The Speculator of Financial Markets

The Speculator of Financial Markets Presented by: Dr. D'Alvia Date: Monday 17 February 2025 Table of Contents - Introduction - The Speculator and Financial Innovations: an Old Portrait (1800 BC – 1515) - The Speculator and Financial Innovations: A New Portrait (1100 – 2020) - Uncertainty: the Necessary Unknowable Road to Speculation - Economic Bubbles, Schemes, and Market Failures - Short Selling: The Bears of the Market - Conclusions Humble Beginnings in Rome - The Forum Romanum translated as the "Roman Market" was the key political, ritual, and civic center. One of the first stages where speculators could be identified. • (Plautus 1912, Act IV, scene I)  "(...) impudent, talkative, and malevolent fellows, who boldly, without reason utter calumnies about another, and who, themselves have sufficient that might with truth be said against them. There, at the old shops, are these who lend and those who borrow at interest. Behind the Temple of Castor there are those to whom unguardedly you may be lending to your cost (...)' Stockjobbers in Exchange Alley - "Every Man his Own Broker" by Thomas Mortimer published in 1761. • "(...) the iniquitous art of the stock-jobbing has sprung, like a great many other abuses, out of the best blessings, Liberty (...)' - Lefevre in his book "Reminiscences of a Stock Operator" in 1923: • "The sucker has always tried to get something for nothing, and the appeal in all booms is always frankly to the gambling instinct aroused by cupidity and spurred by a pervasive prosperity" Holy Warriors - In Medieval Europe, the Christian culture was against financial speculation. - St. Augustine defined speculation as appetitus divitiarum infinitus gain. -the unlimited lust for - Temple Church is not only just an important architectural, historical and religious site. It is London's first bank. - Knights Templar gave rise to the financial innovation of the letter of credit. - Oscar Wilde • “When bankers get together for dinner, they discuss art. When artists get together for dinner, they discuss money" The House of Medici, and the Birth of Banking - Due to the formal prohibition to charge interest as a form of usury, Christian merchants in Italy came up with another original financial innovation since the thirteenth century: the bill or letter of exchange. It secretly disguised the interest rate with an exchange rate that was raised in favor of the lender. - A new form of speculation was born and perfected by Italian Medici bill of exchange a new way to finance trade... Information is Key - The Kingdom's first government bonds were issued in 1693, and the Bank of England was set up the following year. Soon thereafter, English joint-stock companies began going public, and its first informal stock exchange was formed, Exchange Alley. - Perhaps the most important local establishment was the post office on Lombard Street. The Curb Market in New York - Financial Journalist Edwin C. Hill claimed in 1920: • "Some of those whirling dervishes down the street could borrow a million on their moral credit; for others the jail beckons" - Best stocks, including Coca Cola, General Motors, Shell, Standard Oil, Goldwin Pictures, Philip Morris, etc. started on the Curb and then moved on the New York Stock Exchange The Battle of Waterloo: War and Finance - The Battle of Waterloo banished Napoleon's domination of Europe. No one was more delighted than the denizens of the London Stock Exchange, Nathan Rothschild especially, as Gilts soared on the good news. Nathan received news of the British victory on the night of Monday 19th (just twenty-four hours afterwards). The Duke of Wellington's official messenger did not arrive until Wednesday evening. - A letter written to Nathan Rothschild by a bank employee in Paris about a month after Waterloo, included the statement: • "I am informed by Commissary White you have done well by the early information which you had of the victory gained at Waterloo" Risk and Uncertainty - Risk is an immanent feature of the world. In financial markets, risk can be explained through the constant interrelation that shapes the structure of financial markets between savers and borrowers. Risk is a measurable entity and the ontological discourse on risk represents what is knowable in principle by virtue of the laws of probabilities. - Uncertainty is associated with complexity. Something complex cannot be controlled, and therefore cannot be predicted or measured. - The same need to reduce complexity is expressed in modern economies today by the anxiety to reduce economic uncertainty. Reducing uncertainty makes things more predictable, and from an epistemological point of view the knowledge of uncertainty is based on the conception of a "controllable" future. - Characteristic of modern economies in which contradictory views are held regarding uncertainty: blaming uncertainty for indeterminacies and a mysterious character yet also seeing the elimination of uncertainty within free markets as weakening progress, innovation, and system adaptability.