This week in financial history saw the birth of the world's largest, and arguably most important exchange, an attempt to destroy Microsoft (Nasdaq:MSFT), and much more. (Missed last week's article? Check out Wall Street History: Railroads And Rockefeller.)

In Pictures: Tools For Building Up Your Portfolio

The NYSE Is Born
On May 17, 1792, 24 brokers met beneath the boughs of a buttonwood tree to sign an agreement that gave birth to the New York Stock Exchange. New York was already a major financial hub at the time. During the Revolutionary War, New York was the market for trading the government bonds that helped fund the effort. After the war, the size of the domestic market and the range of financial instruments being offered expanded rapidly. Rather than watch more and more brokers flood in, drive down commissions and compete at public auctions for government debt, Wall Street brokers agreed to work together.

The Buttonwood Agreement set a commission base of at least a quarter of a percent (0.25%) when selling public stock (federal bonds). The agreement was set up by the states' most prominent brokers, and they also decided to give each other preferential treatment in deals and to avoid public auctions entirely. The fledgling NYSE set up its offices in a coffee shop at first. In 1817, the organization was formalized with a constitution and further rules for how trading was to be conducted. By setting listing requirements and demanding fees, the New York Stock Exchange quickly became a very wealthy institution and a fixture of the Wall Street financial hub. (For more insight, read The Birth Of Stock Exchanges.)

Department of Justice Targets Microsoft
On May 18, 1998, the Department of Justice filed antitrust charges against Microsoft. At the center of the case was whether Microsoft's bundling of other programs with its operating system constituted monopolistic actions. The government case accused Microsoft of making it difficult for a consumer to install competing software on a computer running windows.

Microsoft lost. The ruling was made on April 3, 2000, and called for Microsoft to split in half, with the operating system arm constituting one half and the software arm the other - they were to be called the "baby bills". Before this could be done, however, the fangs were taken out of the ruling during the appeal process. So, rather than being broken by the antitrust ruling, Microsoft has seen its once invincible market share erode due to old-fashioned competition, causing many to wonder if antitrust cases against non-coercive monopolies are merely costly redundancies when the free market does the same work for free. (To learn more, read Antitrust Defined.)

Internet Shooting Stars
It's always interesting looking back at the internet bubble. Unlike the housing bubble, which built slowly but surely over the course of many years, the speculation that drove internet stock valuations through the roof often happened within days. On May 19, 1999, online toy store, eToys, went public at $20 a share. By the end of the day it was trading near $80, making the company worth over $600 million. The company went bankrupt less than two years later. Its assets were picked up by Parent Company during the bankruptcy auction for $5 million, but Parent Company went bankrupt itself in 2008. The remains of the internet star are currently the property of Toys R Us (NYSE:XKE), and were acquired for considerably less than $600 million.

The internet bubble can now be seen as a craze in of the same nature as the tulip bulb craze or the South Seas bubble; it represents a time in history when speculative fever blinded a large segment of the population. The more recent mortgage meltdown is, by comparison, a creation of bad government policy and financial engineering rather than a purely emotional bubble. (Learn about some of the biggest bubbles in history in The Greatest Market Crashes Tutorial.)

The Silver Screen
On May 20, 1891, Thomas Edison displayed the prototype kinetoscope to a convention of the National Federation of Women's Clubs. Far from the large screens we are used to today, the first motion picture required the ladies to look through a hole in a box. Inside, they were treated to a short film of a man bowing and waving to them.

By 1894, Edison was charging people to view films on the kinetoscope. He and other inventors working on kinetoscope-like projects got together and formed the Motion Picture Patents Company. They produced films to be shown at public demonstrations and regular exhibitions. As the technology improved, so did their distribution. Buildings were being designed for the sole purpose of displaying moving picture shows. In 1917, however, Edison and his Motion Picture Patents Company lost an antitrust case in the Supreme Court. The monopoly was broken, and independent distributors were allowed in. (For insight into today's movie industry, check out The Economics Of Summer Blockbusters.)

The Lawless John Law
John Law is easily one of the more interesting economists in history. Law was a Scottish exile - he killed a man in a sword duel - whose talents in both gambling and finance gave him great weight with the French government. In 1715, France was essentially insolvent as a nation, and began to default on its outstanding debt. The value of its gold and silver currency whipsawed as people feared for the future of the nation.

John Law created a bank that took deposits in coin and paid withdrawals in paper. He issued shares in the bank to create more capital and then used that to buy tax collection monopolies as well as the Mississippi Company, which held a trade monopoly. A bubble formed in the bank shares, leading to more paper currency demand to purchase those shares.

Realizing his mistake too late, on May 21, 1720, Law attempted to halt hyperinflation in France by devaluing the shares of his Mississippi Company and the French bank notes by about half their value. This decision caused riots and led to a selling frenzy that ravaged the French economy. John Law fled from yet another country.

The Bottom Line
That's all for this week. Next week, we'll look at the beginnings of the market's most recognized index, the Commodore's birthday and much more.

Get a rundown of the latest financial news in this week's Water Cooler Finance: Greece Attacks And Google Hacks.

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