When most people think about a disastrous historic stock mark crash, their minds go toward the 1929 crash that kick-started the Great Depression. Anything that began an era called the Great Depression had to be the worst, right? In actuality, the worst stock market crash in American history wasn't Black Tuesday but Black Monday and it came many years later in 1987.
The 1987 stock market crash saw stocks drop twice as low as they did in '29, and the Black Monday effects can still be felt today. In fact, despite the devastation of the crash, little to no reforms were made (this is one of the reasons the 2008 crash was able to happen, although on a much smaller, but still quite devastating, scale). The 1987 stock market crash recovery took two years to reach a new closing high, but as recent repeated history would show, lessons were all too quickly forgotten.
After The Crash, Critical Advice That Could Have Helped Avoid 2008's Crash Was Ignored
Despite the confusion and panic that stemmed from the crash, the government worked hard to implement new policies and introduce strong leaders. New York Federal Reserve Bank President E. Gerald Corrigan and New York Stock Exchange Chairman John J. Phelan Jr. were among those to lead the way to recovery.
In addition, Nicholas F. Brady led a commission that encouraged a regulator be instated to take action when they noticed notable risk emerging from the combined markets. Diana B. Henriques wrote for The Atlantic:
"In the aftermath of 1987, a blue-ribbon commission led by Nicholas F. Brady—a Wall Street veteran, a former New Jersey Republican senator, and a future Treasury secretary—tried to persuade Washington to adapt to the fundamentally new fact that the individual markets for stocks, futures, and options now, for all practical purposes, made up a single marketplace. The Brady commission urged that a single regulator be empowered to take a comprehensive view of this newly unified market and to act whenever and wherever a systemic risk emerged."
This exact advice was suggested in the aftermath of 2008's crash, as well.
Warning Signs Have Been Cropping Up That Foretell Another Possibly Imminent Crash
According to ABC, there are many similarities in our current economy that resemble those leading up to Black Monday. A few of these include: "Surging oil prices. A slowing economy. Stocks near records in an aging bull market. Volatility on the rise." Yeah, a few of these, especially that last one, sound familiar.
It may be slightly reassuring that crashes of that magnitude are rare. Although, it is important to note that when it comes to the stock market, you can never truly predict where it's going to go. Plus the lack of reform change since Black Monday means no one is watching out for and helping the avoidance of another major crash.
No "Meaningful Reforms" Have Been Made Since Black Monday
One of the most concerning revelations when looking back at Black Monday is that very few reforms have taken place since that crash. That isn't to say no steps have been taken to prevent a similar devastation. According to Richard Ketchum, "many of the problems that fed the panic on Black Monday - overwhelmed trading systems, faulty communications and a lack of circuit breakers to halt trading - have been addressed in the past 20 years." But as far as recommended regulation reform, they continue to be ignored.
Financial regulators and Congress have been so busy putting out fires in individual sectors - such as the crises in savings-and-loan industry - and the politicization of the issue at large has made change slow. Even after 2008's collapse, other political agendas, namely health-care reform, soon took over. The best that has been done is to "patch a few gaping holes and add some embellishments to the Rube Goldberg-like construction already in place."
People's Panic Can Offset Even The Best Preparedness
When it comes to the stock market, at the end of the day, it all comes down to the people - and people panic. Panic over the stock market is a major reason contributing to a crash and played a huge factor into 1987's plummet. Even with what few defense mechanisms are in place to help offset declining numbers, panic can undo any good work.
Another important behavioral pattern to note is that most crashes occur after a time of rapid spending. When consumerism is at a high, especially consumerism on credit, it's time to consider when the other shoe may drop.