Capital Market Evolution 2000-2010
This series “Capital Market Evolution” is sponsored by Teamo “Where Teamwork Matters”, see on Open Collective and is part of the project Smart "Master" Contract for Equity Distribution, we truly believe that we should understand our past to build our economic future more wisely.
Forex Trading Platform
In 1999 Forex trading becomes available to the online retail investor for better or worse reintroducing high leverage (x100 & +) for the retails investor, in the beginning, we did have few legitimate players like Ounda but a lot of shady brokers that was based oversee that was pure bucketshop betting again the traders with what we call a dealer dealing desk. Later on, Forex broker did introduce CFDs Contract For Difference,(video) giving retails investor the chance to play on the future commodity market for a fraction of the cost.
The Dot-Com Crash
The years 2000 started with the dot com (1995-2000) bubble burst, with the crazy evaluation reached by anything related to the world wide web. Overall, $5 TRILLION was lost between 2000 and 2002. Only 50% of dot-coms survived the pop, as a graveyard of startups lined Wall Street and Silicon Valley.
What Went Wrong?
In today’s world of ubiquitous connectivity and seamless experience, it is hard to imagine that the internet and its many applications once had difficulty cultivating a network of users. But in the mid 1990s, internet still had only minimal uses and yet, anything.com’s began popping up everywhere. Putting “dot com” in your company name was enough to land you a golden ticket to IPO stardom; not to mention a few hundred million. Pets.com, Webvan, the examples are endless. Stars who burned too bright and then died. The speculation grew too fast. It outgrew its fundamental value: it’s users. Here a cool 1999 video about Jeff Bezos vision for the internet.
September 11 Attacks
The economic effects of the September 11 attacks were initial shocks causing global stock markets to drop sharply.
The September 11 attacks themselves resulted in approximately $40 billion in insurance losses, making it one of the largest insured events ever
On Tuesday, September 11th, 2001, the opening of the New York Stock Exchange (NYSE) was delayed after the first planecrashed into the World Trade Center's North Tower, and trading for the day was canceled after the second plane crashed into the South Tower. NASDAQ also canceled trading. The New York Stock Exchange was then evacuated as well as nearly all banks and financial institutions on Wall Street and in many cities across the country. The London Stock Exchange and other stock exchanges around the world were also closed down and evacuated in fear of follow-up terrorist attacks. The New York Stock Exchange remained closed until the following Monday. This was the third time in history that the NYSE experienced prolonged closure, the first time being in the early months of World War I and the second being March 1933 during the Great Depression. Trading on the United States bond market also ceased; the leading government bond trader, Cantor Fitzgerald, was based in the World Trade Center. The New York Mercantile Exchange was also closed for a week after the attacks.
The Federal Reserve issued a statement, saying it was "open and operating. The discount window is available to meet liquidity needs.". The Federal Reserve added $100 billion in liquidity per day, during the three days following the attack, to help avert a financial crisis. Federal Reserve Governor Roger W. Ferguson Jr. has described in detail this and the other actions that the Fed undertook to maintain a stable economy and offset potential disruptions arising in the financial system.
Gold prices spiked upwards, from $215.50 to $287 an ounce in London trading. Oil prices also spiked upwards. Gas prices in the United States also briefly shot up, though the spike in prices lasted only about one week.
Currency trading continued, with the United States dollar falling sharply against the Euro, British pound, and Japanese yen.The next day, European stock markets fell sharply, including declines of 4.6% in Spain, 8.5% in Germany, and 5.7% on the London Stock Exchange. Stocks in the Latin American markets also plunged, with a 9.2% drop in Brazil, 5.2% drop in Argentina, and 5.6% decline in Mexico, before trading was halted.
The U.S. Congress passed the Sarbanes-Oxley Act of 2002 on July 30 of that year to help protect investors from fraudulent financial reporting by corporations. Also known as the SOX Act of 2002 and the Corporate Responsibility Act of 2002, it mandated strict reforms to existing securities regulations and imposed tough new penalties on lawbreakers.
The Sarbanes-Oxley Act of 2002 came in response to financial scandals in the early 2000s involving publicly traded companies such as Enron Corporation, Tyco International plc, and WorldCom. The high-profile frauds shook investor confidence in the trustworthiness of corporate financial statements and led many to demand an overhaul of decades-old regulatory standards.
- The Sarbanes-Oxley (SOX) Act of 2002 came in response to highly publicized corporate financial scandals earlier that decade.
- The act created strict new rules for accountants, auditors, and corporate officers and imposed more stringent recordkeeping requirements.
- The act also added new criminal penalties for violating securities laws.
The act took its name from its two sponsors—Sen. Paul S. Sarbanes (D-Md.) and Rep. Michael G. Oxley (R-Ohio)
SecondMarket was founded in 2004 by Barry Silbert to provide liquidity for restricted securities in public companies. Beginning in early 2008, SecondMarket expanded into other asset classes—first auction‐rate securities, then bankruptcy claims, limited partnership interests, structured products (MBS, CDO, ABS), whole loans, private company stock, government IOUs and bitcoins.
In 2007, the company raised an undisclosed amount of Series A financing from venture capital firm Pequot Ventures. In February 2010, the company raised US$15 million in Series B funding to aid its expansion into Asia. In November 2011, the company announced that they had closed a US$15 million Series C round, led by The Social+Capital Partnership. The last round of investment valued SecondMarket at US$200 million, up from a valuation of about US$150 million set in the previous round in February 2010.
The World Economic Forum listed the company as a Technology Pioneer for 2011.
The firm's private-company transactions totaled $100 million in 2009, and $400 million in 2010. SecondMarket takes fees from 3 to 5 percent on each trade (split evenly between buyer and seller). In March 2011, it had 53,000 registered participants, up from 35,000 in 2010, 6,500 in 2009 and 2,500 in 2008.
In 2015, NASDAQ acquired Second Market Solutions, which was a competitor to NASDAQ's Private Market initiative. NASDAQ rebranded Second Market Solutions as NASDAQ Private Market.
Peer to Peer Lending
Peer-to-peer (P2P) lending enables individuals to obtain loans directly from other individuals, cutting out the financial institution as the middleman. Websites that facilitate peer-to-peer lending have greatly increased its adoption as an alternative method of financing.
Over the past five years, the Peer-to-Peer Lending Platforms industry has grown by 51.3% to reach revenue of $3bn in 2018. In the same timeframe, the number of businesses has grown by 46.6% and the number of employees has grown by 43.2%.
In particular, the P2P Lending Platforms industry has reached a mature stage of growth as leading platforms have taken their companies public, reached profitability and formed industry associations. Pioneered and introduced in the United Kingdom in 2005, P2P lending platforms facilitate loans from individual investors who pool their money via operators' online platforms to loan money to consumers and small businesses.
The companies holding the largest market share in the Peer-to-Peer Lending Platforms industry include Lending Club, Social Finance Inc., OnDeck Capital Inc., Kabbage Inc. and Prosper.com. IBISWorld
2007-2008 Global Financial Crisis
When the Wall Street evangelists started preaching "no bailout for you" before the collapse of British bank Northern Rock, they hardly knew that history would ultimately have the last laugh. With the onset of the global credit crunch and the fall of Northern Rock, August 2007 turned out to be just the starting point for significant financial landslides.Since then, we have seen many big names rise, fall and fall even more. In this article, we'll recap how the financial crisis of 2007-08 unfolded.
Before the Beginning
Like all previous cycles of booms and busts, the seeds of the subprime meltdown were sown during unusual times. In 2001, the U.S. economy experienced a mild, short-lived recession. Although the economy nicely withstood terrorist attacks, the bust of the dot-com bubble and accounting scandals, the fear of recession really preoccupied everybody's minds.
To keep recession away, the Federal Reserve lowered the Federal funds rate 11 times - from 6.5% in May 2000 to 1.75% in December 2001 - creating a flood of liquidity in the economy. Cheap money, once out of the bottle, always looks to be taken for a ride. It found easy prey in restless bankers—and even more restless borrowers who had no income, no job and no assets. These subprime borrowers wanted to realize their life's dream of acquiring a home. For them, holding the hands of a willing banker was a new ray of hope. More home loans, more home buyers, more appreciation in home prices. It wasn't long before things started to move just as the cheap money wanted them to.
This environment of easy credit and the upward spiral of home prices made investments in higher yielding subprime mortgages look like a new rush for gold. The Fed continued slashing interest rates, emboldened, perhaps, by continued low inflation despite lower interest rates. In June 2003, the Fed lowered interest rates to 1%, the lowest rate in 45 years. The whole financial market started resembling a candy shop where everything was selling at a huge discount and without any down payment. "Lick your candy now and pay for it later" - the entire subprime mortgage market seemed to encourage those with a sweet tooth for have-it-now investments. Unfortunately, no one was there to warn about the tummy aches that would follow.
But the bankers thought that it just wasn't enough to lend the candies lying on their shelves. They decided to repackage candy loans into collateralized debt obligations (CDOs) and pass on the debt to another candy shop. Hurrah! Soon a big secondary market for originating and distributing subprime loans developed. To make things merrier, in October 2004, the Securities Exchange Commission(SEC) relaxed the net capital requirement for five investment banks - Goldman Sachs (NYSE:GS), Merrill Lynch (NYSE:MER), Lehman Brothers, Bear Stearns and Morgan Stanley (NYSE:MS) - which freed them to leverage up to 30-times or even 40-times their initial investment. Everybody was on a sugar high, feeling as if the cavities were never going to come.
The 2007-08 Financial Crisis In Review
The Beginning of the End
But, every good item has a bad side and several of these factors started to emerge alongside one another. The trouble started when the interest rates started rising, and home ownership reached a saturation point. From June 30, 2004, onward, the Fed started raising rates so much that by June 2006, the Federal funds rate had reached 5.25% (which remained unchanged until August 2007).
There were early signs of distress: by 2004, U.S. homeownership had peaked at 70%; no one was interested in buying or eating more candy. Then, during the last quarter of 2005, home prices started to fall, which led to a 40% decline in the U.S. Home Construction Index during 2006. Not only were new homes being affected, but many subprime borrowers now could not withstand the higher interest rates and they started defaulting on their loans.
This caused 2007 to start with bad news from multiple sources. Every month, one subprime lender or another was filing for bankruptcy. During February and March 2007, more than 25 subprime lenders filed for bankruptcy, which was enough to start the tide. In April, well-known New Century Financial also filed for bankruptcy.
Investments and the Public
Problems in the subprime market began hitting the news, raising more people's curiosity. Horror stories started to leak out.
According to 2007 news reports, financial firms and hedge funds owned more than $1 trillion in securities backed by these now-failing subprime mortgages - enough to start a global financial tsunami if more subprime borrowers started defaulting. By June, Bear Stearns stopped redemptions in two of its hedge funds and Merrill Lynch seized $800 million in assets from two Bear Stearns hedge funds. But even this large move was only a small affair in comparison to what was to happen in the months ahead.
August 2007: The Landslide Begins
It became apparent in August 2007 that the financial market could not solve the subprime crisis on its own and the problems spread beyond the UnitedState's borders. The interbank market froze completely, largely due to prevailing fear of the unknown amidst banks. Northern Rock, a British bank, had to approach the Bank of England for emergency funding due to a liquidity problem. By that time, central banks and governments around the world had started coming together to prevent further financial catastrophe.
The subprime crisis's unique issues called for both conventional and unconventional methods, which were employed by governments worldwide. In a unanimous move, central banks of several countries resorted to coordinated action to provide liquidity support to financial institutions. The idea was to put the interbank market back on its feet.
The Fed started slashing the discount rate as well as the funds rate, but bad news continued to pour in from all sides. Lehman Brothers filed for bankruptcy, Indymac bank collapsed, Bear Stearns was acquired by JP Morgan Chase (NYSE: JPM), Merrill Lynch was sold to Bank of America and Fannie Mae and Freddie Mac were put under the control of the U.S. federal government.
By October 2008, the Federal funds rate and the discount rate were reduced to 1% and 1.75%, respectively. Central banks in England, China, Canada, Sweden, Switzerland and the European Central Bank (ECB) also resorted to rate cuts to aid the world economy. But rate cuts and liquidity support in itself were not enough to stop such a widespread financial meltdown.
The U.S. government then came out with National Economic Stabilization Act of 2008, which created a corpus of $700 billion to purchase distressed assets, especially mortgage-backed securities. Different governments came out with their versions of bailout packages, government guarantees and outright nationalization.
Crisis of Confidence After All
The financial crisis of 2007-08 has taught us that the confidence of the financial market, once shattered, can't be quickly restored. In an interconnected world, a seeming liquidity crisis can very quickly turn into a solvency crisis for financial institutions, a balance of payment crisis for sovereign countries and a full-blown crisis of confidence for the entire world. But the silver lining is that, after every crisis in the past, markets have come out strong to forge new beginnings.
Crowdfunding SaaS (Reward/Equity)
Equity crowdfunding is the online offering of private company securities to a group of people for investment and therefore it is a part of the capital markets. Because equity crowdfunding involves investment into a commercial enterprise, it is often subject to securities and financial regulation. Equity crowdfunding is also referred to as crowd-investing, investment crowdfunding, or crowd equity.
.Reward-based crowdfunding involves individuals contributing comparatively small amounts of money to projects in return for some kind of reward. The size of the reward is usually a reflection of the amount contributed.This is perhaps the best-known type of crowdfunding and well-known platforms include Kickstarter and Indiegogo. Rewards can range from something simple such as a thank-you postcard to a production version of the crowdfunded product.
Dodd-Frank Wall Street Reform and Consumer Protection Act
The Dodd–Frank Wall Street Reform and Consumer Protection Act (commonly referred to as Dodd–Frank) is a United States federal law that was enacted on July 21, 2010. The law overhauled financial regulation in the aftermath of the financial crisis of 2007–2008, and it made changes affecting all federal financial regulatory agencies and almost every part of the nation's financial services industry.
Responding to widespread calls for changes to the financial regulatory system, in June 2009 President Barack Obamaintroduced a proposal for a "sweeping overhaul of the United States financial regulatory system, a transformation on a scale not seen since the reforms that followed the Great Depression". Legislation based on his proposal was introduced in the United States House of Representatives by Congressman Barney Frank, and in the United States Senate by Senator Chris Dodd. Most congressional support for Dodd-Frank came from members of the Democratic Party, but three Senate Republicans voted for the bill, allowing it to overcome the Senate filibuster.
Dodd-Frank reorganized the financial regulatory system, eliminating the Office of Thrift Supervision, assigning new responsibilities to existing agencies like the Federal Deposit Insurance Corporation, and creating new agencies like the Consumer Financial Protection Bureau (CFPB). The CFPB was charged with protecting consumers against abuses related to credit cards, mortgages, and other financial products. The act also created the Financial Stability Oversight Council and the Office of Financial Research to identify threats to the financial stability of the United States, and gave the Federal Reserve new powers to regulate systemically important institutions. To handle the liquidation of large companies, the act created the Orderly Liquidation Authority. One provision, the Volcker Rule, restricts banks from making certain kinds of speculative investments. The act also repealed the exemption from regulation for security-based swaps, requiring credit-default swaps and other transactions to be cleared through either exchanges or clearinghouses. Other provisions affect issues such as corporate governance, 1256 Contracts, and credit rating agencies.
Dodd-Frank is generally regarded as one of the most significant laws enacted during the presidency of Barack Obama.Studies have found the Dodd–Frank Act has improved financial stability and consumer protection, although there has been debate regarding its economic effects. In 2017, Federal Reserve Chairwoman Janet Yellen stated that "the balance of research suggests that the core reforms we have put in place have substantially boosted resilience without unduly limiting credit availability or economic growth." Some critics have argued that the law had a negative impact on economic growth and small banks, or failed to provide adequate regulation to the financial industry. Many Republicans have called for the partial or total repeal of the law.
Americain Jobs Act
On April 5, 2012, President Obama signed into law the Jumpstart Our Business Startups Act (the “JOBS Act”). As the Securities and Exchange Commission continues to develop rules necessary to implement several key provisions of the JOBS Act, this is a good time to review the key provisions of the JOBS Act and the status of SEC rulemaking.
The JOBS Act is designed to stimulate the growth of small companies by improving access to capital markets and reducing the regulatory reporting requirements on certain publicly-held companies. Certain provisions of the JOBS Act are effective immediately. However, several important provisions will not become effective until the SEC completes rulemaking as well as studies required by the JOBS Act.
Due to the significant rulemaking obligations that have been imposed on the SEC under both the Dodd-Frank Act and the JOBS Act, the SEC has failed to comply with most of its rulemaking deadlines under these acts.The principal provisions of the JOBS Act appear in Titles I through VI of the Act. These provisions are summarized in the table below. The table is followed by a more detailed discussion of these provisions.
ARC: That decade was a crazy roller coaster, the dot com bubble burst, the September 11 attack, the subsequent war on terror, that produce a credit boom that we could qualify as “YOLO” followed by the financial crisis and the loss of trust toward all institutions that give rise to populism and Bitcoin. One of the big winner of this decade was the retails investor, I know that seem far off but in reality the cost of doing transaction on almost all securities did decrease by a a factor of ten during this decade which is a huge win for the retails investor.
To keep it short I would share my favorite scene from the movie Wall Street II "Money Never Sleep" that depicts this era pretty well.