978-3-319-24301-6 Didier Sornettes homepage Didier Sornette at TED
30.
Random walk
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A random walk is a mathematical object, known as a stochastic or random process, that describes a path that consists of a succession of random steps on some mathematical space such as the integers. As illustrated by examples, random walks have applications to many scientific fields including ecology, psychology, computer science, physics, chemistry. Random walks explain the behaviors of many processes in these fields. As a more mathematical application, the value of pi can be approximated by the usage of random walk in agent-based modelling environment, the term random walk was first introduced by Karl Pearson in 1905. Various types of walks are of interest, which can differ in several ways. The time parameter can also be manipulated, in the simplest context the walk is in discrete time, that is a sequence of random variables = indexed by the natural numbers. However, it is possible to define random walks which take their steps at random times. Specific cases or limits of random walks include the Lévy flight, Random walks are a fundamental topic in discussions of Markov processes. Their mathematical study has been extensive, several properties, including dispersal distributions, first-passage or hitting times, encounter rates, recurrence or transience, have been introduced to quantify their behaviour. A popular random walk model is that of a walk on a regular lattice. In a simple walk, the location can only jump to neighboring sites of the lattice. In simple symmetric random walk on a finite lattice, the probabilities of the location jumping to each one of its immediate neighbours are the same. The best studied example is of random walk on the integer lattice Z d. An elementary example of a walk is the random walk on the integer number line, Z. This walk can be illustrated as follows, a marker is placed at zero on the number line and a fair coin is flipped. If it lands on heads, the marker is moved one unit to the right, if it lands on tails, the marker is moved one unit to the left. After five flips, the marker could now be on 1, −1,3, −3,5, with five flips, three heads and two tails, in any order, will land on 1. There are 10 ways of landing on 1,10 ways of landing on −1,5 ways of landing on 3,5 ways of landing on −3,1 way of landing on 5, see the figure below for an illustration of the possible outcomes of 5 flips
31.
Computer simulation
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Computer simulations reproduce the behavior of a system using a model. Simulation of a system is represented as the running of the systems model and it can be used to explore and gain new insights into new technology and to estimate the performance of systems too complex for analytical solutions. The scale of events being simulated by computer simulations has far exceeded anything possible using traditional paper-and-pencil mathematical modeling, other examples include a 1-billion-atom model of material deformation, a 2. Because of the computational cost of simulation, computer experiments are used to perform such as uncertainty quantification. A computer model is the algorithms and equations used to capture the behavior of the system being modeled, by contrast, computer simulation is the actual running of the program that contains these equations or algorithms. Simulation, therefore, is the process of running a model, thus one would not build a simulation, instead, one would build a model, and then either run the model or equivalently run a simulation. It was a simulation of 12 hard spheres using a Monte Carlo algorithm, Computer simulation is often used as an adjunct to, or substitute for, modeling systems for which simple closed form analytic solutions are not possible. The external data requirements of simulations and models vary widely, for some, the input might be just a few numbers, while others might require terabytes of information. Because of this variety, and because diverse simulation systems have common elements. Systems that accept data from external sources must be careful in knowing what they are receiving. While it is easy for computers to read in values from text or binary files, often they are expressed as error bars, a minimum and maximum deviation from the value range within which the true value lie. Even small errors in the data can accumulate into substantial error later in the simulation. While all computer analysis is subject to the GIGO restriction, this is true of digital simulation. Indeed, observation of this inherent, cumulative error in digital systems was the main catalyst for the development of chaos theory, another way of categorizing models is to look at the underlying data structures. For time-stepped simulations, there are two classes, Simulations which store their data in regular grids and require only next-neighbor access are called stencil codes. Many CFD applications belong to this category, if the underlying graph is not a regular grid, the model may belong to the meshfree method class. Equations define the relationships between elements of the system and attempt to find a state in which the system is in equilibrium. Such models are used in simulating physical systems, as a simpler modeling case before dynamic simulation is attempted
32.
Complex system
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Complex systems present problems both in mathematical modelling and philosophical foundations. The subject is also called complex systems theory, complexity science, study of complex systems, complex networks, network science. Such a systems approach is used in computer science, biology, economics, physics, chemistry, architecture. A variety of abstract theoretical complex systems is studied as a field of mathematics, the key problems of complex systems are difficulties with their formal modelling and simulation. From such a perspective, in different research contexts complex systems are defined on the basis of their different attributes, since all complex systems have many interconnected components, the science of networks and network theory are important and useful tools for the study of complex systems. A theory for the resilience of system of systems represented by a network of interdependent networks was developed by Buldyrev et al, a consensus regarding a single universal definition of complex system does not yet exist. For systems that are less usefully represented with various other kinds of narratives. The study of complex system models is used for many scientific questions poorly suited to the traditional mechanistic conception provided by science. Linear systems represent the class of systems for which general techniques for stability control. However, many systems are inherently complex systems in terms of the definition above. This debate would notably lead economists, politicians and other parties to explore the question of computational complexity, gregory Bateson played a key role in establishing the connection between anthropology and systems theory, he recognized that the interactive parts of cultures function much like ecosystems. The first research institute focused on systems, the Santa Fe Institute, was founded in 1984. Today, there are over 50 institutes and research focusing on complex systems. The traditional approach to dealing with complexity is to reduce or constrain it, typically, this involves compartmentalisation, dividing a large system into separate parts. Organizations, for instance, divide their work into departments that deal with separate issues. Engineering systems are designed using modular components. However, modular designs become susceptible to failure when issues arise that bridge the divisions, as projects and acquisitions become increasingly complex, companies and governments are challenged to find effective ways to manage mega-acquisitions such as the Army Future Combat Systems. Acquisitions such as the FCS rely on a web of interrelated parts which interact unpredictably, over the last decades, within the emerging field of complexity economics new predictive tools have been developed to explain economic growth
33.
Panic of 1907
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Panic occurred, as this was during a time of economic recession, and there were numerous runs on banks and trust companies. The 1907 panic eventually spread throughout the nation when many state and local banks, primary causes of the run included a retraction of market liquidity by a number of New York City banks and a loss of confidence among depositors, exacerbated by unregulated side bets at bucket shops. The panic was triggered by the attempt in October 1907 to corner the market on stock of the United Copper Company. The collapse of the Knickerbocker spread fear throughout the citys trusts as regional banks withdrew reserves from New York City banks, Panic extended across the nation as vast numbers of people withdrew deposits from their regional banks. This highlighted the impotence of the nations Independent Treasury system, which managed the money supply. By November, the contagion had largely ended, only to be replaced by a further crisis. This was due to the borrowing of a large brokerage firm that used the stock of Tennessee Coal, Iron. Collapse of TC&Is stock price was averted by a takeover by Morgans U. S. Steel Corporation—a move approved by anti-monopolist president Theodore Roosevelt. Each autumn money flowed out of the city as harvests were purchased and—in an effort to attract money back—interest rates were raised, foreign investors then sent their money to New York to take advantage of the higher rates. From the January 1906 Dow Jones Industrial Average high of 103, the April 1906 earthquake that devastated San Francisco contributed to the market instability, prompting an even greater flood of money from New York to San Francisco to aid reconstruction. From their peak in January, stock prices declined 18% by July 1906, by late September, stocks had recovered about half of their losses. The Hepburn Act, which gave the Interstate Commerce Commission the power to set railroad rates. This depreciated the value of railroad securities, between September 1906 and March 1907, the stock market slid, losing 7. 7% of its capitalization. Between March 9 and 26, stocks fell a further 9. 8%, the economy remained volatile through the summer. In the first nine months of 1907, stocks were lower by 24. 4%, on July 27, The Commercial & Financial Chronicle noted that the market keeps unstable. No sooner are these signs of new life in evidence than something like a suggestion of a new outflow of gold to Paris sends a tremble all through the list, and the gain in values and hope is gone. Several bank runs occurred outside the US in 1907, in Egypt in April and May, in Japan in May and June, in Hamburg and Chile in early October. The fall season was always a time for the banking system—combined with the roiled stock market
34.
J. P. Morgan
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John Pierpont J. P. Morgan was an American financier and banker who dominated corporate finance and industrial consolidation in late 19th and early 20th Century United States. In 1892, Morgan arranged the merger of Edison General Electric and he was instrumental in the creation of the United States Steel Corporation, International Harvester and AT&T. He directed the banking coalition that stopped the Panic of 1907 and he was the leading financier of the Progressive Era, and his dedication to efficiency and modernization helped transform American business. Morgan has been described as America’s greatest banker, Morgan died in Rome, Italy, in his sleep in 1913 at the age of 75, leaving his fortune and business to his son, John Pierpont Morgan, Jr. His fortune was estimated at only US$80 million, prompting John D. Rockefeller to say, Morgan was born into the influential Morgan family in Hartford, Connecticut, and was raised there. He was the son of Junius Spencer Morgan and Juliet Pierpont, Pierpont, as he preferred to be known, had a varied education due in part to the plans of his father. In the fall of 1848, Pierpont transferred to the Hartford Public School and then to the Episcopal Academy in Cheshire, Connecticut, boarding with the principal. In September 1851, Morgan passed the exam for The English High School of Boston. In the spring of 1852, an illness struck which was to more common as his life progressed. Rheumatic fever left him in so much pain that he could not walk and he convalesced there for almost a year, then returned to the English High School in Boston to resume his studies. After he graduated, his father sent him to Bellerive, a school near the Swiss village of Vevey and his father then sent him to the University of Göttingen in order to improve his German. He attained a level of German within six months and also a degree in art history, then traveled back to London via Wiesbaden. Morgan went into banking in 1857 at the London branch of merchant banking firm Peabody, in 1858, he moved to New York City to join the banking house of Duncan, Sherman & Company, the American representatives of George Peabody and Company. Morgan had avoided serving during the war by paying a substitute $300 to take his place, from 1860 to 1864, as J. Pierpont Morgan & Company, he acted as agent in New York for his fathers firm, renamed J. S. Morgan & Co. upon Peabodys retirement in 1864, from 1864–72, he was a member of the firm of Dabney, Morgan, and Company. In 1871, he partnered with the Drexels of Philadelphia to form the New York firm of Drexel, at that time, Anthony J. Drexel became Pierponts mentor at the request of Junius Morgan. After the death of Anthony Drexel, the firm was rechristened J. P. Morgan & Company in 1895, retaining close ties with Drexel & Company of Philadelphia, Morgan, Harjes & Company of Paris, and J. S. By 1900, it was one of the most powerful banking houses of the world, Morgan had many partners over the years, such as George W. Perkins, but always remained firmly in charge
35.
Federal Reserve System
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The Federal Reserve System is the central banking system of the United States. Over the years, events such as the Great Depression in the 1930s, the U. S. Congress established three key objectives for monetary policy in the Federal Reserve Act, maximizing employment, stabilizing prices, and moderating long-term interest rates. The first two objectives are sometimes referred to as the Federal Reserves dual mandate. S, the Fed conducts research into the economy and releases numerous publications, such as the Beige Book. S. member banks, and various advisory councils. The federal government sets the salaries of the seven governors. Nationally chartered commercial banks are required to hold stock in the Federal Reserve Bank of their region, thus, the Federal Reserve System has both private and public components to serve the interests of the public and private banks. The structure is considered unique among central banks and it is also unusual in that the United States Department of the Treasury, an entity outside of the central bank, prints the currency used. The U. S. Government receives all the annual profits, after a statutory dividend of 6% on member banks capital investment is paid. In 2015, the Federal Reserve made a profit of $100.2 billion, the primary motivation for creating the Federal Reserve System was to address banking panics. Before the founding of the Federal Reserve System, the United States underwent several financial crises, a particularly severe crisis in 1907 led Congress to enact the Federal Reserve Act in 1913. Today the Federal Reserve System has responsibilities in addition to ensuring the stability of the financial system. S. S and this practice is called fractional-reserve banking. As a result, banks usually invest the majority of the funds received from depositors, on rare occasions, too many of the banks customers will withdraw their savings and the bank will need help from another institution to continue operating, this is called a bank run. Bank runs can lead to a multitude of social and economic problems, the Federal Reserve System was designed as an attempt to prevent or minimize the occurrence of bank runs, and possibly act as a lender of last resort when a bank run does occur. Many economists, following Milton Friedman, believe that the Federal Reserve inappropriately refused to lend money to banks during the bank runs of 1929. Because some banks refused to clear checks from certain others during times of economic uncertainty, to address these problems, Congress gave the Federal Reserve System the authority to establish a nationwide check-clearing system. It took over this role from the private sector clearing houses which operated during the Free Banking Era, whether public or private, through its discount window and credit operations, Reserve Banks provide liquidity to banks to meet short-term needs stemming from seasonal fluctuations in deposits or unexpected withdrawals. Longer term liquidity may also be provided in exceptional circumstances, the rate the Fed charges banks for these loans is called the discount rate. By making these loans, the Fed serves as a buffer against unexpected day-to-day fluctuations in reserve demand and this contributes to the effective functioning of the banking system, alleviates pressure in the reserves market and reduces the extent of unexpected movements in the interest rates. For example, on September 16,2008, the Federal Reserve Board authorized an $85 billion loan to stave off the bankruptcy of international insurance giant American International Group
36.
Wall Street Crash of 1929
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The crash, which followed the London Stock Exchanges crash of September, signaled the beginning of the 12-year Great Depression that affected all Western industrialized countries. The Roaring Twenties, the decade that followed World War I and led to the crash, was a time of wealth, while the American cities prospered, the overproduction of agricultural produce created widespread financial despair among American farmers throughout the decade. This would later be blamed as one of the key factors that led to the 1929 stock market crash, despite the dangers of speculation, many believed that the stock market would continue to rise forever. On March 25,1929, after the Federal Reserve warned of excessive speculation, two days later, banker Charles E. Mitchell announced his company the National City Bank would provide $25 million in credit to stop the markets slide. Mitchells move brought a halt to the financial crisis and call money declined from 20 to 8 percent. Despite all these economic trouble signs and the breaks in March and May 1929, stocks resumed their advance in June. The market had been on a run that saw the Dow Jones Industrial Average increase in value tenfold. Shortly before the crash, economist Irving Fisher famously proclaimed, Stock prices have reached what looks like a high plateau. The optimism and financial gains of the bull market were shaken after a well publicized early September prediction from financial expert Roger Babson that a crash was coming. The initial September decline was thus called the Babson Break in the press and this was the start of the Great Crash, although until the severe phase of the crash in October, many investors regarded the September Babson Break as a healthy correction and buying opportunity. On September 20, the London Stock Exchange crashed when top British investor Clarence Hatry and many of his associates were jailed for fraud, the London crash greatly weakened the optimism of American investment in markets overseas. In the days leading up to the crash, the market was severely unstable, periods of selling and high volumes were interspersed with brief periods of rising prices and recovery. On October 24, the market lost 11 percent of its value at the bell on very heavy trading. Several leading Wall Street bankers met to find a solution to the panic and chaos on the trading floor. The meeting included Thomas W. Lamont, acting head of Morgan Bank, Albert Wiggin, head of the Chase National Bank and they chose Richard Whitney, vice president of the Exchange, to act on their behalf. With the bankers financial resources behind him, Whitney placed a bid to purchase a block of shares in U. S. Steel at a price well above the current market. As traders watched, Whitney then placed similar bids on other blue chip stocks and this tactic was similar to one that ended the Panic of 1907. It succeeded in halting the slide, the Dow Jones Industrial Average recovered, closing with it down only 6.38 points for the day
37.
Wall Street
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Wall Street is an eight-block-long street running roughly northwest to southeast from Broadway to South Street, at the East River, in the Financial District of Lower Manhattan in New York City. Over time, the term has become a metonym for the markets of the United States as a whole. Several other major exchanges have or had headquarters in the Wall Street area, including the New York Mercantile Exchange, the New York Board of Trade, there are varying accounts about how the Dutch-named de Walstraat got its name. A conflicting explanation is that Wall Street was named after Walloons— the Dutch name for a Walloon is Waal, among the first settlers that embarked on the ship Nieu Nederlandt in 1624 were 30 Walloon families. The Dutch word wal can be translated as rampart, however, even some English maps show the name as Waal Straat, and not as Wal Straat. But soon after that, the Dutch governor, Kieft, sent his men out there one night, few of them escaped, but they spread the story of what had been done, and this did much to antagonize all the remaining tribes against all the white settlers. Shortly after, Nieuw Amsterdam erected a palisade for defense against its now enraged red neighbors. The space between the walls is now called Wall Street, and its spirit is still that of a bulwark against the people. In the 1640s basic picket and plank fences denoted plots and residences in the colony, in 1685, surveyors laid out Wall Street along the lines of the original stockade. In these early days, local merchants and traders would gather at disparate spots to buy and sell shares and bonds, Wall Street was also the marketplace where owners could hire out their slaves by the day or week. The rampart was removed in 1699, the slave market operated from 1711 to 1762 at the corner of Wall and Pearl Streets. It was a structure with a roof and open sides, although walls may have been added over the years. The city directly benefited from the sale of slaves by implementing taxes on every person who was bought, in the late 18th century there was a buttonwood tree at the foot of Wall Street under which traders and speculators would gather to trade securities. The benefit was being in proximity to each other, in 1792, traders formalized their association with the Buttonwood Agreement which was the origin of the New York Stock Exchange. The idea of the agreement was to make the more structured and without the manipulative auctions. Persons signing the agreement agreed to each other a standard commission rate, persons not signing could still participate. In 1789 Wall Street was the scene of the United States first presidential inauguration when George Washington took the oath of office on the balcony of Federal Hall on April 30,1789 and this was also the location of the passing of the Bill Of Rights. Alexander Hamilton, who was the first Treasury secretary and architect of the early United States financial system, is buried in the cemetery of Trinity Church, in the first few decades, both residences and businesses occupied the area, but increasingly business predominated
[q-fin.ST].