Fear of inflation was the final straw for Wall Street

If share prices fell today on the same scale as they dived on Monday 19 October 1987, the Dow Jones index would shed about 1,800 points. The crash a decade ago on Sunday was, proportionately, twice as bad as the Great Crash of October 1929.

It did not hit London quite as severely. Although the stock market had been closed on Friday by the previous night's catastrophic storm, the FTSE 100 index fell by "only" 11 per cent on the Monday. But even that would correspond to a more than 550-point collapse today.

A biography of Alan Greenspan, the Federal Reserve chairman, reports that he flew to Dallas, Texas, on the Monday morning to give a speech. Arriving at the airport after the market had closed in the afternoon, he first misunderstood officials telling him the Dow had fallen by "five- oh-eight" as a 5.08 drop, not 508 points, or 23 per cent. Three hundred points of the decline had occurred in the last hour of trading. The book, Back from the Brink, notes: "Oddly enough, Greenspan recalls he slumbered peacefully that night, getting his usual five hours of sleep."

Although the Monday was cataclysmic, the previous week had been bad enough. The index had fallen 95 points (a record) on Wednesday after the publication of bad trade figures, 58 points on Thursday, and 108 points on Friday (another record).

One of the characteristics of the 1987 crash was the way the baton was passed from market to market around the globe. After New York closed, Tokyo and Hong Kong recorded declines, and London followed suit the next morning. London kept it up on Tuesday 20 October, recording another 12 per cent drop.

A second feature was the way automatic "program trading" by arbitrageurs accelerated the fall in shares, which happened so rapidly that the NYSE's communications systems could not display up-to-date prices. The introduction of "circuit breakers" after a 50-point fall in the Dow should prevent a repeat, imposing pauses when the index is heading up or down too sharply.

With hindsight, all the conditions had been there for a stock market crash. Shares had risen very sharply, and were fairly widely regarded as overvalued. There was a clear imbalance in the US economy, which was manifested in the yawning trade deficit.

There was also severe tension between the American and German governments over the levels of their currencies. The Louvre Accord, agreed the previous spring, had halted the two-year fall in the dollar from its 1985 peak. But by the autumn the co-ordination seemed to be breaking down, and the Germans had raised interest rates earlier in October.

The final trigger was the fear of higher inflation. Sudden signs of wage and cost pressures took long-term bond yields higher, making equities look even more overvalued.

Life and Style
life
News
Brad Pitt and Angelina Jolie reportedly married in secret on Saturday
peopleSpokesperson for couple confirms they tied the knot on Saturday after almost a decade together
Life and Style
Chen Mao recovers in BK Hospital, Seoul
health
News
Joan Rivers has reportedly been hospitalised after she stopped breathing during surgery
people81-year-old 'stopped breathing' during vocal chord surgery
PROMOTED VIDEO
News
ebooksAn evocation of the conflict through the eyes of those who lived through it
Arts and Entertainment
tv
News
i100
Arts and Entertainment
Diana from the Great British Bake Off 2014
tvProducers confirm contestant left because of illness
Arts and Entertainment
Lisa Kudrow, Courtney Cox and Jennifer Anniston reunite for a mini Friends sketch on Jimmy Kimmel Live
tv
Life and Style
fashion

Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Client-Side web developer (JQuery, Javascript, UI, JMX, FIX)

Negotiable: Harrington Starr: Client-Side web developer (JQuery, Javascript, U...

Structured Finance

Highly Competitive Salary: Austen Lloyd: CITY - An excellent new instruction w...

SQL Server Developer

£500 per day: Harrington Starr: SQL Server Developer SQL, PHP, C#, Real Time,...

C#.NET Developer

£600 per day: Harrington Starr: C#.NET Developer C#, Win Forms, WPF, WCF, MVVM...

Day In a Page

Ukraine crisis: The phoney war is over as Russian troops and armour pour across the border

The phoney war is over

Russian troops and armour pour into Ukraine
Potatoes could be off the menu as crop pests threaten UK

Potatoes could be off the menu as crop pests threaten UK

The world’s entire food system is under attack - and Britain is most at risk, according to a new study
Gangnam smile: why the Chinese are flocking to South Korea to buy a new face

Gangnam smile: why the Chinese are flocking to South Korea to buy a new face

Seoul's plastic surgery industry is booming thanks to the popularity of the K-Pop look
From Mozart to Orson Welles: Creative geniuses who peaked too soon

Creative geniuses who peaked too soon

After the death of Sandy Wilson, 90, who wrote his only hit musical in his twenties, John Walsh wonders what it's like to peak too soon and go on to live a life more ordinary
Caught in the crossfire of a cyber Cold War

Caught in the crossfire of a cyber Cold War

Fears are mounting that Vladimir Putin has instructed hackers to target banks like JP Morgan
Salomé's feminine wiles have inspired writers, painters and musicians for 2,000 years

Salomé: A head for seduction

Salomé's feminine wiles have inspired writers, painters and musicians for 2,000 years. Now audiences can meet the Biblical femme fatale in two new stage and screen projects
From Bram Stoker to Stanley Kubrick, the British Library's latest exhibition celebrates all things Gothic

British Library celebrates all things Gothic

Forthcoming exhibition Terror and Wonder: The Gothic Imagination will be the UK's largest ever celebration of Gothic literature
The Hard Rock Café's owners are embroiled in a bitter legal dispute - but is the restaurant chain worth fighting for?

Is the Hard Rock Café worth fighting for?

The restaurant chain's owners are currently embroiled in a bitter legal dispute
Caribbean cuisine is becoming increasingly popular in the UK ... and there's more to it than jerk chicken at carnival

In search of Caribbean soul food

Caribbean cuisine is becoming increasingly popular in the UK ... and there's more to it than jerk chicken at carnival
11 best face powders

11 best face powders

Sweep away shiny skin with our pick of the best pressed and loose powder bases
England vs Norway: Roy Hodgson's hands tied by exploding top flight

Roy Hodgson's hands tied by exploding top flight

Lack of Englishmen at leading Premier League clubs leaves manager hamstrung
Angel Di Maria and Cristiano Ronaldo: A tale of two Manchester United No 7s

Di Maria and Ronaldo: A tale of two Manchester United No 7s

They both inherited the iconic shirt at Old Trafford, but the £59.7m new boy is joining a club in a very different state
Israel-Gaza conflict: No victory for Israel despite weeks of death and devastation

Robert Fisk: No victory for Israel despite weeks of devastation

Palestinians have won: they are still in Gaza, and Hamas is still there
Mary Beard writes character reference for Twitter troll who called her a 'slut'

Unlikely friends: Mary Beard and the troll who called her a ‘filthy old slut’

The Cambridge University classicist even wrote the student a character reference
America’s new apartheid: Prosperous white districts are choosing to break away from black cities and go it alone

America’s new apartheid

Prosperous white districts are choosing to break away from black cities and go it alone