Weighing New Risks, 25 Years After the Crash

Wall Street looks very different nowadays than it did on Oct. 19, 1987, when the Dow Jones industrial average plunged 23 percent in a single day. But 25 years - and one global financial crisis - later, market experts are still warning of risks to the system.

In the aftermath of the Black Monday crash came the rise of a new, computerized force for destruction, writes Floyd Norris in his column in The New York Times. High-frequency traders, which today provide much of the stock market's liquidity, are more sophisticated than the old system, but they're also less reliable when trading gets rough, Mr. Norris writes.

That potential for damage was on display on May 6, 2010, when computerized selling brought about a dizzying flash crash, and also this year, when a malfunction at Knight Capital caused prices to spin out of control.

One often hears these days that ordinary investors are giving up on stocks. Spooked by the financial crisis and the flash crash, inv estors have taken $440 billion out of equity mutual funds in the United States since 2008, Bloomberg News says, citing data that it compiled with the Investment Company Institute.

Indeed, experts point out that big risks remain.

“In 1987, everybody tried to go to the exit at the same time, but the exit door wasn't big enough,” the longtime trader E.E. Geduld, known as Buzzy, told Bloomberg News. “Fast forward to 2012. The volumes we can handle are gigantic, but the exit door hasn't changed in size.”

The 25th anniversary of the crash has prompted some remembrances.

For a sense of the mood at the time, The New York Times and The Wall Street Journal have both published images of their front pages from the following day. “Does 1987 Equal 1929?” a headline in The New York Times asked. (It didn't.)

One well-known trader, Arthur Cashin, who ran floor operations for Paine Webber at the time, wrote this week that the day after Black Monday wa s actually “far more dangerous. It was the day that the wheels almost did come off the locomotive.”

The man overseeing the New York Stock Exchange was John J. Phelan Jr., the chairman, who was commended for keeping the exchange open on Monday even as stocks were tanking. He personally rang the closing bell. (Mr. Phelan died this August.)

Mr. Norris, who in 1987 was the stock market columnist for Barron's, recounts being on the Salomon Brothers trading floor.

“Near the end of that Monday, I remember looking up and seeing dozens of young investment bankers lining the trading floor,” he writes. “There was really nothing for them to see; the ticker tape rolling across the side wall was hours behind actual trading. But many no doubt wondered if their world was coming to an end.”

Some traders recalled being unable to a tell what was going on. Others couldn't quite believe what was happening.

James B. Stewart, now a columnist for The New Yo rk Times, said he was on vacation in France at the time. He recalled on CNBC on Friday that he saw the headlines and thought, “They must have gotten it wrong.”