Wall Street Sings Along: Didn’t We Almost Have It All?
October 27, 1987
There’s nothing wrong with the economy.
—Ronald Reagan, with some irritation
There’s a worldwide Las Vegas going on.
—anonymous financial consultant
MONDAY NIGHT was a beautiful night, cool and calm, a refreshing breeze to keep one alert. A perfect night for heavy drinking, and by coincidence many financial professionals seemed determined to do just that. South Street Seaport’s North Star bar, which specializes in obscure British beverages, was doing excellent business. The Dow Jones stock index had just dropped 508 points, or 22.6 per cent; the comparable drop on Black Tuesday in 1929 was only 12.8 per cent. The stock market, which had broken record after record since the ’82 depression, had just experienced the financial equivalent of nuclear war. It was a good excuse to drink.
A well-dressed young man from a prominent Wall Street firm felt part of the blame lay with computerization. All the brokers have sell programs on their computers, and, when the Dow or some other index hits a certain level, the programs take over. “It keeps feeding on itself. They have it set up for certain levels. What to sell, how much, and when it hits that level: Boom, press the button, sell! It just keeps feeding on itself.” The young man didn’t really seem that upset, or maybe he was just stunned. He laughed a lot. “We had people losing tens of thousands of dollars in 20 minutes. We knew last week the market was down at record levels, we knew it was going to go down. But nothing like this.”
Behind the technical factors, he felt, was an attitude problem. “Investors’ confidence was really shaky,” he said. It was merely idle to guess about causes; “They’ll give ya a hundred reasons. If it’s oil yesterday, today it’s the dollar, tomorrow it’s what they did in Japan last night. There’s a million reasons: it all boils down to what the investor thinks. So long as investors believe in the stock market, the fuckin’ dollar could be worth a penny.”
As for what makes investors lack confidence, no one at the North Star seemed to have any idea. They did know that the smart money would go into gold or silver. And debt would be more popular than equity (stock); anyone could tell that stock wasn’t going to be popular. The young professional and his four peers, all drinking beer from big mugs, felt proud that the market’s mechanisms had been able to withstand the day’s shocks. “The system is still intact,” he said triumphantly, and there were congrats all around.
I wasn’t convinced; “You don’t think this is the crisis of capitalism?” I asked naively.
“Obviously it indicates that there was a correction in the economy,” the professional said.
“A necessary downside correction in the economy,” another added. “But if you look at the top 10 technical quantifiable indicators of the broader United States economy, it’s lookin’ strong.”
The first man emphasized that what mustn’t happen is for people to “take their money out of the banks and put it in their fuckin’ mattresses. That’s when we’ll all be sellin’ pencils!” That would represent a crisis of confidence. And confidence is key. Two “freelance construction workers” had come to the North Star to celebrate the crash. They described themselves as “joyously pessimistic.” “We’re fucked anyway!” one said.
I went over to Harry’s at Hanover Square, the ultimate bankers’ bar, hoping to find older people. The yuppies at North Star had recognized that their perspective was limited. “We’ve never seen a fuckin’ bear market.”
A mature man with experience in the bond markets said of the crash, “There’s no reason for it. It’s basic psychology.” Fred Pisculli, a vice-president at Shearson Lehman Brothers, explained that once “the fit hit the shan — that’s an Iranian joke — the lemming instinct took over.” Both men thought the U.S. economy is basically very strong, that people just got carried away, like lemmings. Pisculli emphasized that the crash presents opportunities: “This is a bonanza. This is the time that people will make fortunes.” He also, however, said that now is a good time to buy gold, and that Lehman is very heavy into gold.
Pisculli said “a calming influence is what’s needed.” He said I could be that calming influence. He said that if I reported that things are basically fine, then every broker would send my clip out. My byline would be “all over the world.” The stock market crash, twice as severe as in 1929, was essentially a question of attitude rather than information (as I had suggested to him). “No. Not information,” he said. “Perception. Perception is the main word here.”
I wanted to create good perceptions and help the country; but it was hard not to remember the story a young banker had told me earlier in the evening. The story was about what would happen if banks start losing their ability to guarantee deposits. (As the following day’s New York Times said, “Among the key differences between the economy of the 1920s and 1930s and today’s is the advent of Federal deposit insurance…”)
“Someone at the office was kidding around, saying there wouldn’t be any problem because FDIC or Federal Home Loan Bank Board will be able to bail out the different banks.” The young banker smiled at me in a dazed sort of way. “And someone just leaned over and goes, ‘Yeah, two trillion in deficit, yeah, like they have another six or seven laying around to give to everyone when they want their money.’ ”