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'Black Monday' Haunts Market, 25 Years On


This is TELL ME MORE, from NPR News. I'm Michel Martin. Coming up, Courtney Roxanne Pearson was just crowned homecoming queen at her university last weekend. We hope you'll stick around to hear why she feels this is about more than a tiara and a title.

But first, tomorrow is the 25th anniversary of what is known in financial circles as Black Monday. And if you were watching the news at the time, then you probably heard a report that sounded something like this.


UNIDENTIFIED MAN: Stocks plunge in a near freefall as the Dow Jones Industrial Average loses more than 508 points to close at 1738.74, an unprecedented volume of 604 million shares.

MARTIN: It was the steepest drop in the stock market since 1929. But 25 years is a long time in the financial world, so we wanted to figure out what this means for us today. So we've called Roben Farzad back to the program. He's a contributor to Bloomberg Businessweek, and he's with us now.

Roben, welcome back. Thanks for joining us.

ROBEN FARZAD: My pleasure.

MARTIN: So could you put this into some context for us? You know, for people who weren't there in 1987, what happened, and why was this so dramatic?

FARZAD: Well, I'll tell you how I was there. That was the year that we first got cable, and so I was watching MTV and I was somewhere between Whitesnake and Lisa Lisa and Cult Jam, but I digress.


FARZAD: I just remember back then, that this was obviously leading up the evening news. Nothing had been seen like this in modern stock market history. I mean, you were down 23 percent in a day. You had brokerage firms failing. You had the local news about suicide watches and certain banks that were potentially going to go bankrupt.

What's amazing about it, though, is when you look back with the benefit of 25 years of hindsight and you look at it on a chart, it's such a tiny, little blip considering everything else that we've gone through. I mean, after all, the Dow closed at 1739 after that brutal Monday. It's now above 13,000.

MARTIN: In hindsight, was this caused by - what? Automatic trading? Was it a computer glitch, or was there some fundamental thing that happened? When you say this was a blip, why do you say that?

FARZAD: Well, in the 1980s, it certainly wasn't a blip. And if you were there in 1987 - a little bit of history. The stock market was really a backwater at the end of the 1970s, at the early 1980s. Businessweek had this infamous cover, "Death of Equities."

I mean, people were really not there. The Federal Reserve had interest rates in the mid-teens, and so people weren't putting money in stocks. It was largely thought of as a loser's game. You had Ronald Reagan take office. The stock market is ascendant. It is soaring through the early and mid-'80s. And, in fact, between 1986 and the summer of 1987, it was up something like 44 or 45 percent.

So when you have that kind of slope on that kind of rally and you enter into a September/October situation, all manner of psychology and glitches and rumor and innuendo and exogenous shocks can send the market sharply lower, as we saw four years ago.

MARTIN: So what about now? What's changed today? I mean, is it the makeup of who's in the stock market? Give us some context there. What's changed now?

FARZAD: So much has changed. I mean, you didn't have the level of participation in the stock market that you have right now. You have institutions. You had the advent of the exchange traded fund, the ETF, VanGuard, Fidelity, all these other players becoming far bigger in the 1990s, especially the late 1990s.

We had an Internet boom bring tens of millions of Americans back into the stock market, and volume on the Dow Jones Industrial Average on the NYSC is multiples, multiples, multiples of what it was, even on that horrific day. When you talk about 600 million shares trading, that's nothing today. When you talk about 500 points, that's really something that we've seen several times over the past three, four years.

The world has since changed significantly. Now you have thousands of computers trading tens of millions of shares within a matter of minutes, and it's just so much more unwieldy, and yet the market is multiples higher.

MARTIN: Tomorrow marks the 25th anniversary of the stock market crash known as Black Monday. Joining us to talk about it is Roben Farzad. He's a contributing writer for Bloomberg Businessweek.

So how did that compare with what we experienced in 2008?

FARZAD: You know, believe it or not, the stock market was revisiting new highs by the middle of 1989, and that's why this does seem like a blip, whereas the stock market took about four years to recover after the crash of 2008.

Two thousand eight wasn't a one-day trauma. Yes, we had that one day when AIG was rescued and when Lehman Brothers failed, but that year, overall, saw the market down by a record clip. It just didn't happen on one terrible Monday. And what's still telling about it is that investors are still feeling stung by that moment.

MARTIN: How? Psychologically, or economically? Or both?

FARZAD: It has affected the investor base. We see continued outflows from equity mutual funds, from equity ETFs. We see investor sentiment, mom-and-pop sentiment kind of still being in the dumps, and frankly, fewer mom and pops as actively involved in the market as they were 10 years ago. It shows that there's been kind of a whipsaw back and forth, where 1987, in hindsight, was much more of an isolated incident. By the time you had tens of millions of Americans more involved in the market going into the 2000s, you really had two major shocks in the tech collapse and the financial crisis potentially take out a generation of investors.

And so, kind of to put it in solar system analogy, if 1987 was Jupiter, 2008 was the sun. I mean, we're still paying for that, and we might be paying for that for a long time.

MARTIN: But you write, Roben, in your piece that President Obama is just one of five presidents since 1900 to have overseen - or at least to have been in office - during at least a 50 percent jump in the stock market during their first three years in office. And you said that the country's added $7.3 trillion in market capitalization since then. But that's not what we're talking about.

FARZAD: No. Well, I mean, you had...

MARTIN: Why is that?

FARZAD: You had the market tanking after - you know, during and after he took the oath of office. I believe it was March 9th of 2009 that the Dow revisited levels it hadn't seen since 1996. And at that point, it was in a freefall situation. The market has since nearly doubled from that point, and Obama's in the bind that he can't exactly run on the Obama bull market, because if you've already, you know, pitted the 1 percent or the Occupy Wall Street debate in terms of kind of us-versus-them, you can't come back and say, oh, yeah. This is my bull market, because you only set up the opposition being able to say you didn't build that.

And so it's kind of ironic in that he's one of the best performing presidents on a stock market perspective, but maybe because he inherited it while it was bottoming out.

MARTIN: You've made the case that so much has changed since 1987, but are there lessons that can be learned from what happened that people should be thinking about today?

FARZAD: Yes. There's definitely a lesson here. If you look at 1987, go back and pull up a 25-year chart or a 30-year chart. Things fall apart in the United States economically in the stock market, but by and large, the odds are stacked way in favor of things repairing themselves. We saw 1987 largely - the memory get wiped out by 1989. Markets were making new highs.

It took four years for us to recover back to pre-2008 levels, but we've recovered, nevertheless. And every time people step up and say, you know, like in "Sanford and Son," oh, this is the big one. I feel it. You know, it's not. That's not the case. Of course, the next time could be different, but it hasn't been different. So, in fact, you could take comfort looking at the examples of 1987 and 2008.

MARTIN: I was thinking about Lisa - like what's on top on your playlist now. You're probably not watching MTV anymore.

FARZAD: Oh, gosh. I miss 1987 MTV. If MTV was anything like that, I'm really nostalgic for it. So, sadly, I do have Lisa Lisa Cult Jam on my iPhone, though.

MARTIN: OK. That was Roben Farzad. He's a contributing writer for Bloomberg Businessweek, and he was kind enough to join us from Richmond, Virginia. Thanks, Roben.

FARZAD: Thank you, Michel. Transcript provided by NPR, Copyright NPR.