As a result of the 2008 financial crisis that sparked the Great Recession, the threat of the total collapse of the world banking systems led to national governments bailing out large financial institutions. The crisis also dramatically reduced the value of stocks and housing and led to high rates of foreclosures and prolonged unemployment. With all the damage caused by Wall Street, it raises the question: is Wall Street necessary? If so, how can we prevent such a calamity from occurring ever again?
To answer the question of the necessity of Wall Street, it is important to explore the benefits that Wall Street generates for the economy. Wall Street helps the world to produce goods efficiently by aggregating money from the savings of families and investing in businesses (Jickling and Hoskins). Many innovative companies, including Facebook and Google, would not have been able to expand their businesses without investments from Wall Street. Also, Wall Street had reformed somewhat in 2010, and it can regulate Foreign Exchange, which is better for organizing the balance of world’s Foreign exchange transactions (United States Congress Title VII). So Wall Street does have some positive effects on the economy, but do the positives outweigh the negatives?
Wall Street has had some negative effects on the economy, including bringing about the worst recession since the Great Depression. The financial crisis in 2008 began with the housing bubble bursting, leading the world finance and economic system to the brink of collapse, and it was the actions of agents on Wall Street that brought about the financial crisis. The financial crises revealed that Wall Street could cause extremely high damage to the society and the economy of the world (Jickling and Hoskins 9-10). To voice their dissatisfaction with this industry, people participated in a protest movement known as “Occupy Wall Street” in 2011. Protestors thought the people who worked in Wall Street destroyed and took away their properties and jobs (Santoro and Strauss 10-11).
In the past six decades, the financial sector has grown steadily relative to other sectors of business in the world (Jickling and Hoskins 5). There are many investment banks and financial services firms on Wall Street, which affects individuals by increasing the ability of firms to hire employees, thereby increasing incomes. Also, the expansion of the size of Wall Street will increase the number of traded companies and improve the global economy (Kaplan and Rauh 12-13). Wall Street has a significant influence on the economy in the world. The profit of companies on Wall Street can affect other relative firms, so the increasing size of Wall Street will promote the competition of different companies (Ho 295). In 1934, Benjamin Graham and David Dodd invented security analysis, with which people analyzed businesses and stocks (Hooke 3-4). These effects are some of the benefits Wall Street can have on the economy.
As Wall Street has the potential to create both positive and negative effects on the economy, it may be best for Wall Street to continue existing, but under better regulations. In response to the financial crisis of 2008 and the continuing recession, the US government appointed a commission to investigate the causes of the crisis. The commission found that the crisis resulted from “high risk, complex financial products; undisclosed conflicts of interest; the failure of regulators, the credit rating agencies, and the market itself to rein in the excesses of Wall Street” (United States Senate). The US government passed regulations aiming to prevent the “too big to fail” situations that necessitated the bank bailouts (United States Congress Title VII). These regulations may be able to prevent the financial system from breaking once again due to the failure of banks that are so large that they affect the global banking system.
Nowadays, we live in a global society—something happening in one country can affect the entire world. The most influential financial industry in the world is Wall Street, and the movement from Wall Street affects a lot of people in the world. From the above information, we know that Wall Street can have both positive and negative effects on the global economy. Though Wall Street was built as a way to strengthen the economy, in recent years it has brought about financial crises. Because of these circumstances, I wonder whether Wall Street overall provides a better or a worse life to the people in the world. As noted above, we can see that Wall Street does some good in terms of increasing the world’s productivity. The bigger the scale, the more it can contribute. However, sometimes people on Wall Street engage in risky behavior and end up causing a financial crisis, which leads to economic decline. So would it be better for the economy to place limits on Wall Street or would it be better to allow those on Wall Street to act free of regulations? The answer depends on which policy would best strengthen the overall economy.
Ho, Karen Zouwen. Liquidated: An Ethnography of Wall Street. Durham: Duke University Press, 2009.
Hooke, Jeffrey C. Security Analysis and Business Valuation on Wall Street. John Wiley, 2010.
Jickling, Mark and Sean M. Hoskins. Finance and the Economy: Occupy Wall Street in Historical Perspective. Congressional Research Service, Library of Congress, 2011.
Kaplan, Steven M. and Joshua Rauh. Wall street and Main Street: What Contributes to the Rise in the Highest Incomes? National Bureau of Economic Research, 2007.
Santoro, Michael A. and Ronald J. Strauss. Wall Street values: Business ethics and the global financial crisis. Cambridge University Press, 2013.
United States Congress. Dodd-Frank Wall Street Reform and Consumer Protection Act. Washington, DC: U.S. G.P.O., 2010.
United States Senate. Wall Street and the Financial Crisis: Anatomy. Washington, DC: Permanent Subcommittee on Investigations, 2011.