Black Monday - 1987
On Monday, October 19, 1987, the Dow Jones Industrial fell 508 points -- which meant that it lost 22.6% of its value -- which was an unprecedented fiscal calamity at that time. This paper delves into that frightening dive, into the reasons why it happened, and looks into the possibility that it could happen again.
Why did it happen?
In January, 1987, the Dow Jones Industrials gained 13.8%, according to NBC's Consumer News and Business Channel (CNBC). Through the month of March the Dow was up 21.6% and through July the Dow was up 37.7% (CNBC). In August of 1987 the Dow peaked at 2,722, a remarkable gain of 43.6% on the year. Then in October (between the 2nd and 16th) the Dow lost 15%, which was a kind of warning shot to investors that something was wrong. Then on the 19th of October, the market crashed and the Dow lost about 23%, according to CNBC. The year ended with a 2.3% gain overall (CNBC).
Bruce Bartlett, a senior fellow with the National Center for Policy Analysis explains that the blame for the 1987 crash can be traced to the "…interplay between stock markets and index options and future markets" (Itskevich, 2002, p. 1). In the stock market component, investors actually purchase shares of stock, Bartlett explains. But in the futures market, investors are only "purchasing rights to buy or sell stocks at particular prices"; hence, the value of options and futures -- which are called derivatives -- is driven by changes in actual stock prices albeit "no shares are owned" (Itskevich, 1). Bartlett puts...
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We learn that our way of life can change practically overnight. We learn that suffering on a massive scale can happen from just a few high-level missteps. But perhaps most importantly, we learn that the American spirit has an amazing capacity for resourcefulness and resilience -- a lesson that might comfort us in our own times of worry. Works Cited "Always Lending a Helping Hand: Sevier County Remembers the Great Depression."
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