Black Monday

Are we facing devastating financial crisis ever after the Great Depression? will it become the most severe crisis after the Great Depression in 1929? For some economist, it will be happened to the worldwide economy. The financial system's failure in the United States has led to massive bankruptcy in the financial system, which dominated by investment banking.



Are we facing devastating financial crisis ever after the Great Depression? will it become the most severe crisis after the Great Depression in 1929? For some economist, it will be happened to the worldwide economy. The financial system's failure in the United States has led to massive bankruptcy in the financial system, which dominated by investment banking.

Now, let's take a look back on history, especially in the United States. There were a lot of crises during the 1929 crisis until nowadays. Among those crisis, I found that the most devastating crisis after the Great Depression (once again, its my opinion) was occurred in October 19, 1987. Black Monday (that's what it called), began in Hongkong and widely spread over the world through European market and ended in the United States. At that time, stock price had plunge unfathomable and caused the index dove. The Hangseng Index dove 45.8% followed by Dow Jones Industrial Average which plung until 22.6% in just one day. The crash was also followed by Australia which dove 41.8% and New Zealands fell until 60% by the end of October 1987.


DJIA movement in October 19, 1987

Alan Greenspan, who's become chairman of the Fed, advised the Ministry of Finance, Jim Baker, not to halt the market to give the investor opportunity to escape from the crisis. He thought that if the stock trading being halt for one hour, it will create negative psychological effect towards market player. "No body knows about the futures" Greenspan thought. If trading halt implemented it will caused market panics and worsen the situation.

In order to solve this problem, The Fed carried out two policies to cure this problem. First of all, it was the Fed's obligation to settle down the market. Gary Coringan who's become chairman of the Federal Reserve of New York at that time has taken responsibilities to relaxing the market and ensuring investment banking that the wall street plunge would not harm the entire economy in the long term. It was done by guaranting all deposits in every bank in the United States. Eventually, this policy was aimed to ensure investors that there is enough liquidity in the market.

The second policy was made not only by the Fed itself but also by the Ministry of Finance. The policy decided by the committee between the Fed and the Ministry of Finance was to cut the deficit off. It was taken by the committee because the deficit made by government expenditure could be harming the wall street even worse in the Long term. These policies were not aimed to save only the wall street but also the entire economy.

Finally, in one year after, the economics growth has risen and reaching 2% in 1988. The inflation rate has fallen followed by stable growth in Dow Jones Index.

So, what's gone a be with today financial crisis? Are we facing another severe financial crisis that could harm the entire economy??