|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?
Daphne Wallace of Washington, D.C. asks:It seemed like the coverage of the 1987 crash last week was much ado about nothing. How big a deal was the 1987 crash?
Dr. Robert Glauber responds:A fair question. In retrospect it seems like much a do about nothing. The market snapped back pretty quickly, but it was 1989 before the market got all the way back to where it was before the crash. A lot of people felt a good deal poorer for a while.
That having been said, we really did come pretty close to the edge. The process of paying for stocks through the banking system almost broke down, with some institutions almost failing to pay for stock they had bought. Had that happened, some other firms would have gone broke, tipping over others like dominoes. And during those couple of days, panicky investors came to dominate the markets for a while, which is never good. So, looking back, it was very close to a very big deal.