Evidently, the black Monday was preceded by events of October 24, 25, 26 and 27. Very unusual market trends were noted on these five days and the most notable one was the massive sale of shares in the federal stock market, starting with 12.9 million shares exchanged on Black Thursday of 24th. A rise of share exchange from an average of 4 million a day to 9.25 million on Black Monday was a real market shocker.
The rise did not stop and on Black Tuesday (the next day), a record 16.4 million shares were exchanged. There must have been a sort of panic selling taking place. As a result of panic that had befallen everyone, there was a massive drive to sell, with everyone trying to sell at the same time (Carlson, M., 2007).
Preventing this day
Public training
The players in the stock market needed extensive training and this could have instilled patience and eased the panic situation that they had plunged in. The need for selling rush could have been demystified and there could not have been any feeling of danger or cause for alarm. Apparently, the fear was that people would lose everything, and of course they thought they had lost everything on Black Thursday of 24th.
The confidence that resulted could have ensured that buying in the stock market continued so as to increase stocks. They could have been convinced that the slump in the economy was only going to last a few days and normalcy would return soon after. This would have meant continued stability in the stock market
The role of the federal reserve
The federal reserve could have done something to stop the sharp decline in the market share prices that then led to panic selling and unwillingness to buy among the consumers (Shiller, R. 1989). As it turned out, these two principally led to contraction of the economy. Banks are regulated by the federal reserve and they have something to do with market share exchange prices.
This then could have gone a long way in ensuring that measures were in place to contain the envisaged decline or increase in the prices. Findings indicate that stock prices apparently plummeted and there was no to rescue it.
The federal reserve could have formulated policies to see to it that the banks remained in control of the market share exchange prices, so that any swell or decline in these prices could be sensed early enough in time. What worsened the whole situation was that bankers could not rally investors into buying stock market shares, and were in fact selling their shares.
This resulted in the biggest panic that hit the entire nation. Some of the suggested causes of the panic was loss of faith in these banks. The effective role of banks could have helped provide protection to the hope that not another such phenomenon as the black Monday depression panic could be experienced in future (Annelena, L. , 2007-10-15).
These policies and regulations could again cover activities in the stock market, including buying of stocks in margin. This way, no individuals could be allowed to sell their market share stocks in quantities that they chose without any policies guiding the amounts that could be sold.
Annelena, L. (2007-10-15). Looking Back at Black Monday: A Discussion With Richard Sylla. The Wall Street Journal
Carlson, M. (2007) A Brief History of the 1987 Stock Market Crash with a Discussion of the Federal Reserve Response, Divisions of Research & Statistics and Monetary Affairs Federal Reserve Board, Washington, D.C.
Shiller, R. (1989). Investor Behavior in the October 1987 Stock Market Crash: Survey Evidence. MIT Press.
