1987 Black Monday

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Jerry Ngai Chi Hung- 16365287

Black Monday (1987)

Timeline

In 1986 – Rapidly growing recovery – resulted in a “soft Landing” and inflation dropped. 1987- Dow peaking on August at 2722 point , 44% over the previous year ‘s closing of 1895 points.
On October 14, DJIA dropped 95.46 points to 2412.70 and fell another 58 points the next day, down over 12 % from the August. On Friday, October 16, All the markets in London were unexpectedly closed due to the Great storm of 1987. DJIA closed down another 108.35 points to close at 2246.74. The crash began in the morning of October 19. The amount of the market declined from peak to bottom, which is 508.32 points, 22.6% or $ 500 billion lost in one day. The largest one-day percentage drop in history.

Causes

Potential causes for the decline include “program trading, overvaluation, illiquidity and market psychology. In early 1987, Panic set in and people started dumping stock and do not care their losses were, the high volume of selling to forcing the price down to the Dow plummet to 508.32 (22.6% ) in one single day.

As people began the mass exodus out of the market, the computer programs began to kick in. the programs put a stop loss on stocks and sent a sell order to designated order turnaround, the instantaneous transmission of so many sell order overwhelmed the caused the whole market system to lag, leaving investors on every level effectively blind.

Fortunately, the newbie Chairman of the fed, Alan Greenspan, was around to help fight off a depression by preventing the insolvency of commercial and investment banks. The market recovered, and some modest refinements were made after the stock crash.

Before the crash?

U.S Securities and Exchange Commission which is the governing body formed after the depression. Established for he prevention of further crashes and fraudulent practices.

The Glass-Stegall Act was passed to separated commercial and investment banking...
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