A decade after the CRASH Stunning swiftness marked the stock market's Oct. 19, 1987, crash, as panicked trading led to a record 508-point decline. Although it 'scared the world,' its impact is disputed 10 years later.

October 19, 1997|By Bill Atkinson | Bill Atkinson,SUN STAFF

Nicholas F. Brady stood atop China's Great Wall on Oct. 19, 1987, when someone rushed up to him with an urgent message.

"Have you heard the stock market is off?" the person said.

Brady, who was touring an H.J. Heinz Co. baby food plant in Guangzhou with other directors of the company, was stunned. Halfway around the world, in the bastion of Communism, news about the U.S. stock market was reaching him.

But this day, the news was big. The U.S. stock market was collapsing.

In a frenzy of panicked trading, the market plunged 508 points -- its biggest one-day drop in history. It wiped out fortunes, blew apart multimillion-dollar merger deals, and washed away $500 billion in value in a tidal wave of trading. This kind of devastation hadn't been seen since Oct. 28 and 29, 1929, when the Dow

Jones industrial average crashed more than 24 percent. But on Oct. 19, 1987, it took just one day for the market to plunge 22.6 percent.

Its swiftness was stunning.

"It scared the world," said Brady, former Treasury secretary under President Ronald Reagan, in an interview.

Ten years later, the enormity of the day, known as Black Monday, has not been lost, although its significance is heatedly debated.

Some see it as nothing more than a jolt that simply slowed a racing stock market, with little significance today since the Dow, the most closely watched barometer of the stock market, has nearly quintupled to 8,080 points since the crash.

"It was really a blip," said Raymond A. "Chip" Mason, chairman and chief executive of Legg Mason Inc., a Baltimore-based brokerage and asset management firm. "It truly turned out to be a relative nonevent."

Yet many who experienced the crash say it is a day they will never forget. They argue that the crash demonstrated how quickly the simple art of buying and selling stocks could erupt into chaos. It revealed flaws with the system: The New York Stock Exchange, for example, buckled under a flood of sell orders. Large pension and insurance funds single-handedly drove stocks into a free fall as one computerized sale fed upon another. Most important, it reminded the world that the stock market is irrational, unpredictable and uncontrollable.

"We can say that it was nothing but the market went into the fetal position for a month," said Ralph J. Acampora, head of technical research at Prudential Securities Inc., who predicts the Dow could hit 10,000 by mid-1998. "It shows how fragile the system can be. If anything, it scorched our psyche."

Friday, Oct. 16, was another miserable day, but Andrew Brooks didn't make much of it. Even though the Dow plunged 108 points that day -- and 394 points over the previous two weeks -- he wrote it off as simply a reflection of a jittery market that would bounce back soon.

Brooks, a trader for T. Rowe Price Associates Inc., was so confident that he refused to cancel plans he and his wife had to spend a weekend in Bozman with two other couples.

One evening, while sipping cocktails and gazing out over the water, one of his friends asked if he should hold off on purchasing a new home, given the sliding market.

"I think we are going to be fine," Brooks answered. "It's just a little nervousness."

In the plush office on Pennsylvania Avenue in Washington, things couldn't have been better for Marvin McIntyre. The money manager for Legg Mason Inc. had all the business he could handle, and then some, handling money for business executives, retirees and a handful of professional athletes.

Customers literally walked in off the street -- handing McIntyre as much as $1 million to invest. Everyone wanted to be in the market. And why not? The Dow had jumped 826 points, or 43.5 percent, in just eight months.

But as McIntyre returned the last few phone calls to clients at the end of Friday, Oct. 16, he was uneasy.

Although he always buried himself on weekends in the financial pages of newspapers and magazines, he couldn't stand to read anything until Sunday. There were too many frightening signs.

The Federal Reserve Board had increased interest rates four times in six months to fight inflation. The country's budget deficit had ballooned to around $221 billion, and the trade deficit was swelling, too. Congress was talking about eliminating the huge corporate tax breaks that were helping fuel the acquisition binge and pushing the stock of takeover targets to highs.

And a handful of market experts, most notably Shearson Lehman Hutton's Elaine Garzarelli, had predicted a 500-point market crash.

There were problems overseas, too. Rumors swirled that the nation was on the brink of war with Iran after an Iranian Silkworm missile hit an oil tanker bearing a U.S. flag in Kuwaiti waters that Friday.

What bothered McIntyre most, though, were the huge volumes of stock that could be traded in seconds by pension funds and insurance companies that managed billions of dollars.

The mixture, he feared, was combustible.

It blew on Monday.

Black Monday begins

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