Spotlight on Wall Street

Report Outline
Special Focus

Overview

Two months after the stock market crash, financial analysts and politicians are still trying to sort out what happened and why. Were the events of Monday, Oct. 19 the inevitable result of stocks priced well beyond their true value? Or was the feverish selling on what came to be known as “Black Monday” a response to long-term economic factors? Certainly the sequence of events—a long-running bull market followed by a sudden crash—reminded many of the stock market crash on Oct. 29, 1929, which preceded the global Depression of the 1930s. And in percentage terms, the 23 percent drop of 508 points in the Dow Jones Industrial Average—an average of 30 “blue chip” stocks—was comparable to the 1929 plunge. The similarities are leading some to ask whether the ability to speculate with a small amount of cash was as much a factor in the 1987 crash as it was in 1929.

Many Wall Street observers and prominent economists immediately pinned blame for the crash on economic troubles that had been percolating for some time: the federal budget deficit, the trade deficit, the weakening dollar, rising interest rates and overall lack of confidence in the economy. These experts pointed to the White House and Congress as the chief culprits for these problems.

In Washington, however, attention has focused to a large degree on the inner workings of the financial markets and the possibility that new market regulations may be needed to prevent future crashes. A panoply of blue-ribbon commissions has been set up to examine various aspects of the securities markets, including their response and contribution to the Oct. 19 crash. A presidential task force, headed by New York investment banker Nicholas F. Brady of Dillon. Read & Co., Inc. is expected to deliver its report to President Reagan in early January. Separate studies are being conducted by the Securities and Exchange Commission (SEC), which regulates the stock market, and the Commodity Futures Trading Commission (CFTC), which regulates the stock index futures market centered in Chicago.