Financial History Issue 124 (Winter 2018) | Page 27

mentioned the plan in a call with Ruder that morning, and described it months earlier in a magazine article. At that point, however, Phelan himself had not suggested closing the exchange as a whole. A more experienced regulator than Ruder likely would have been more cautious about even mentioning the issue in public at such a stressful moment. After 15 minutes of ques- tions, Ruder hurried out to his waiting car. Upon returning to his office, he almost immediately got a call from Rick Ket- chum. Ketchum had raced downtown to the NYSE following his early appearance at a conference in Midtown Manhattan and had met with Phelan moments after the Big Board chairman wrapped up a meeting with the CEOs of the biggest Wall Street firms. Ketchum said Phelan had told him that the executives “didn’t seem to have any inkling of how bad the situation really was.” • • • The computer monitors on the credenza behind corporate pension fund manager Gordon Binns’s desk on the 25th floor of the General Motors Building in Manhat- tan were as bleak as anything he had ever seen — it was already a market crash on a par with 1929. Binns, who ran the massive GM retire- ment fund, may have thought back to his childhood in Richmond, to a powerful story his mother had told him about finding a lit- tle slip of paper in their basement, on which their worried housekeeper had carefully itemized every penny of her tiny $12 budget. His mother, already pinched by the gathering Depression, had sat on the base- ment steps and wept at her housekeeper’s far more desperate plight. She resolved that the family would do everything they could to avoid letting the woman go in the hard times ahead. Binns, a public-spirited man, had been raised to think of others. He never talked about the decisions he made that dark Monday afternoon, but the facts are intriguing. On his fund’s behalf, Wells Fargo Investment Advisors had been sending enormous sell orders to the Big Board’s DOT system all morn- ing, every hour on the hour. Instead of selling futures contracts in the disorderly spooz pits in Chicago, the firm had started selling the actual stocks out of GM’s vast $33 billion portfolio, in thirteen separate transactions of 2 million shares each, for a total of almost $1.1 billion. Photograph of a Quotron screen from Black Monday, October 19, 1987. Specialists on the NYSE trading floor would never forget that relentless bom- bardment. One regulator recalled how a specialist had described it to him: “Boom, another sell order, then boom, another sell order, like it would never stop.” At 2 pm, for some reason, it stopped. The portfolio insurance specialists at Wells Fargo never conceded any concern; top executives at that firm would argue for decades that portfolio insurance was an innocent scapegoat in this crisis. It is unlikely that the hedging sales required for GM’s portfolio had been completed by 2 pm, with no need for further selling. Indeed, by one account, Wells Fargo had another 27 million shares to sell for GM before the closing bell. Nevertheless, at 2 pm in New York — the same hour that LOR’s chief trader in Los Angeles was worrying that the markets would “go to zero” — this specific bar- rage of sell orders hitting the NYSE just… stopped. • • • A little after 1 pm, a newswire sent out a story reporting Ruder’s comments about a “very temporary” trading halt. In the next hour, the Dow fell 112 points. The SEC quickly denied discussing any closure of the exchange, but the uncertainty was enough. Index arbitrageurs stopped buy- ing in Chicago, afraid they would not be able to execute the other side of their trades if the Big Board closed. As a consequence, the gap between the cash index and the futures price now widened to unprec- edented — indeed, unthinkable — levels. Panic was flickering in the eyes of traders in New York and Chicago. The alarmed gossip hurtling between the two trading floors was becoming as dangerous as the investment strategies tying them together. No trading halt could unplug this lightning-fast rumor mill. Both mar- kets dropped further and further, under selling from all quarters. By 2:30 pm, the Dow’s loss, about 13%, had eclipsed the worst day of the 1929 crash. The market was falling into history now, and no one knew where the new bottom would be. New Jersey’s state pension fund man- ager, Roland Machold, had $6 billion worth of South Africa–related