Modern History of Finance:

1907: Bank Run or Panic of wall street:

- Someone tried to corner the market and drag down the shares of one company,
borrowing heavily to do so. Numerous banks failed cause of this and there was no
Federal reserve then.
- One of the reasons the Federal reserve did this.
- People can borrow money from the banks but what if the banks need a loan?
- Can’t a one wealthy individual to stabilize the economy through banks.

1913: Federal Reserve act:

- Its creation was due to the bank run mentioned above.
- It’s essentially a private entity.

1914-18: WW1 :
- Shows how the global economy is interconnected.
- Huge drops everywhere.
- Popular thought was that societies in trade wouldn’t go to war (Not true).

1918-22: Weimar Republic of Germany:

- 1919: Treaty of Versailles: Screwed Germany over. France has huge damage because of
the war. They demanded that Germany had to pay for reparations.
- Part of the reason why Hitler came into power.
- 1921-23: Hyperinflation: German currency wasn’t worth anything and the fines from the
allied powers levelled the economy.

1929: Stock Market Crash

- Biggest crash in the history of the US
- Kicked off the Great Depression
- Because the economy was reeling from war and trying to convert into a production and
consumer based one.

1930: Smoot-Hawley Act

- Protectionist trade policies set by US Lawmakers.

1929-1939: Great Depression

- Economic crises.
- Communism was gaining traction; belief in socialism was wavering.
- Social security was undertaken by the federal government to help improve spending
power.
- What really ended the great depression was world war 2.
1933 Banking Act:
- Separates commercial and investment banks.
 - FDIC was created to insure deposits.

1938: Fannie Mae is created:

- Helps Americans obtain mortgages and own homes.

1933-45: Third Reich (Hitler Germany)

- German Economy completely changed. This also affects American Markets through
trade economy.

1944 July: Bretton Woods Conference:

- What could be learnt from World War 2?
- Huge fines on Germany after world war 1 was a mistake.
- Stable economies reduce chance of conflict.
- The US dollar will be tied to gold and readily redeemable. This makes it stable.
- With this, other currencies are tied to the dollar.

1945: IMF/WB are founded:

- Furthers international monetary cooperation.
- Encourages trade and economic growth.
- World Bank: Works with developing countries to reduce poverty and increase shared
prosperity.

1949: Alfred Jones creates first “Hedged Fund”:

- Foundations for Hedge funds.
- Subject to institute accredited investors.
- Not all investors can access these kind of investment vehicles.

1960s: CAPM is developed:

- Capital Asset Pricing model
- Price of an asset reflects all of the market’s knowledge.
- USA’s Massive spending:
o LBJ’s “Great Society”
o Space Program.
o Vietnam War.
1970: Freddie Mac created:
- Competition to Fannie Mae.
- Creation of these two caused the financial crisis and mortgage problems.

1971: Nixon Shock

- US no longer tied to Gold.
- Set stage for massive deficit spending.
- Rise of the “Fiat Currency” Era.
- Stabilized FX rates were killed.
1971: NASDAQ Created:
- First electronic stock exchange.
- First Gold futures.

1973: Yom Kippur War.

1974: CFTC created by US Congress.

- Futures used for things outside Agriculture.
- Agriculture committee didn’t want to give up oversight and control of the futures.

1974: Bogle starts Vanguard Group

- Rise of ultra-low cost passive index based investing.

1982: First S&P 500 futures listed on CME.

1993: First ETF is listed for trading.

- Constantly reevaluated and priced throughout the trading day.
- Mass access to low cost to a diversified investment portfolio.

Late 1990s : internet bubble:

- Growth of dot com.
- Internet growth skyrocketing.

1998: Russian Financial Crisis:

- Russia defaulted on debt and bet against it.

1999-2002: Creation of Euro Currency.

- EU creating a shared economic vehicle for stability.
- Tightly regulated.

2002: Sarbanes- Oxley Act:

- Tighter regulations and rules on accounting of public companies.
- Makes it easier to hold individual executives legally liable for the companies.

2007-09: Financial Crisis:

- Caused due to Mortgage backed securities.
- Collapsed the housing market in the US.