October 19, 198 7 Black Monday, 20 Years Later BACKGROUND On Oct.

. 19, 1987, Black Monday, the DJIA fell 507.99 (508) points to 1,738.74, a drop of 22.6% or $500 billion dollars of its value-- the largest single-day percentage drop in history. Volume surges to a then record of 604 million shares. Two days later, the DJIA recovered 289 points or 16.6% of its loss. It took two years for the DJIA to fully recover its losses, setting the stage for the longest bull market in U.S. history. Date 10/19/87 10/20/87 10/21/87 Close 1,738.70 1,841.00 2,027.90 Change -508.00 102.30 186.90 Change % -22.6 5.9 10.2

Quick Fac ts on October 11, 198 7 DJIA fell 507.99 points to 1,738.74, a 22.6% drop (DJIA had opened at 2246.74 that day) o Record decline at that time o Friday, Oct. 16, DJIA fell 108 points, completing a 9.5 percent drop for the week o Aug. 1987, DJIA reached 2722.42, an all-time high; up 48% over prior 10 months o Today, DJIA above 14,000 John Phelan, NYSE Chairman/CEO -- Credited with effective management of the crisis. A 23-year veteran of the trading floor, he became NYSE president in 1980 and chairman and chief executive officer in 1984, serving until 1990 NYSE S ta tis tics (198 7, then vs. now) 198 7 ADV - ytd 1987 (thru 10/19): 181.5 mil shares 10/19/1987: 604.3 million shares 10/20/1987: 608.1* million shares Oct. 19, 1987: 585,000 orders Oct. 20, 1987: 205,000 trades Oct. 20, 1987: 120,000 quotes Oct. 20, 1987: Capacity of 95 messages per sec. Number of listed issues: 2,244 Today (and curren t records) ADV 1.76 billion shares (NYSE only) (reference ADV above) (reference ADV above) 155 million orders 10 million trades 59 million quotes 64,000 messages per second (by yearend) 2,784

Market Cap: $2.2 trillion $28 trillion (NYSE only) Dollar value 10/19: $21 trillion $106 billion (NYSE only) *More volume executed on 10/20 than 10/19 Miscellaneous Volume Fac ts Total NYSE share volume for the week of October 19th was 2.3 billion shares almost as much business as was done in all of 1967 Record week ending October 23 --Dollar Value $75 trillion Additional Volume Facts: o Oct. 28, 1997, NYSEs first day over 1 billion shares o Current NYSE record volume 2.9 billion shares (without Crossing Sessions)

Key Messages (Then and Now) The NYSE under John Phelan, as well as other market leaders and government officials, got high marks for their handling of the Oct. 19, 1987 market correction and response. Systems were stressed and overloaded, but performed; market did not shut down; Specialists, while under stress, fulfilled their capital obligations (while others had no such obligations, some turned customers away). In years after, there were important changes/reforms enacted that improved our markets and help restore investor confidence, as evidenced by the historic bull market and the rapid growth of investor participation in the 90s. Lessons learned; changes made financial markets better More technology and automation into our markets (ongoing investment), significantly more message capacity to handle rapid and significant increases in trading volume; initiatives such NYSE Integrated Technology plan and SFTI* Note, 2007, NYSE spent $25 million for capacity upgrades Communication, coordination, and contingency planning among markets, bankers and government, domestically and globally Improved rules and regulation, including greater transparency and disclosure requirements; circuit breakers and other safeguards, and (by the SEC) new margin requirements in an attempt to lower the volatility of common stocks, stock options and the futures market
* SFTI: The NYSE TransactTools Secure Financial Transaction Infrastructure (pronounced "safety") is a communications network dedicated to the financial industry. The highly reliable, resilient and low latency network offers connectivity to NYSE as well as other exchanges, market centers and content service providers and also connects to over 800 market participants including all of the National Market System markets in the United States.

Twenty years later, financial markets are better equipped/more prepared to deal with major market dislocations and other crisis. Goal must be to keep marketplace open/accessible to customers/investors. To some extent, the burst of the internet bubble several years ago, the events surrounding 9/11, and the recent mortgage credit crisis bear that out. Todays financial marketplace, structurally, is markedly different from 20 years ago. Now have a more competitive, more diverse, more global, more tightly regulated landscape with a variety of ways to execute trades and access liquidity. However, on the scale of 87, this new market structure has yet to be tested. Specialists possess their market stabilization obligations; other markets dont Investors and all market participants have greater and faster access to important data and information. While no one can predict the future, very confident that todays marketplace would operate reliably, in such a way that would enable investors to confidently trade in a fair and orderly manner.

Support 20 Anniversary of Oct. 19, 1987

th

NYSE and specialist system performed well, overall. Specialists more than doubled their buying stocks against the trend, adding liquidity and fulfilling stabilization requirements. o # of Specialist firms: 86--54; 87--55; 88--52 Systems were overloaded, tape ran late, but did not halt or shut market down. o Nasdaq market makers did not pick up phones (no obligation) o In some ways, the 20th was more challenging than the 19th, as major stocks trading all but halted. At the open, there were no buyers at any price until XMI futures began rebounding in late morning, then stocks began to rise slowly. Chairman/CEO John J. Phelan, Jr., received high marks for his calm, visibility and intelligent leadership of the NYSE during the 1987 market break; Phelan rang bell at close of day Oct. 19 While it took awhile for markets to recover and to regain investor confidence, much was learned and there were new practices put in place to improve the marketplace. Todays marketplace reflects those changes and improvements, which benefit investors and all market participants o Better coordination and communication among various market centers, regulators and other government agencies o Improved regulation, practices and policies put in place, like circuit breakers

Support: On the causes of Black Monday Interest rates were in the double digits, the dollar was plummeting, and it appeared global dominance might soon shift from the United States to Japan Real-estate values were collapsing, savings and loans had just been looted by white-collar thieves, and junk-bond financed raiders were launching hostile takeovers of huge companies and putting thousands out of work The stock market had become increasingly volatile, but there was nothing in the news on Oct. 19 that would warrant history's largest one-day percentage loss in the Dow - more than 500 points, akin to a 3,100-point drop today. Program trading, in its infancy, is cited as the chief culprit. Some blame the advent of portfolio insurance - a loss-curbing strategy that doesn't work when everyone wants out Some questioned the NYSEs order handling system, which had some difficulty keeping pace with the sudden spike in sell orders. Those who prefer a more rational explanation say it was a just a long-overdue correction; The exact causes of Black Monday remain a mystery Support: The NYSE Response Shortly after 1987, NYSE began to develop what is now a rigorous technology/ communications systems upgrade and capacity planning process put in place o NYSE Integrated technology plan.computer systems were upgraded at NYSE and in other markets to handle larger trading volumes in a more accurate and controlled manner; new capacity model o Brokers had still been using pencils/paper, no hand-helds, etc. o Specialists--only half specialists had been using display book, others using paper books in '87; John Phelan soon after 19th required all to use Display Book

Circuit Breakers - The NYSE and the Chicago Mercantile Exchange introduced the concept of a circuit breaker. The circuit breaker halts trading if the Dow declines a prescribed number of points for a prescribed amount of time. Birth OCS -- Online Comparison System, need for firms to know on comparison basis; automated, used to be on paper Margin Requirements - The SEC modified the margin requirements in an attempt to lower the volatility of common stocks, stock options and the futures market

Curtailed Hours The NYSEs people and systems were strained but performed well during the crisis, executing customers orders quickly and reliably. Nonetheless, in the weeks following October 19, the NYSE shortened its trading day to allow the financial community time to process the unprecedented number of transactions and to ensure that the comparison and settlement cycles would go smoothly. NYSE and member firm employees worked through the weekend to process the record-shattering volume. Fri., Oct. 23 Fri., Oct. 30, 1987 2:00 pm close. Mon., Nov. 2 Wed., Nov. 4, 1987 2:30 pm close. Thu., Nov. 5 Fri., Nov. 6, 1987 3:00 pm close Mon, Nov. 8 Wed., Nov. 11, 1987 3:30 pm close. Thu. Nov. 12, 1987 Normal hours resumed (9:30 am-4:00 pm) Support: Regulation & Rules/Improvements There was a view that deficiencies in operational systems, information transmission, liquidity, and clearance and settlement procedures affected the speed and size of the decline. On October 19, 1988, SEC approved a series of initiatives by the NYSE and the Chicago Mercantile Exchange to coordinate procedures between the equities and futures markets, including coordinated circuit breakers; a joint effort against front-running; inter-exchange communications; and shared audit trail and surveillance information. Automation improvements by the exchanges, NASD, private vendors, broker-dealers, and investment companies expanded operational capacities of the markets. Communication, coordination, and contingency planning were strengthened. Dedicated phone lines were installed between the major markets. Personal lines of communication were established. President's Working Group on Financial Markets established as a safety valve and long-range planning mechanism. (Includes Treasury Secretary, Fed Chair, CFTC Chair, and SEC Chair.) Specialist system was strengthened by improvements to reallocation procedures. NASD imposed new market making commitment requirements for Small Order Execution System. Clearance, settlement, and payment facilities were improved Circuit breakers were installed by securities and futures markets Other More Recent Reforms since 87

o New Rules for Day traders. Investors need at least $25,000 in their account in order to actively trade the markets. New restrictions were placed on marketing methods for day trading firms o CEO and CFO accountability for their balance sheets. CEOs and CFOs are now required to sign-off on their statements o Punishment for fraud has been beefed up o Accounting reform. This includes more disclosure of balance sheet info. Things such as stock options and offshore companies are to be disclosed so investors can better judge if the company is really producing a positive cash-flow
o Separation of Investment Banking and Analyst Research.

General Points of Interest On Friday, Oct. 16 in the UK- Great storm of 87, hurricane-like winds/rain pummeled London, many traders/financial professionals not able to get to work. Chicago- Futures already being sold heavily, creating a gap between the index value in the derivatives markets and the value of stocks in New York, which spilled over to Mondays trading. Monday morning, U.S. investors awoke to learn that markets in Asia and Europe had fallen sharply; Londons FTSE fell 10.8 percent, Hong Kongs Hang Seng Index lost 6 percent. The 304-page Brady Report, the result of a Congressional investigation into the crash, took a particularly dim view of portfolio insurance, one of the earliest dynamic hedging strategies, which attempted to protect money managers from losses by taking hedge positions in index-futures contracts. Globally: Congress had produced fresh legislation to eliminate tax breaks related to financing mergers and acquisitions. A currency dispute smoldered within the then G6, and Treasury secretary James Baker suggested publicly that the dollar might devalue. Reports emerged of U.S. airstrikes against Iranian oil platforms in the Persian Gulf.

ADDITIONAL BACKGROUND October 19,1987 - Black Monday 1986 and 1987 were banner years for the stock market. These years were an extension of an extremely powerful bull market that started in the summer of 1982. This bull market had been fueled by hostile takeovers, leveraged buyouts and merger mania. Companies were scrambling to raise capital to buy each other out, in essence. The philosophy of the time was that companies would grow exponentially simply by constantly purchasing other companies. In leveraged buyouts, a company would raise massive amounts of capital by selling junk bonds to the public. Junk bonds are simply bonds that have a high risk of loss, so they pay a high interest rate. The money raised by selling junk bonds, would go towards the purchase of the desired company. IPOs were also becoming a commonplace driver of the markets. An IPO is when a company issues stock for the first time. Microcomputers were also a top growth industry. People started to view the personal computer as a revolutionary tool that will change our way of life, and create wonderful profit opportunities. The investing public was caught up in a contagious euphoria, similar to that of any other bubble and market crash in history. This euphoria made people, once again, believe that the market would always go up. Despite the strong economic growth, SEC was unable to prevent shady IPOs and conglomerates from proliferating. In early 1987, the SEC conducted numerous investigations of illegal insider trading. This created a wary stance from many investors at this point. Also, due to the extremely strong economic growth, inflation was now becoming a concern. The Fed rapidly raised short term interest rates to temper inflation. This, unfortunately, had an effect of hurting stocks as well. Many institutional trading firms started utilizing portfolio insurance to protect against further stock dips. Portfolio insurance is a practice that uses futures contracts as an insurance policy. People that hold the futures contracts can make money as the market crashes, offsetting the losses in the stock holdings. After interest rates had risen, many of the large institutional firms started using portfolio insurance all at the same time. The futures market was taking in billions of dollars within minutes, causing the futures market and the stock market to crash from instability. Additionally, common stock holders all wanted to sell simultaneously. The market couldnt handle so many orders at once and most people couldnt sell because there werent ANY buyers left! Within one day, 500 billion dollars was evaporated from the Dow Jones index. Markets in every country around the world collapsed in the same fashion. When individual investors heard that a massive stock market crash was in effect, they scrambled to call their brokers. This was unsuccessful because each broker had many clients. Many people lost millions instantly. Some unstable individuals, who had lost fortunes, went to their brokers office and started shooting. Several brokers were killed, despite the fact that they had no control over the market action. The majority of investors who were selling, didnt even know why they were selling, except that they saw everyone else selling. This irrational mentality caused the extreme market crash. Most futures and stock exchanges were shut down for the day. Around this time, the Fed started to intervene. Short term interest rates were instantly lowered to prevent a depression and a banking crisis. Remarkably, the markets recovered quickly from the worst one day stock market crash. Unlike the stock market crash of 1929, the market quickly started on a bull run, once again. This was powered by companies buying back their

stocks that were undervalued after the severe crash. Additionally, the Japanese Nikkei index was embarking on its own massive bull market. This tremendous momentum helped pull the US stock markets to new heights never seen before. Some benefits came as a result of the 1987 stock market crash. For example, the circuit breakers system was implemented, which electronically stops stocks from trading if they plummet too quickly. This will prevent any future one day vertical drops, like 1987. Once again, the remarkable similarity between all of the market crashes is striking. It seems that after all of the historical market crashes, people would learn to foresee a coming financial disaster. This rarely happens, of course, which is why there is constant opportunity for the smart money to prosper from the irrationality of other people. What Caused the Stock Market Crash of 1987? Following the stock crash, the federal government conducted a study of the events of Black Monday. There was a great deal of concern and interest in figuring out what conditions contributed to the stock market's crashing. After examining the findings of those reports, the SEC introduced several new measures of control into the stock market in an attempt to prevent a reoccurrence of the events of Black Monday: Computer Systems - Computer systems were upgraded in the stock exchanges to handle larger trading volumes in a more accurate and controlled manner. Margin Requirements - The SEC modified the margin requirements in an attempt to lower the volatility of common stocks, stock options and the futures market. Circuit Breakers - The New York Stock Exchange and the Chicago Mercantile Exchange introduced the concept of a circuit breaker. The circuit breaker halts trading if the Dow declines a prescribed number of points for a prescribed amount of time. As the market index rose over time, the original circuit breaker levels no longer made sense for these stock exchanges. The current rules for the stock market can be found on the NYSE's website. In fact, most of 1987 was marked with one stock market record after the other. There had been a great deal of corporate restructuring in the years proceeding 1987 and American companies were promising strong future earnings growth. International investors also took notice of the improvements in the U.S. market outlook and the rate of foreign investment doubled between 1986 and 1987, driving stock prices skyward. By August, the Dow Jones Industrials was up over 800 points which translated into a 41% in rise in value. In September 1987, the economic concerns over the weak dollar and rising interest rates started to make investors nervous. Volatility in the market increased dramatically as both good and bad economic information hit the news. A single day point gain record for the Dow was set on September 22nd only to be followed by the largest single day point loss on October 6th. During the three days of October 14th - 16th the Dow fell over 260 points and the S&P 500 declined 10%, creating a great deal of anxiety over the weekend. Investors wondered what would happen on Monday.

The Stock Market before October 1987 Rebounding from the 1987 Stock Market Crash On a final note, the market rebounded remarkably following the 1987 stock market crash. The market began a slow but steady climb almost immediately following the crash. In fact, before the end of 1989, the Dow Jones Industrials would once again be setting new highs. Most scholars attribute this rapid rebounding to the fact that the underlying fundamentals of the market were still strong and the Federal Reserve took quick action in the months following the crash to bolster international confidence in the American economy. HOW DO 1987 AND 2007 COMPARE? "Black Monday" is the term commonly used to describe the date of Monday, October 19, 1987. This was the day when the Dow Jones Industrial Average (DJIA) plummeted 22.68 percent, reflecting a decline in the value of market holdings of roughly half a trillion dollars. The "Black Monday" crash was the second largest one-day percentage decline in stock market history, coming just short of the 24.39 percent drop on December 12, 1914. Sterling, Green and Kautt summarized the following differences and similarities between 1987 and 2007: DIFFERENCE. Many more individuals are responsible for their own investments now than was the case in 1987. On the plus side, the sheer number of people in the market through mutual fund investments that use buy and hold strategies in their 401(k) investments means that markets tend to be somewhat more stable than would otherwise be the case. However, more individual investors also means more people chasing fads and hurting themselves by jumping in and out of the market without an overarching strategy. Kimberly Sterling, president, Resource Consulting, Orlando, FL., said: "More risk is out there now than in 1987, but that doesn't mean that investors have to lose sleep over it. The rule of thumb on this point is always the same: 'Don't wreck your long-term plan by stressing about short-term risk.' An additional spin you can put on this is that if you are stressed today about your investments in the market, it probably means that your investment policy is too aggressive. You should become more conservative now while the market is up. Pulling back as a panic response when the market is down is literally the financial equivalent of kicking yourself when you already are down." SIMILARITY: Investors are no smarter today than they were 20 years ago. Ed Green, partner, Foster Group, West Des Moines, IA., explained: "The greatest similarity I see between 1987 and 2007 has little to do with the externals -- market valuations, economic conditions, political considerations, etc. It has everything to do with internals -- the human nature of investors. In the intervening 20 years, we've seen incredible increases in computing power, speed of communication, research devoted to studying stock price data, and so on. But we still have no better sense of how a stock will perform. And that just doesn't make sense to many investors who think more power and more information should mean more certainty. Thinking that someone somewhere must have a real handle on the market makes these investors vulnerable to accept and act on the prognostications of various 'market strategists' as though they were prophets. Now, even more than 20 years ago, investors want to find certainty in things that are inherently uncertain. That means more people making a lot of very expensive mistakes."

DIFFERENCE: Safety measures have been implemented to stop trading if certain triggers are hit. Now there are trading restrictions in place to prevent computer analytics from driving the prices down automatically. SIMILARITY: Computers may still be playing a big role in driving the markets. In the wake of 1987's "Black Monday," many pointed the finger of blame at program trading. (Program trading uses computers to engage in arbitrage and portfolio insurance strategies.) In an interesting parallel, the sharp market downturn in July-August 2007 is linked in one new study to the buying patterns of quantitative hedge funds. Andrew W. Lo, professor of finance at the Massachusetts Institute of Technology, and Clifford S. Asness, of AQR Capital Management LLC in New York, theorize that quantitative hedge funds played a big role in aggravating the summer 2007 market downturn. DIFFERENCE: In both 1987 and 2007, a sharp upswing in the market preceded a sharp decline. Markets were up strongly from 1982 through the summer of 1987, much like the most recent period of 2003 through the early summer of 2007. But that parallel doesn't hold up very well on closer inspection. In comparative terms, the market was up more in 1987 before "Black Monday" than in the period leading up to October 2007. In 1987, the stock market peaked in August 1987, but in 2007 the initial highs were reached in July and then the market fell off sharply in August before a robust September-October recovery that ended up topping the record-setting levels of July. By contrast, the 1987 market ran into trouble in August and then drifted down into "Black Monday." DIFFERENCE: World markets are more likely to all take a hit when one major market crashes because the world is "flatter" now. Even asset classes that may not have a correlation will follow the wave of market panic around the world. The flip side of this linkage is that foreign markets in developing nations such as India and China now are thriving as never before. One popular index tracking emerging markets is up by nearly a quarter since Aug. 16, the date on which the index hit a record low.

1987 Timeline January 1, 1987 The year opens with bond yields near their lowest levels in nine years. Corporate treasurers have been issuing debt like it is going out of style, coining more than $200 billion in notes during all of 1986 -- two times the level of debt issued in 1985. A healthy market for junk bonds -- bonds issued that are considered below "investment grade" -- has helped tremendously. "With bond rates expected to remain at low levels, investment bankers predict that corporations will continue to flock." (New York Times, Jan. 2, 1987) January 8, 1987 The Dow Jones Industrial Average closes at 2,002.25, breaking the 2,000 level for the first time. Trading volume swells to 194.5 million shares and most other stock indices set records as well. Optimism abounds that the string of records will bolster investor confidence and bring new investors into the market. January 22-23, 1987

The Dow Jones Industrial Average leaps 51.60 points to 2145.67 on January 22, making its largest one-day point rise ever. Although well below any record for a percentage gain, the news is taken as another indicator that demand for stocks remains strong. The euphoria is slightly eroded the next day when the Dow plunges 114 points in 71 minutes on January 23. Program trading based on the difference between the value of stock futures and the cash market is blamed for the swing. Treasury Secretary James Baker expresses concern about the "excess" volatility. February 5, 1987 The Securities Exchange Commission (SEC) announces that it is moving well beyond its initial focus in its investigation of Ivan Boesky. This case, coupled with half-a-dozen others that will break over the next few months, will make insider trading household words. Boesky's investigation hinges on a $5.3 million invoice to Boesky from Drexel Burnham Lambert, the firm that made junk bonds popular. The SEC wants to know why Drexel sent one of its major customers a bill for that amount. March 30, 1987 Wall Street's first quarter ends with a bang. Stock prices worldwide have surged 22% after netting out the dollar's decline. Companies took advantage of this by issuing more stock and bonds. IDD Information Services estimated that companies issued $87.7 billion in the first quarter alone, up 27% year-over-year. Unfortunately for stockholders, it is here at the end of the first quarter that the dollar's continued decline started to hurt stock and bond holders. The Dow Jones Industrial Average slumps 57.39 to 2,278.41 and bond prices fall to their lowest levels since last fall. April 23, 1987 Bond fund redemptions accelerate as the prices of bonds continue to plunge. Many are concerned that the falling dollar could revive inflation. Prices of bonds are off as much as 10% since the end of March after rising nearly 100 basis points. Ivan Boesky pleads guilty to conspiracy to lie to the government. Boesky is released without bail and his sentencing is scheduled for August 21. The same day, Guinness PLC takes a $206 million charge partially related to the firm's relationship with Boesky. April 29, 1987 The dollar and bond prices both plummet after the House of Representatives passes an amendment to take measures to reduce the trade surpluses held by many Asian nations. Many fear that foreign investors, particularly the Japanese, now will not participate in the Treasury's quarterly funding auction. Representative Dick Gephardt is behind the legislation. May 17, 1987 An article in the New York Times discusses the many investment banks that are considering cutting personnel due to impending bad times. Rising inflation, a widening insider trading scandal, and rising bond yields are blamed for the pessimistic outlook. July 17, 1987 Crude oil prices hit $22.39 per barrel, up from only $16.40 in March and the high $17 range at the beginning of the year. Although prices would fall back to the $20 range in August and stick there until the crash, the 11% increase in crude oil prices from the beginning of the year created a

lot of anxiety over inflation. It was inflation anxiety in part that drove yields on the 30-year government bonds higher and higher. July 22, 1987 Treasury bond markets stand in disarray as government bond yields continue to climb. The 30year bond touches 8.79%, its highest level since early June and well up from 8.5% on July 14. This jump marks the beginning of a massive bond swoon that will carry the yield as high as 10.22% on August 15.

August 24, 1987 Standard & Poor's reports that 158 companies listed on the New York Stock Exchange have split their stock so far in 1987. Most anticipate the year will be a record for stock splits and Standard & Poor's forecasts a total of 250 by the end of the year. The yield on the 30-year government bond hits 8.98%. The next day, the Dow Jones Industrials hit 2722.4 -- a high that will not be breached until exactly two years later on August 24, 1989. September 29, 1987 The 30-year Treasury hits 9.77%, its highest level since December of 1985. Traders describe a discouraging environment where everyone has Treasuries to sell but no one is buying. The Dow Jones Industrial Average has already fallen to 2590.6, 4.8% below the all-time high hit the month before. October 6, 1987 A rally in bond prices since the Sept. 29 fizzles and equity prices begin to feel the downward pull of the long bond's gravity for real. The Dow Jones Industrial Average drops 3.47% to 2548.63 on volume of 175.6 million shares. Waves of computerized selling make it difficult for the market to maintain equilibrium. Many pundits blame portfolio insurance for the accelerated decline. Two days later long bond yields stand at 9.91%. October 12, 1987 Confidence among the major investment banks begins to deteriorate. Salomon will dismiss 12% of its municipal bond workforce and will re-examine how much space it needs in New York City. The volatile, downward market in bonds has caused profits at the nation's largest investment bank to plummet. Sources say that 800 employees will get the axe. The next day Kidder Peabody announces that it will cut its municipal bond trading operations by 35%. October 14, 1987 The Dow Jones Industrial Average drops a record 95.46 points to 2412.70. The Dow will tumble another 58 points the next day, taking the venerable index down more than 12% from its all-time high hit on August 25. Pundits blame a widening foreign trade deficit that is fueling the dollar's descent and consequently weighing on bonds. The Japanese yen and the Swiss franc have both risen substantially in the past two months. Computerized trading, possibly a result of portfolio insurance, has led the downward charge. October 16, 1987

Iranian missiles hit a U.S.-flagged tanker off of the coast of Kuwait. Only five months before, an Iraqi missile hit the U.S. frigate Stark, killing 37 sailors. Fears of heightened tensions as a result of the inevitable U.S. retaliation drive the Dow Jones Industrial Average down 108.35 points to close at 2246.74 on record volume. The yield on the 30-year bond stands at 10.12%. Treasury Secretary James Baker voices concern about plunging stock prices, although he states that they have dropped "from a very high level." Many economists take the dramatic rise in bond yields that have precipitated the tumble in stocks as a sign that the Federal deficit and the balance of trade both need to be addressed. October 17-18, 1987 The weekend before the crash, millions brood over what is perceived to be a worsening economic picture and become increasingly concerned about tensions in the Middle East. With the risk-free yield on a 30-year bond at 10.12%, only a hair below the long-term annual return from the stock market of 10.60%, many must be wondering why they are in stocks at all. Government officials decry bond yields as "needlessly high" and based on "exaggerated fears of inflation." October 19, 1987 In the early morning, two U.S. warships shell an Iranian oil platform in the Persian Gulf. Combined with a myriad of economic factors, this helps to set off an unprecedented 508 point downpour in the Dow Jones Industrial Average, leaving it at 1738.74. The 22.6% deluge is the worst one-day beating the index has taken since hostilities were initiated in World War I and causes the 12.8% decline of October 28, 1929 to pale in comparison. The Dow is down 983.66 points since August 25, a 36.1% decline. Chaos reigns on the trading floor as many specialists simply give up, flooded with orders. Volume hits 604.3 million shares, almost twice the prior record of 338.5 million set on October 16. Many economists cast dire predictions, noting the 1929 crash preceded the Great Depression.