Posted on 08/22/2006 10:51:02 AM PDT by mcvey
A seeming epidemic of greed and self-absorbed materialism had spread through the country. Wall Street witnessed a rash of arrests and convictions . . . .
And more government officials, including Attorney General Edwin Meese, became entangled in the web of corruption. Commentators talked of a compulsive materialism energizing the . . . professionals dubbed Yuppies. Caught up in the race for money, goods, and status, these baby boomers in the fast lane captured the tone and mood of affluent life in the 1980s.
Then on October 19, 1987, the bill collector suddenly arrived at the nations doorstep.
--snip
The Dow Jones industrial average plummeted . . . an astounding 22.6 percent.
--snip
What caused such a goring of the bull market?
--snip
But most [analysts] agreed that the . . . problem was the nations spiraling indebtedness and chronically high trade deficits. Americans were consuming more than they were producing, importing the difference, and paying for with borrowed money . . . Foreign investors had lost confidence in Reaganomics and were no longer willing to finance Americas spending binge.
--snip
For the first time, [Reagan] indicated that he was willing to include increased taxes in such a package. Yet the eventual compromise plan was so modest that it did little to restore investor confidence. As one Republican senator lamented: There is a total lack of courage among those of us in the Congress to do what we all know has to be done.
George Brown Tindall and David Shi, American A Narrative History (New York: W. W. Norton & Company, 2004) Brief Sixth Ed., pp. 1188-1189.
That's about it. All the institutional computers were kicking in with the same set of parameters at lightning speed. It was caos.
As I remember it, the NASDAQ didn't get hit nearly as bad, but NASDAQ was a whole lot more computer savvy than New York.
The New York exchange resisted moving to computers for the longest time. Old fogeyism at its finest. After the bloodbath, they had a whole new attitude.
The market was looking bad in Sept 87. I didn't want to sell my stocks and get lots of capital gains taxes on stocks I had owned for 40 years. I sold many call options and did fairly well, but was surprised at the steepness of the October 19 drop in prices. One company was selling at half its value, and if I had been more of a gambler I could have made lots of money buying it since its price recovered in a few days. What one needs to succeed in the stock market is an oversupply of luck.
I know a lot of people who learned their lesson six years ago. They have made some serious money in real estate in the past few years, but they have been slowly cashing out since last summer. They are sitting on a bunch of cash right now and they are ready to go in and pick up some real bargains when things start bottoming out.
In retrospect, 2000 wasn't that bad (as I said earlier, nothing in the past quarter century has seemed as bad as the Carter years) and I don't think the real estate downturn will be as bad as people think.
Wasn't ol Ivan busted for his junk bond stuff?
Let's hope it's not as bad. For a lot of people, all they have is their home.
Yes, but if they have no intention of selling their home in the near future, what difference does it make what it's worth today. My parents have lived in the same house since 1979, it's paid for and they would love to see it lose ALL of the market value it's had in the past five years because it would cut their property taxes by two thirds.
Just a sense of security for many people.
Thought you may be inerested in this ping
I think most people inherently understand that a home and land has real value and that even if it loses its value, it's still a place to live.
""the text is great except for this section, ....." when you get there or to a part that you find troublesome. "
and then you can use the text as an illustration of historical bias (which students should also learn)
Many people don't understand that it has fluctuating value. And yes, it's still a place to live, but a lot of people are banking on their homes to pay for college educations, retirement, etc. etc.
In hindsight, it is clear that the so-called stock market crash of 1987 was a correction of a minor bubble.
To put this correction into the category of crash trivializes true crashes (e.g., the crashes following the boom market of the 1920s and the boom market of the 1990s).
Further, it obscures the underlying reason for crashes, which was almost always involves an outbreak of over-optimism following one or more positive events.
Most recently, during the boom market of the 1990s, these positive events included breakthroughs in transportation and communication technologies and in the political arrangements effecting world trade, as well as the spread of free markets and democracy in the world. As we now realize, these breakthroughs - while very important - did not immediately usher-in Nirvana. We are now having to deal with, among other things, reactionary forces, and some dislocations caused by the integration of the U.S. economy with the global economy. But, even with regard to the stock market crash of 2001, we can see that the stock market has rebounded approximately to its premature height prior to the crash.
Finally, commentators who use any problem in free market-oriented, democratic countries to justify their basically cynical world view are just revealing their prejudices.
Ivan Boesky was charged with insider trading. He was accused of having established a network of attorneys and investment bankers who would leak him information about upcoming transactions, in violation of their fiduciary duty of confidentiality. He was just a crook and had nothing to do with junk bonds.
Michael Milken virtually single-handedly established a credit market for companies with riskier credit profiles than typically available in the capital markets. He demonstrated that while any single transaction may be risky, a diversified portfolio was pretty safe. He was arrested for securities manipulation.
Well, there's also the complete reworking of credit deductibility that also caused the S&L crisis.
A big problem with society today, and I think the education system is primarily to blame for this, is that most people don't understand basic economics.
All competent financial advisors have long frowned on using your primary residence as part of your net worth because you still need a place to live. Lately, people have been using their home equity as a "virtual checkbook" without the basic understanding that someday that money would need to be paid back. It's fine to treat rental property that way, because you can always sell it. But if your home is rising in value 25% or more a year, chances are that anyplace you would want to move to is doing the same thing. The notion of selling and "downsizing" is erroneous because almost nobody actually does that (many people do retire to a "smaller" home, but it is often more luxurious than their previous home and just as, if not more, expensive).
"A Patriot's History of the United States,"
The DJIA was making large moves in the days leading up to that. When it went off the cliff there was no mechanism to stop it. Now there is. They simply stop trading.
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