Black Monday 1987, Black Tuesday 1929 - 23 October 1987

On Thursday 15 October an affable, vigorous and remarkably prosperous Yankee – call him, for convenience, Uncle Sam – noticed something that hadn’t happened to him before, a flutter in his pulse, an irregular beat.

It was a little worse on the Friday, but the doctor told him it was nothing serious, a touch of arrhythmia, probably been drinking too much coffee. Take it easy over the weekend and forget it. Last Monday, the 19th, a date he would not forget, he had a sudden massive heart attack, was rushed to the hospital, had an operation, caused a couple of days' panic among his relatives and friends, but on Thursday, thanks to a medical technique learned in Japan and a quick transfusion from the Federal Reserve Blood Bank he was already pacing round the corridor and responding to all well-wishers with the brave, almost automatic American phrase "fine, just fine".

He expected to be on his feet for good and back to business as usual in a week or two. Still the doctor said, “It happened, and while modern medicine has resources that can save you from the same thing that killed your grandfather we’d better keep a watch on you for the next month or two”.

They called the 19th Black Monday and the immediate use of the word simply reflected the instinctive American impulse to compare any dramatic plunge in the stock market with what was called, and ever after has been known as, Black Tuesday, 29 October 1929.

On the evening of that day a visiting Englishman, a politician out of power, was the guest of a clutch of bankers at a private dinner on Fifth Avenue. He rose to respond to their toast and addressed them as “Friends and former millionaires”. Like most politicians of that day, and of ours, he was not an economist and assumed – as millions of us ordinary citizens tend to – that a bad day on Wall Street is bad only for stock holders.

Next morning Mr Churchill heard shouts on the street below his suite in the Savoy Plaza Hotel. He looked out of the window to find that a gentleman had cast himself down 15 storeys and was dashed to pieces. This, Churchill concluded, was a serious matter. He got himself invited to look over the Stock Exchange and went down there expecting to find pandemonium, but the sell-out was over.

All he noticed was calm and orderliness and no one could doubt that this financial disaster, huge as it is, is only a passing episode in the march of a valiant and serviceable people. It took him a day or two and a painful session with his friend and broker Bernard Baruch to realise that he too had been touched and hurt by the fact that in seven weeks American investors had lost over $30billion, just about what the United States had spent on the First World War.

It took him a little longer to learn that, for the next decade throughout the 1930s, he would have to write articles for anybody and everybody to keep his family and his house going. Much later, he would write, “The American economical blizzard turned all England into one vast soup kitchen”.

This slow response of a layman to what would be involved in the Wall Street Crash of 1929 was not restricted to lay men. It took the bankers and financiers and politicians here anywhere between a year and 18 months to acknowledge, with enormous reluctance, that the Coolidge-Hoover prosperity, the big party, the so-called Era of Wonderful Nonsense was all over and to appreciate the menace behind the newly-coined crack, “When Wall Street sneezes Europe catches cold”.

In the days in what seems like an age since last Monday it’s fair to say for once that everybody in America was talking about the same thing and asking two related questions: what does it mean, and what does it mean to me?

At our end of Long Island at twilight last Monday a farmer wondered, “Who’s going to buy my seed?” A young middle-aged couple who’d put their house up for sale and were about to build another changed their minds and took their home off the market. A golf pro who reads nothing but the tabloid headlines said, “Well I guess that’s the end of the $100,000 first prize golf tournaments”.

An old man who’d just had an operation was worried that Medicare – the national sickness insurance fund that covers 80% of medical expenses for everybody over 65 – that Medicare would cut the percentage. A real estate broker cancelled her plans for a long Florida vacation and thought she’d stay around for a while to see what happens. A friend who’s been in and out of the stock market going on 50 years at dinner a couple of nights later, when the market had rebounded healthily as we all hoped said, “The thing that frets me that I can’t decide is whether there are more similarities with 1929 than differences and which are going to count”.

It’s worth looking into that dread comparison because it’s on everybody’s mind, but mainly because the received popular version of what happened in 1929 is firmly established but is, in important ways, quite wrong. To begin with, let me say that six months ago a drop in the stock market of, say, 30 points was the lead item on the Evening News but in the past six weeks or so the ups and down – 30 points up, 40 points down, 49 points up – have lined up as matters of general interest behind the Iran-Iraqi war, the confirmation hearings of Judge Bork, a big fire, a plane crash.

When I asked knowledgeable people about these fluctuations which so lately were major and now are minor I was told that they were small corrections. One expert said, “The market is trying to find a stable plateau from which to rise gradually”. Now months before October 1929 this happened too and nobody was worried except a few cunning and very rich investors. President Kennedy’s father, Joseph Kennedy, was one who, it came out much later, got out of the market completely.

Now it comes out, and the story was not written up until last Wednesday, that several of the very richest men in America had done the same thing this summer. The most flamboyant and successful of New York’s real estate developers, Donald Trump, whose high-rises have transformed or exaggerated the skyline, said on Wednesday that he had a premonition, a negative instinct, about the market and in August sold $500million worth of holdings and made $200million profit.

Mr Ross Perot, the billionaire entrepreneur from Dallas, has now confessed that last year he unloaded all his stock holdings. Why? “Because” he said “there was too much money chasing too few stocks, but all the fundamentals on the instrument panel were in the red, so I pulled out simply because I couldn’t understand it.”

Well these fluctuations both in 1929 and in 1987 disturbed very few people and nobody in power, and then came, in 1929 Thursday 24th and the usual version is that once that happened, everything went down and the Depression was here.

Not at all. Only three hours after the market had opened and tumbled disastrously on Thursday 24th, six of the biggest bankers met and agreed to put up $40million each to shore up the market or, as they said, “to restore the market to orderly trading”.

Very soon the market rallied and the desperate remedy had worked. Things were better still on the Friday and Saturday. Then they slipped again and slid into the debacle of Tuesday 29th, Black Tuesday. But the next day several corporations declared dividends. The president, the secretary of commerce, many bankers and business leaders declared that the economy and the market were fundamentally sound.

The panic was over, but the next month, November saw them down and down and down again to the lowest ebb on the 13th, and more or less stayed there. President Hoover swore to reduce taxes and start a public works programme. In the first three months of 1930 the market enjoyed what became known as the Little Bull market and stocks regained more than 50% of their losses in October.

Henry Ford made an immortal remark, “The country, the economy, is in splendid shape, but very few people seem to be aware of it.” Well, he was right and he was wrong. By the spring the bottom line was indeed the bottom of the pit and by the end of 1930 or the following spring even the president knew that the country and most of Europe were in Depression.

It’s been said ever since that it could never happen again because of new rules and procedures set in the 1930s – federal deposit insurance, securities, exchange regulation, the insuring of brokerage accounts and of small savings deposits. In 1929 you could buy a dollar stock with only ten cents on hand; today it would have to be 65 cents, and so on.

Certainly there are, and have been, substantial safeguards but already, as a former secretary of the treasury said on Thursday, “They may not be enough. Black Monday’s mischief could have been caused by vast tradings in options and futures.” He called, too, for an end to “programmed trading by the computers, which do not buy and sell but serve as a fire station, alert to a drop and go off on their own ringing the fire bells – sell sell sell!”

A friend in California phoned me the other night and said, “Watch Tokyo, how they respond could be the long-term answer.” It may be so. The Japanese system sets a prescribed floor under all big stocks. They drop, say, from 100 to 90 and that’s it, they’re frozen. They can still be sold as a frozen package, but not below that price. So if the recovery is as swift and real as we all hope, it could be that we’d come to say not thank you, Paine Webber, but thank you, Tokyo.

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