Fed liquidity pledge
On Tuesday morning, one day after the crash, Federal Reserve Chairman Alan Greenspan (three months into the job) released a single-sentence statement: 'The Federal Reserve, consistent with its responsibilities as the nation's central bank, affirmed today its readiness to serve as a source of liquidity to support the economic and financial system.' Markets stabilized within hours.
The statement was drafted by E. Gerald Corrigan and the NY Fed staff over Monday night. Its significance is the speed and confidence of the response, which prevented the kind of cascading failure that defined 1929. It became the template for every crisis rescue that followed, up to and including 2020.
05 · Black Monday
On October 19, 1987, the Dow fell 22.6% in a single session. It remains the largest one-day percentage decline in the history of the US stock market. Unlike 1929, there was no obvious economic cause. The consensus explanation is a feedback loop between portfolio insurance and program trading — algorithms selling because prices fell, then prices falling because algorithms sold.
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