REVISITING THE CRASH SITE
October 17, 1997
On Black Monday -- October 19, 1997 -- one trillion dollars invested in the stock market evaporated as the Dow Jones plunged 508 points, or almost 22.6 percent of its total value. It marked the single largest drop in the history of the market. Following this background report on the '87 crash, Paul Solman discusses the likelihood of another major stock market crash.
PAUL SOLMAN: After dropping 119 points yesterday, the Dow Jones Industrial Average fell 92 more today, hardly good news for Wall Street or for millions of investors. Ten years ago, however, it was a whole lot worse.
A RealAudio version of this segment is available.
October 27, 1997
Participate in an Online Forum on the state of the stock market 10 years after the crash.
October 17, 1997
Paul Solman discusses the likelihood of another major stock market crash.
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This year's Nobel Prize winners for economics explain their formula for pricing options.
August 15, 1997:
Economists explain the day's stock market plunge.
June 13, 1997:
Newsmaker Alice Rivlin discusses the soaring stock market.
March 31, 1997:
Paul Solman looks at what makes the stock market move.
December 6, 1997:
How powerful is Chairman of the Federal Reserve Alan Greenspan? Jim Lehrer discusses.
Browse the NewsHour's coverage of business and economy.
New York Stock Exchange
The blackest of Mondays.
October 19th, 1987--Black Monday. In just six hours, the Dow Jones Industrial Average of 30 Blue Chip stocks fell 508 points. In those days that was a fall of 23 per cent. By any measure, it was Wall Street's worst day ever.
PRESIDENT REAGAN: This is a great view from up here.
PAUL SOLMAN: Like the rest of us, President Ronald Reagan never saw it coming. His tax cuts of the early 80's seemed to have ushered in an era of rising corporate profits. By 1985, a stock market boom was underway.
PRESIDENT REAGAN: (1985) For all those who say we can't repeat the dramatic growth or record of the past two years, I can only paraphrase my chief of staff. We're bullish on the American economy, (applause and cheers)--driving the bears back into hibernation--that's our economic program for the next four years. We're going to turn the bull loose (applause and cheers).
PAUL SOLMAN: Indeed, between 1985 and the summer of 1987, the Dow doubled but the bulls turned tail and began to retreat in mid August for various fundamental reasons: the weakening U.S. dollar, lower retail sales, the trade deficit and inflation, both on the rise, and then, the Federal Reserve raised short-term interest rates for the first time in three years. Most observers felt that these economic fundamentals were the reason the market dropped some 215 points from its peak in August through Tuesday, October 13th. Then came more bad news for Wall Street, from a new rise in interest rates to Congress debating a bill to squelch corporate takeovers. In the next three days, the Dow shed another 260 points.
The only positive note that week may have been Alan Greenspan, newly appointed chairman of the Federal Reserve, who appeared on the cover of Fortune Magazine in an Up-With-America article entitled "Why Greenspan is Bullish" because, he said, long-term, he didn't see inflation taking off, thought the deficits would be solved, thought speculative fever on the stock market had cooled. But, on Sunday, October 18, Treasury Secretary James Baker rekindled Wall Street's fears. In the New York Times, he hinted he wouldn't intervene to prop up the falling dollar. That same day, President Reagan tried to send an upbeat signal to the country and to Wall Street.
"There is nothing wrong with the economy."
PRESIDENT REAGAN: I think everyone is a little puzzled because I don't know what meaning it might have--because all the business indices are up--there is nothing wrong with the economy.
PAUL SOLMAN: But on the very next day, Black Monday, the market plummeted as never before--not even in the great crash of October 1929.
MAN: I guess the bull market's over, huh?
MAN: A financial disaster up there.
MAN: It's a bloodbath down there.
PAUL SOLMAN: The market was in free-fall. Computer programs that were supposed to provide "insurance" for pension portfolios seemed to make matters worse by selling more, the more the market dropped. Then the sheer volume of trading crippled the market's computer system. And, of course, as prices plummeted, panic set in. After six hours of trading, the Dow Jones had shrunk by almost a fourth--an astounding 508 points.
NATHAN GANGER, President, Oppenheimer & Company: Why are we seeing what we're seeing? I think it is basically a panic going on right now. I could give you an answer which wouldn't make a heck of a lot or sense. But I'll tell you right now its a state of confusion.
After the Crash...
PAUL SOLMAN: The next day the market began by plunging still farther--to a low of 1450. But Alan Greenspan announced the Federal Reserve would put money into the system to keep it afloat. Companies began buying their own stock; trading halted completely for awhile; and by the afternoon, the panic bottomed out. Stock prices slowly began to climb--by week's end back to 1951. Within 15 months, the Dow had returned to its pre-crash level of 2247.
And you know the story from there. In the decade since the crash, the Dow has more than quadrupled. This past August 6th, the Dow again hit an all time peak of 8259, from which it has since retreated, leading some to wonder if another crash is in the wings. And ten years after he first took office, in October of ‘87, Alan Greenspan is sounding a bit more cautious than he was in Fortune Magazine a decade ago.
ALAN GREENSPAN: Aside from the question of whether stock prices will rise or fall, it clearly would be unrealistic to look for a continuation of stock market gains of anything like the magnitude of those recorded in the past couple of years.
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