Ghost in the Machine


“The sells, the sells, did they go through? Did they happen?” I remember screaming those questions over and over again on that morning of the Great Crash of 1987. With good reason. There was only one time, one time in my entire career, when the chaos and destruction were so great that I wondered whether the system had broken. That’s an amazing statement when you consider that we weren’t worried about the clearing of trades after 9/11.

People don’t think about that crash much anymore. Many people trading today were in elementary school then. Most of the big guns of that era have retired. But for those of us in our forties and fifties still at the game, the crash changed everything. The crash showed us that we were no longer in a business of stocks. Stocks had become commodities, commodities to be traded by machines, not humans, with all the speed that machines can bring to the equation. On that ugly Monday, the machines spat out sell orders ten times faster than the market could devour them. By the time the sells were matched with the buys, we had given up 518 points on a basis of 2,100.

I had sold most of my portfolio that Friday before the crash. Nah, I wasn’t a hero. What many people forget is that the week before the crash was one of the worst weeks in market history. I had been dragged to the sell altar by my wife, who wasn’t even working with me. She was running a trading desk for another, much larger firm and told me she had a premonition that the market would crash. As someone who had been trained at Goldman Sachs, I didn’t buy much into the premonition rap. I wasn’t superstitious then. But I was young and in love with someone who had more experience than I did. After a week of hearing about her premonition, I finally couldn’t take the pain.

That’s why I was so panicked that Monday. Initially, the chaos was so overwhelming that my brokers told me that they couldn’t be sure what I had traded had “settled.” They didn’t know if the buyers of my stocks were still in business, how great the destruction was that morning. They even suggested that there was the possibility, as late as 3 p.m., an hour before the close, that I still owned the stocks I had sold because the buyers couldn’t necessarily be found. The stocks, Merck, Litton, and Johnson & Johnson, were selling for literally fractions of what I had sold them for on Friday.

It wasn’t until the next day, when the Federal Reserve said it would flood the market with liquidity, that the brokers told me not to worry, I was off the hook for sells made on Friday. They would be made good at the prices that I had gotten. Crisis averted. The damage was done, though. For years, my wife would wake me at 2:30 a.m. “What’s the matter?” I would say, sweat-drenched. “Nothing,” she would say. “You just had that dream again, the one where you ask, ‘Did the sells go through?’ ”

Seared into the subconscious. And it stayed there for years. Until I gave up the business, blissfully, thirteen years after the crash of ’87.

Ghost in the Machine