WEBVTT - This Is How Finance and Banking Worked Before Computers 0:00:10.320 --> 0:00:13.600 Hello, and welcome to another episode of the Odd Lots Podcast. 0:00:13.720 --> 0:00:15.160 I'm Tracy Alloway. 0:00:14.800 --> 0:00:15.960 And I'm Joe whysent Thal. 0:00:16.440 --> 0:00:20.079 Joe, do you remember the episode we did with Stuart Butterfield, 0:00:20.280 --> 0:00:21.720 the founder of Slack. 0:00:22.040 --> 0:00:25.639 I do great episode Software Tech. I like when we 0:00:25.720 --> 0:00:29.000 have tech and software episodes that aren't about just like 0:00:29.080 --> 0:00:32.000 the markets, but like how technology actually. 0:00:31.720 --> 0:00:34.319 Works, how it actually functions. Yes, all right, Well that's 0:00:34.360 --> 0:00:36.920 a good jumping off point because there was a moment 0:00:37.240 --> 0:00:40.360 in that episode where I think it was Stuart asked 0:00:40.360 --> 0:00:43.040 a very innocent question, which is he basically said he 0:00:43.080 --> 0:00:47.360 had no idea how banking worked before the advent of computers. 0:00:47.720 --> 0:00:50.160 I'm glad he said that, because I have no idea either. 0:00:50.280 --> 0:00:52.080 And when I you know, when I think about money, 0:00:52.200 --> 0:00:53.840 and by this point we all sort of know like, oh, 0:00:53.920 --> 0:00:56.240 like money is it is just a database entry? Right, 0:00:56.480 --> 0:00:58.160 Well that makes a lot of sense to me at 0:00:58.160 --> 0:01:01.320 a world of excel. But how do like databases work? 0:01:01.520 --> 0:01:05.360 How did money as a database creation work before databases? 0:01:05.440 --> 0:01:08.480 Well, that's exactly it, because nowadays I think money is 0:01:08.560 --> 0:01:12.880 almost synonymous with an electronic database, Like that's basically what 0:01:13.000 --> 0:01:15.480 it is at this point. But of course, for hundreds 0:01:15.520 --> 0:01:18.160 and hundreds of years we did not have things like 0:01:18.200 --> 0:01:22.360 Excel spreadsheets, So how did banking and finance and trade 0:01:22.560 --> 0:01:24.160 actually work in those conditions? 0:01:24.400 --> 0:01:27.080 Yeah, and like I just don't understand how like people 0:01:27.120 --> 0:01:29.319 traded stocks or people went into a bank and said 0:01:29.319 --> 0:01:31.319 I want to get my money or without like, how 0:01:31.360 --> 0:01:33.400 are they not just like always losing track of how 0:01:33.480 --> 0:01:35.760 much money people had? How are they always not just 0:01:35.880 --> 0:01:38.800 like forgetting oh you bought that stock, like it's on 0:01:38.880 --> 0:01:41.240 pen and paper like type, Like in my mind, they 0:01:41.280 --> 0:01:42.840 must have been losing track of stuff all the time. 0:01:42.880 --> 0:01:45.520 Well, I think I said this in the Stewart episode, 0:01:45.520 --> 0:01:47.680 but there were a lot of bank failures, there were 0:01:47.760 --> 0:01:50.000 a lot of trading blow ups, so maybe they you know, 0:01:50.160 --> 0:01:53.120 maybe the lack of technology was Actually that's sad. But 0:01:53.720 --> 0:01:56.760 we do actually have the perfect guests to discuss this topic. 0:01:56.840 --> 0:01:59.240 We are going to be speaking with Anne Murphy. She 0:01:59.320 --> 0:02:02.360 is a professor of history and executive dean over at 0:02:02.400 --> 0:02:05.400 the University of Portsmouth. She just wrote a new book. 0:02:05.440 --> 0:02:08.800 It's called Virtuous Bankers, A Day in the Life of 0:02:08.919 --> 0:02:12.080 the eighteenth century Bank of England. So the perfect person 0:02:12.360 --> 0:02:16.360 to talk about pre computerized banking. We're also going to 0:02:16.360 --> 0:02:18.640 be speaking. This is a double feature. We're going to 0:02:18.639 --> 0:02:23.359 be speaking with John Handel, postdoctoral fellow at the McIntyre 0:02:23.440 --> 0:02:26.880 School of Commerce at the University of Virginia. He's written 0:02:26.919 --> 0:02:30.480 a lot about trade and technology in the eighteen hundreds 0:02:30.560 --> 0:02:33.440 early nineteen hundreds, so we're going to take a journey 0:02:33.520 --> 0:02:35.280 through the history of finance. 0:02:35.360 --> 0:02:37.040 I can't wait. I'm really excited about this. So I 0:02:37.040 --> 0:02:38.079 have so many questions. 0:02:38.120 --> 0:02:39.880 All right, an in, John, thank you so much for 0:02:39.919 --> 0:02:41.040 coming on our thoughts. 0:02:41.480 --> 0:02:43.600 Oh, thank you for inviting me. It's lovely to be here. 0:02:44.919 --> 0:02:48.280 As they say in sports talk radio, longtime listener, first 0:02:48.280 --> 0:02:49.880 time caller, I was just so great to be here. 0:02:50.360 --> 0:02:50.640 Nice. 0:02:51.280 --> 0:02:54.240 So maybe I should start in sort of I'm going 0:02:54.280 --> 0:02:57.400 to attempt chronological order here, but why don't we start 0:02:57.400 --> 0:02:59.560 with you? And I mean, you know, the clue is 0:02:59.560 --> 0:03:01.800 in the tie of your book. What was it actually 0:03:01.960 --> 0:03:04.520 like a day in the life of the Bank of 0:03:04.560 --> 0:03:10.440 England in the seventeen hundreds. 0:03:08.440 --> 0:03:12.320 So it was a very busy place. The time I'm 0:03:12.320 --> 0:03:15.880 writing about is the seventeen eighties, so it's just after 0:03:15.919 --> 0:03:19.720 the War of American Independence and the British are having 0:03:19.720 --> 0:03:23.600 a moment of real introspection about their finances and trying 0:03:23.600 --> 0:03:26.040 to figure out whether everything is working well, which is 0:03:26.080 --> 0:03:28.440 one of the reasons that the Bank of England kind 0:03:28.440 --> 0:03:31.480 of looks inward at itself at this time and really 0:03:31.520 --> 0:03:34.000 tries to figure out what it's doing and how it's 0:03:34.040 --> 0:03:36.080 doing it and whether it's doing it well or not. 0:03:37.160 --> 0:03:39.240 But the bank at this time, it's a twenty four 0:03:39.280 --> 0:03:44.640 hour a day place. It opens at dawn, You've got 0:03:44.640 --> 0:03:48.200 customers kind of milling around from about nine o'clock onwards, 0:03:48.680 --> 0:03:52.160 and it's doing everything you would expect a bank to do, 0:03:53.680 --> 0:03:56.400 but without those Excel spreadsheets. You know, it's doing them 0:03:56.440 --> 0:04:01.160 all with ledgers and quill and ink. And it's my 0:04:01.320 --> 0:04:03.720 view that it does it well and it doesn't lose 0:04:04.240 --> 0:04:07.160 its customers money. It has a pretty good grasp of 0:04:07.200 --> 0:04:11.320 where everybody is and whether there's money to trade, and 0:04:11.320 --> 0:04:12.440 how it does all this stuff. 0:04:13.520 --> 0:04:15.760 You said it's twenty four hours, and you know, even 0:04:15.840 --> 0:04:18.520 like the FED, I don't think is twenty four hours, 0:04:18.720 --> 0:04:21.719 or at least some of its operations have a certain 0:04:21.920 --> 0:04:25.480 window or the closes or certain things don't happen on weekend. 0:04:25.880 --> 0:04:29.200 So were there certain aspects of banking that from a 0:04:29.200 --> 0:04:32.040 twenty four hour standpoint were more advanced I don't know, 0:04:32.160 --> 0:04:33.880 a few hundred years ago than there are today. 0:04:35.279 --> 0:04:38.479 So it's not necessarily operating twenty four hours a day, 0:04:38.600 --> 0:04:42.080 so its standard business day is around about nine to five. 0:04:43.400 --> 0:04:47.240 But because it can't just press an update button at 0:04:47.240 --> 0:04:49.240 the end of the day to make sure all of 0:04:49.240 --> 0:04:51.400 the accounts are updated for the start of the next 0:04:51.440 --> 0:04:55.760 working day, the process of updating accounts takes place in 0:04:55.800 --> 0:05:00.680 the evening, So from about four o'clock all the way 0:05:00.720 --> 0:05:04.400 through sometimes to kind of ten eleven o'clock in the evening, 0:05:05.279 --> 0:05:10.040 there are clerks updating the physical ledgers so that next day, 0:05:10.080 --> 0:05:13.440 when the brokers walk in or when those business owners 0:05:13.520 --> 0:05:16.520 who are there regularly walk in, their account is up 0:05:16.560 --> 0:05:18.279 to date and they're ready to go for the new 0:05:18.279 --> 0:05:21.960 business day. But the other reason it's twenty four hours 0:05:22.279 --> 0:05:27.080 is because it's a vulnerable place. So it's at risk 0:05:27.160 --> 0:05:29.960 of fire, it's at risk of wyatt, it's at risk 0:05:30.640 --> 0:05:34.040 of people sort of wanting to break in, so it 0:05:34.120 --> 0:05:38.240 has night watchmen who are there and active throughout the 0:05:38.320 --> 0:05:40.560 night to make sure that the bank is safe. 0:05:41.360 --> 0:05:44.040 I have a really basic question, which is what are 0:05:44.120 --> 0:05:47.799 people doing at the bank of England in seventeen eighty. 0:05:47.839 --> 0:05:51.279 You mentioned customers sort of milling outside of the building. 0:05:51.440 --> 0:05:52.960 What are they waiting to actually do? 0:05:54.440 --> 0:05:57.279 So one thing they're not doing so much is borrowing 0:05:57.360 --> 0:06:03.120 money from the bank. The bank's private lending is not 0:06:03.320 --> 0:06:05.839 very well advanced. They have their little bit of private 0:06:05.920 --> 0:06:10.599 lending early in the sixteen late sixteen hundreds, early seventeen hundreds, 0:06:10.800 --> 0:06:13.479 but it doesn't really take off. What a lot of 0:06:13.480 --> 0:06:17.560 people there are doing is discounting bills of exchange, so 0:06:17.600 --> 0:06:21.719 they're borrowing money in that way and facilitating trade. Also 0:06:21.800 --> 0:06:26.400 in that way, they are managing notes, so they're coming 0:06:26.400 --> 0:06:31.440 to the bank to exchange ready money for banknotes, other banknotes, 0:06:32.279 --> 0:06:36.000 for Bank of England notes, or their banknotes that they 0:06:36.040 --> 0:06:39.480 have back to ready money again. And the note business 0:06:39.560 --> 0:06:44.320 is huge and occupies a lot of everybody's time. But 0:06:44.360 --> 0:06:47.880 they're also there to buy and sell government debt. So 0:06:47.920 --> 0:06:50.120 you could buy and sell government debt at the bank. 0:06:50.160 --> 0:06:52.240 It's probably the main place where you could do that 0:06:53.400 --> 0:06:56.359 throughout most of the eighteenth century. So that's one of 0:06:56.360 --> 0:06:57.480 the things that they're there to do. 0:06:57.760 --> 0:06:59.920 So I want to get more into the sort of 0:07:00.160 --> 0:07:02.719 like pen and paper and the actual physical operations. 0:07:02.960 --> 0:07:05.280 But John, why do you come in talk to us. 0:07:05.240 --> 0:07:08.479 A little bit about your area of focus and just 0:07:08.520 --> 0:07:10.680 sort of you're a little bit more on the trading 0:07:10.880 --> 0:07:13.600 and financial activities side. Let do you talk a little 0:07:13.640 --> 0:07:16.800 bit about your specific years in aero focus into sort 0:07:16.800 --> 0:07:19.080 of like finance and trading pre computers. 0:07:20.000 --> 0:07:23.000 So my work is essentially the sequel to Anne's work. 0:07:23.080 --> 0:07:26.160 I pick up in the early eighteen hundreds around when 0:07:26.280 --> 0:07:29.280 her book on the Bank of England finishes and what's 0:07:29.280 --> 0:07:32.600 happening I focus primarily in the London Stock Exchange. And 0:07:32.680 --> 0:07:35.840 what's happening in this period is a lot of the 0:07:35.880 --> 0:07:39.240 trading that had gone on during the seventeen hundreds went 0:07:39.320 --> 0:07:43.240 on in dispersed, often open locations, the lobby of the 0:07:43.280 --> 0:07:48.280 Bank of England, in alleyways, in coffee shops, in taverns 0:07:48.320 --> 0:07:51.160 even but beginning in the early eighteen hundreds, there's this 0:07:51.240 --> 0:07:54.280 move to enclose financial markets and make them their own, 0:07:54.320 --> 0:07:58.880 discreete spaces that would be governed by the association of 0:07:59.160 --> 0:08:01.960 brokers who were met members of those exchanges. And so 0:08:02.040 --> 0:08:05.200 the London Stock Exchange adopts a new set of rules 0:08:05.240 --> 0:08:08.680 and begins to build its own premises, starting in eighteen 0:08:08.720 --> 0:08:14.000 oh one and essentially stops allowing members of the public, clients, investors, 0:08:14.080 --> 0:08:17.520 whomever to enter the exchange. The exchange becomes solely the 0:08:17.520 --> 0:08:21.320 province of brokers. But much like what Anne was saying, 0:08:21.560 --> 0:08:24.240 the London Stock Exchange is also a twenty four to 0:08:24.320 --> 0:08:28.600 seven institution. It's not just the brokers who are there 0:08:28.600 --> 0:08:31.360 on the trading floor from eleven to four, but there 0:08:31.440 --> 0:08:34.840 are armies of clerks who are responsible for settling and 0:08:34.880 --> 0:08:38.280 clearing trades after hours. Because the London Stock Exchange is 0:08:38.280 --> 0:08:42.080 global and it's trading with markets in North America, in 0:08:42.160 --> 0:08:46.040 Australia and Asia. During the nineteenth century, members are there 0:08:46.080 --> 0:08:50.360 working at telegraph offices basically laid into the night as 0:08:50.400 --> 0:08:52.959 late as eight or nine pm. And then one of 0:08:53.000 --> 0:08:56.439 the other things that's often overlooked is that there is 0:08:56.480 --> 0:08:59.960 a whole army of household servants basically live in servants 0:09:00.000 --> 0:09:02.240 who actually lived at the London Stock Exchange. They brought 0:09:02.280 --> 0:09:05.320 their families. They were called waiters, but they were essentially 0:09:05.320 --> 0:09:09.320 the equivalent of porters, and they worked to guard the 0:09:09.440 --> 0:09:13.360 entrances of the exchange, deliver telegrams and letters to the brokers, 0:09:13.480 --> 0:09:16.760 keep the exchange clean and they lived there twenty four 0:09:16.760 --> 0:09:18.640 to seven for most of the nineteenth century, so the 0:09:18.679 --> 0:09:21.640 London Stock Exchange too, was a twenty four to seven 0:09:21.679 --> 0:09:25.120 institution with a very complex human ecosystem. 0:09:25.559 --> 0:09:27.120 Tracy, do you think you know what I really want 0:09:27.160 --> 0:09:29.160 to say? I want a Netflix show that takes place 0:09:29.200 --> 0:09:29.959 in the lobby of. 0:09:29.880 --> 0:09:30.680 The Bank of England. 0:09:30.840 --> 0:09:33.400 I think like a big series of like over the years. 0:09:33.559 --> 0:09:35.679 I just like now, I really want their show to exist. 0:09:35.760 --> 0:09:39.240 I think that would be perfect for like Sorkin treatment. Yes, 0:09:39.559 --> 0:09:42.240 all right, but actually this reminds me. I was having 0:09:42.280 --> 0:09:45.680 lunch just last week with a couple of traders who 0:09:45.720 --> 0:09:47.760 were active in the eighties and the nineties, and they 0:09:47.760 --> 0:09:50.240 were talking about board boys. So they used to have 0:09:50.320 --> 0:09:53.840 board boys who would write down trades on a blackboard 0:09:53.920 --> 0:09:56.199 or a whiteboard. I don't know, you know, who owes 0:09:56.240 --> 0:09:59.200 what to whom when there was active trading activity on 0:09:59.240 --> 0:10:02.319 the floor. But this leads nicely into my next question, 0:10:02.360 --> 0:10:05.120 which is it sounds like a lot of the record 0:10:05.200 --> 0:10:09.640 keeping or the distribution of money, the movement of money 0:10:09.960 --> 0:10:14.000 was just being done by people in the seventeen hundreds 0:10:14.000 --> 0:10:15.440 and the eighteen hundreds as well. 0:10:16.440 --> 0:10:21.760 That's absolutely right, and one of the things we don't 0:10:21.800 --> 0:10:26.480 really know is how those individual stockbrokers were keeping their ledgers. 0:10:27.240 --> 0:10:31.000 So if you look at images of the bank's lobby, 0:10:31.240 --> 0:10:35.520 the kind of brokers exchange, you don't see much evidence 0:10:35.559 --> 0:10:40.240 of people writing things down, So it probably looks like 0:10:40.640 --> 0:10:43.800 a lot of people were keeping a sense of what 0:10:43.840 --> 0:10:47.400 they were doing in their head until such time as 0:10:47.400 --> 0:10:51.520 they went and registered with the Bank of England's clerks. 0:10:51.760 --> 0:10:53.800 The other really interesting thing is the Bank of England 0:10:53.880 --> 0:10:59.800 is operating a inscribed stock ledger system in which they 0:10:59.800 --> 0:11:03.920 can keep the only legally binding record of stock ownership. 0:11:04.600 --> 0:11:09.080 So individuals didn't have a receipt that they would take 0:11:09.120 --> 0:11:11.520 away with them that would be legally binding. In fact, 0:11:11.520 --> 0:11:15.400 that the receipt that they were given was worthless, and 0:11:15.600 --> 0:11:18.680 thus they had to completely trust that the Bank of 0:11:18.679 --> 0:11:22.640 England could keep their ledgers straight and that could keep 0:11:22.920 --> 0:11:26.920 the sense of ownership within those ledgers, you know, completely trustworthy. 0:11:27.440 --> 0:11:29.920 I'm so glad you brought that up, because I was 0:11:29.960 --> 0:11:31.679 going to go to this question of the receipt right 0:11:31.679 --> 0:11:35.000 Like we placed a trade online or do some transaction, 0:11:35.480 --> 0:11:38.440 usually these days will get like some email that comes 0:11:38.520 --> 0:11:42.439 from the financial entity might have some string of eleven 0:11:42.600 --> 0:11:44.600 numbers and letters or something that we don't really care 0:11:44.640 --> 0:11:46.839 about unless there's something that we need to go back 0:11:47.160 --> 0:11:49.920 and dispute whether something has happened. 0:11:50.000 --> 0:11:51.120 But talk to us a little bit more. 0:11:51.160 --> 0:11:53.400 If like there's just these one entities in the background 0:11:53.559 --> 0:11:56.520 and they're working overnight and they're humans and they're writing 0:11:56.559 --> 0:11:59.920 things down, possibly making mistakes. Maybe both of you could 0:12:00.040 --> 0:12:02.160 talk about this a little bit, like that role of 0:12:02.240 --> 0:12:05.560 trust and the institution and what happens if you know 0:12:06.200 --> 0:12:07.160 there's a dispute. 0:12:07.559 --> 0:12:11.760 So it's trust, but with checks and balances. So when 0:12:12.440 --> 0:12:15.560 a transaction happens, there's a buyer and there's a seller, 0:12:16.440 --> 0:12:18.520 both the buyer and the seller are supposed to be 0:12:18.640 --> 0:12:21.640 there to sign off on the trade. So to one 0:12:21.720 --> 0:12:25.199 to sell and one to accept is also signed off 0:12:25.240 --> 0:12:29.120 by a clerk. There's a whole process of checking between 0:12:29.320 --> 0:12:34.360 the stock transfer books and the stock ledgers. And also 0:12:35.000 --> 0:12:37.959 any individual could go into the Bank of England, either 0:12:38.000 --> 0:12:40.640 them or their representatives, and they could look at the 0:12:40.640 --> 0:12:44.640 stock ledgers to check that their account stood as they 0:12:44.760 --> 0:12:49.680 understood it. So there are trust happens, but there's with 0:12:49.840 --> 0:12:52.600 checks and balances also, So. 0:12:53.160 --> 0:12:56.280 I would say in the nineteenth century again, this begins 0:12:56.320 --> 0:12:59.520 to change this process of how you've established trust in 0:12:59.520 --> 0:13:03.480 a financial market. So it's actually quite difficult to create 0:13:03.520 --> 0:13:07.439 something like a receipt for a stock transaction, especially if 0:13:07.480 --> 0:13:10.720 you were far away from London. So if you, for instance, 0:13:10.800 --> 0:13:14.320 lived in the provinces of England, you sent an order 0:13:14.400 --> 0:13:17.920 down by mail to your broker in London. Finding a 0:13:17.920 --> 0:13:19.800 broker would be its own problem. But let's say you 0:13:19.880 --> 0:13:22.680 find one, how do you know that he got you 0:13:22.920 --> 0:13:26.520 a good market price. One of the big issues was 0:13:26.559 --> 0:13:29.400 that the rule for marking prices, for putting a price 0:13:29.440 --> 0:13:32.000 on the blackboard that would then be included in the 0:13:32.080 --> 0:13:36.880 daily price list, it was by agreement of the brokers 0:13:36.920 --> 0:13:39.080 doing the deal, so you had to actually agree with 0:13:39.120 --> 0:13:41.160 the person that you either bought or sold stock for 0:13:41.280 --> 0:13:44.520 that you would mark the price. Officially, you could often 0:13:44.559 --> 0:13:48.880 not mark the price, so often the financial press calls 0:13:48.920 --> 0:13:51.640 the price list that the Lendon Stock Exchange produce a 0:13:51.679 --> 0:13:55.000 record of bad bargains, because it was essentially brokers who 0:13:55.040 --> 0:13:57.520 would be covering themselves if they got something outside of 0:13:57.520 --> 0:14:00.200 a market price for their client, they would rush to 0:14:00.600 --> 0:14:02.240 have it marked on the board so that it would 0:14:02.240 --> 0:14:03.960 show up in the newspapers or show up in a 0:14:03.960 --> 0:14:06.400 priceless the next day, and they could go back to 0:14:06.400 --> 0:14:08.240 their client and say, oh, look, I got you the 0:14:08.240 --> 0:14:10.120 market price. It's here in the newspaper. It's here in 0:14:10.120 --> 0:14:13.160 the price list, even though for most of the people 0:14:13.200 --> 0:14:15.679 that were immediate in the market, that were in the 0:14:15.720 --> 0:14:19.080 vicinity of the market that day, it was oftentimes not 0:14:19.320 --> 0:14:22.800 actually the real price or the fair price that was predominant. 0:14:40.160 --> 0:14:43.480 So this actually sounds like the ultimate opportunity for arbitrage, 0:14:43.560 --> 0:14:47.920 right because you have different sources of information operating at 0:14:48.080 --> 0:14:51.520 different latencies, really slow latencies where you know, someone is 0:14:51.600 --> 0:14:54.440 running from one location to the other local literally mailing 0:14:54.640 --> 0:14:58.760 yahiling broker in London, sending your servant to get the 0:14:58.840 --> 0:15:02.000 latest price of something. I mean, how did that feed 0:15:02.160 --> 0:15:04.960 into trading activity? Were there a lot of people trying 0:15:04.960 --> 0:15:05.880 to take advantage of that. 0:15:07.640 --> 0:15:11.600 Yeah, So the nineteenth century sees the emergence of the 0:15:11.640 --> 0:15:16.040 first specialty arbitrage firms that are closing pricing gaps in 0:15:16.160 --> 0:15:20.640 dual listed securities between different markets. But then there was 0:15:20.680 --> 0:15:23.760 also just a lot of taking advantage of sort of 0:15:23.840 --> 0:15:27.360 slow retail orders that showed up in the market. So 0:15:27.440 --> 0:15:30.240 one of the things that happened. There's a recent paper 0:15:30.280 --> 0:15:32.080 on this is that the introduction of something like the 0:15:32.120 --> 0:15:36.400 ticker tape, rather than making stock trading more efficient, it 0:15:36.520 --> 0:15:44.880 actually exacerbated irrational trend chasing in numbers because the ticker 0:15:44.920 --> 0:15:48.560 tape numbers that were sent out to investors far away 0:15:48.640 --> 0:15:51.560 were on a slight delay. It took some time to 0:15:51.800 --> 0:15:55.000 even via a ticker tape send out numbers. But then, 0:15:55.080 --> 0:15:56.560 if you think about it, the order has to be 0:15:56.640 --> 0:16:00.280 routed back towards the initial exchange after you see a 0:16:00.320 --> 0:16:03.920 number on the ticker tape, and so oftentimes the people 0:16:03.960 --> 0:16:08.440 who are trading on ticker tape prices are smaller investors. 0:16:08.920 --> 0:16:11.800 They send their order back to their broker, and per 0:16:11.800 --> 0:16:15.040 the name of the show, the broker would not want 0:16:15.040 --> 0:16:18.160 to place these small lots. They would wait until they 0:16:18.160 --> 0:16:21.960 had aggregated a number of orders from smaller investors that 0:16:21.960 --> 0:16:24.200 were trading off the ticker tape and only then go 0:16:24.320 --> 0:16:27.360 back into the stock exchange and place a larger block order. 0:16:27.640 --> 0:16:29.360 And so there were all of these complaints that the 0:16:29.360 --> 0:16:31.760 prices on the ticker tape were never actually accurate. You 0:16:31.760 --> 0:16:34.680 could execute a price on a ticker tape, and so 0:16:34.720 --> 0:16:38.360 there was all of these issues with matching up the 0:16:38.400 --> 0:16:41.000 time and the latency of when information was produced, whether 0:16:41.040 --> 0:16:43.440 it was the priceless after the fact, whether it was 0:16:43.480 --> 0:16:45.720 the ticker tape during the day. It was very hard 0:16:45.760 --> 0:16:49.360 to get those two actually match what an accurate market 0:16:49.400 --> 0:16:52.280 price was. So the firms that tended to do better 0:16:52.600 --> 0:16:55.280 were ones that use the telegraph and the telephone and 0:16:55.320 --> 0:16:58.760 were more professional arbitrage traders that took advantage of these 0:16:58.760 --> 0:17:01.880 prices again, rather than detail traders that had to rely 0:17:01.960 --> 0:17:03.720 on things like the price list or the ticker ty. 0:17:06.000 --> 0:17:09.480 So in the late seventeen hundreds, I guess it was 0:17:09.720 --> 0:17:14.000 a somewhat different environment. There was less i think obvious 0:17:14.080 --> 0:17:17.080 room for arbitrage, but there were a few people who 0:17:17.119 --> 0:17:21.280 dominated in the market and therefore the number of transactions 0:17:21.359 --> 0:17:25.320 that they could command gave them a pretty good return 0:17:26.040 --> 0:17:28.840 on the investment of their time. So they're spending a 0:17:28.840 --> 0:17:31.679 lot of time in the Bank of England's lobby, in 0:17:31.840 --> 0:17:35.399 various different coffeehouses, they're picking up business with a lot 0:17:35.440 --> 0:17:38.760 of people, and therefore, you know, sort of having a 0:17:38.800 --> 0:17:43.440 lot of turnover. There's not enough i think movement very 0:17:43.480 --> 0:17:47.760 often for arbitrage to be particularly easy for them, but 0:17:47.880 --> 0:17:51.760 their dominance in the market certainly gives them a real 0:17:51.840 --> 0:17:56.919 kind of command of information, a real command of the 0:17:56.960 --> 0:17:59.840 market as a whole, and just that sort of turnover 0:18:00.760 --> 0:18:04.520 definitely yields them profits. The other thing they're really picking 0:18:04.600 --> 0:18:09.560 up profits from is the initial issues from the government. 0:18:09.680 --> 0:18:14.160 So what the government is doing is issuing to trusted 0:18:14.240 --> 0:18:19.520 contractors and prominent businessmans. So they're getting that initial issue 0:18:19.560 --> 0:18:22.639 at very easy prices, which they're then selling into all 0:18:22.680 --> 0:18:24.960 much wider markets, so that there's a there's a real 0:18:24.960 --> 0:18:27.640 profit to be had there, and the government's very conscious 0:18:27.720 --> 0:18:31.560 of that expense, but really up until the early nineteenth 0:18:31.600 --> 0:18:34.000 century can't figure out how to do that and how 0:18:34.000 --> 0:18:35.480 to make that operation work better. 0:18:36.480 --> 0:18:38.800 It's so interesting once again, like all of these things 0:18:38.840 --> 0:18:40.560 that are like what's the term in the US for 0:18:40.640 --> 0:18:43.080 like the bevy or like the ten banks that get 0:18:43.080 --> 0:18:45.760 to bid on the treasury primary deal the primary dealers, 0:18:45.960 --> 0:18:46.919 all of these things, the. 0:18:47.040 --> 0:18:48.560 New issue premium, there's new. 0:18:48.440 --> 0:18:50.160 Issue premium exactly the same. 0:18:50.240 --> 0:18:52.879 And then the idea of like the ticker tape exacerbating 0:18:53.000 --> 0:18:55.680 trend following is opposed to making the market more efficient, 0:18:55.800 --> 0:18:58.520 like all these things, just like we talk about all 0:18:58.520 --> 0:19:00.639 the time. They come up over and over, and you know, 0:19:00.800 --> 0:19:04.160 since both of you talked about this and the need 0:19:04.280 --> 0:19:08.760 for twenty four to seven trade or transaction reconciliation. 0:19:08.880 --> 0:19:10.040 So the market or the. 0:19:10.000 --> 0:19:13.199 Banking day closes at some time and then all the 0:19:13.280 --> 0:19:15.639 clerks get to work and make sure all the books 0:19:15.680 --> 0:19:17.840 are settled. Can you talk a little bit more about 0:19:17.880 --> 0:19:20.879 what happened overnight, maybe both of you and starting for 0:19:21.320 --> 0:19:24.240 in terms of are we talking about handwriting down pieces 0:19:24.240 --> 0:19:26.960 of paper, erasing pens like, can you talk a little 0:19:26.960 --> 0:19:29.640 bit more about what the overnight clerks and all these 0:19:29.640 --> 0:19:32.520 different institutions did overnight to get ready for the next day. 0:19:33.920 --> 0:19:37.600 Sure, So the Bank of England's records actually preserve this 0:19:38.280 --> 0:19:40.399 in a great amount of detail, so we kind of 0:19:40.400 --> 0:19:44.520 know precisely what they're doing. So there are books that 0:19:44.560 --> 0:19:48.000 are worked in the banking hall and so the environment 0:19:48.040 --> 0:19:51.000 where most of the customers would be, and there are 0:19:51.080 --> 0:19:54.160 books that are worked in the accounts department as well. 0:19:55.000 --> 0:19:58.480 So the evening clerks they're kind of taking the books 0:19:58.520 --> 0:20:01.680 that are worked in the banking hall and they are 0:20:01.720 --> 0:20:08.000 transferring those records against customers accounts so that the customer's 0:20:08.080 --> 0:20:11.000 accounts are updated. Not only are they transferring them, but 0:20:11.000 --> 0:20:15.080 they're also checking them. So it goes through a process 0:20:15.320 --> 0:20:20.119 of making sure that the books that are worked in 0:20:20.119 --> 0:20:23.960 the banking hall are adding up in the same way 0:20:24.000 --> 0:20:25.920 as the books that have worked in the account's department, 0:20:26.240 --> 0:20:30.199 and then the customer's ledgers are adding up in the 0:20:30.240 --> 0:20:31.800 same way as the books that are worked in the 0:20:31.800 --> 0:20:36.000 account's department. Then somebody else checks it. The other thing 0:20:36.040 --> 0:20:40.200 that they're doing is making sure that they're really regular 0:20:40.359 --> 0:20:45.080 customers are kept on a separate account. So they would 0:20:45.119 --> 0:20:48.360 work up particular accounts for certain customers because they knew 0:20:48.400 --> 0:20:50.199 that they would be in early the next morning, and 0:20:50.240 --> 0:20:53.080 they knew that they would come and trade very often, 0:20:53.119 --> 0:20:56.320 so they knew that those accounts had to be updated early, 0:20:57.280 --> 0:21:00.000 and they really needed to make sure that the custom 0:21:00.280 --> 0:21:04.840 that they understood where those customers accounts sat. Protection of 0:21:04.840 --> 0:21:07.959 the records is another thing that's really interesting. We can 0:21:07.960 --> 0:21:09.680 go on to talk about that as well, if that 0:21:09.720 --> 0:21:10.480 would be interesting. 0:21:11.000 --> 0:21:12.560 Yeah, Actually, what are you interesting to talk about that? 0:21:12.800 --> 0:21:14.879 You mentioned the fire aspect. I imagine that if it 0:21:14.920 --> 0:21:17.720 all caught on fire be absolutely disastrous for everyone to 0:21:17.800 --> 0:21:19.480 be able to like, so talk a little bit about 0:21:19.480 --> 0:21:20.120 that aspect. 0:21:20.200 --> 0:21:22.800 Just preserving the physical records. 0:21:23.440 --> 0:21:26.000 So the bank is doing a variety of things to 0:21:26.160 --> 0:21:28.800 make sure that it's not at risk of fire. It's 0:21:28.840 --> 0:21:33.920 really worried about fire throughout most of its existence, through 0:21:34.040 --> 0:21:36.760 the sort of eighteenth century and into the nineteenth century, 0:21:36.960 --> 0:21:40.320 so it's a really aggressive landlord. It kind of does 0:21:40.359 --> 0:21:44.159 a slum clearance operation, particularly to create a fire break 0:21:44.800 --> 0:21:47.800 around its buildings. It sort of pushes out resident population. 0:21:47.960 --> 0:21:51.520 It pushes out all the old wooden buildings. It makes 0:21:51.600 --> 0:21:55.000 duplicates of a lot of its accounts and sends them 0:21:55.000 --> 0:21:57.679 out of the bank every night to the house of 0:21:57.720 --> 0:22:00.720