THIS PAST FRIDAY was the twentieth anniversary of the stock market crash of 1987, when the Dow Jones Industrial average fell by over 500 points, or 23 percent in a single day. That was almost 60 years after the great crash of October 1929, when share prices also fell 23 percent, but over a two-day period.
Here we are in October 2007, and its déja vu all over again to borrow from that great philosopher, Yogi Berra. Or almost. On Friday, exactly 20 years after the 1987 crash, the Dow dropped by 360 points, only 2.64 per cent, but enough to cause investors to wonder what might come next. The credit crunch has forced some big banks in America to form a $75-$100 billion bail-out consortium to avoid a fire sale of troubled financial assets in which they are heavily invested, with CitiGroup the most exposed. The deal was hammered out at a meeting convened by Treasury Secretary Hank Paulson and put together under the watchful eye of his top aide, Bob Steel. Goldman Sachs, where both men earned their spurs before joining the government, comes to Washington. Not a good idea, says Alan Greenspan, as it will delay the market-pricing of these assets, and prolong uncertainty and tight credit. Which it most certainly will if the consortium tries to set artificially high prices and values on the assets it acquires.
