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