Wall Street/Nyse – Fraud – Regulatory Acts

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WALL STREET/NYSE – FRAUD – REGULATORY ACTS
PAST AND PRESENT
RESEARCH PAPER
AUDITING
BUS 469
November 22, 2006

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WALL STREET/NYSE – FRAUD – REGULATORY ACTS
PAST AND PRESENT

I am starting this paper with a short history of The Stock Exchange in America, Wall Street, and the New York Stock Exchange. This will lead into the corruption that occurred before the 1929 stock market crash and the depression. I will then touch on the result of that corruption and the regulatory acts that followed. From there I will move to the present times and the regulatory act that was a result of our modern day corruption. By looking at both of these spots in history I am hoping to find similarities of the two eras and bring those out in my conclusion.

America’s first stock exchange was founded in Philadelphia in 1790. In New York City, March of 1792, 24 leading merchants meant secretly to come up with a way to weasel away the securities exchange business that was then dominated by the auctioneers. These same merchants signed a document on May 17, 1792 called the Buttonwood Agreement. This was the birth of the New York Stock Exchange. The agreement was thus named because of their meeting place at the foot of Wall Street under the Buttonwood Tree.

Our history will now take us to the ‘Gilded Age’ 1865-1901. During this period the world saw unprecedented economic growth; territorial, industrial, and population expansion. In 1871 Mark Twain said in one of his many famous speeches, “What is the chief end of man?—to get rich. In what way?—dishonestly if we can; honestly if we must.”[1]

Not only did wealth grow during this period but also corruption. There were the filthy rich and the dirt poor with nothing in between.
Through the early 1900’s Wall Street continued to grow leaps and bonds. The first wave of panic was in 1907 when Knickerbockers Trust Company closed its doors. JP Morgan slipped in and persuaded leading NW bankers to set up a single banking trust that, of course, Morgan’s own group had controlling interest of. The largest banks throughout the US contributed to the financing of this trust.

The con games were at full capacity by the ‘Roaring Twenties’ both the rich and the poor were buying stocks and bonds whether they had the money or not. They would borrow money to purchase them. This strategy worked as long as the market went up, but when it started to crash lots of people lost lots of money fast. Large public companies were padding their bottom line to convince the public that they were a good deal. It seemed as though they were saying something like, ‘invest in us and we can make you rich.’ Stock prices were beyond any realization of there actual value. Between October 23rd and October 28th the market fell 80 points. Some articles that I read said that investors and stockholders alike jumped out of their windows when the market fell completely apart on October 29, 1929; some articles said those were just stories and that nobody actually committed suicide in that fashion, but there were some suicides.

This was also the age of many new inventions like the telephone, electricity, radio, and the automobile. In 1922 the Fordney-McCumber tariff act was passed by the Republican government to allow American businesses to thrive by protecting them from foreign competition. Andrew Mellen, Secretary of Treasury, cut surtaxes from 50% to 20%; this allowed large corporate companies to control their perspective markets. There was an overall consensus with the many articles that I have read, that this act was partly to blame for the 1929 crash. The market did not stop dropping on October 29th; it continued to drop and finally reached its bottom in 1933 where it was down 80% from the market highs of the late 1920’s. At this point the banking systems started failing by the hundreds. The ‘Great Depression’ started as a result of all this in 1930, it took until 1954 for the Market to reach...
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