This Week in Financial History: Visa's IPO, Viva Las Vegas And The Ides Of March
The Ides of March (or March 15) marked the end for Julius Caesar, but this week also marks the beginning of incorporation, mutual funds and the birth of Sin City. Read on to learn about this and the other significant financial events that occurred on this week in financial history. (Read up on the top financial news this week in Water Cooler Finance.)
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Viva Las Vegas
On March 19, 1931, Nevada legalized gambling in the hope of countering the effects of the Great Depression. Bugsy Siegel, a mobster, was instrumental in opening the casinos that would transform Las Vegas, Nevada, into a vacation spot for those seeking the legal pleasures of gambling and other illegal delights that grew up around the casinos. The legalization of gambling, perhaps combined with "the oldest trade in the world", has given Las Vegas the moniker "Sin City". Despite the reputation, gambling has helped Nevada financially by giving it some steady income in all but the worst markets. (Just how close is investing to gambling? Find out in Going All-In: Comparing Investing And Gambling.)
The Dow hit two historic watermarks this week. On March 19th, 1999, the Dow broke the 10,000 mark.
On March 16, 2000, the Dow gained 499 points, the largest-ever single-day increase at the time. The push may have been due to the internet bubble; investors were getting out of dotcom stocks and into traditional industries. A bubble such as this one also puts additional capital into the market. This mark has since been surpassed several times after investors began buying back into the market in 2008. (For more on this index, see How Now, Dow? What Moves The DJIA?)
It's Not Easy Being Green
On March 17, 1862, the U.S. Treasury issued paper money known as greenbacks to pay for the costs of the Civil War. This money was the first American issue not explicitly backed by gold. Greenbacks took their name from the green back of the paper they were printed on and fluctuated in value with the successes and failures of the North during the war. (Find out more about the history of money in From Barter To Banknotes.)
On March 18, 1985, Capital Cities Communications bought American Broadcasting Co. (ABC), even though ABC was a larger company than Capital Cities. Cap Cities tendered $3.5 billion in cash and warrants, making it the largest corporate merger in history up to that point. ABC jumped at the deal as it was worried about possible hostile takeovers in the M&A mad '80s. Capital Cities acted as ABC's white knight, allowing the struggling network to rebuild its viewer base. The pair was swallowed up by Disney (NYSE:DIS) a decade later.
On March 18, 2008, Visa Inc. (NYSE:V) shattered AT&T Wireless' (NYSE:ATT) old IPO record ($10.6 billion). Facing predictions of doubling the record, Visa Inc. just came short with a staggering take of $17.9 billion. (For further reading, check out Which credit card company holds the honor of most profitable IPO?)
Corporations and Colonialism
On March 20, 1602, the Dutch East India Company was established with a royal charter granting a monopoly over the spice trade in the Indies. The same charter granted the company sovereign rights in any new territories. With the new charter in hand, the spice merchants held the world's first IPO and issued shares that paid dividends between 12-63% based on the fate of the company's trading ships. It was these same ships that carried the bulbs that set off the tulip craze - the first speculative bubble in the history of finance. (Learn more in Early Monopolies: Conquest And Corruption.)
From Humble Beginnings
On March 21, 1924, the Massachusetts Investors Trust (MIT) was incorporated, marking the birth of the American mutual fund industry. The fund grew into one of the first open-ended funds as well, going public four years later. This style of fund is nicknamed a Boston style fund in honor of its birthplace. From a few dozen funds handling the assets of largely affluent investors, the mutual fund industry has grown to over 8,000 funds handling trillions of dollars from all types of investors. (For further reading, see A Brief History Of The Mutual Fund.)
Mr. Smith Goes to Moscow
The dictator Julius Caesar was warned about the Ides of March, the name for March 15 in the Roman calendar, and there he met his end at the hands of his subjects. The Ides of March also claimed the communist system as represented by the Soviet Union.
This time, market forces did the killing.
On March 15, 1990, Mikhail Gorbachev announced that he would be introducing free market principles into the former U.S.S.R. For many people around the world, this represented the failure of communism as an economic system. Since the fall of the Soviet Union, China has also introduced free market principles although it still considers itself a communist state. With the exception of Cuba and North Korea, many of the remaining communist states are shifting toward a market economy.
Et Tu, Brute?
Many of the events that occurred this week throughout history are sensational, yet fleeting. Visa's IPO record will be surpassed, just as the Capital Cities/ABC merger record fell in time. By contrast, the introduction of free market principles to the former USSR will always be remembered for debunking communism as an economic model. Next week, however, we'll see that capitalism is not all sunshine and roses, as we mark three financial scandals that hammered many investors' portfolios.
Until then. (Missed last week's article? This Week in Financial History: Speculative Bubbles, Bill Gates, Coca Cola and Capitalism.)