Friday, October 19, 2012

Black Monday’s 25th Anniversary: No Financial Precedents Learned?

Given that the financial regulators seem to have never learnt anything from the Black Monday incident 25 years ago, are the global financial markets setting themselves up for a disastrous financial precedent?

 By: Ringo Bones

For those old enough to remember the Black Monday stock-market crash back in October 19, 1987 – which is exactly 25 years ago today – it seems like the hectic financial adventurism of the go-go 1980s seems like a lifetime ago where the “Greed is Good” stock-market traders’ mantra seems to be the only preexisting moral law of the land. But why is it that most tenured economists see it as way less disastrous when compared to Black Tuesday – the October 29, 1929 crash that started the Great Depression?

Unlike the Black Tuesday crash of 1929 – where there was a picture of a bloke that was all over in the newspapers at the time who lost all of his money speculating on the stock-market and had to sell his luxury car in a hurry for a mere 100US dollars – the aftermath of the October 19, 1987 Black Monday crash didn’t spark traders and hedge fund managers to sell their Lamborghini Countaches and Ferrari Testarossas for a mere 1,000 US dollars to cover up their losses. As a high-school student at the time, I was so preoccupied with the surfeit of cool tunes – as diverse as Jazzy R&B pop to Heavy Metal – populating the Billboard 
Chart circa 1987. But what are the factors that triggered the 1987 Black Monday crash in the first place?

Before Reaganomics / Voodoo Economics became news buzzwords, the then US President Ronald Reagan initiated his self-styled economic reforms – with the help of his economics team of course – to supposedly undo the “stagflation” initiated by the Carter administration. Between the years 1982 to 1987, Wall Street traders blissfully rode on for what was for all intents and purposes an uncorrected 5-year long Bull Market. Other financial analysts point the blame at the newfangled computers that made for what passes at the time – high-frequency trading that stockbrokers and hedge fund managers had still a much steep learning curve to acclimatize. But most of them put the blame squarely on currency speculators since 1987’s Black Monday crash was eventually traced to currency trading in Hong Kong that spread to the London trading floor before triggering a crash at Wall Street on October 19, 1987.

It took the global markets two years to eventually recover to levels before the Black Monday crash. And surprisingly, the 1987 crash didn’t produce a Charles Merrill like figure who made a killing by selling off his or her stocks months before the 1987 Black Monday crash. To the uninitiated, Charles Merrill was the financial whiz who made a killing by selling his stocks months before the Black Tuesday stock-market crash of October 29, 1929. Stockbrokers and traders who heeded Charles Merrill’s “musings” on his worries about rampant market speculation in the New York Stock Exchange around February 1929 also made a killing prior to The Great Depression.


Ady said...

Thankfully, I didn't have enough money to "gamble" in the stock-exchange back in 1987. I only earned enough money to burn in the stock-market during the Clinton administration.

Madison Scott said...

Though the October 19, 1987 Black Monday crash happened a year before I was born - it is the oft mentioned example by my financial planner as the very reason to hedge my investments properly.