Twenty-one years ago this month, Wall Street plummeted, losing 508 points in one day. We beat that record Monday, when the market lost 777 points. The difference is that in 1987, the market was trading between 2,000 and 3,000 points, whereas Monday – or before Monday – the market was hovering around 11,000 points.
I was a young newspaper reporter at the time and I interviewed an economist for insight. We compared 1987 with 1929 and he assured me that almost 60 years after the great crash, we had learned enough to keep a one-day crisis from turning into a global economic disaster. We may have forgotten that in the 20 years since. Here’s a look at the crashes of 1929, 1987 and 2008.
In 1929, much of the blame for the crash was directed at “margin buying.” Margin buying allowed investors to initially pay only a portion of the cost of a share of stock and pay for the rest later. The idea was that one could pay $5 for a $20 share of stock and when the price of the stock rose to $30, the investor could sell it, pay the remaining $15 and keep a $10 profit. Ease of purchase drove up the prices of stock far past their actual value. When the market began to fall, those margin debts were called, and investors didn’t have the cash to cover their losses. “Market psychology,” which determines much of what happens in a stock market, turned to panic and a liquidity crisis developed that sent the market into a tailspin. “Margin buying” was subsequently outlawed.
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The Real McCain
I hate to keep doing this, because I think it’s unfair to Barack Obama, but I can’t help it. I keep seeing, in this campaign, shades of the 1992 Bush/Quayle-Clinton/Gore matchup.
In the last month of the ’92 campaign, with a sluggish economy controlling the debate, the Republican candidate was falling behind in the polls. George H.W. Bush, aghast at the prospect of being forever branded “one-term president,” began leaking bile. Behind in the polls, Mr. Bush was advised to “go negative” and try to tear down his rivals. To his misfortune, Mr. Bush’s master of negative campaigning, Lee Atwater, had died of a brain tumor the year before, after apologizing to the many people he’d smeared in his career.
Absent the coaching of a professional mudslinger, Mr. Bush was reduced to referring to Bill Clinton and Al Gore as “bozo and the ozone man.” He sounded weak and hapless and Clinton/Gore won with 100 electoral votes to spare.
Now it’s John McCain’s turn to sound like an angry, impotent old man as he watches Mr. Obama and Joe Biden widen a lead in the polls. Americans today wish we could describe our economy as “sluggish,” rather than “catastrophic.” Senior citizens, who should be part of Mr. McCain’s base, are watching their IRA/401k nest eggs disappear overnight. So much for getting Florida in the GOP column.
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