From the end of WW2 through the end of the 1970s Wall Street and the stock market was a sleepy place. Wall Street firms were partner owned and risks were low. The only exposure Americans got was when the nightly network broadcaster would read off what happened on the exchanges in a ten second blurb towards the end of the newscast. Investment firms tended to be ethnic oriented and many were filled with tough minded guys from Queens or Brooklyn with perhaps a state university college degree. Wall Street was no place for the Ivy League crowd.
This began to radically change in the 1980s. Firms went public so it was no longer partner money at risk. Wall Street firms began to hire Ivy League grads under the assumption they From the end of WW2 through the 1970s Wall Street and the stock market was a very sleepy place. Firms knew more about business. Risk exploded. Greed was good. Finance was sexy. This led to "irrational exuberance" and an eventual huge stock market crash in October 1987. Although the biggest one day crash in the market's history, Wall Street very quickly self healed itself. The crash did not spread to the general economy, which was doing well at the time. However, the lessons were not learned and soon the financial sector was back at big risk taking. Only now with technology and globalization firms were now becoming interconnected.
Prior to the 1980s, hedge funds were small in numbers and unknown. By the 1990s that was changing quickly and hedge funds like investment banks were taking on more leverage and more risk. In 1998, the world's largest hedge fund, Long Term Capital Management, led by a couple of quants imploded as the Russian and Thailand currencies were failing. By then all investment banks were interconnected and the failure of Long Term Capital Management would take down them all. So all of the investment banks, for the exception of Bears Sterns, ponied up hundreds of millions to bailout an errant hedge fund. In a twist of fate, ten years later when Bear Sterns was going belly up all of Wall Street turned their backs.
1998 was right before the Internet explosion so most Americans knew little of this incident and how close it had come to crashing the economy. And while like before in 1987 the overall economy suffered not a bit, lessons were again not learned. Wall Street went right back to business as usual, only this time because of deregulation the large commercial banks joined their orgy of financial and risk excesses.
By the 00s with interest rates lowered down to 1% and the government pressuring banks to make mortgage loans to low income consumers for in return the ability to carry out endless acquisitions subprime mortgages generation began to soar. Another factor was securitization, which enabled the banks to make horrible loans and pass them off to a bunch of clueless chumps in return for huge underwriting fees and the like. The chumps took the outlandish risk of losses. The three credit rating agencies willing to "whore" themselves for a buck simply rated all of the mortgages (packaged together called securities) the same as US government T bills. By 2006, the chumps were getting wise to the game. Wall Street firms were stuck with billions of bad loans that no one would buy. Some firms even continued making the loans thinking the market would come right back. Wall Street to supposedly protect themselves against losses bought derivatives and even sold such. By 2008 the entire system imploded.
Starting off 2008 the economy appeared full steam ahead. Corporate earnings, including Wall Street were at record highs. Unemployment was relatively low. Oil prices were soaring due to strong demand (and speculation). The masters claimed the financial system to be fully operational with few issues. Of course by the end of the year it was a vastly different picture.
The Bush and subsequently Obama administration along with the Federal Reserve quickly went to work to bailout the fraudulent characters through direct bail outs, purchases of the garbage securities for what the banks valued them at, dirt cheap loans and loan guarantees. Investment banks were allowed to convert to commercial banks providing them with an array of bailout benefits. Wall Street within six months showed little to no sign that anything had ever happen.
Corporate America benefited from near next to free money in which they bought their competition, repurchased their stock and paid the C level enough money to choke a horse. Corporations also went on a firing spree paring down costs. Who paid for all this? I'm sure you can guess who. Again, no lessons were learned and the culprits suffered at the most some temporary stress (made smooth by tens of millions in the bank).
Fast forward to 2017, the DOW has soared above 21,000 and real estate prices particularly in desirable cities have increased to new heights. Wall Street and Corporate America are awaiting their tax cut, deregulation and other Trump goodies. However, it doesn't appear to be happening. For once Washington DC won't be able to agree on how to make life better for their sugar daddies.
So the stock market crashes, as does real estate, asset prices, and all of the side betting that has continued to go on. Suddenly trillions not billions will be needed in cash. Where will it come from this time? Will the Federal Reserve be allowed to digitize a couple hundred trillion? If not, will the IMF provide fake money in the form of "Special Drawling Rights", or world currency? Suppose the IMF doesn't move fast enough to stop what will surely be a New York second economic meltdown. Will it be the Great Depression 2.0?
Get ready, its coming soon. And as usual Washington and New York will be the last to know.