Black Monday, 1987

26.03.2015 |

Episode #7 of the course “World’s biggest financial crises”

Another crisis occurred roughly a decade after the oil crisis in America. On October 19, 1987, a day that many refer to as Black Monday, the stock market took the biggest plunge in history. It lost an unprecedented $500 billion dollars in just one day. As the market in the United States dropped, markets around the world echoed the drop, causing a widespread panic.

Like other crashes, the crash was preceded by a very successful few years (a bull market), a climb that began in 1982. Companies were buying one another out at alarming rates during the bull market, and they just continued to experience tremendous growth. The problem was that these buyouts were often leveraged, which usually meant that they were financed with junk bonds. Junk bonds pay a very high-interest rate because they also have a very high possibility of default (based on a failure to make payments). These junk bonds were also combined with the new use and development of personal computers, which made everyone want to invest.

The public was frantic not only because of the huge losses but because they feared that this meant another depression like the one that occurred in the 1930s. Thankfully, this did not happen and the markets regained their strength in just a few years, reaching all-time highs in the years to come. In fact, the market rallied the following day, gaining 102.27 points. Most attribute the less-than-depression effects to the quick and decisive intervention of the Federal Reserve, which was put in place after the crisis in 1907.


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