What caused the stock market crash in 1987?

[Critters2]

I remember that day like it was yesterday. The senior pastor I worked with was completely panicked about what was happening to his pension, commodities followed suit later in the week, all in all quite the roller coaster. But I cannot, for the life of me, remember what was happening beforehand to precipitate it.

Can someone tell me? Thanks!

[amitten]

1. Republicans. n/t

[tridim]

9. Naw, it was Clinton's penis. nt

[MiniMe]

11. Clinton wasn't elected until 1992. Even the Clenis isn't that big

[PVnRT]

12. The Clenis exists across all of spacetime

Meteor killed the dinosaurs? Clenis.

Influenza plague in 1919? Clenis.

Bad hair day? Clenis.

[DJ13]

2. The Republican deregulation of the Savings and Loan industry

As you can tell, they love sequels.

[depakid]

6. Unfortunately, Garn-St. Germain was passed with support of the usual suspects

the same types of complicit including some Dems who, sadly- are still in power today.

http://en.wikipedia.org/wiki/Garn_-_St_Germain_Depository_Institutions_Act

[phantom power]

3. What preceded it was a big fat round of financial deregulation.

Which allowed a bunch of Wall Street hucksters to game the system, with schemes that inevitably collapsed under their own weight. Sound familiar?

I bet you can guess who was responsible.

[Warpy]

4. Wiki's got a decent article

http://en.wikipedia.org/wiki/Black_Monday_(1987)

What I recall was that the whole thing was blamed on computer programs all having selloffs triggered at once by a crash in Hong Kong.

I was socking every dime I had into a money market account in preparation for getting the hell out of Boston, so I didn't get hurt. I remember the mood in the financial district in Boston was grim, though, and remained so for many months.

The one day computer generated panic selloff was remarkable enough. What was truly remarkable was that the market remained at such a low level for so long.

[Kurt_and_Hunter]

8. US stocks traded on multiple markets also played a role

People started cashing in mutual funds all weekend. Fidelity needed to raise cash and was dumping stock in London before the US market opened--the first opportunity on Monday to raise cash. The relative lack of liquidity in the markets they were dumping stock in hyper-depressed prices of most Dow components before the US opened, feeding into the downward spiral. IIRC.

[stillcool]

5. I just remember Neil Bush's Silverado..

escapade, and the Savings & Loan debacle.

[BridgeTheGap]

7. The claim at the time was that computer programs caused it

They were programmed to dump stocks when they reached a certain level. The claim is that this started a chain reaction.

[Critters2]

10. Oh yeah. I do remember that being talked about. nt

[HamdenRice]

13. Three things: a stock bubble, federal deficits, and automatic selling programs

The underlying problem was that all through the early to mid 80s, Wall Street had drastically bid up stock prices mainly through hostile takeovers which were somewhat new back then. Stock prices rose beyond values. All during the summer of 1987, the Dow rose and fell in gigantic increments as investors wondered when the bubble would burst.

Secondly, the federal government was running unprecedented deficits, much like today, and foreign investors were losing confidence in treasury bills and the dollar.

Third, the explosion of use of computers on Wall Street had not really been thought through and many computers were programmed to sell automatically if certain criteria were met.

What triggered the panic was that foreign investors declined to purchase US treasuries at a federal auction. That was the trigger. But once that spooked the markets, programmed trading kicked in and made a simple spook decline catastrophic. Moreover, IIRC, it was around the time of what was then called the "triple witching hour" when three kinds of derivatives had to be closed out on the same day. Because stocks were widely considered overvalued and many investors were trying to figure out when to get out, many took the early bad trading as the signal to get out.

Although it turned out not to do lasting damage, what really scared the shit out of Wall St was that specialist traders walked away from their posts, and for one of the few times in all of Wall St history, there was no market in certain stocks and that meant there was no liquidity.

I remember that day very well. I was working for a foundation and someone from the investment division kept running through the halls yelling about how much the market was down.

At the time it was unprecedented.

[BridgeTheGap]

15. Good analysis. It does point to the impact that deregulation can have on speculation.

Reagan encouraged it. He was warned by regulators about the pending crisis in the S & L s and ignored the warnings. Bush has done same thing. Some of these actions are contrived, in order to suck large portions of wealth out of the system. I remain firmly convinced that this happened in the 20s. The "smart money" can create a speculative environment, bail before the crash (and the bailing itself helps to cause the crash) and they come out smelling like a rose! As greedy as they may be, they know how to play the greed of others like a drum.

[HamdenRice]

14. dupe delete

[Cessna Invesco Palin]

16. Tribbles.