The Global Capital Market
“Wall Street is the only place where people ride to in a Rolls-Royce to get advices from those who take the subway..”
Warren Buffett
“Speculators may do no harm as bubbles on a steady stream of enterprise. But the position is serious when enterprises becomes a bubble on a whirlpool of speculation. When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done….”
John M. Keynes
While London has been displacing Amsterdam as the global financial centre of the world from the late 18th century onward, yet at about the same time, the New Amsterdam at the other side of the Atlantic has also started building its position as a financial centre which eventually replaced London as the world’s international financial centre after World War II.
It looks an interesting coincidence and irony in history that lower Manhattan was once an integral part of the New Amsterdam and in the 1650s, Dutch Director-General Peter Stuyvesant ordered a 12-foot wooden palisade built across lower Manhattan as a defensive wall to protect the growing settlement of New Amsterdam from the English attacks..
Although the wall was taken down in 1699, the road that ran along it has become known as de Waal Straat. Interesting enough, the New York City was founded by the West India Company in 1624/26 and was originally called the New Amsterdam (Nieuw Amsterdam) – after the English seized the settlement in 1664, the city was renamed New York in honour of the Duke of York. The British however did not rename the road de Waal Straat and just translated its name literally into English which has become known as the Wall Street since then. Then in 1792, 24 brokers in the New York city signed an agreement under a tree on Wall Street which eventually culminated into the formation of the New York Stock Exchange.
As such, New York as a financial centre does carry some legacies from the Dutch and the financial culture of the Dutch is not entirely the same as the British. Regarding the Wall Street culture and its inherent contradiction to the investors’ interest, Warren Buffett has once made a famous remark that ‘Wall Street makes money on activities and investors make money on inactivity.”
Meanwhile, Charlie Munger has once bluntly remarked that the money made by all the financial intermediaries in the US roughly equal all the money made by Corporate America, meaning that in aggregate, shareholders in the US may not earn anything at all as all such profits have more or less been absorbed by the cost and expenses related to moving around different securities and financial instruments.
Such sad and harsh reality may well provide major clues to us in terms of understanding the financial world as we know today and illuminating on what may need to be done to make the global capital market a more fair, robust and effective one.