This is an extract from Iain Martin’s recent book, Crash Bang Wallop: The Inside Story of London’s Big Bang and a Financial Revolution that Changed the World
“Earlier on today, apparently, a woman rang the BBC and said she heard there was a hurricane on the way … well, if you’re watching, don’t worry, there isn’t.” Michael Fish, BBC weatherman, October 1987
Hurricanes hardly ever happen in the Home Counties. Yet at 2am on 16 October 1987 hurricane-force winds were exactly what hit southern England. Nineteen people lost their lives in the carnage; a wind speed of 149kmph was recorded at Heathrow Airport; much damage was done to the foliage at the Kent estate of the Governor of the Bank of England Robin Leigh-Pemberton; and the town of Sevenoaks lost six of its famous trees. During the clear-up operation, BBC weatherman Michael Fish was widely ridiculed for his television broadcast made the previous evening as the storm wheeled its way towards the British coastline. Ever since, Fish has said that he had been misunderstood, and that his dismissal of a hurricane being on the way referred to the question of whether one was due in the Caribbean. He had warned of high winds in the southeast of England in the expectation that the worst would pass through the English Channel and subside. The Met Office was operating with rudimentary satellite technology and only one weather ship thanks to government and EC cuts. Something as awkward as the truth was not going to prevent the misleadingly edited clip of Fish’s hurricane comment being re-run in countless documentaries and news reports ever since.
That Friday morning the storm caused chaos in commuter land, and with train services cancelled, and roads blocked, very few staff in the City made it to their desks. Some battled through, among them Brian Winterflood of Bisgood Bishop, who was one of the proud few who kept trading all day. The Stock Exchange was open for business, although the Seaq computer system was not working and after a few hours the FTSE was suspended for the day because so little was being done. The timing of this day of disruption could hardly have been worse. Entirely unrelated to the chaos in England, Wall Street’s falls on Wednesday and Thursday were followed by further volatility on Friday. It was exacerbated by traders in a hurry getting out of stocks and swamping the market for futures options. By the time the markets closed it meant that the S&P 500 had lost 9 per cent of its value in a week, making it one of the worst results in more than a decade. This timing mattered because in Tokyo and London executives, analysts and traders now had all weekend to call each other and worry about how bad it might be on Monday morning. The weekend newspapers also carried appropriately gloomy commentary about the prospects, and many of those making decisions finished their weekends knowing they would have to get in sharp the next morning and start selling right from the start. Even so, the force of what followed came as a shock. In the words of Ben Wrey at Henderson Global, when it hit the City that Monday it hit ‘like a hurricane’.
In their offices, with the screens running red, traders did their best to hold on tight. Terry Smith at BZW recalls shock, awe and panic all around him. Many of the younger traders who were earning comparatively large salaries had known little but rising share prices and optimism since they signed up a few years previously. Some were witnessed crying. The Eurobond specialists might have had an apprenticeship in market chaos the previous winter, but those who dealt in shares had enjoyed, with a few deviations, one of the great bull markets in history. Now prices were collapsing in a terrifying orgy of selling. Indeed, prices fell so much for the simple reason that it was all but impossible to find buyers.
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The situation deteriorated when the US opened, and again the attempts of arbitrageurs to profit from the volatility caused confusion. At 10am in New York, some specialist firms did not trade for the first hour. Many of the top stocks – eleven out of thirty on the Dow Jones Industrial Average – opened late, causing traders to rush into the futures market to buy options. Then the stocks opened lower than the arbitrageurs had anticipated. The result was chaos and wild selling, at which point the chairman of the Securities and Exchange Commission, the US regulator, proceeded to unintentionally make it much worse. Speaking at the Mayflower Hotel in Washington, David S. Ruder, relatively new to the post, said: ‘There is some point, and I don’t know what point that is, that I would be interested in talking to the New York Stock Exchange about a temporary, very temporary, halt in trading’. This was a logical development of the position he had outlined earlier that month, in his speech to the Bond Club of Chicago. There he mused on the risks from volatility in derivatives markets, of products based on options, or baskets of options linked to indexes, increasing the potential for confusion among traders and regulators. It might make sense to introduce a system to halt the market temporarily for thirty minutes or so to allow the restoration of order during an emergency, he had suggested in Chicago. Such rational concerns made sense in a quasi-academic speech. Those views, repeated initially without the full quotes, in a garbled fashion, a few weeks later on the day of a real live stock market crash, only intensified the panic. At 11.41 a wire report flashed up: SEC HAS DISCUSSED TRADING HALT. NOT NOW. Thirteen minutes later, there was an update: RUDER ON HALT. ANYTHING POSSIBLE. ‘Anything possible’ are not words financial speculators like to hear. Rumours spread that the New York Stock Exchange (NYSE) would close completely for the day, worrying traders who feared they were about to be stuck with stock they didn’t want that would be marked right down if the markets closed for a pause and then reopened later. Selling increased as traders raced to offload whatever they could. At 1.04pm the Dow Jones News Service published the full Ruder quote from a few hours earlier. In the confusion it looked as though this was Ruder’s second comment within two hours, when it really only confirmed his earlier remarks. The Dow Jones report was the trigger for more hysteria. It rippled right out across the US, as smaller stockbrokers tried to explain to their small investor clients what was happening. The next day, the Wall Street Journal reported a stockbroker in Pittsburgh answering the phone as ‘John End-of-the-world-Posterato’, telling a client: ‘Oh no! Shut up and listen to me … You’re in bad shape. I told you guys to get out, but you don’t listen. What should you do now? Pray a lot.’ (*)
For the young Christopher Tomkinson at his trading desk at Fulton Prebon in London, the drama gave him his first lesson in the power of panic and markets going berserk. His early trades in London left him exposed when the US market fell. The market in London went (twice) into what was termed ‘fast market’ status. That meant that prices were not held. He had committed the trade but the outcome depended on where the prices ended up later. It was, he told Financial News, too late to extract his orders. ‘I could only watch and wait. We smoked a lot … I dared not trade anything else. I felt like an amateur juggler faced with eight flaming torches.’ An hour after the US markets shut he discovered that, thanks to that day’s volatility, what should have turned in a $900,000 profit was actually a $122,000 loss. When London closed on Monday, the FTSE had fallen 11 per cent, or a record fall of 183 points. All manner of big companies were now worth a lot less than they had been twenty-four hours previously, not least of which was Rupert Murdoch’s media business, down $1bn in value.
In the chaos, worsening news sometimes took a while to filter through. Before the age of the smart phone, it was possible (incredible as it might seem) for even senior people to be out of touch for an hour or two when they made the commute home. Ben Wrey knew it had been bad that evening, but when he got home and turned on the Nine O’Clock News he saw it was even worse than he feared. The Dow had fallen more than 500 points. In response he almost fell off his armchair. It had been a day of records, and not in a good way. In New York, the Dow fell 508 points in the end, closing at 1738.74, a 22.6 per cent slide and worse than any single day of the crash of 1929. More than 600 million shares were traded, which was a huge surge in volume. It was, wrote Chris Huhne, then the economics editor of the Guardian, ‘a brutal reminder of how elemental and untamed economic forces still are. As in 1929, the financial tempest was unheralded.’ The speed of the collapse also meant that a central weakness of the system was exposed when a multi-billion-dollar chain broke down. Part of the problem was that investors buying a futures contract lodged a sum as security with the broker. The broker lodged a portion of that with the exchange. In normal conditions this worked to create liquidity and to encourage trading. If the contract deteriorated, they had to post more security before the market opened for business the next day. When the market fell as fast as it did on Black Monday, the margin calls – the calls to post ever more security on contracts that were losing value – were ten times the normal level and many firms looked as though they would have to cease trading. Phelan at the NYSE had to contact the Federal Reserve to plead for assistance in encouraging the biggest banks to extend large lines of credit to investors and brokers. According to the Fed’s investigation, Citigroup’s lending to securities firms that day was reported to have hit $1.4 trillion as against $200m to $400m on a normal day. (*) The Federal Reserve, keen to avoid a repeat of 1929, let it be known that it would do whatever it took to help the banks and the markets. When the markets closed, the ex-Marine chairman of the New York Stock Exchange, John Phelan, held a press conference in which he was frank: ‘I call it the nearest thing to meltdown I’m ever likely to see … If it wasn’t a meltdown it was certainly as hot as I want it to be.’ Phelan had warned trading firms for a while about their over-reliance on electronic trading and derivatives such as stock index futures. He believed these had the potential to exacerbate the panic, since only a handful of traders understood the concepts well enough to take advantage of them in a crisis. In an emergency, many others were just guessing.
In London terms this crash amounted to the worst experience since the secondary banking crisis of the early 1970s and this was much more concentrated, fast paced (thanks to technology) and high profile because of media attention. Suddenly London’s geographical position seemed not to be such a boon either. What had been perceived as an advantage around Big Bang, in good times, of the glamorous market that never sleeps running on an almost continuous global loop, with Tokyo and other markets in the East leading off, London following and then New York and Chicago kicking in five hours after that, now seemed a year later like a carousel out of control. A bad session in one time zone influenced behaviour in the next, and round and round it went. How could you stop the world’s markets and say I want to get off? The answer was that you could not. At the close of Black Monday, the Chancellor of the Exchequer watched developments with some trepidation. Nigel Lawson’s first concern was to prevent a complete collapse in confidence in Britain’s boardrooms. He felt it was his job to project confidence, certainly much more confidence than he felt, in the hope that a crash in the markets was not followed by a dip or worse in the wider economy. ‘Privately, I wasn’t sure which way it was going to go,’ says Lawson thirty years later.
There was little clear guidance from senior figures in the Reagan administration, with splits at the top of the government over how to respond, and the Treasury Secretary, James Baker, indicating that he was relaxed and did not think US interest rates should have to rise to deal with the dollar problem. It fell to America’s central bank, and governor Alan Greenspan, to offer reassurance to the markets. ‘The Federal Reserve, consistent with its responsibilities as the nation’s central bank, affirmed today its readiness to serve as a source of liquidity to support the economic and financial system,’ Greenspan said on Tuesday the 20th. In essence, he pushed banks to keep on lending and to extend lines of credit, assuring them that the government would stand behind them if needed. This reassurance came at a price, it would transpire much later. Greenspan’s spraying of liquidity during any emergency came to be expected by those who operated in the markets. Might the confident assumption that they and the system would always be saved make them a little friskier when it came to risk and willing to take bigger gambles? The answer with the benefit of experience of the aftermath of the sub-prime crisis of the mid- to late 2000s seems to be ‘yes’.
Black Monday and the following week was not a disaster for everyone. Ross Jones and the team at Gerrard & National, the discount house, were transfixed by the turmoil and then retreated on the evening of the 19th to a Lords’ Taverners’ dinner at the Savoy Hotel where they had booked a table. One of their colleagues – Roger Gibbs – arrived late with the news that ‘Wall Street’s down seven hundred points.’ Gerrard & National were less exposed than many others, because they traded in fixed incomes – bonds – although the following day they pondered nervously what to do, until a member of their board phoned in to point out that they were in an extremely good position. There would now be a ‘flight to quality’ and the relative security of bonds. ‘The 1987 Crash was terrific for us,’ says Jones. They made a lot of money that week. Elsewhere, almost immediately, the crash had produced a change in atmosphere and outlook. The young head-hunter Philippa Rose noticed first the quietness and seriousness that descended on the City in the days following Black Monday. And then the phone rang, but this time with banks saying that all hiring was now suspended.
What the merchant banks and securities houses wanted suspended most of all was the British Petroleum privatisation, which by unfortunate timing was underway right in the middle of the market emergency. The British government’s attempted £7.2bn sale of its remaining 31.5 per cent share in BP was, as Lawson said, ‘the largest share sale the world had ever seen’. On the morning of 15 October, when those initial tremors were hitting the global markets, Norman Lamont (the government minister in charge of the privatisation programme) and the chairman of BP, Peter Walters, announced the price of the sell-off (330p per share). By the morning after Black Monday, those who had agreed to underwrite the BP deal for a fee decided to ask the government to cancel, which Lawson and Lamont refused to do. The scrapping of the sale would not only have punched a hole in the government’s accounts for the year, it would have suggested that institutions that had done very nicely out of privatisation wanted to be bailed out when market conditions were not in their favour. Lawson did, though, order the suspension of advertising, as in a falling market the government did not want to encourage any small investors to put their money into BP.
At that point, the chief smoothie from N.M. Rothschild, Michael Richardson, attempted to persuade Lawson to pull out. Richardson was an arch-networker – a City grandee and Freemason – who was used to being able to talk his way out of trouble, although this time he would have only limited success. On Friday 23rd he told Lawson that the seventeen British banks leading the underwriting were meeting to examine invoking a clause in the contract enabling them to withdraw and not purchase any unsold shares. Incredibly, and to the fury of Lawson and Thatcher, the Bank of England then took the side of the merchant banks. This convinced Lawson not to concede, and while he and the government offered to put a temporary floor under the price – buying back shares below an agreed level – the issue went ahead.
While these awkward discussions over BP continued, history played one of its tricks on the architects of Big Bang. The week after Black Monday, the Stock Exchange had arranged an anniversary conference on Monday 26 October 1987 to celebrate the success of their venture. At a press conference Goodison and other prominent figures made presentations before being questioned about the crash. Goodison acknowledged that the circumstances were not ideal, although he defended London and accused Washington policy makers of incompetence. ‘The cause of the fall has not been the markets,’ he said. ‘It has been the decisions taken, or not taken, by world governments, particularly the United States of America … My view, and the European view, is that something needs to be done with the US fiscal deficit. One of the sad things about the present scene is that the U.K. is an outstanding country at the moment economically.’ And the reformed London Stock Exchange was holding up during the crisis, he said. The next day’s Washington Post summarised Goodison’s explanation as follows: ‘The computers didn’t crash, the exchange did not close, and no one jumped out of a window.’
That day in the House of Commons, on Monday 26th, Labour MPs were far less sanguine. There was uproar as news of further falls on the markets filtered through from the City. The Shadow Chancellor John Smith, who had been appointed a few months earlier, demanded an urgent statement from Lawson and offered to scrap a debate on education to accommodate a full discussion of the market turmoil and the BP row. Lawson, it was explained to MPs by a Tory frontbencher, could not be in the Commons because he had to fulfil ‘an existing engagement in the City’. That involved him speaking at Goodison’s conference on what a brilliant success the previous year’s Big Bang had been. Labour MPs went quite wild at this explanation and Brian Sedgemore MP described Lawson in such unparliamentary language – ‘the arrogant bastard’ – that the Speaker who presides in the Commons forced him to withdraw. The sharp-dressed cockney wit Tony Banks, another Labour MP, got further when he said that the ‘fat bounder’ of a Chancellor should be dragged to the Commons in a tumbril to explain himself. The Speaker, Bernard Weatherill, objected to the term ‘fat bounder’. A vintage Commons exchange followed.
Speaker: ‘I dislike that expression.’
Banks: ‘Right. Corpulent gentleman.’
Speaker: ‘Almost as bad.’
Banks: ‘All right. Rt Hon corpulent gentleman.’
For John Smith and Labour, the crash was the first good news they had had in a while in their battle against a Tory government with a large majority. It was not that the Opposition wanted the value of Briton’s pensions and investments to fall, but here was some evidence that the value of free market reforms, much like a share price, could go down as well as up. Labour spokesmen had used the City scandals of recent years to suggest that what had been unleashed was inherently corrupt, with the Conservatives creating a suspect set-up to suit their rich friends. Now the modernised City and global capitalism had delivered a crisis.
The press reaction to these events revealed contrasting perspectives. The FT, its journalists presumably mindful that there had been crashes throughout history and would be crashes again, dialled down on the hysteria and a week after Black Monday was almost relaxed in its analysis. The Daily Mail, a newspaper that had, and has, such an instinctive feel for the hopes and fears of southern England, was much more direct. The further falls a week after Black Monday caused the paper to get stuck into the authorities. Over two pages on Tuesday 27th the headline ran: ‘It was relentless … down, down, down …’ Another item mocked Goodison’s Big Bang anniversary conference, declaring that there had been ‘smoked salmon’ but ‘no signs of suicide’. The front page was even more to the point, taking up Lawson’s theme about failure by the Reagan administration and urging action by the Americans. The waspish splash headline – ‘Don’t just sit there … do something!’ – was a clever play on Reagan’s famous non-interventionist small-government dictum that it was often better for government to just sit there (don’t do something) rather than making matters worse.
Few had seen the October crash coming. The father of Zac Goldsmith, Jimmy Goldsmith, the swashbuckling businessman and corporate raider with a complicated private life straight from the pages of a thriller, was one of those who did. Ahead of the crash he sold every share he had. Only a few others did likewise and the usual recriminations, and calls for inquiries, observable in most crashes down the ages, then played out. In Washington the Reagan administration urgently wanted answers and turned to Nicholas F. Brady, an experienced financier, Yale athlete, WASP and friend of George H. Bush, then Vice President. On 8 November 1987, President Reagan issued an executive order establishing a task force led by Brady to report within sixty days on why the crash had happened and what might be done to prevent a repeat.
Brady stands out as one of the most fascinating Wall Street and political players of his generation. He was largely responsible for an improvement in the fortunes of the investment bank Dillon, Reid & Co. in the 1980s, although he was solidly unfashionable. He was sceptical about the takeover boom, spent some time in the US Senate, and later, under Bush, became Treasury Secretary. Brady bonds, the ingenious invention which allowed the restructuring and reduction of debt in developing countries in the late 1980s and early 1990s, carried his name. Contrary to expectation, the Brady Report on October 1987 when it landed the following January was an impressive piece and clear-sighted work. The assorted markets that had developed – in stocks, in futures, in swaps – were not set up to operate as ‘one market’ and, on the day, confusion had been the defining feature. The clearing systems – by which trades were logged and transacted – were not good enough and computerised programme trading introduced risks that should be mitigated, it said. Brady’s team suggested the introduction of so-called ‘circuit breaks’ that could be used to pause trading and prevent a repeat of overly drastic falls in prices. Some of these conclusions were contested, particularly by more free market types who feared that the response would require greater bureaucracy, rather than allowing the Exchanges in New York and Chicago to adapt and find their own solutions.
Regardless of such concerns, the report formed the basis of reforms made in the US, and it and other reports encouraged regulators and policy makers to cooperate more closely with their counterparts in other major countries. Indeed, the crash had shown how quickly developments in markets in the Far East could work their way to London and then New York and back again. The transmission speed of a shock could now be measured in seconds rather than hours, days and weeks. That being the case, there was a need for much closer cooperation and international standards in markets that had become far more global. Later, Brady attributed the events of October 1987 in large part to the increased clout of the Japanese. Their traders had started the crash, over fears about the US economy and the dollar, and the powerful Japanese finance ministry and biggest houses had halted it. It was a seeming testament to the erosion of American power and to the increasingly interconnected nature of markets, or rather the speed at which shocks and corrections were transmitted between trading centres. ‘The real trigger’, said Brady,
[+EXT] was that the Japanese came in for their own reasons and sold an enormous amount of U.S. government bonds and drove the 30-year government [bond] up through 10 per cent. And when it got through 10 per cent, that got a lot of people thinking, ‘Gee, that’s four times the return you can get on equity. Here we go, inflation again.’ That, to me, is what really started the 19th—a worry by the Japanese about the U.S. currency.(*)[/EXT] [f.o.]When the markets crashed, the Japanese government encouraged the country’s biggest securities houses – Nomura, Daiwa, Nikko, and Yamaichi – to prop up the market, which halted the slide in Tokyo and produced (for a few days at least) a relative respite in the US and in the UK.
The comprehensive nature of Brady’s response in the US was in contrast to what happened in the UK. The Governor of the Bank of England, Robin Leigh-Pemberton, acknowledged in a speech in February that the British had been criticised for not having much to say about the causes of the crisis. The frequently under-estimated Leigh-Pemberton did then have a good stab at offering a cogent analysis of the crash. He explained just how big the bubble had been: ‘In London, prices began to rise in a sustained way in early 1982, when the FT 30 share index stood at around 550. Over the succeeding five years or so, to the middle of 1987, the index moved up, to about 1850, an increase of almost three and half times.’ Allowing for inflation, the real terms increase in prices was still in the region of 170 per cent. That had inflated profits and pay at securities houses and they would now feel the strain. It was not complacency, however, to claim that in difficult circumstances the trading systems in London had worked, he said. They had functioned relatively well under extreme pressure. And no amount of technology could ensure that everyone who wanted to get out of a market in an emergency could do so without suffering ill effects. ‘So far, at least, the financial system seems to have weathered the storm passably well.’
These were lame Establishment excuses according to those who had expressed scepticism about the City revolution, the rising salaries of traders and the concept of increased share ownership. Wasn’t Black Monday and its aftermath evidence that the hyped global financial revolution had encouraged greed and brought destruction? Those who thought so could get a dose of righteousness, and a hugely entertaining ride through boom-time Manhattan, by reading Tom Wolfe’s Bonfire of Vanities, which was published in October 1987. Wolfe’s central character, Sherman McCoy, was a greedy bond trader who crashed in his Mercedes and was propelled into a race row that landed him in the tabloids and the dock.
Alternatively, concerned citizens on both sides of the Atlantic could go to the cinema at the end of 1987 to see a film that had been made with the Boesky insider-trading investigation in mind but which now looked like a perfectly timed indictment of an entire era. On 11 December, Oliver Stone’s morality tale Wall Street was released. The lead character was the corporate raider Gordon Gekko, a new-generation Wall Street titan with slicked-back hair, braces and a beach house full of modern art. He and his protégé Bud Fox, a hungry young trader who sells out his heritage in search of wealth, were from different angles archetypes of the age. In the film, Fox is so greedy for 1980s success that he is drawn into insider dealing and persuades Gekko to purchase the airline for which works Fox’s blue-collar father, played by Martin Sheen. Stone presents the resulting scandal as a collision between honest toil and rampant greed. In the most famous scene, Gekko explains his philosophy to the shareholders of a paper company that is struggling. He explains how he can unlock value and make the discontented shareholders money. Hidden value, squandered or overlooked by corporate bureaucrats and managers, can be liberated and put into the pockets of the owners. At a mass meeting of hundreds of shareholders of Teldar Paper, his Michael Milken-esque polemic is a popular message.
Greed should be embraced, Gekko tells the audience. It is nothing to be ashamed of, he says. “Greed is right, greed works. Greed clarifies, cuts through.”
A week after the release of Wall Street, Ivan Boesky was sentenced to three years in prison for his part in the insider-trading scandal, for conspiring to file false stock-trading records. He admitted buying inside information from Dennis Levine, an investment banker. Levine was already in prison. Marty Siegel, formerly one of the leading corporate merger specialists on Wall Street, had taken $700,000 from Boesky for illicit information on deals. Siegel also pleaded guilty to criminal charges. The greed of Boesky and his accomplices made it seem that the cinematic representation of Wall Street was a fair reflection of real life in investment banking and on trading floors. Here Oliver Stone cleverly pushed some extremely old buttons too. The G-word – greed – was transgressive, an old testament taboo, a deadly sin, that all but the most extreme capitalists and coked-up traders would recoil from. While wealth creation and ambition are one thing, and rampant greed is another, the extravagant behaviour in the years leading up to October 1987 and the way in which it was portrayed by a novelist and a film director helped blur the distinction in the public imagination.
In Britain, rather typically, as has been the case for centuries, the artistic response to a crash and the forces that created it was primarily satirical and amusingly silly. In early 1988, the comedian Harry Enfield unveiled the character ‘Loadsamoney’, a brash plasterer waving about his wad of ‘dosh’ on Channel 4’s ‘alternative’ comedy show Saturday Live. It was much more effective to satirise Thatcherism and condemn an obsession with acquisition by using a plasterer as opposed to a pension fund manager. But mortifyingly for the satirists, the vulgar Loadsamoney promptly became extremely popular and even had a hit single that took him onto Top of the Pops. The joke for a while was on Enfield, although the royalties may have eased any embarrassment. Indeed, there was something a little rich about alternative comedians – many from privileged and extremely affluent backgrounds – being so snooty about others, from places such as Essex, getting a shot at rapid advancement. Enfield had to kill off his creation when he became concerned that too many viewers relished his boasting and rudeness towards the poorer regions of England, although not before Labour leader Neil Kinnock deployed Loadsamoney as an example of all that his party asserted was wrong with Thatcher’s Britain and the City.
Was that fair on those who had enjoyed such rapid accumulation of wealth? The rewards and the excitement had produced a surge of excessive confidence that this would not end. Like many other practitioners of his generation, Ben Wrey felt that the youngsters who had flooded Wall Street and the City were too optimistic and had become intoxicated by the market climbing ever higher. ‘My view of markets was a different one, that they were tough … I mean they just make you look like a fool so often.’ Such criticism was understandable and Wrey’s was an astute observation born of experience, but who had allowed them to act like that? It was the elders of high finance on Wall Street and the City who had sanctioned the construction of the post-Big Bang machine, with its aggressive assumptions about the power of technology and the possibilities of rocketing pay. It was hardly surprising that some of those who had been recruited to man the machine were naive about its defects and blasé about the potential for disaster. But then the crash of 1987 wasn’t a sustained disaster, or at least not one that seemed to endure in the couple of years immediately after the Great Storm, either in the City or on Wall Street. What was remarkable after such an intense episode was how quickly the markets recovered. The falls were reversed within months, so that Lawson could later describe October 1987 as an economic non-event. It seemed not to spread much into what the media referred to as ‘the real economy’ and it would not create a repeat of 1929. Growth was strong in 1987 and 1988.
There was a lot more to it than that though. Stock markets and share prices were far from being the whole story and it should not be seen in terms of short-term fluctuations. There had been what amounted to an explosion of money in the decades since the 1960s, a revolution that facilitated bigger debt markets, new forms of trading, new products, changed markets, and computerisation that shrank the Western world and increased transaction speeds dramatically. At home, the Reaganites and Thatcherites had also enabled easier access to credit and the creation of a property bubble that would eventually result in overheating and the recession of the early 1990s. The seemingly inexorable rise of Japan would soon be halted, and in the UK and the US politics was about to transformed by leaders who accepted the framework of expanded markets and nascent globalisation. Simultaneously, the aftermath of the crash caused considerable carnage in the City, when it exposed how unprepared for competition were the firms that had been bashed together ahead of Big Bang. More scandals and explosions were on the way too. The City’s trajectory was up and up, again, but not in a straight line.