Depending on your point of view, this week in financial history marks the ascent or one of the most farseeing or frustrating figures in finance. It also saw one of the biggest IPOs ever, a unique trading scandal and more. (Missed last week's article? Check out Wall Street History: Microsoft Buys Apple.)
IN PICTURES: Top 7 Biggest Bank Failures
Trying to Calm a Speculative Fever
On August 9, 1929, the Federal Reserve Bank of New York raised the rediscount from 5% to 6%, in hopes of stopping the margin loans people were using to bid up stocks on the market. The move did very little to dampen the speculative fever. The fact that so many people had leveraged their net worth to bet on the market worried few, as it was believed that stocks only moved up. Less than two months later, highly leveraged investors became intimately familiar with the bi-directional nature of the market. (For some background info, read How The Federal Reserve Was Formed.)
In what was perhaps an early sign of what the dotcom bubble would become, Netscape's August 10, 1995, IPO hit the market at $28 a share, shooting up to $70 in the first day of trading. This made the company worth over $2 billion, all based on the strength of one product - the Netscape Navigator.
Within four years, Netscape would lose a browser war with Microsoft and be sold to AOL. The company's product is still around in the guise of Firefox, but it is no longer expecting to make billions off of internet browsers.
Mr. Greenspan Goes to Washington
On August 11, 1987, Alan Greenspan took up the reins of the Federal Reserve as Chairman. Still known for his purposely cryptic reports on the economy to congress, Greenspan served in the post for almost two decades. Greenspan is remembered less fondly now for his role in priming the economy for the mortgage meltdown. However, in 1987, the rookie Fed chief faced down a stock market crash.
In his years of service, Greenspan also dealt with the internet bubble and 9-11 – not mention all those minor events that have faded from memory since. Unlike Brett Favre, Greenspan has shown no desire to come out of retirement. (Learn more, in A Farewell To Alan Greenspan.)
Soros an Octogenarian
On August 12, 1930, George Soros was born in Budapest. It is unlikely that Mr. Soros will be receiving gifts from the Bank of England, as that is one of the many banks his currency speculations have put under pressure. Although his greatest trade still remains Black Wednesday, Soros is still active. He played a role in the euro meltdown this year and is now looking to invest in India if recent reports are accurate. No quiet retirement for this 80 year old. (Learn more about Black Wednesday, in October: The Month Of Market Crashes?)
Slow and Expensive, but Cutting Edge at the Time
On August 12, 1981, IBM released its first personal computer. The IBM 5150 came with 64 kb of RAM and, with the monitor, cost slightly over $3,000 - around $8,000 in today's dollars. Since then, computers have become many times faster, while also dropping in price significantly. In the same period where the average cost of a car has gone from $7,000 ($18,500 inflation adjusted) to $28,000, computers have decreased in price, from $8,000 to under $2,000. This price drop owes solely to production increases and efficiencies, as inflation has increased the price of almost every other product.
The Squawk Box Scandal
On August 15, 2005, the SEC charged four brokers and a day trader in the Squawk Box scandal. Day traders at Watley Group had been seemingly prescient when it came to predicting institutional buys and sells. It turned out that brokers at Lehman Brothers, Merrill Lynch and Citigroup were receiving cash payments from the traders for leaving an open phone line next to the internal squawk boxes – the old Wall Street tech for communicating trades within the company. Using the insider information, the traders would trade ahead of the institutions, seeing quick gains. This being illegal, the group was shut down by the SEC. (Find out more about the commission, in Speed Read SEC Filings For Hot Stock Picks.)
That's all for this week. Next week, we'll look at Google's IPO, a hurricane and much more.
Catch up on your financial news; read Water Cooler Finance: Who Is The Next Buffett?