The delayed tape was minor as far as the conditions which caused the crash of '87 are concerned. The public wasn't the driving force that it is today. Then the automation of transacting enabled the institutions to operate discretely without necessarily going to the floor to execute. Off board trades were escalating and were driven by hedging devices and other derived security transactions. Transactions became progressively more artificial. Just like the run on the money post of the Panic of 1907 the machines caused a crisis of confidence in a brief period of time which snowballed recklessly.
The blame resides squarely on the computerization of the stock market and the mechanisms that were allowed to exist to exploit the apparent advantage that instantaneous information provides. The institutional traders, floor traders and the specialists were all benefiting from portfolio insurance, the sidecar, the CBOE,CBOT connection enabled by the computer, and all the other devices used to manage risk and guarantee return. When the machine selling persisted because they were programmed to act according to closed assumptions without any provision for non-linear evolution to chaos, the beneficiaries, in particular the specialists, walked off the floor and let market seek its own level which was provided by the latrine orderly marking the print.
The specialist effectively has "full faith and credit", yet they took the attitude that the FED wouldn't help them. Actually it was, "I'll play when I make a lot by violating the intent of the rules through computer machinations, but I won't let you hold me accountable for dereliction of duty if I might lose". The market wanted to make them rich by giving them terrific bargains, but as usual, they were too smart and wanted no part of what they thought was the end of the Western World. No J.P. Morgans in that era.
Their money was more important to them than the source of it. Colossal stupidity and short-sighted greed and fear among the august professionals proves they are nothing more than hacks and patzers just like the public. This was a small era of small people all of whom have been forgotten. Anyone remember Bob Prechter? |
