Six months later, Black Monday is still referred to in brutish physical terms of disaster, like war, hurricane or avalanche.
But unlike a typical emergency, the government is holding back and the victims still are vulnerable.
Despite reports, hearings, investigations and regulatory turf battles, neither the Reagan administration nor Congress has acted in response to the Oct. 19 stock market crash.
As Thursday`s 101-point plunge in the Dow Jones industrial average illustrated, relatively modest changes adopted by the exchanges have not altered how the market operates. Coordinated regulation remains the focus of congressional concerns.
Despite the inherent sluggishness of the legislative process and sophisticated lobbying, there are glimmerings of substantive movement.
The President`s Task Force on Market Mechanisms, headed by former U.S. Sen. Nicholas Brady (R., N.J.), called for a single regulator of an inextricably linked market consisting of stocks, options and futures.
The Brady commission suggested the Federal Reserve Board could be that regulator, but Fed Chairman Alan Greenspan has been going around since dumping icy water on that idea.
Additionally, the intense rivalry between the Securities and Exchange Commission, which regulates stocks, and the Commodity Futures Trading Commission, which regulates futures contracts, has stalled market regulation under one czar.
Last week`s market turmoil, however, may change that.
The Reagan White House, refusing to simply embrace the Brady report, has set up a new panel of top officials from the Treasury Department, Fed, SEC and CFTC to evaluate the Brady analysis and numerous other studies.
Administration aides deny it`s a delaying tactic, but congressional opponents of regulatory change cite the mid-May reporting date of the new White House panel, headed by Treasury Secretary James Baker, as a new deadline before which no bills should pass.
There`s also the turf question. If you bring the heads of the SEC, commodity commission and the Fed together to form a new regulatory group, with a staff and a mandate, you diminish each agency`s authority.
”Otherwise, it has to be settled in a court somewhere,” said CFTC chief Wendy Gramm, who opposes such a regulatory superagency as an extra layer of unneeded bureaucracy.
Senate Banking Committee Chairman William Proxmire (D., Wis.), however, has submitted legislation that would force the heads of the Fed, SEC and CFTC into a panel that would ”carry out the recommendations of the Brady commission.”
The fate of that legislation, and similar bills also introduced, is uncertain. Congress has a shortened legislative session this year because of the presidential election, and many Capitol Hill observers say the fire for reform may be flickering.
”I think things have sort of petered out,” said Barry Bosworth, an economist with the Brookings Institution, a Washington think tank. Bosworth said regulatory fervor has dimmed largely because ”there is no agreement on what to do.”
Proxmire, who wants legislation, admits that ”as time elapses since the crash, there is less of a sense of urgency. It may take another crash to get action. I hope not.”
Sen. Alan Dixon (D., Ill.), an opponent of governmental regulatory changes, concurred that the ”urgency has gone out. The only . . . little ticking bomb is that some some are saying, `If it happened once, it could happen again.` ”
The worry that Black Monday will recur while legislators and regulators fumble and the exchanges fight flared last week. Since the crash, the stock market has been unable to sustain rallies even on surprisingly good economic news.
More Top Picks Best Cooking Pans
And the vulnerability of market confidence was demonstrated Thursday, when the merchandise trade deficit for February turned out to be larger than expected and the dollar and stock prices plunged.
John J. Phelan Jr., New York Stock Exchange chairman, says October`s market crash was one of three major failures in stock and bond markets in the last 18 months, as investors attempted to hedge their risks to ”try to get more bang for their buck and limit exposure.”
The regulatory focus is on the linkages between the stock market in New York and the futures and options exchanges in Chicago.
But Phelan believes that may not be where the next crisis will occur. He suggests pressure is building in bridge loans, in which investment banks risk their own capital in mergers.
Stephen Axilrod, vice chairman of Nikko Securities Co. International in New York, suggests that the next crisis will be precipitated in the foreign-exchange markets by a plummeting dollar.
That is what caused the bond and stock markets to stagger on Thursday. Many are worried over the lack of a coordinated clearing system among markets. And others have suggested that the fire will be rekindled by Third World debt. The one area where the market crash seems to have had some impact is the Fed and its conduct of monetary policy. Though the central bank has seen some recent signs of a strong economy and emerging inflation, it seems apprehensive about tightening credit.
Many market observers believe there won`t be another Black Monday in stocks because Oct. 19 rid the market of its speculative excesses. A repeat of that day`s 508-point drop in the Dow Jones industrial average is unlikely, they say.
”But no one ever said we`re not going to have sick markets,” said Phelan. ”If you`re looking for some assurance the Dow won`t go to 1200, no one can tell you that.” The Dow closed at 2013.93 Friday.
Arthur Levitt Jr., chairman of the American Stock Exchange, sees the current situation as quite similar to that of mid-October, as was borne out when the higher-than-expected trade deficit roiled the markets.
Levitt bemoaned the fact that six months after Black Monday ”we still are arguing about definitional differences, free-market ideology and jurisdictional turf.”
It would be easy for Brady to be frustrated with the lack of action, but the former senator says he`s not.
”Everybody in Congress that I run into wants to get something done,” he said in an interview. ”They are really quite worried that it might happen again and it will happen on their watch.”
He admitted, however, that altering market regulation is ”not of the same ilk of importance, although it could be, as the Persian Gulf or the INF
(arms control) treaty or Central America. It`s somewhere`s between the 5th and 10th most important thing that people in Congress are looking at.”
It`s No. 1 for U.S. Rep. Ed Markey (D., Mass.), however. Markey, who heads a key subcommittee overseeing market regulation, was quick to criticize regulatory agencies and the markets. Markey has been slow with legislation, however, and it`s expected to be a lot like Proxmire`s.
Consumer confidence and spending, while jarred immediately after the crash, appear to have regained strength. The disappearance of $500 billion in collective wealth Oct. 19 seems not to have had a lingering effect.
It is increasingly clear that a recession isn`t imminent, and market observers say the ”wealth effect” of stock holdings is less important to most people than the security of their jobs.
Furthermore, only 20 percent of Americans directly hold stocks. Also, the runup and subsequent collapse in stock prices in 1987 looks a little like a spike on a polygraph test. The profits of 1987 came and went quickly.
Though the stock market has historically been a fairly reliable indicator of economic performance, it is much less so now, argues Greg A. Smith, chief investment strategist for Prudential-Bache Securities, because ”the U.S. market is no longer a capital-raising stock market.
”With net liquidations of stocks exceeding $275 billion over the past four years, companies no longer look to the stock market as a source of capital to continue or expand their businesses,” he said in a recent investment report.
The liquidations have come about through mergers, takeovers and corporate stock buybacks. Still, companies seek to raise capital through these markets, and they have been frightened away by the volatility.
”Among the casualties of the crash were nearly 40 initial public offerings scheduled,” said Amex Chairman Levitt.
Though the market has regained some of the value lost on Black Monday, it clearly a different market than before. Trading volume is lower and traders and investors are skittish and easily persuaded to move to the sidelines.
Institutions and individuals have pulled back, and foreign investors, who helped fuel much of the 1987 runup, have gone home.
Reducing the volatility and restoring confidence in the markets is the stated goal of all of the suggested reforms. Neither society nor the markets
”will tolerate excess volatility for long,” said Phelan.
The NYSE has taken a number of actions restricting program trading and raising capital requirements for its market makers, and other changes are being contemplated.
The Big Board has put what Phelan calls a ”collar” on its trading, banning program traders from the Big Board`s computerized order entry system if the Dow industrials move more than 50 points in a day. The system has been used twice: on April 6, when the Dow climbed 64 points, and Thursday, when it plunged 101 points.
Phelan also disclosed in late March that the stock, futures and options markets were considering establishing ”fallback positions” to slow a cascade of the stock market such as on Black Monday.
The benchmarks might be based on the Dow, he said, or at least something everyone will be able to easily understand.
”At 50 points down, you take out computerized program trading; maybe at 150 points down you take off something else and at 300 points down, you close down all the markets,” he said.
Though nothing has been decided, Phelan noted that NYSE members ”seem more willing to discuss fallbacks” than before Black Monday.
More Top Picks Best Home Gym Equipment For Swimmers
In addition, Phelan and Leo Melamed, Chicago Mercantile Exchange special counsel, told Congress they are discussing coordinated trading halts.
Phelan also said the Big Board by next year will be able to handle days when 1 billion shares change hands. On a typical trading day, fewer than 200 million shares are traded, but Oct. 19 and 20 each saw more than 600 million shares traded.
The Big Board this month increased the minimum amount of capital necessary for its 54 specialists, firms that have the exclusive right to make markets in specific stocks, in exchange for keeping markets orderly. That can mean selling stock from their inventory when others want to buy and buying when others want to sell.
Capital requirements hadn`t been raised since 1977, when they were lowered at the behest of the SEC to allow easier access to the market by firms wishing to become specialists.
Some specialists say privately that the increase is ”political” in that it is meant to reassure investors, rather than prevent another meltdown.
If Congress does nothing to reform the markets this year, the presidential candidates could have a big time blaming each other for the market mess. Markey noted that Oct. 19, 1988, the first anniversary of the crash, is just two weeks before the election.