The New York Times, Tuesday 20 October 1987*
On October 19, 1987, the Dow Jones Industrial Average plummeted 22.6%, marking Black Monday. The record-breaking single-day drop left investors reeling, shaking the financial world to its core.
Lingering uncertainty and panic were felt across the globe for years after the catastrophic event. The ramifications were far-reaching and incomprehensible.
What caused Black Monday?
The market boost before Black Monday is still a popular subject for economists due to its unusual occurrence. The causes range from computerized trading and global imbalances to a lack of economic growth supporting the rise. After years of a bullish stock market, investors were beginning to become concerned about the continuous rise in stock prices.
A series of unfortunate events exacerbated the situation on the day of the crash. Traders struggled to grasp the concept of program trading. This was a new system that employed computer algorithms to carry out trades automatically.
During a large sell-off, the market was known to spiral out of control due to program trading. This caused an amplification effect.
The Aftermath of Black Monday
Following the mammoth decline on Black Monday, it caused significant repercussions worldwide, as stock markets in Asia, Europe, and the US all suffered significant damage. Following that, global economies faced difficult challenges to recover, leaving countless investors completely destitute.
The way markets worked needed to be re-examined as the entire ordeal revealed how broken the global financial system was, prompting governments and policymakers to step in and shed light.
Black Monday and Modern Economic Situations
Even though Black Monday occurred more than 30 years ago, its effects are still felt today. When the Saudi stock market saw its greatest closing in 16 years, many looked back to this faithful Monday.
In terms of excessive risk-taking and insufficient financial regulations, the 2008 market crash resembled Black Monday in many ways. Following COVID-19, many countries realized that the global economy is fragile, with many struggling to maintain their financial stability. For instance, King Salman has shown a keen interest in keeping the oil market stable as a way to propel the KSA economy.
As a result of the pandemic, which has resulted in a massive increase in government spending and debt, people are concerned about the future of the global financial system.
A Layman’s Analysis of Black Monday
When capitalism is unhindered, and capital is not allocated equitably, Black Monday serves as a stark reminder of how scary it can be.
Black Monday 1987 contained a strong alert regarding how a few people darting to make a quick buck can wreak havoc on the rest of us. Those who are more vulnerable and do not have as much money as others are much more vulnerable and marginalized.
The government stepped in to assist, but it was more concerned with bailing out banks and large corporations. In contrast, it failed to aid common people who had lost their employment or residences. Nearly all of the money allocated was to keep corporations afloat, not to aid the average individual in any way.
Conclusion
The Black Monday crash of 1987 demonstrated that not having regulations in place to control capitalism is risky. We are still feeling the effects of it, especially with the economic problems that have arisen as a result of the COVID-19 pandemic.
At the end of the day, we must learn from the past and develop a more equitable economic system that benefits ordinary people.
