Liquidity. The fundamental problem with pre-financial markets is the inability of those with money (investors, both large and small) to connect effectively with

Liquidity. The fundamental problem with pre-financial markets is the inability of those with money (investors, both large and small) to connect effectively with those who need money (business owners, etc). Often, you needed some sort of personal connection in order to invest or seek investment from others. The financial markets provide a more efficient way to connect the two parties, based on mutually accepted standards (financial statements, public disclosures, etc), which forms the basis of public offerings. Once the stock has been released to the public, the market remains a valuable tool for the market to determine price, both among investors and for the company (buybacks and additional offerings primarily). And this is just a simplified model of the equity markets. Add debt, derivatives, FX and various futures, and it gets more complicated.