‘A cham­pagne life­style on Wall Street ended in sud­den de­spair’

A cham­pagne life­style on Wall Street ended in sud­den de­spair

The Weekend Australian - - BUSINESS REVIEW - JA­NINE PER­RETT

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

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