|CAN THE CRASH HAPPEN AGAIN?|
October 28, 1997
Questions answered in this forum:
What exactly were the reforms after the 1987 crash? How irrational is the market? How have reforms changed the way the market would crash? How big a deal was the 1987 crash? Will technology outpace the market again?
Lisa Zawalski of Brooklyn, NY asks:If there were to be a crash in the current market, how would it be different from the 1987 one? Would it simply be spread out over a series of days?
Dr. Robert Glauber responds:The market could go down by a lot, if and when investors decide prices are too high (as they did [yesterday]). But the difference is that this time we hope the decline will be more orderly and not produce the chaos it did in 1987. We've strengthened the operating mechanisms of the market - more telephone lines, a faster ticker, more capital for market makers - so this time the market can bear up when more people want to sell. Perhaps that means it will take longer for the market to go down, but not necessarily. What it does mean is a more orderly retreat, less selling from investors who simply panic, and less likelihood that the market will overshoot (go down too far) and then snap back quickly, as it did in '87.