Surviving Black Monday
In the Winter 2008 issue of American Heritage, there was an article published named “Surviving Black Monday” by Alan Greenspan. The article is about how Alan Greenspan handled the huge stock market crash on Monday, October 19th, 1987. On that day, the Dow Jones Industrial Average (DJIA) dropped by 508 points to 1739, which was a 22.6 percent decrease. In fact, this was the largest one-day percentage decline in stock market history.
Alan Greenspan starts out the article explaining his job as the Federal Reserve Board (The Fed) Chairman. He is overly modest while doing this, writing that the title of his position is very misleading. The Chairman controls the agenda for the Board of Governors meetings. The Board decides all other issues by rule of majority, and even the Chairman only has one vote out of seven. He then goes into the “discouraging” economic factors that he had observed around August the year of the crash. The market was showing signs of instability and the government deficits created under Reagan had caused the national debt to the public had almost tripled to two trillion dollars at the end of the fiscal year of 1988. The power of the dollar was decreasing, which caused people to worry about America’s competitive edge in the global economy. Consumer prices were rising at a rate of 3.6 percent. Mr. Greenspan decided that the best course of action would be to raise interest rates. However, he thought that he would not achieve a total consensus among the board members. He slowly built consensus by talking to the Governors individually and got his proposal of a rate increase from 5.5 percent to 6 percent approved unanimously. However, this action was not enough to prevent the market from stumbling in October. On the Friday before the dreaded Black Monday, the market dropped by 22.5 percent. On Black Monday, the Fed decided to focus on two actions: persuading trading firms and investment banks to not pull back from doing business, even though they...
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