Quite too often, Wall Street has been depicted as a fast-paced arena of wealth and ludicrous lifestyles, and here are some mind-blowing facts that could set the record straight.
A number of movies such as Wall Street, Wall Street: Money Never Sleeps, The Wolf of Wall Street, Margin Call, Too Big to Fail, and The Big Short have revolved around the dealings in the financial district. Is Wall Street as gritty and cutthroat as Hollywood portrays or is there more to the daily grind of the financial world?
- Average salaries
It’s no secret that the suits walking around Wall Street rake in a lot of dough by managing funds for other people or institutions. But how wide is the income disparity between the average American and a typical banker?
Based on data gathered by a number of surveys, the average banker salary is somewhere between $300,000 to $400,000. And that doesn’t include hefty commissions from profitable trades and performance bonuses. In comparison, the average Joe’s salary of $50,000 median for a US household is dwarfed.
- $10,000 investment in 1956 is worth $300 million now
Wondering how Wall Street is able to pump out enough cash to sustain its ecosystem? Look no further than the concept of compounding. Analysts calculated that $10,000 invested in Warren Buffet 60 years ago would be worth $300 million by now thanks to his fund’s average gain of 20% each year. Still, some say that Warren Buffet is more of an exception rather than the norm, as majority of funds barely make consistent annual double-digit returns.
- Most hedge funds have been outperformed by the stock market or inflation.
But even with the lavish lifestyle that most traders and portfolio managers have, the truth is that most hedge funds had been unable to outperform major stock indices or inflation since 2002. Although there are outliers that are able to beat the markets every now and then, this statistic has led many to question whether or not the hefty fees charged by investment firms are really worth it.
- The Ostrich Effect
Studies have shown that the number of investors that check their portfolio drops by 8.7% during a market decline compared to a rally. This is explained by the behavioral finance phenomenon dubbed as the “Ostrich Effect” in which traders avoid risky situations by simply pretending that these do not exist.
In an article on InvestmentNews, a thousand investors were asked whether the S&P was up or down in 2009. Nearly 70% answered that it was down during the year but in reality, it was up 26.5% overall, indicating that market watchers can still be oblivious to market performance.
In fact, even the Federal Reserve seemed unaware of a looming financial recession back then, as their Federal Open Market Committee meeting on June 2007 included only three mentions of “recession” and 61 instances of the word “strong” in assessing economic performance. But as everyone knows, the US economy entered a recession six months later.
- Wall Street accounts for more than a third of New York’s earnings.
With all the hustle and bustle in the financial world, Wall Street actually accounts for 35% of New York City’s earnings. These comprise banking activity, securities trading, investments, and other complex financial products. It ranks as the second largest financial hub in the world, second to London. Talk about the concrete jungle where dreams are made of!
- De Waal Straat
Wall Street gets its name from “de Waal Straat” which was given by the Dutch when New York was still a settlement known as New Amsterdam. It was probably named so because of the wall built by the Dutch to protect the area from the British.
- The actual street is just half a mile long.
The real Wall Street is just under half a mile long but the term is used to refer to New York’s financial district in general, which spans roughly eight blocks from Broadway to South Street. It became associated with the finance world when traders signed the Buttonwood Agreement to trade stocks with each other and create the New York Stock and Exchange Board.
- The dark side of greed
Wealth comes at a price, and Wall Street traders are no exception to this. Junior bankers typically work 80 to 100 hours each week, sometimes at seven days a week. Rumor has it that the Wall Street crash led several traders to jump out the windows in apparent suicide. However, out of the 100 or so suicide attempts in the city, only four were officially linked to the market crash.
- The first location of NYSE was a coffee house.
After the Buttonwood Agreement was signed, the first few traders in New York conducted their trades at the Tontine Coffee House at the corner of Wall Street and Water Street. Prior to this coffee house’s construction, these folks made their trades at the Merchant’s Coffee House across the street.
At that time, the Tontine was one of New York’s busiest areas for buying and selling of stocks and other wares. It had a dual function as a business club and meeting room, as business dealings and even gambles were made in the place. It was also known as a place for trading of slaves and shady political transactions.
- The 2008 US Bailout is larger than you think.
The financial bailout package doled out to save the US economy from the impact of the global recession amounted to $4.62 trillion. It’s hard to grasp how large this figure is, although combining other huge government spending packages might help.
Analysts say that the 2008 bailout is more than the Marshall Plan, Louisiana Purchase, Korean War, Iraq War, Vietnam War, and NASA’s budget combined. In inflation-adjusted terms, the Marshall Plan amounted to $115 billion, the Louisiana Purchase amounted to $217 billion, the Korean War cost $454 billion, the Iraq War cost $551 billion, the Vietnam War cost $698 billion, and the NASA budget is at $851.2 billion for a shade under $3 trillion.
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