A College Freshman History Text on the Stock Market Crash of 1987.

American: A Narrative History | 2004 | George Brown Tindall and David Shi

[Enchante]

Thanks for the info - I didn't realize you were referring to Paul Johnson 'cause I was going too fast and didn't notice his initials in your post. Sorry......

[LS]

I love Johnson, but his weaknesses as a conservative text were part of the reason we wrote PHUSA.

[mcvey]

At a college. Where there are NO checks and balances except for students walking out.

[mcvey]

Bailey is long, long, gone. I wonder if my colleagues even remember him.

[conservatism_IS_compassion]

almost none will know about a stock market crash in 1987, which would be a big indicator that the crash was not a major crash, and doesn't deserve much in the way of emphasis except to note that it happened.

If I wanted to survey the history of the stock market, I would want to look at the Dow and other indices on a semilog scale (aka a ratio scale) so that the Great Depression stands out much more in the 1920s-1930s than a similar drop in the absolute scale would look to us when the Dow is above 10,000.

On such a scale the 1987 event would definitely show up because of its magnitude, but its brevity in time - and the lack of corresponding drops in employment - mark it as a non-event in historical perspective. The fact that it is even mentioned in a history book (other than as an indicator of the uncertainties of life in general) is a red flag to me that said book is superficial and negative in much the same way as short-deadline journalism is.

In fact IMHO superficiality and negativity are besetting sins of liberalism precisely because the way to get praised by journalism as "liberal" or "moderate" or "progressive" is to hew to the arrogant, negative, superficial line which naturally gets projected by journalism. From my POV it is a disgrace for a historian to be caught up in the shortsightedness and negativity of journalism - but it is all too common. Journalism styles itself "the first draft of history," and the text you are quoting from definitely sounds like the second draft of journalism.

From my POV history should refer to journalism mainly to point out the fallacies people got caught up in which the perspective of time reveals to be overwrought nonsense.

The wisest and most cautious of us all frequently gives credit to stories which he himself is afterwards both ashamed and astonished that he could possibly think of believing . . .

It is acquired wisdom and experience only that teach incredulity, and they very seldom teach it enough. - Adam Smith

[ReleaseTheHounds]

So how do these authors explain the "snap back" recovery to new highs within one year (for the S&P 500) and within 14 months for the Dow Jones Industrial Average? Not a bad recovery from a one-day 22% meltdown.

What do these "experts" tell you about the Carter years? I bet they blame the high interest rates and recession Reagan faced in 1981 on the Gipper himself, right?

It really galls me the way people try to re-write history.

[Syberyenta]

A course around historical bias sounds like a wonderful idea.

Mother always said "You might be doing exactly right, if you're hated by the right people."

[bimbo]

How old are you that you can be a professor in a college and not be able to claim the 80s as an era which you are intimately aware of?

I just assume that posts like this with obvious inconsistencies are posted by the Left Lurkers to :
1) get a Leftist Statement posetd on FR, and
2) get fellow Leftists to support it.

The Left is working very hard on FR these days

[bimbo]

I was already a professor when this happened. In fact I was driving to work listening to reports that day.

... then you ought to be able to discard the text and dismiss the author as a biased Leftist unworthy of your students attention, without posting the Leftist nonsense on a public forum.

[conservatism_IS_compassion]

Karl, your #80 summarizes the history of the Dow beautifully.

The second, logarithmic graphing of it clearly shows the drastic decline marking the Depression, even though the value of the Dow was far lower back then, such that it's fairly routine now to see market moves which are just as big on a linear scale as the 1929 "crash" but which now are taken in stride as noise.

If I study the logarithmic graph, I want to characterize the big picture by laying a straight edge through the 1945 value and the present value, and call that slope the secular trend of the Dow. Looking at it in a little more detail, I note two long term upward slopes (from 1945 - 1965 and from 1982 - 2000) and two plateaus (from 1965 - 1982 and from 2000 to present). Frankly what occurs to me is that 1945 marked the end of WWII and 1965 marked the beginning of heavy involvement in Vietnam. 1982 was when the Reagan-Kemp-Roth bill began to affect the economy. 2000 was the end of the tech bubble and the beginning of the Sarbanes-Oxley accounting era, but also the beginning of WW IV or whatever the "War on Terror" finally turns out to be.

What stands out for me as the biggest undertold story in that graph is the 1965-1982 stagnation era. The Dow was marching in place, and inflation was very high during that time. The bottom line is that the 1970s were a really bad time for the economy. The era was started under LBJ and climaxed under Jimmy Carter, but it encompasses the entire Nixon-Ford administration.

Given the fact that the DJIA is a limited window on the economy - industrial average has a faintly musty smell to it - there is need for more general indices to characterize what was actually going on. Inflation is one index, employment is another, and demographic trends is yet another.

[Conservomax]

At which college do you teach? If you don't mind me asking.

[mcvey]

Bimbo:

If this remark is directed toward me, you might wish to do a search on my screen name and note the hundreds of posts I have on FR.

I hardly think I am Left-anything.

McVey

[mcvey]

I teach for a Catholic Diocesan college in CT, but live in MA. I don't give out the precise name since:

a.) Conservatives have a very bad time of it at my school (including students);

b.) and I would like to retain what influence I have there.

McVey

[mcvey]

They don't explain the snapback at all.

Nor the non-existent recession.

So . . . it is all fantasy, not a profession.

[tcostell]

To elaborate a little... the cause of the 87 market crash was a risk management tactic known as "Portfolio Insurance". (see the writings of Richard Bookstaber PHD)

In this tactic, an equity portfolio manager can hedge his investment by selling index futures short into a falling market. Since there are no uptick rules for futures it allowed him to get a hedge in immediate time. But since the short selling of the index future accelerated the downward pressure on the overall market, and that pressure was translated back to equities by the use of index arbitrage programs, it caused an immediate need for re-hedging, and it became a downward spiral.

If one manager does it, it works fine, when all managers do it, it's a disaster.


On a side note, during one point in my career, I was working in the same room with Rick Bookstaber (the guy who's theories caused the crash) on one side, and Stanley Shopkorn (ex head of equity trading at Salamon brothers and the guy credited with stopping the crash) on the other.

To my knowledge, they got along quite well.

[Conservomax]

I understand completely - I went to Stonehill - I wondered if that was where you taught.

[spacewarp]

I'm 36. I took a micro class last year at the local community college. I took the time during the spring semester to take a full-time schedule. It was a blast.

The teacher would toss out something that was leftist drivel, and I'd counter it. She would get angry about it and start to challenge me, and I'd just back it up with fact after fact after fact. Eventually, she'd say something, and then look at me and ask for the "reality" of the situation, because she knew the other students were listening to me, not her, and were aware that the drivel wouldn't sell anymore.

When I got done with the semester (finished with a 112 average, as she gave bonus points whenever a student could best her in a debate) I went to her office and had a talk with her. She said that she was going to reevaluate how she tought her students and from what I understand, she's now a regular reader here.

Paul