Black Monday - Stock Market Crash of October 19th, 1987

by creditlawgroup - Date: 2008-10-27 - Word Count: 650 Share This!

On October 19th, 1987, the stock market experienced one of "...the largest one day stock market crash{es} in history". The Dow went down by a value of $500 billion, or 22.6%. Additionally, the Nasdaq composite lost 11.3% and the S&P 500 Index to lose 20.5%. The crash was escalated by a bull market commencing in 1982, characterized by merger mania, hostile takeovers, and leverage buyouts. In order to raise capital to execute company buy-outs, companies issued junk bonds (very risky bonds with high return rates) and initial public offerings (IPOs.) In the 1980s, technologies for microcomputers were booming. These advancements glorified investors' economic opportunities in many, many companies. Unfortunately, at the beginning of 1987, the Securities and Exchange Commission (SEC) began to investigate illegal trading activities and fraudulent IPOS. The great economic growth, surged by investors buying and selling, urged the Fed to raise interest rates for the short-term. Raising the interest rates caused brokerages to use portfolio insurance. Unfortunately, brokerages would now benefit from the market crashing. The market became unstable, people were attempting to sell like crazy, but there were no people wanting to buy shares due to the market's instability. This was a downward spiral. Consequentially, the Fed lowered short-term interest rates, thus marking the recovery of the market, implemented by the buyback of companies' own shares due to the shares' under-evaluation.

Another factor leading up to Black Monday was derivative securities which include index options and future markets in which stocks are not actually purchased, just purchasing rights to buy and sell. The inability for the actual market and the derivative markets to stay in sync was a factor in causing the crash. Computer trading by large institutions is another factor in which large amounts of shares are programmed to be purchased when computers detect certain existing market trends. Another factor is the lack of liquidity of the stocks when massive amount of people wanted to sell shares but no buyers could be found. Another factor was a large US trade deficit. The deficit weakened the US Dollar, effectively cause foreign investors to pull out. The high return on investments in long-term, US bonds caused less people to be willing to risk fortunes in the market. The overvaluation of stocks in the months preceding the crash may or may not have been a factor in the Black Monday crash.

However, a benefit of one of the largest one day stock market crashes in history was the establishment of the circuit breaker system, which now prevents trading of stocks when a stock plummets a substantial amount in one day. Furthermore, one of the marked differences between Black Monday and the great stock market crash in 1927 was that the days after the great spiral downward, the US experienced record breaking recoveries. Moreover, within 2 years, the markets were completely recovered to the status quo before Black Monday.

Unfortunately, in regards to Black Monday, the US was not the only economy affected. Black Monday also negatively affected international markets. Some cause instigating the crash include: rapidly increasing short-term and long-term interest rates, increased debt of the US government, the declining value of the US dollar compared to foreign currencies, weakening US current account deficit, extremely low dividend-yields, high price to earnings ratios, and a bull market characterized by optimistic investors Black Monday and similarly the largest stock market crash occurring this past Monday, September 29, 2008 creates a stringent economy in which lending is limited. Lenders are less likely to grant loans to unattractive borrowers. If you or someone you know is in the market for an automobile, home mortgage, line of credit, or other installment or revolving credit account, but has been turned down due to a low credit score or poor credit history due to inaccurate, misleading or outdated information contained in one's credit history, please call toll free 800-508-0041 or visit The CreditLawGroup Website

Related Tags: interest rates, credit scores, stock market, sub prime, credit report repair

The website of Smith & Gromann, P.A. is a multistate law firm whose practice is limited to federal consumer and banking law under which the credit reporting system operates. The firm provides cost efficient legal representation in disputing inaccurate, incorrect or unverifiable information contained on credit reports from the three major credit bureaus, Equifax¬(r), Experian¬(r) and TransUnion¬(r) and their affiliates. The firm also provides legal representation to victims of identity theft. Visit for more information.

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