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.

[Al Gator]

BooYaa, you're right. I forgot about those stupid things.

Dangerous as hell and lot of folks got burned really badly.

I never had to make margin calls to customer, because I avoided those sales like the plague. But some guys in the office who were playing with them, just went home. It was a triple Wild Turkey day, that was for sure.

But... IBM went from about 165 a share down to 119, I called everyone I knew and sold a ton of the stuff. Ford dropped to about 65 a share or something stupid like that. I called everyone who was loosing money on everything else and pushed the hell out of blue chips. In my mind, it was a fire sale.

Those customers who agreed and took advantage completely wiped out any loss they suffered that day.

[ChadGore]

I stand corrected:

It recovered more than 100 points the next day, and was back over 1000 2 years later.

[qam1]

Xer Ping

Ping list for the discussion of the politics and social (and sometimes nostalgic) aspects that directly effects Generation Reagan / Generation-X (Those born from 1965-1981) including all the spending previous generations (i.e. The Baby Boomers) are doing that Gen-X and Y will end up paying for.

Freep mail me to be added or dropped. See my home page for details and previous articles.

[mcvey]

Al:

Thanks for the "you are there."

I can use this stuff in class.

Thanks again.

[TommyUdo]

"How correct is this (in whole or in part)?"

I wouldn't.

I'd assign some supplimental reading on the market "crash" of 2000 and ask them to compare and contrast. See if anyone can catch the difference in the description of the "culprits" between the 80's and the 90's. If they don't get it, tell them. Then watch their semi-indoctrinated minds spin out of control.

As they are freshmen, and as of yet don't know everything (that's a sophomore) you'd be doing them a great favor.

[mcvey]

Hmmm, any suggestions on the 2000 crash--which is not, in this textbook, a crash.

[KarlInOhio]

If my memory serves, the DOW recovered 100% of that "crash" the very next day.

It took until January 1989 before it hit the value of the day before the crash and August 1989 to hit the precrash peak.

Here's the page I used. http://bigcharts.marketwatch.com/intchart/frames/frames.asp?symb=djia&time=20&freq=2

Select Custom under time frame and you can select the exact dates to look at.

[Eagles Talon IV]

It needs to be logarithmic to prevent the transposition of the y axis and the "n" factor which can occur when the numbers coefficient inherent in both the axis and n factor becomes paired with the outer graphing declination on the basis of x(y-n)+w (logarithmic coefficient)when x is equal to the percentile drop in the DOW and w is that number equivalent to the time the DOW took to recoup it's losses.

[lilylangtree]

All I can remember is that the world was coming down from the Chernobyl disaster that occurred in April 1986. That even scared the world poopless and results are being determined even now.

[pleikumud]

I'll bet that graph is in the textbook, since academics focus so much on intellectual integrity. Yeah, right. Actually, liberals have trouble understanding anything that doesn't fit their ideology.

[durasell]

Fairly accurate, though slanted.

[mcvey]

Chernobyl!!!

Just checked the index--not in there (surprise, surprise.)

[the OlLine Rebel]

Oh, yes, the Great Depression of the '80s-'90s.

I was just starting college and was terrified. <\sarc off

[TommyUdo]

"Hmmm, any suggestions on the 2000 crash--which is not, in this textbook, a crash."

Can't help you there. I'd start here on FR, actually.

But I'll tell you a story.

I was workng at an on-line broker just before the correction, crash, whatever, of 2000. I opened a new account for a fellow who sent in two money orders for $1000 each (min. $2K to open).

So, I called the guy and axed him, "Wassup with this?"

He told me he didn't have a checking account or credit cards, but everyone he knew said the market was the place to make money.

Then there's the lady who mortgaged her house to by a swell stock called EConnect 'cause she (and her neighbors) KNEW it would go through the roof...

and on and on...

[Orange1998]

And the simple answer is ?????? Not everyone on FP are rocket scientist!

[FreedomProtector]

Anytime one has a variable which roughly repeatedly doubles over the roughly the same amount of time, a semi-log plot should almost always be used, as it provides the most meaningful picture of all periods of time on the graph. In a semilog plot the y-axis is logarithmically scaled, while the x-axis is linearly scaled.

The stock market as a whole averages about %10 growth per year. One 'rule' which is used in finance isn't exact but fairly accurate and very practical is the rule of 72: To find out how long it will take your money to double at a given interest rate: 72/interest rate:

time for money to double:

72/10 = 7.2 years to double.

Investors are concerned w/ percentage growth, or time to double.


Linear plots exaggerate the end of the graph while hiding information at the beginning of the graph for populations which roughly double over roughly equal periods of time. For this reason, long term market trends are better plotted as semilog.

[I'm ALL Right!]

Perhaps, then, you should get Johnson's book, read it, and give the students handouts combatting the lies presented in the textbook. You could use it as an example to your students of how history is being rewritten in textbooks, and in the media. Teach them that we cannot accept what we read or hear on television...we must seek out the truth ourselves or risk being fed propaganda.

Just went on vacation with a family member who graduated college recently. He spent 4 years being spoon fed liberal garbage. He knows nothing else, as he was innoculated against any other positions or truths, and he will not believe that he might have poor information. You may be your students' only hope!

[Ditto]

Poor history and even worse economics.

Here's some FACT.

According to Facts on File, an authoritative source of current-events information for professional research and education, the 1987 crash "marked the end of a five-year 'bull' market that had seen the Dow rise from 776 points in August 1982 to a high of 2,722.42 points in August 1987." Unlike what happened in 1929, however, the market rallied immediately after the crash, posting a record one-day gain of 102.27 the very next day and 186.64 points on Thursday October 22. It took only two years for the Dow to recover completely; by September of 1989, the market had regained all of the value it had lost in the '87 crash.2

In other words, if your lefty professor wants to blame Reagan for a 500 point drop, then he must also give Reagan the credit for the 2000 point gain that proceeded the loss.

There are lots of web sites out there that discuss the contributing factors for the crash but the overall tone of your history book completely misrepresents both the facts and the effects.

People have blamed a variety of factors for the crash from computerized trading, overuse of derivatives and a general price over valuation after five years of a strong bull market. But none of those was the tipping point for a crash. Here's what was ... Democrats in control of the House Ways & Means Committee playing demagogic footsie with big labor .

While structural problems within markets may have played a role in the magnitude of the market crash, they could not have caused it. That would require some action outside the market that caused traders to dramatically lower their estimates of stock market values. The main culprit here seems to have been legislation that passed the House Ways & Means Committee on October 15 eliminating the deductibility of interest on debt used for corporate takeovers. Two economists from the Securities and Exchange Commission, Mark Mitchell and Jeffry Netter, published a study in 1989 concluding that the anti-takeover legislation did trigger the crash. They note that as the legislation began to move through Congress, the market reacted almost instantaneously to news of its progress. Between Tuesday, October 13, when the legislation was first introduced, and Friday, October 16, when the market closed for the weekend, stock prices fell more than 10 percent -- the largest 3-day drop in almost 50 years. In addition, those stocks that led the market downward were precisely those most affected by the legislation. [Ultimately, the legislation was stripped of the provisions that concerned the stock market before being enacted into law.]4

Source: http://hnn.us/articles/895.html

You kind of had to be around back then to understand how the Democrats and MSM painted the so-called "Corporate Raiders" as the worst thing to ever happen. In reality, they were the guys who forced corrupt corporate executives to clean-up their acts and show concern for the stock holders.

[ChadGore]

Re: and the ongoing recession that we're currently in.

False. The last 2 consecutive recessive quarters where in 2001.

[KarlInOhio]

Why logarithmic?

Logarithmic shows a certain percentage change as an equal length. Thus from 100 to 200 is the same length as 1000 to 2000 and from 10000 to 20000.

On a linear scale the 1929 stock market crash disappears.

The Crash from 1929 to 1932 is huge. The 1987 correction looks similar to others in the past.