Son of Black Monday - 4 September 1998

In the long ago, say a week ago, nobody, not Saddam Hussein, no nation, not Japan or Russia, could push Monica Lewinsky off the front pages or first mention in the evening news. Today she might be as old hat as Mata Hari.

Sex has given way to the second of America's two obsessions – money, money, money, when, last Monday, the appalling slump in the value of it became, for the third time in 70 years, every man's and every woman's principal anxiety. In October 1929 it was christened Black Thursday. October 1987, Black Monday and the last day of August 1998, since it was also a Monday, had to be called Black Monday Two or Son of Black Monday.

In the early evening I called the wife of my oldest American friend, a man now in his 90s, who went into the investment business when he was 21 and stayed at it until only a few years ago. Whenever the state of the economy was being argued about or whenever the stock market stumbled, I always phoned him to know what was what and throughout four decades at least, I always felt better when I put down the phone because while the establishment experts were bawling assurances that the economy was fundamentally sound and while they were doing this to the accompanying lamentations of John Kenneth Galbraith, the famous liberal economist, who groaned ever time the stock market tripped up and even more so when it leapt gaily in the air, my friend, a kindly man, who loved everybody on earth but took a dim view of John Kenneth Galbraith, he would always come through with the assurance, not bellowed or proclaimed defiantly, but said with the unruffled gentleness of a true expert, that what had happened was a necessary correction or, his favourite diagnosis, a healthy shake-out.

But last Monday evening, what prompted me to phone his wife was the memory of the first Black Monday, October 1987. It was wonderful fall weather, brilliant and mellow and the last of the birds going south were piping tuneful farewells and I decided to stay over at what a highbrow friend calls Bauhaus by the bay, I call my golf cottage and my wife calls My house, and don't you forget it. I went off to the first tee with a friend of mine, stopping for one puzzled moment to wonder what the weird number meant on the television over the bar. There was only one man sitting there, loose-limbed fellow, feeling no pain and he pointed up to it and said, as he might to a rather dense infant, it's the stock index, buster. It read down 140-something. I'd never seen that before but shrugged and went off to attend to more serious matters. About two hours later we were back in the refreshment bar, on our own business this time and again, it being Monday, there was only one man, a solid, ample man, this one, I should guess feeling ample pain. The television showed the astounding figure –down 504. I needed no instruction. As I looked at it, the man swivelled slowly, lifted his right arm and gave the Roman Emperor's thumbs down. No more could be said.

When I got home, I called my old friend. I was praying for a very healthy shake-out indeed. What he said was, it's awful, awful, but, even in a crisis, a thoughtful, prudent man, ever alert to the value of a dollar. Tell you what, he said, better buy two dozen golf balls now, they'll never go so low. So last Monday, as I say, I telephoned his wife, not him, because for years he's been too deaf to hear anything short of an earthquake or, I suspected, a collapse of the stock market. Alas, his wife told me that at last his comprehension of such things has vanished and become a vague shimmer of something on the horizon. For the first time, she said, he can't tell you what happened and he has no worries about it. Maybe we should feel the same.

So we were left to ourselves, we being the, by now, unprecedented huge investing public. One of the standard explanations of the 1929 crash is that everybody and his sister dabbled in the stock market, not businessmen and professionals, but messenger boys and chorus girls. This picture was greatly exaggerated. In 1929 there were three million investors in the market, 2% of the population. Before the plunge of Black Monday '87, 30%. By last Monday, almost one half of the population, over 120 million Americans, owned stock. More than half the people didn't keep their money in the safety of bank deposits, they have more of their wealth in the market than in their homes, a condition that we and all the analysts have been applauding for almost eight years. The longest running of the bulls in living memory.

Living memory is a telling reminder that very many of the television market analysts are too young to have known the recession of 1973/74, when the expertise of most of them was confined to The Beatles and the Rolling Stones. They came to learn about the market from their superiors, fathers or future employers, men in their, say, 50s, who themselves were not old enough to have any memory of the 1937 recession and were dependent on myth and popular history for accounts of the big one itself, 1929. When, then and now, the mantra has been "We are in a golden age, we have the perfect combination of symptoms to guarantee a rare state of economic health".

Low inflation, low interest rates, practically the lowest unemployment ever, high consumer spending, steady slow growth, which seemed till last week to be going on for ever and Bill Clinton's achievement of a balanced budget and what more, this side of paradise, could you ask for? And when greybeards mentioned the similar heyday of the 1920s, these bright young analysts have the catechism pat. Ah yes, they say, but in those days you didn't have the safeguards, they now call them stabilisers, that Roosevelt put in, the regulation of the stock market, the Securities and Exchange Commission, requirement of high margin, the government's insuring of brokerage accounts and of even the smallest bank deposit, so a big recession, let alone a depression, could hardly really happen again.

What, of course, it's impossible to convey to commentators who weren't there, is that the assurances of having assured something unique was held too in 1929. Consider, for instance, a visiting English politician and a page of his reminiscences of the time. "About 1927/28 it seemed that the problem which has baffled the world since its foundation was at last on the verge of solution. The people of the United States had nearly bridged the gap between the power to produce and the power to consume. We saw the breadwinners of 25 million homes producing food or raw material or 4 or 500 standard articles by the most scientific methods on a gigantic scale. Employers were eager to maintain a high level of wages, so their workmen could buy the things they made, while their hours of labour were shortened. The visitor to America received an impression of abounding and universal happiness in all classes. At the worst moment of the panic on that October day of 1929, I happened to be walking down Wall Street and was invited into the gallery of the Stock Exchange. I expected to see pandemonium, but the scene was one of surprising calm and orderliness. They walked to and fro like a slow motion picture of a disturbed ant heap, offering enormous blocks of securities at a third of the previous day's prices. When business closed, it was discovered that the total loss in two months, to holders of stock, amounted to five times the amount of Europe's war debts to America."

The Englishman went back, in a sombre mood, to his hotel to see an open window beneath his room, through which a man had hurled himself 15 storeys. The politician's own American investments were gone for good. From then on, much for our benefit, he would have to write books and scribble journalism year in, year out, to keep himself and his family. His name, you'll have guessed, was Winston Churchill.

Of course, to the experts then, 1929 was a first revelation. They weren't there in the depression of 1884, or most of them, the bad year 1907, so they could not conceive of anything ahead as awful as the Great Depression. As very few of our analysts can conceive that we could be walking into a recession. Of all the 80, 90 analysts I've listened to this week, on your behalf, there was one man, an old man who gave some of us at least the relieved feeling of authority.

He's the chief financial adviser to an international firm and the first new note he struck was that the primary cause of this slump, if it's coming, is impossible to pin down. He stressed that in 1929 every expert from the president, the bankers, the economists down, talked all the time about America, its economy, the workforce, trade, spending, so on. This time we are inextricably linked to the globe.

Many nations depend, true, on the health of the American economy, but this present crisis, he said, is being affected by all sorts of new ailments and factors. Will others follow Russia's partial moratorium? Can Japan settle its first problem of foreign debts? Can Hong Kong defend its currency and stock market? Bonds in Venezuela and other fiscal problems throughout South America play a part.

It is immensely complex and on the whole, pause for thoughtful breath, I think the bull market is over and yes, we're going into a recession. A quarter of an hour before the stock market closed, last Monday, when it was tumbling 300 points in 15 minutes, Trinity Church on Wall Street did something it has never done during a trading session. It flung its doors open to the public. I cannot vouch for the next step in the story but they say that the first worshipper or penitent or simple arrival was a Russian bear.

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