A College Freshman History Text on the Stock Market Crash of 1987.

American: A Narrative History | 2004 | George Brown Tindall and David Shi

[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 nation’s 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 nation’s 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 America’s 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.

[coconutt2000]

Okay, I see. Seemed a little odd. I was 7 or 8 when it happened.

If you do a quick poll of young adults, you'll discover that most of them are aware of the recession during the late 1970s, the recession in the early 1990s (Bush 41), and the ongoing recession that we're currently in.

They'll also be aware of the big boom during the 90s, which they'll all know was the best economy ever.

What you'll probably also discover is that almost none will know about a stock market crash in 1987, which would be a big indicator that the crash was not a major crash, and doesn't deserve much in the way of emphasis except to note that it happened. Now, the tech bubble burst is a much more notable "crash" in that it had far reaching consequences and wiped out billions of dollars in wealth, taking many years to recover, and that recovery being fragile as a snowflake on a cold spring morning.

As for our current recession, and other misinformation touted in text books, in the news, and by liberal professors - just take an economics 101 book off the shelf and do a couple units on basic macroeconomics. Clear, dry, and unbiased economics is 100% conservative. It can't help but be conservative, which is why liberal economics professors don't teach from the text book.

[mcvey]

Will do and thanks!

[KellyAdmirer]

Options trading was out of control in those days, too. Everybody was selling puts and praying the market would continue upward. It didn't, and lots and lots of folks had to meet disastrous margin calls, selling into a down market and making it worse.

[LS]

Great book, too, but for American history, there is nothing like our "Patriot's History of the U.S."

By far, it has the most up-to-date research; most consistently-argued conclusions; and most thorough coverage of anything that is out there.

[ansel12]

"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 nation’s doorstep.”"





In 1980 the boomers ranged from age 16 to 34, how can they be responsible for every bad thing that has happened in America for the last 50 years.

[USFRIENDINVICTORIA]

It's difficult to judge the whole book from these snippets -- but, I can give some feedback on the snippets.

First, "Yuppies" were largely an invention of market researchers, and the media. That ethos certainly didn't manifest itself in rural and remote parts of the continent. Boomers had finally graduated from college and antiwar demonstrations to careers and acquiring material goods. Nothing new here -- except that the boomer generation (I'm one) was like a pig in a snake (a big demographic bulge that is moving through stages of life -- or digestion).

One of the main reasons for the sudden drop in the stock market was "program trading" -- i.e. trading driven by computer models, which contained feedback loops, and no dampers. When the market started to fall, more automatic selling was triggered, -- and the spiral didn't stop until trading was halted. Numerous institutional reforms were subsequently made in the stock market -- in particular to prevent runaway automatic trading. There's no mention of this in your snippet.

The stock market rebounded almost as quickly as it fell. In large part, this is because the Fed pumped massive amounts of new money into the system. Also -- it rebounded because the initial plummet was not a true reflection of the state of the economy -- it was an artifact of structural weaknesses in the trading system itself (e.g. program trading). The rebound belies the textbook's premise of weaknesses in the economic system itself.

[VOA]

I don't envy your challenge in getting balanced history textbooks.

I'm afraid I'm old enough to have grown up in an affluent "Oil Town"
in Oklahoma in the 1970s.
And thus also saw the oil boom of the last 1970s and oil-crash of
1982.
Stuff like seeing guys that didn't have high-school diplomas that could get
bankers/investors shoving millions at them with just the prospect of drilling
a well.

I was working in graduate school when the 1987 "crash"
(it was a bump) occurred.

If there was an epoch of greed...it happened in the 1990s.
That was when a "new era economy" was hailed and stock prices rocketed
without any apparent fundamentals.
I think someone even wrote a book about their experience in launching a tech
start-up called "Burn Rate". The theme was that the faster the company expended
money (even without revenues), the higher their stock went.

But I wouldn't expect a textbook to speak badly of the 1990s as the true
"decade of greed".
Because textbook writers/revisionists liked the guy that was in the White House
for most of that decade.

For your reading about the current state of history education:
first paragraph under the heading of
Our Failure, Our Duty

http://www.hillsdale.edu/imprimis/2005/April/

[WV Mountain Mama]

On a personal note, my dad's business went from 10-15 employees to 50-60 after his tax cuts... Contrary to the democrat lies, businesses do reinvest in their companies when they get to keep more of it.

[mcvey]

Good points and thank you. History is hard to kill--although my colleagues take a run at it.

[CottonBall]

I try to present a professional course to my students and would like to shoot this out of the sky since my recollection is that this is nonsense. But I am not an economist and do not have the data easily at hand.

Excellent response. I do not understand why coconutt2000 would expect you to teach about something based on being alive then and aware of what was happening. You sound like just the kind of prof. I would like - using data and facts to backup what you teach. It's probably rare these days in any field expect math, engineering, and the physical sciences. Keep up the good work.

[FreedomProtector]

The graph should be plotted with a logarithmic scale on the y axis.

[epluribus_2]

And note the prescription of that surefire fixall- the tax increase.

[Red Badger]

They are "educating" our kids into stupidity!..........

[Eagles Talon IV]

I lived through this as an investor. That evening the "experts" were all calling for the DOW to drop from about 1750 (it was about 2300 before it tanked)to 1000 or less. Instead the futures turned sometime during the morning of the day after and the market began it's climb back. No one really knows the cause of this one day record decline. here is an interesting link for you to examine.

http://www.lope.ca/markets/1987crash/

[mcvey]

Great link and thanks!

[Eagles Talon IV]

AHA!! You noticed that? As soon as I saw that on the news I shorted equities in a BIIIG way. I cleaned up!!!

[DancesWithBolsheviks]

Why logarithmic?

[The Right Stuff]

Hi Larry;

I was just going to recommend your book - it is one of the most unbiased texts I've ever read.

[wagglebee]

If you do a quick poll of young adults, you'll discover that most of them are aware of the recession during the late 1970s, the recession in the early 1990s (Bush 41), and the ongoing recession that we're currently in.

If you ask most people over fifty who are intellectually honest, they will tell you that compared to the four years of the traitorous, incompetent Peanut Farmer in the late 1970's, we haven't had anything in a quarter of a century that even felt like a recession.

In spite of the left's attempts to mess it up and the media's attempts to talk it down whenever a Republican is in office, we are still reaping the benefits of Reagan's economic policies.

[coconutt2000]

If you know any suitably conservative economics professors, I'd suggest an addition to your curriculum on the evolution of economic theories and their impact on history over the past 500 years.

Most history courses ignore the economic theories that historical powers used as the basis of their decisions, or they cover them in discrete units without any coverage of the evolutions, transitions, and conflicts between competing economic theories and their contemporary and counterpart political theories.

You might even be able to write a supplemental text book on the subject.