The Hunt for Black October

http://www.american.com/archive/2007/september-0907/the-hunt-for-black-october



The Hunt for Black October

By Matthew Rees
From the Magazine: Monday, September 10, 2007

Filed under:

Boardroom,


Economic Policy


With
the anniversary of the worst one-day decline in U.S. stock market
history approaching, MATTHEW REES sets out to find its cause. And
determine whether it can happen again.


On
October 19, 1987, a bizarre and completely unprecedented set of events
unfolded in America’s financial markets. In New York, the brokerage
firm Donaldson, Lufkin & Jenrette posted uniformed security guards
outside its office, fearing armed conflict with its clients. In San
Francisco, a precious-metals and foreign-currency firm sold its entire
stock of Krugerrands and American Eagle gold coins. At the New York
Stock Exchange, executives of a Las Vegas company called Jackpot
Enterprises tried to celebrate their new listing amid reports that
floor traders were fainting.
For the preceding seven weeks, the stock market had been skidding.
Now, on this sunny Monday, it was on the verge of total collapse. When
the day was over, the Dow Jones Industrial Average had lost more than
500 points, or 22.6 percent of its value—the equivalent of a drop of
about 3000 points today. A half-trillion dollars in wealth disappeared
overnight—equivalent at the time to the entire gross domestic product
of France. On the heels of the decline, a recession was considered a
near certainty and a depression a distinct possibility. After all, on
the worst previous day, October 28, 1929, the market had dropped just
13 percent. Now, 58 years later, a New York bar was serving a mixed
drink of dark rum and black Sambuca called “Black Monday,” the same
term applied to the previous crash.
The size and speed of the 1987 decline were breathtaking. So was the
very fact that it happened: the U.S. economy was strong, and there had
been no major destabilizing events. No terrorist attack, no
presidential assassination, no failure of a major bank or brokerage
firm. While there was apprehension, only a few analysts were predicting
a major market downturn, and no one called a crash of this size.
http://www.american.com/archive/2007/september-0907/the-hunt-for-black-october