CNBC
updated 10/15/2007 7:51:18 PM ET 2007-10-15T23:51:18

While most people remember the Crash of '87 as a single day when stocks went into free fall, the cracks in the market began appearing in the trading week that led up to "Black Monday." CNBC recently talked to people who watched the storm clouds gather that week.

MONDAY, OCT. 12, 1987, NEW YORK STOCK EXCHANGE

Tim Metz (Reporter, Wall Street Journal, 1966-1989): “By 1987, people were looking over their shoulder saying, 'Oh, my God, the market is so high. The economy isn't this good. There's a lot of strain out there.  Maybe I ought to take my profits. Lots of nerves going into 1987 and in the middle of the year, it was intense.”

Since hitting its record high only two months earlier, the Dow started to dip.  When the opening bell rang Oct. 12, the Dow sat at 2,471.  And as the market drifted lower, anxiety was on the upswing.

Gerry Corrigan (President, Federal Reserve Bank of NY, 1985-1993): “Sometime right after Labor Day of '87, the Fed — and I was part of the decision making process at that time, of course — did raise the discount rate.  And in response to that the long bond, the yield on the long bond, moved up quite sharply. And actually I think touched or penetrated 10 percent.”

Robert Glauber: (Executive Director, Brady Commission, 1988) “And generally the wisdom is when interest rates keep going up, eventually the market has to start going down, and it did.  Started going down in August, but went down not very quickly.”

TUESDAY, OCT. 13, WASHINGTON, D.C.

On Tuesday, the markets got bad news from Washington that threatened one of the key engines powering the bull market.

Tim Metz: “We have rumors that have been driving these risk arbitragers to dump takeover stocks because there's a rumor that somebody in Congress has got a bill that will take the tax advantage away from one of the favorite kinds of these deals called leverage buyouts.  On the 13th, the news is confirmed.  Yes, such a bill exists.  It's well along in the House Ways and Means Committee."

Sue Herera (Anchor, CNBC):  “And a lot of the deals certainly slowed down if not stopped.  Because there was no reason to do them, if indeed, the tax benefits were no longer in existence.”

WEDNESDAY, OCT. 14, 1987, WASHINGTON, D.C.

On Wednesday, the 14th, there was more bad news from Washington.  The trade deficit was $1 billion more than expected. 

Bill Griffeth (Anchor, CNBC):  “This was something that worried the bond market tremendously. Every time the government would announce the new deficit figures, it was another piece of the puzzle for Wall Street to worry about.”

Tim Metz: “Right away the dollar lost a percent of its value.  And this is in spite of the fact that they just raised interest rates a half a point to prop it up.  So now people are really scared. And they feel, 'My God, they're really gonna have to be more aggressive in raising rates. We've got to get out of stocks.’ And they began to get out. The smart money ran first.”

Tom Brokaw (Former anchor, NBC Nightly News): “It was a terrible day on Wall Street. The greatest single day loss in history.  The Dow Jones average plunged almost 95 and a half points."

THURSDAY, OCT. 15, 1987, NEW YORK STOCK EXCHANGE

As the market opened on Thursday, the Dow stood at 2,412.  Traders held their breath as selling pressure seemed to be letting up.  Even so, by the end of the day … 

Tom Brokaw: “Dizzy from yesterday’s record loss, still another dive today.  The Dow off 95e yesterday, fell more than 57 points today to 2,355.”

FRIDAY, OCT. 16, 1987, PERSIAN GULF

Friday brought a different sort of bad news.

A U.S.-flagged tanker had been attacked by Iranian forces in the Persian Gulf.  The White House was said to be weighing a response. President Reagan announced that the U.S. was in discussions with the government of Kuwait.

Meanwhile, the market gyrated wildly through the day.  Program selling one minute, driving the market down, program buying the next, in a nerve-wracking reversal. 

But ultimately it didn’t end well. For the first time in history, the market lost more than 100 points in a single day. The Dow Jones industrials were down more than 108 points, closing at 2,246.

Veteran Broker: “I'm down here 51 years. I haven't panicked yet. I wouldn't panic. Why panic? It'll be up 100 on Monday. 200 on Monday."

But not everyone was so optimistic.

David Ruder (Chairman, SEC, 1987-1989): "During that week the total drop in the market was roughly from 2,500 to 2,250.  A very substantial drop in that period of time.  So we were, we were concerned."   

Richard Ketchum (Director, SEC Market Regulation, 1984-1990): "We were involved in a substantial number of phone calls over the weekend both with the staff at the SEC, with Chairman Ruder and with the Federal Reserve Board, and the New York Fed, both to begin to look and see what the financial impact had been, whether there were any credit concerns, and then to get a better feeling, talking to major firms. And it was clear from the input that we were getting that weekend that Monday morning was a big risk."

Sue Herera: "Over the weekend, I called sources to try and find out what they were expecting for Monday morning.  No one that I talked to had a good feeling. And many of them were in long positions. Meaning they were holding stocks.  And they were uncomfortable with that. And I just had a sense of foreboding, this sinking feeling that it was not going to be a good day."

Leo Melamed (Chairman, CME, 1969-1992): "That weekend, the press carried a great deal of stories which in fact increased the fear of the participants that, in fact, there had been a signal and that everybody that was in the market, was thinking in terms of ‘Well, on Monday, I think I’ll take my profits.’ That weekend, I myself was scared of the headlines.”

John Phelan (CEO, NYSE, 1975-1990): "I went down to the office. I talked to our operations people and everything else. And said, 'You know, we've got to batten down the hatches here."

Leo Melamed: "We all agreed we were gonna have a difficult week coming up. That was quite clear. But none of us could envision what really happened."

(This story was reported by Maria Bartiromo and produced by Alison O’Brien and Bob Waldman.)

Discuss:

Discussion comments

,

Most active discussions

  1. votes comments
  2. votes comments
  3. votes comments
  4. votes comments

Data: Latest rates in the US

Home equity rates View rates in your area
Home equity type Today +/- Chart
$30K HELOC FICO 4.94%
$30K home equity loan FICO 5.19%
$75K home equity loan FICO 4.58%
Credit card rates View more rates
Card type Today +/- Last Week
Low Interest Cards 13.40%
13.40%
Cash Back Cards 17.92%
17.91%
Rewards Cards 17.12%
17.11%
Source: Bankrate.com