Crashes and Crises: Lessons from a History of Financial Disasters Season 1 Episode 13 The Crash of 1987

As the stock market boomed in the 1980s, it seemed like the good times would never end. But on October 19, 1987, the market crashed, sending shockwaves through the global financial system. In this episode of Crashes and Crises: Lessons from a History of Financial Disasters, we examine the events leading up to the crash and its aftermath.

The episode begins by exploring the economic conditions of the 1980s, which were marked by deregulation, tax cuts, and a sharp increase in corporate profits. This led to a surge in the stock market, with investors pouring money into stocks and pushing prices to unprecedented heights. However, as the episode shows, the market was built on shaky ground. Companies were taking on large amounts of debt to buy back their own stock, which drove up their prices but also made them vulnerable to economic shocks.

The episode then traces the events of October 19, 1987, which has come to be known as Black Monday. On that day, the Dow Jones Industrial Average fell by more than 22%, wiping out billions of dollars in wealth. The episode explains how the crash happened, with automated trading programs exacerbating the sell-off and leading to panic among investors. The crash spread to other financial markets around the world, revealing the interconnectedness of the global financial system.

The episode then turns to the aftermath of the crash, which was felt for years afterwards. Investors who had borrowed money to buy stocks were left with huge losses, and many small investors who had been lured into the market by the promise of easy profits were burned. The crash also exposed flaws in the financial system, leading to calls for greater regulation and oversight.

Throughout the episode, experts provide insights into the lessons that can be learned from the crash. They discuss the importance of diversifying one's investments, being aware of the risks of borrowing to invest, and recognizing the limitations of computerized trading systems. They also examine the role of regulators in preventing future crashes, highlighting the need for transparency and accountability in financial markets.

By the end of the episode, viewers will have gained a deeper understanding of one of the most significant financial disasters in history. They will have learned valuable lessons about the risks and rewards of investing, the importance of a stable financial system, and the potential consequences of a market built on speculation and greed.