The Global Securities Market: A History

By Ranald C. Michie | Go to book overview

This verdict of marginality stemmed from the recognition that business across the world raised very little of the finance required for growth and development through the issue of stocks and bonds. Instead, the principal sources of finance were reinvested earnings and bank borrowing, whilst securities were issued to capitalize an existing earnings stream rather than contribute to the creation of new ones. It was recognized that securities markets did perform a number of specific functions but these were more in the realm of transmitting signals through their pricing mechanism or facilitating the transfer of control in a dynamic corporate economy rather than making a serious contribution to the finance of economic growth. There appeared to many almost an inverse relationship between the size and importance of the securities market and a successful economic performance, as in the case of comparisons involving Britain and Germany or the United States and Japan. The ability of banks to mobilize, direct, and manage savings appeared to economists to make a much more obvious contribution to individual and collective prosperity that the often random nature of buying and selling stocks and bonds on securities markets. This again made banks the centrepieces of any financial system rather than securities markets.3

To others securities markets were more than marginal, being positively harmful. Trading in the secondary markets was often seen as having a rather negative impact on economic growth through its destruction of savings in wasteful speculation, its destabilizing effect on the pattern of investment over time, and the distortions it created in the flow of funds. The eminent American economist Robert Schiller recently encapsulated the dangers inherent in securities markets in a book entitled Irrational exuberance. Securities markets were prone to speculative outbursts, of which the Mississippi bubble in Paris, the railway mania in London, the Wall Street crash in New York, and the worldwide dotcom boom were the most prominent examples. These speculative bubbles were characterized by temporarily high prices for securities, sustained by investor enthusiasm rather than fundamentals. There was always some event to trigger this enthusiasm, such as new discoveries or technological change, but at their root was a combination of unrealistic expectations at a time of easy money. These bubbles were then followed by inevitable collapse as prices reached unsupportable levels and selling began to outweigh buying. In turn that had enormous consequences for the regular supply of credit and capital as banks collapsed because borrowers defaulted on loans taken out to buy securities and savers withdrew their deposits, leaving the entire financial system in a highly weakened state for years to come. Not only was there little to show for the investments made but what had been achieved was only at some considerable cost to the smooth operation of

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The Global Securities Market: A History
Table of contents

Table of contents

  • Title Page iii
  • Contents v
  • Preface vi
  • List of Tables xi
  • Introduction 1
  • 1: Origins, Trends, and Reversals: 1100–1720 17
  • 2: Advances and Setbacks: 1720–1815 38
  • 3: New Beginnings and New Developments: 1815–50 60
  • 4: Exchanges and Networks: 1850–1900 83
  • 5: The Triumph of the Market: 1900–14 119
  • 6: Crisis, Crash, and Control: 1914–39 155
  • 7: Suppression, Regulation, and Evasion: 1939–70 205
  • 8: A Transatlantic Revolution: 1970–90 253
  • 9: A Worldwide Revolution: Securities Markets from 1990 297
  • Conclusion 333
  • Notes 341
  • Bibliography 376
  • Index 389
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