"At what time and place should you meet a stranger in New York if you cannot communicate with them beforehand? This hypothetical puzzle was first posed by Thomas Schelling, a game theorist, in 1960, as a method of explaining “focal points”—the solution people default to when co-ordinating if they are unable to converse. The most common answer, according to students he quizzed, was noon at “the information booth in Grand Central Station”.
Now imagine an augmented version of Schelling’s thought experiment, designed to find the focal point of American capitalism. You have to pick a place, anywhere in America, to meet a stranger to strike a financial deal. Where and when would you choose? It is difficult to think of a more natural location than 11 Wall Street, home of the New York Stock Exchange, at 9.30am, when the opening bell rings. Perhaps even under the Buttonwood tree that adorns its front steps. Outside the stock exchange is where the now iconic “charging bull” statue was placed in 1989, before later being moved round the corner. The nearest park is where “Occupy Wall Street” protesters gathered in the years following the global financial crisis of 2007-09.
When your correspondent arrived in New York in 2019, she felt a thrill upon hearing “the next stop is Wall Street”, then another when she first laid eyes on the enormous American flag unfurled over the stock exchange’s columned facade. And yet, now she is moving on to a new job, she realises that over the past five years, few of the biggest stories in American finance have required her to venture into downtown Manhattan.
This is not because the action itself has been lacking. From meme stocks to the venture-capital boom and ftx to the rise of private capital, it has been a wild time for capital allocation in America. It is just that traditional Wall Street institutions—the exchanges, the investment banks—have not had a large part to play.
When retail traders, bored at home and flush with covid-19 handouts, seemed to seize control of the stockmarket and pushed the price of shares in GameStop, a video-game retailer, to absurd levels, almost none of the activity took place on an exchange.
The traders bought shares on Robinhood, a retail broker in California, which mostly directed their orders to Citadel Securities, a marketmaker then in Chicago, which matches orders “off-exchange”. Indeed, almost half of all stock trading is now executed off-exchange.
The boom in venture investing, in the Bay Area, and private-equity funding, in uptown Manhattan, has enabled thousands of firms to remain private. As a consequence, just half as many companies are listed in America as two decades ago. Even tech giants such as Stripe, which is probably worth more than $70bn, have not made their public debut.
Private-equity shops have hoovered up businesses and investors’ capital. In 2019 Blackstone, America’s largest private-markets firm, was worth just $40bn, and was hardly a household name, except to those who allocated money for endowments or state pension funds. It is now worth $190bn, making it America’s fifth-most-valuable financial institution.
Many of those who manage America’s biggest hedge funds long ago decamped to Greenwich, Connecticut. Some have migrated even further, often to Miami. The city’s pastel-hued Wynwood neighbourhood also played host to important crypto firms.
ftx, a now-defunct crypto exchange, was in the midst of building its American headquarters there when it imploded.
Even slower trends, such as the decline of defined-benefit pension funds and the rise of index funds, have led to dispersion from Wall Street. Individuals now stick assets into the likes of Vanguard, which sits in the heaving metropolis of Valley Forge, Pennsylvania.
The result is a paradox. Wall Street the place is diminished, Wall Street the state of mind is triumphant. Brokerage apps, downloaded onto phones everywhere, have made traders of millions of Americans. The idea that defines Wall Street—how best to allocate capital—now preoccupies delivery drivers in Los Angeles and farm labourers in Wyoming. The dynamism of American markets is obvious across the world. American publicly traded stocks make up 60% of the total value of such equities worldwide, the highest share in half a century." [1]
1. Forget about the tree. The Economist; London Vol. 452, Iss. 9416, (Sep 28, 2024): 69.
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