‘A champagne lifestyle on Wall Street ended in sudden despair’
A champagne lifestyle on Wall Street ended in sudden despair
Perhaps it was the ambulance parked discreetly outside the New York Stock Exchange for days afterwards that indicated how serious it was.
Late October 1987 and the battered brokers, in their typical sardonic style, joked it was there in case any of them jumped out of the window.
Unlike the 1929 market crash, no one actually did jump and the ambulance was probably there because of fear of heart attacks, given the number of palpitations and panic attacks occurring around the financial district that week.
The so-called “Masters of the Universe” had plunged to earth as quickly as the Dow Jones in its biggest ever one-day fall on Black Monday, October 19.
That is not to be confused with the previous record Dow falls, also on a Black Monday in October, 58 years before — on October 29, 1929.
But in percentage terms the two don’t really compare. 1929 was a mere 13 per cent drop on the day, whereas 1987 was a whopping 22 per cent, which has still never been bettered, or worsened.
But let’s not forget that before The Crash came The Boom.
There had been the Roaring Twenties and the Eighties were dubbed the era of excess.
The US had emerged from the dark economic years of the Carter presidency to Ronald Reagan’s Morning In America, and the soaring stock market had been sent into the stratosphere with the tax overhaul of 1986. Conspicuous consumption was in and the southern tip of Manhattan was the epicentre.
Three colours represent the boom for me: yellow, white and blue.
Yellow for the ubiquitous power tie, which dominated every trading room, bar room, restaurant, and sidewalk.
Sure there were plenty of red braces and pinstripe shirts with white collars, and the awful slicked-back hair a la Gordon Gekko, but it was all about the neckwear.
(That was for men of course, as the women had to make do with wide shoulders in what was called “power dressing”, to make up for the fact they had no real power back then.)
White, the colour of cocaine, which was as popular as the power tie but not quite so overt. Though remnants of white could be found on the surface of many a nightclub toilet and the upper lips of even older brokers.
(Bolivian Marching Powder probably helped the traders who were so wired they would finish work and grab a chopper to continue gambling in nearby Atlantic City, before heading back in the morning for another day on the Great Casino of Wall St).
When searching for signs the party was coming to an end, the crackdown on coke in the financial district is as good as any.
In April 1987, 15 employees of various Wall Street firms were charged with selling cocaine and trading drugs for information, stock, and lists of preferred clients.
“To emphasise the amount of drugs flowing to Wall Street, the NYPD states that 114 people were arrested for buying and selling cocaine on the streets and in parks around the financial district so far in 1987,’ said a report at the time.
“Two undercover agents who were part of the federal bust state that cocaine is either used or accepted by 90 per cent of the people on Wall Street.”
In the months before the crash it was a race between drug dealers and insider traders for the most busts. From January, top firms from Goldman Sachs to Merrill Lynch and Shearson Lehman were all implicated in the insidertrading crackdown by the ambitious young US attorney Rudolph Giuliani.
The other colour that comes to mind in NY at that time is blue. A sea of it on the deck of the new South Street Seaport, where the yuppies massed on Friday night and chugged trendy Fosters beer out of huge tinnies they dubbed “oil cans”.
The Fosterisation of Wall Street did not end there, as this was the era of the Aussie entrepreneurial assault on the US.
Nor was it just wishful thinking by we expat financial journos based there.
It was first identified in 1984 by the late great economist David Hale, who wrote a seminal report pinpointing the phenomenon to the America’s Cup victory by Australia.
And Alan Bond indeed headed the conga line of spivs, shonks and charlatans who paraded through New York in the years before the crash, desperately seeking attention and funds.
At the annual McIntosh brokers conference everyone from the patrician Robert Holmes a Court to perma-tanned Christopher Skase would pitch to the bemused Americans, but nothing beat the year John Elliott stood at the podium with fag in one hand and Foster’s can in the other.
And he was one of the more credible presenters; it was just a shame that most of the audience were not familiar with Bazza McKenzie.
And who could forget, sorry remember, names like George Herscu, the LJ Hooker and shopping centre mogul who at one stage in the eighties owned and killed two major New York retailers — the huge mid-town site of down-market Baltman, and the uptown luxury Bonwit Teller which was next door to Tiffany underneath the shiny new gold Trump Tower on Fifth Avenue.
The really big Australian business name in the Big Apple at the time, and the only one to survive and thrive, was of course Rupert Murdoch, who had owned the New York Post for over a decade but was making his mark with the bold launch of a fourth television network. Fox TV had just turned one year old in October 1987.
Fox was a free-to-air network, as cable news in the form of CNN was still in its infancy and there was no such thing as 24-hour financial channels. So when the crash did come there was only limited access to the information. The screens most huddled around were old school TV ones: that was still better than the ticker tape.
No mobile phones to keep updated and many a landline went unanswered in brokers’ offices on Black Monday.
Aussie broker and former chalky Euan “Junior” Jenkins, then with McIntosh, recalls that day vividly.
“We sat in the office to watch the market open and after about an hour it was too painful so we left,” he said. “We went out drinking Cristal champagne as we all agreed it would be the last drink on the corporate credit card that would get approved.”
Ironically it wasn’t lack of technology to blame but too much, according to many of the investigations post the ’87 crash.
Program trading is usually cited as the main culprit in what was then a newfangled world of computerised trading and little understood portfolio insurance, complex financial instruments and derivatives.
The reasons for the crash have been examined forensically in myriad reports and investigations. Hindsight allows many to claim the signs were there but the panic really set in the Friday before. (just as there had been a Black Thursday the week before the 1929 crash).
One leading broker ordered champagne for all the traders that Friday evening, warning them it was going to be a bumpy ride on Monday.
In fact concern about the market’s giddy heights had become so widespread that even Congressmen in Washington were writing to the Fed with their concerns.
Washington itself was not helping matters with talk of a crackdown on mergers and acquisitions that had fuelled the boom. Fears of a falling US dollar and the surge in the bond market all weighed heavily, and then that weekend tensions escalated in the Persian Gulf, and The Great Storm in London which had closed their market. So what would happen on Monday was anyone’s guess.
The unique specialist trading system that paired sellers with buyers was meant to ensure an orderly market, but with the sheer avalanche of half a billion orders, mainly on the sell sides, they were overwhelmed.
“They were just standing there on the trading floor like catching knives on that day,” is how one Wall Streeter Ray Pryor describes it today.
Rumours that the market would close to stop the carnage proved wrong in New York even though Hong Kong closed for days.
It was only in the wake of ’87 that so-called “circuit breakers” were installed to halt trading in stocks that were in free-fall.
On the Tuesday after Black Monday there were rumours that the market would open late or not at all, but a strong statement of support from the Federal Reserve, offering to stand behind the market with liquidity, proved the turning point.
By the end of that day the market had actually started to recover although the shockwaves would be felt for weeks, months and years. Some would say decades.
One of the first victims in that week was to be Australia’s Robert Holmes a Court, who saw a billiondollar credit line from Merrill Lynch suddenly withdrawn.
Some struggled on punch drunk, like nothing happened. It was in November 1987 that Alan Bond bid a world record $US59 million for Van Gough’s Irises. He only informed Sotheby’s later that he didn’t actually have the money to pay for it and they secretly lent him half the purchase price to keep up public confidence in the art market.
Wall Street the movie was not released until later that year and when the dastardly Gordon Gekko gave his “greed is good” speech, the audience cheered where I was watching it. Little did they know.
Just as the Great Depression did not fully hit until the early 1930s, it really took until the early 1990s for the full ramifications of the ’87 crash to have an impact.
Another “smaller” market crash did come 20 years later in 2008, for different reasons and some similar ones. So it’s probably not a bad thing that so many veterans are gathering for a rash of 30th anniversary commemorative lunches and dinners around the world’s financial capitals this week.
The champagne will flow as we are in midst of another boom, and of course ’87 can never happen again now, can it?
‘After about an hour it was too painful so we left.’ EUAN JENKINS AUSSIE BROKER
The Dow Jones suffered its biggest ever one-day fall on Black Monday and sent shockwaves around the financial world