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Volume 15, Number 2 • Copyright ©2000 Corporate Support Systems, Inc. • All Rights Reserved

Wall Street
A History of Wall Street

Charles R. Geisst

©1997 Oxford University Press

ISBN 0-19-511512-0

Reviewed by Lydia Morris Brown

Chapter One: The Early Years (1790–1840)

America, prior to the Revolutionary War, was a diverse place of unparalleled opportunity. The existing merchant class,
mostly British and Dutch by origin, had already carved out lucrative careers as merchant traders. Land speculation drew
attention because there was an abundance of land, and Europeans desired it more than any other type of property. With
the abundance of land, food, furs, and minerals, the only constraint on accumulating wealth was a lack of imagination.
Borrowing money to become successful in business was becoming popular because it was recognized as the only way that
capitalism could be practiced. Nonetheless, the practice had weak institutional underpinnings.
Although European stock exchanges had existed for over a century, America lacked an organized exchange, which
prevented commerce from developing quickly or well. But after the Revolutionary War, the federal government found
itself in financial straits, and was forced to borrow $80 million by issuing federal government bonds. Thus, the
American capital markets were born. Although the bonds were sold in Philadelphia, Boston, New York, Baltimore,
and Charleston, New York developed the first active market for the bonds as well as shares of emerging industrial

Business Book Review™ Vol. 15, No. 2 • Copyright © 2000 Corporate Support Systems, Inc. • All Rights Reserved
Wall Street
and financial institutions. At various locations in Lower
Manhattan around Wall Street, local merchants and traders
gathered for trading, in a crude approximation of the
already established European exchanges.
In the early years of the market, it was apparent that
auctioneers were rigging prices to suit themselves rather
than provide fair prices for investors. Recognizing the need
to clean up their operations, the dealers and auctioneers
entered the Buttonwood Agreement in 1792, agreeing to
establish a formal exchange for buying and selling shares
and loans. The new market would be more structured and
conducted without the manipulative auctions.
In the period following the War of 1812, transportation
took off. First roads, then canals, and finally railways
were built, and as a result, transportation companies
became the first growth sector of the early capital
markets, which otherwise still specialized in bank stocks,
insurance companies, federal bonds, and, increasingly,
municipalities. Meanwhile, the exchanges (especially New
York) were developing reputations for “gaming” and
predatory practices.
Chapter Two: The Railroad and Civil War Eras
(1840–70)
Between the 1830s and the Civil War, Wall Street was
known as the playground of the rich and powerful—a
reputation that could, for the most part, be attributed to
the fact that the Street operated entirely free of regulation.
Thus, when the Second Bank of the United States closed
its doors in 1836, economic swings between prosperity and
downturn became more frequent. The role of war during
the 19th century strongly reinforced Wall Street’s notion of
the survival of the fittest. The War of 1812 had forced the
Treasury to borrow and introduced wealthy merchants to
the bond business. The Mexican War of 1846–1848 and the
Civil War also played pivotal roles in American financing
and helped develop the financial markets.
In the 1830s, many new investment houses emerged
to help investors trade shares and foreign exchange and
About the Author
Charles R. Geisst is a professor of finance in the
School of Business, Manhattan College, and author
of Investment Banking in the Financial System and
Exchange Rate Chaos.
Business Book Review™ Vol. 15, No. 2 • Copyright © 2000 Corporate Support Systems, Inc. • All Rights Reserved
Charles R. Geisst
raise capital for new companies and entrepreneurs. Prime,
Ward, and King; Kidder, Peabody and Company; Winslow,
Lanier and Company; J. and W. Seligman and Company;
and Kuhn Loeb and Company joined merchants-turned-
bankers such as Thomas Biddle and Company, Alexander
Brown and Company, and August Belmont and Company
(who represented the Rothschilds of Europe) to finance
the country’s growing economy, especially the burgeoning
railroad industry. In addition, firms that acted as watchdogs
over the financial sector also began to emerge. The first was
The Mercantile Agency established in 1841 and renamed
Dun and Bradstreet in 1933.
Chapter Three: The Robber Barons (1870–90)
After the Civil War, the American economy began to
grow again—even more dramatically than before. Railroad
expansion resumed, and the first transatlantic telegraph
cable was laid in 1866. All the promise the United States
offered its European investors and new arrivals began to
reach greater fruition than at any other time in American
history. Speculation remained strong, and great American
fortunes were established during this era that encouraged
extravagant wealth. This was the heyday of those individual
financiers known as the robber barons. Vanderbilt, Fisk,
Gould, Drew, Sage, Rockefeller, and Carnegie were all able
to amass vast fortunes because of structural conditions
within the economy. They all owed a significant debt to
their bankers who helped them finance their ventures, and
to consolidate their holdings into large industrial combines.
By the last quarter of the 19th century, consolidation
had turned into a tidal wave that swamped American
industry, placing a virtual stranglehold on entire sectors
of the American economy. By the end of the century,
Wall Street, having helped finance that stranglehold, was
a cartel in its own right.
Chapter Four: The Age of the Trusts (1880–1910)
Originally the term trust was used as a synonym
for merger. All members of a pool of similar business
interests surrendered their shares for certificates issued
by a trust (Rockefeller’s Standard Oil employed this
approach in 1882 to circumvent state incorporation laws
in Ohio). As the trust took over smaller companies,
it grew in size and influence without having to issue
new stock in the marketplace. Trust certificates replaced
common stock in these enterprises and were traded on
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Wall Street
the stock exchanges. During the 1890s, AT&T, Swift
Brothers (meatpacking), Edison Illuminating (General
Electric Company), and American Tobacco Company were
among the approximately 50 trusts (representing the major
industries of the time) operating nationwide.
During the last two decades of the 19th century, stocks
replaced bonds as investor favorites, partly in reaction to
stories of the fabulous wealth amassed by the industrialists
and financiers. The presence of so much common stock,
much of it watered, made the stock market a precarious
place. Many investment banks, trust companies, and
brokers bought and sold for their investors as they saw fit.
Because few regulations stood in their way, these stock
market manipulations caused panics that continuously
endangered the banking system.
Chapter Five: The Money Trust (1890–1920)
During the late 1900s and first decades of the 20th
century, the financial system relied on the large money
center banks in New York and Chicago that were able
to accumulate large amounts of deposits and influence.
They supplied credit to companies, raised bond and stock
offerings, and had extensive holdings on corporate boards,
ensuring a tight grip on American industrial policies.
Nonetheless, these banks did little to develop business
and new ideas.
Despite its lack of universal popularity, the creation
of the Federal Reserve in 1913 was inevitable. This
centralized system was established to act as a lender of last
resort to prevent bank crises and to permit a more elastic
currency to meet the needs of the economy. Nonetheless,
this did not mean that the money trust had been replaced
by a higher authority. For while the Federal Reserve
developed its new powers, its relationship with Wall Street
remained strong.
Only when Louis Brandeis began speaking out about
the trusts was the mold broken. His criticism of bankers
in general and J.P. Morgan in particular (whose control
of private enterprise and government financing was
unequaled by any American of his time) gave functional
definition to the term money trust. His criticism was not
of investment bankers on one side or commercial bankers
on the other, but the collusion of the two factions that
threatened public welfare.
Liberty Loans, first authorized by Congress in 1917 to
finance America’s participation in World War I, were the
Business Book Review™ Vol. 15, No. 2 • Copyright © 2000 Corporate Support Systems, Inc. • All Rights Reserved
Charles R. Geisst
largest bond issues of their time, with more than $21 billion
sold. These war bonds provided many Americans with their
first experience of owning intangible property, and they
soon learned that money could be made by holding paper
securities until they went up in value. Thus, the cynicism
of the government and public toward bankers subsided and
the bankers again began to tighten their grip on the credit
system. Although the term money trust was no longer part
of the public conscious, the big Trusts still existed, only
they were more cunning and discrete.
Chapter Six: The Booming Twenties (1920–1929)
Between 1922 and 1929, American productive capacity
became the envy of the world. The postwar inflation
rate remained low, sparking a massive rally in the stock
and bond markets. On the surface, it appeared that the
entire country was speculating in the market, and soon the
New York capital markets wrested the international capital
markets away from Britain. Even the highly criticized
income tax did not deter consumers from spending—it only
increased the use of credit more than ever before.
As the market rose to over 200 percent between 1925
and 1928, many warned that the bubble was about to
burst, but to no avail. Investment pools began to emerge,
along with investment trusts, whose main appeal was
their ability to offer stocks to the public that were fast
becoming unavailable by any other means. Moreover, a
good deal of the money used by those involved in pools
was borrowed and never paid back, nor was interest paid.
Meanwhile, buying stock on margin also became standard
practice. As a result of all this excessive speculation,
money became increasingly expensive for manufacturers
and farmers.
Stock prices reached their height during the first
six months of the Hoover administration (1929). But
many of these stocks had been bought on margin (in
August approximately 300 million shares were purchased
in this manner). Under normal circumstances, stocks
were purchased primarily for the dividend they paid, but
during this bull market, people bought in order to sell at
higher prices. Unfortunately, sales began to slow, and in
September some investors starting selling large blocks of
stocks, causing prices to fall. This decline was especially
disastrous for those who had purchased on margin.
By October, prices had dropped so rapidly that
thousands of people lost all they had invested, and many
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Wall Street
were completely ruined. On the 29th, the New York Stock
Exchange, the largest in the world by that time, experienced
its worst day of panic selling. By the end of the year, stock
values had declined by $15 billion.
Chapter Seven: Wall Street Meets the New Deal
(1930–1935)
Stock market averages continued to plummet. National
income declined by more than 30 percent, savings declined
by 50 percent, unemployment rose to almost 16 percent,
and new housing came to an abrupt halt. Companies that
once rushed to loan money to the stock market literally
disappeared. Meanwhile politicians blamed Wall Street for
the decline in the economy, but the Street simply wrote
it off as just another “recession.” Thus, much of the faith
that had been shown in markets, financial institutions, and
politicians quickly gave way to skepticism and a longing
for effective leadership. As a result, the Republicans lost
their majority in Congress and the Democrats seized the
presidency in the 1932 election.
Roosevelt’s overwhelming victory, coupled with the
urgency of America’s economic collapse, opened the
way for a flood of reform legislation. In March 1933,
Congress passed the Emergency Banking Act, which
provided for federal bank inspections. That summer, the
Glass-Steagall Act set much more stringent rules for
banks, separating investment and commercial banking
and providing insurance for depositors through the Federal
Deposit Insurance Corporation (FDIC). The Securities
Act mandated detailed regulations for the securities
market, enforced by the new Securities and Exchange
Commission (SEC). And, several bills provided mortgage
relief for farmers and homeowners and offered loan
guarantees for home purchasers through the Federal
Housing Administration (FHA).
Chapter Eight: The Struggle Continues
(1936–1954)
The economy began to improve gradually; however, the
revolutionary changes brought about by the new legislation
did not allay fears that American business still had a
monopoly hold over major sectors of the economy, and Wall
Street was unwilling to take an active role in defending
finance against its many critics. With Roosevelt’s landslide
victory in 1936, major sources of political opposition to
the New Deal crumbled.
Business Book Review™ Vol. 15, No. 2 • Copyright © 2000 Corporate Support Systems, Inc. • All Rights Reserved
Charles R. Geisst
To its credit, the Street recognized the trend and tried
to respond by forming a self-regulatory body. Many of the
provisions of this organization were incorporated into new
legislation passed by Congress in 1937 as the Maloney
Act. This new law created the National Association of
Securities Dealers (NASD), which was responsible for
overseeing the over-the-counter market.
During World War II, the authority of the Federal
Reserve was enhanced when it was charged by Roosevelt
to intervene in the markets to stabilize interest rates. The
intent was to keep interest rates as low and as stable as
possible so that the borrowing in the bond market could be
done quickly. As new corporate securities issues declined
by half between 1941 and 1943 and new common stock
offering dropped to its lowest level since 1935, Treasury
offerings filled the vacuum.
After the war ended, the markets slowly began to rise.
Government issues of war bonds decreased dramatically,
and new stock issues doubled. But corporate bonds did
not increase much at all, and stock-exchange turnover
remained at its wartime levels. Inflation too was a real
problem, with prices rising almost 15 percent between
1946 and 1947.
Then the Justice Department filed suit against Morgan
Stanley and 16 other investment banking firms in 1947,
charging that “the defendants as a group developed a
system to eliminate competition and monopolize the cream
of the business of investment banking.” But the case was
dismissed in 1953, finally freeing the Street of its image
as the home of monopoly capitalists. Investment bankers
had finally proved that they were vital to the economy
and that their techniques and fees were not as exorbitant
as many had believed.
Chapter Nine: Bull Market (1954–1969)
The bull market that developed after Eisenhower won
the presidency in 1952 continued for more than 15 years.
Economic growth was unprecedented. Industrial stocks
rose and were matched by those in high technology. The
1950s also proved to be a golden period for America in
international affairs. The central role of the dollar in world
trade helped to pave the way. And U.S. industry spent
billions overseas in foreign investments as the country
exercised its strength as a creditor nation.
The strong bull market attracted more new investors
each year. The market indices rose during Johnson’s
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Wall Street
presidency and reached historic highs on several occasions.
But at the same time, interest rates rose, and inflation
doubled. The widespread use of credit cards also began
in the 1960s, and Wall Street benefited from this surge
by providing funds for the credit companies. The bull
market also created the greatest merger trend on Wall
Street since the days of the 19th century trusts. But one
of the largest growth sectors of the securities business
was mutual funds.
Chapter Ten: Bear Market (1970–1981)
The last days of the 1960s brought an increase in market
volatility. The stock market was becoming increasingly
susceptible to outside influences as it accommodated itself
to technological change, and inflation was a major concern.
Nixon adopted wage and price controls, which would
freeze wages and prices for 90 days, and he devalued the
dollar by cutting its convertibility into gold. Recognizing
trouble, foreign investors began selling dollars, throwing
the foreign exchange markets into chaos. With the dollar
now a major area of concern, inflation skyrocketed.
Then early in 1973, OPEC announced a sharp rise in the
price of oil. Stock indices declined sharply, and bond yields
rose, as did short-term interest rates. A severe recession set
in, as the cost of imported oil forced an economic slowdown.
Soon, the Street began focusing on those stocks that would
perform well under the circumstances. Oil producers of
course led the list, and their stock prices rose substantially.
It was also an excellent time for marketing new financial
products (especially mutual funds), encouraging brokers
to expand beginning in 1975. Meanwhile, outside the
orbit of the established markets, Michael Milken and his
high-yield junk bonds were waiting in the wings to take
center stage.
Chapter Eleven: Mergermania (1982–1996)
The 1980s are usually remembered as the decade of
junk bond takeovers, insider trading scandals, enormous
merger deals, and general financial excess. Between 1982
and 1987, investment bankers enjoyed some of their
best years ever. Companies, municipalities, government
agencies, and the U.S. Treasury all began issuing new
securities, and the markets prospered. Underwriting surged
and trading and sales naturally followed. The bond market
exploded. Companies, mortgage assistance agencies, and
municipalities all tapped the market for fresh funds at
Business Book Review™ Vol. 15, No. 2 • Copyright © 2000 Corporate Support Systems, Inc. • All Rights Reserved
Charles R. Geisst
a pace not seen for ten years. Surging corporate profits
sparked new capital investments, and funds were raised
for expansion.
After interest rates bottomed out in 1985, they began
to creep up again. Then, in 1987, the market was hit
with the fear that worldwide interest rates would rise.
In addition, the threat loomed that the interest rate tax
deduction might be eliminated for junk financing. Things
came to a head on October 19th. The market started to
decline quickly, and began to collapse. By the end of
the day, the Dow-Jones had fallen more than 500 points,
representing a loss of more than 22.5 percent of the value
of its stocks. Soon London and other major markets were
feeling the effects. But during the following week, the
crisis eased, and by the end of 1987, stock market averages
were slightly ahead of their totals at the end of 1986.
However, the market break temporarily ended the era of
trader supremacy on Wall Street.
The strong market continued into the mid-1990s and
became the largest bull market in Wall Street history.
Merger activity increased to record amounts, and deals
were struck across the spectrum of industries. By 1996,
over 5,000 registered funds were operating, offering
investors a varied menu. And the line of separation put
up by the Glass-Steagall Act between Wall Street and the
commercial banks continued to disappear.
* * *
Bibliographic notes by chapter, a bibliography,
and a subject index are provided.
Remarks
Like the socio-economic culture it reflects, the Street
has evolved into an extraordinarily complex entity in its
200-year history. New markets have emerged; functions
have consolidated, divided, and consolidated again; and the
sheer size of trading volume has expanded exponentially.
Throughout it all dominant and colorful personalities,
from the “Modern Midas” Jay Cooke to junk-bond king
Michael Milken, have steered the course of Wall Street’s
history.
Page 5
Wall Street Charles R. Geisst

Wall Street is a comprehensive meticulous examination full attention. Secondly, there is a lot of repetition and an
of a critical aspect of America’s emergence as a overlapping of details. Geisst finds many ways to express
superpower—its economic cycles, legendary financiers, the same idea—over and over; thus, the narrative tends
and the diverse and arcane transactions that have shaped not to progress in a linear fashion, but loops back on itself.
its fiscal structure. Thus, the book stands as an important It is an editing oversight that does not mar the quality
work for anyone wanting to understand U.S. financial of content; nonetheless, it might impede your forward
history. momentum considerably.
Nonetheless, this is probably not very accessible If your purpose is to research a specific era in Wall
to readers who do not have some expert knowledge Street’s history, the chronology is divided into several
and understanding of the securities industry, economics, phases that can readily be determined by scanning the table
and finance. Moreover, Geisst’s focus on the historical of contents. The index also seems to do a credible job of
relationship between finance and government, and the referencing and cross-referencing specific topics.
fact that the Street’s history is so inextricably linked with
America’s history, creates an encyclopedia of information
in which “Wall Street,” the entity, tends to get lost.
Perhaps the nature of the beast makes it impossible to be
otherwise— makes the Street difficult to define and its
history impossible to document in a linear fashion that
would provide the general business reader with a concise,
yet informative history of the stock market.
One more caveat: Geisst asserts “This is the first
history of Wall Street. From the Street’s earliest beginnings,
it has never had its own complete history chronicling the
major events in finance and government that changed the
way securities were created and traded.” What, precisely,
he means by that statement is difficult to fathom, for many
other histories of the stock market do exist. Among the
most notable are works by Martin Mayer, John Brooks,
and Robert Sobel—all listed in Geisst’s bibliography. In
fact, Geisst has done a prodigious amount of research and
provides a comprehensive bibliography and bibliographic
notes to prove it. Armed with this list of resources, plus a
library card and/or access to the Internet, the determined
researcher is likely to find many excellent Wall Street
chronicles.

Reading Suggestions
Reading Time: 11 to 13 hours, 407 Pages in Book
This is not a book you can just read through easily,
even if you are knowledgeable in the fields of finance
and economics. For one thing, Geisst provides a wealth
of detailed information that requires and deserves your

Business Book Review™ Vol. 15, No. 2 • Copyright © 2000 Corporate Support Systems, Inc. • All Rights Reserved Page 6
Wall Street Charles R. Geisst

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