3 - Roar and Crash

Summary

As railroads began to physically connect the United States, modern telegraph technology, commercialized by Samuel Morse, began to connect regionally diverse investors and financial analysts through financial markets. Stock markets became popular in the late eighteenth century, in large part because of telegraph technology. As the transaction costs of communication decreased, and network effects increased, more investors and financial analysists participated not only in regional stock markets, which also flourished during this period, but also national ones like the New York Stock Exchange. However, the rules designed to uphold very high-quality standards of major stock exchanges made participation in these markets unaffordable for most ordinary people hoping to invest. Additionally, many unsophisticated investors were lured into “bucket shop” schemes, which promised ordinary investors the opportunity to access Wall Street investment opportunities but whose interests were inherently at odds with investors and which more resembled a gambling option rather than an actual investment.