Technology in Wall Street, the 1987 Market Crash Causes and Results
by Alex Glonti
“The volume was immense: six hundred million shares, almost double the previous record. In the space of hours, trillions of dollars of market value had vanished; it was, the chairman of the New York Stock Exchange said, “the nearest thing to a meltdown that I ever want to see.” (H.W. Brands, American Dreams, p. 266)
Thomas Guardino, Age 65, has been working in finances on Wall Street for over 30 years. Was part of the personnel tasked to handle the “Black Monday” market crash on October 19th 1987.
- Audio Recording, Staten Island, NY, March 25, 2017
Q. How did you start of your career on wall street, where did it all start for you?
A. ” Well to make it short, when I came out of high school I made a couple of bucks but I really didn’t have enough money to go to college because my parents were divorced and it would have been hard. So when I got out of school I went to work at an office job for a couple of months… There [Chester-Blackburn and Roder/Atlantic Lines – steam-ship company] gave an IQ test and I ended up with the best mark in the company… They sent me to school and taught me programming, but offices didn’t have any computers most of the time… This was in the beginning 70’s. The companies back then had adding machines, calculators, typewriters. but they wanted to get computers and [Atlantic Lines] wanted me to learn programming so I could set up the accounting systems… at the time I had no idea what the test was for… but later the boss came back to me and said, “you have the best mark here, were taking you to learn the business, to learn the computer, write the software and partner together”. At the time I was 19 years old… I had two private tutors in IBM at the time and that’s how I got into the computer business in the beginning. The interesting thing is… we had an office at Whitehall street which was downtown Manhattan near the ferry and they wanted to put their computer into the world trade center; we were moved there but it was being built then, the building. So my company got special permission to set up a room, there was just one door with no walls set up, just wires everywhere… they wanted to put the computer in there and I was working there by myself, nobody worked in the trade center then… But I got permission to go into the trade center, go to the test floor and to work in a building that wasn’t even fully constructed… I was the first to work there, not counting the port authority people… I worked on the [their] floor for a couple of months before they actually had the office ready; the tutors came there to show me how to work… All the people in the company resented me because they thought that the computers around would take away their jobs at the time, so nobody liked me… what happened actually was the computer was so much work in the beginning that it actually created many jobs – it wasn’t like today… you needed people to run the programs. You needed people for a lot of manual parts, like sorting the cards… so no one really lost their jobs at the time. Anyway, I worked there for about 8 years, since 1970. I worked in [Atlantic Lines] Miami office too… But the work became hard eventually, [Atlantic Lines] kept wanting more programs but they were too cheap to upgrade the computers so I had to constantly rewrite the programs and break them up. It became so hard that I was leaving work in the middle of the night… in 1978 me and my wife were going to have a baby but only the job was on my mind, so I told my wife that I had to get out of there because I couldn’t take it anymore. I was good at it but it was too much work…
So I got an interview for this company called SIAC[Securities Industry Automation Corporation] but I didn’t know that it was related to the stock market, in fact it was owned by two stock market companies and SIAC was the company that did all their computer work. So the New York Stock Exchange and the American Stock Exchange made this company called SIAC, but nobody knew that this company did all the trading and controlled everything that the stock market did on the trading floor…”
Q. What position did you hold?
A. “I took a job as an operator, but even though I worked as a manager at my last job, the benefits here where much better: bonuses, the pay was about the same, all the service stuff… In no time I became the supervisor so that’s how it started, I didn’t even know I was working in the stock exchange at first.”
Q. How were things run at the job?
A. “At first we would come in at 4 AM and leave at 6 or 7, in 3 hours, but as the years went more people came for work and they added another shift… I eventually managed 3 shifts at SIAC. The place grew… A lot of people thought the stock market was wall street… but nobody knew SIAC did a lot of trading work for the companies, it was a part of the stock market… we did a lot of work for the stock market, but did work for big companies that were involved in the industry… we didn’t have a lot of work at the time, but everything was critical because if something didn’t work we had to escalate… the newspapers would actually wait for us to send the information out, we were the only source for the prices of the stocks they could put into their papers.”
Q. How did you make deals, sell/buy stocks and operate?
A. “Well back in the day everything was done by pencil… but in our time we used computers and thought the computers were the greatest thing ever, they weren’t powerful at all compared to today; they took up half the room… The memory, the processing speed was very slow and it cosst $20,000 to $30,000… The computers had all the opening and closing prices, all the trading information of the different stocks, we had to run programs and update the prices on the computers by the end of the day for the following day. There were a lot of print outs, we had to send reports to different trading offices… everything was done through big floppy cards and everything was put onto tape to save the information. But I saw that transition as I was working in the business – when they started eliminating the tapes.”
Q. What position did you hold in 1987?
A. “I was a manager at the American Stock Exchange which was the second biggest exchange in the country, New York was first…”
Q. Could you describe the trading process during that time?
A. “There wasn’t a trading floor, the banks would send their representatives to the trading floor and buy seats there to be able to trade. The prices for the seats were pretty high and there were about a thousand seats, the companies even traded each other for the seats… the trading floor had different levels like balconies, it looked like a movie theater. The big shots were on the higher levels and they had their clerks on the trading floor who they talked to with walkie talkies. They signaled for the people on the trading floor what they wanted to do, to buy or sell a stock… These clerks had cards they would mark up by pen and take them to the card readers on the floor and everything on the cards, the trading decisions and information was sent to SIAC. But these clerks didn’t get paid as the top guys did… in 1970’s they were doing the same thing, but they didn’t have all the computer programs so it had to be done with pen and pencil, but they had what they needed.”
Q. What was the reason the 1987 stock market crashed?
A. “Not too long before the crash, they introduced program trading… It became popular in the 80’s because if the stocks were going down or up the program trading would automatically sell or buy people stocks. This was being done through certain programs and they say these programs caused the market crash. Before that the stock market was doing pretty good… There were rumors the stock market was going to drop so the banks raised the interest rates because of the rumor. Some of the companies’ stocks started to go down because of the higher interest rates, the program traders they had automatically started to trade these stocks, keep selling… Soon program trading started selling stocks of all different companies, it was out of control. Then all the people that wanted to sell the stocks, they couldn’t do anything… nobody wanted to buy… But program trading, if id didn’t get out of control was very helpful, it just needed something to stop it. The market went down 20%… That’s why later they installed circuit breakers on every system. If percentages fell by a certain percent within a specific time, everything would shut down. But this was after the crash.”
Q. Who did the people blame, what were the repercussions?
A. “People that were rich became poor and a lot of people committed suicide, lost all their money. They jumped off buildings, bridges – they had families but committed suicide cause they lost everything they had in one day… They said there were a couple of murders, some brokers got murdered by people in the same industry.
It was the fault of panic and the automatic program trading. That’s what actually caused it.”
Q. What happened to you during the crash?
A. “They called me early that day because the “lion” was too high. The lion’s the number of trades… the amount of trading and selling of stocks was too high and prices went down too much. Everybody was selling. My shift was usually at 3 AM, but I came in at midnight – they called us early to come up with some strategy cause they knew a lot of the programs that ran in the night time that sent the data to the newspapers didn’t work… A lot of programs crashed because they weren’t used to handling such a large lion. The numbers were much higher, the loses were much higher. The programs didn’t work that night… We had to be on the phone all night with people, we stayed there all night because everything had to be done until the next day or the stock market couldn’t open. The press was waiting… This was “black monday”. I don’t think I left home that night… The programs took so long to run, everybody was worried we wouldn’t make the opening for the next day… That whole week programs were crashing, but we had ways to go around it, program substitutions…”
Q. Who did this affect mostly?
A. “The rich people were really affected, but normal people weren’t affected. We didn’t have a 401K and didn’t own stocks and bonds… For the most part rich people were affected and a lot of them committed suicide because of the crash. A lot of people took their money out, but the middle class wasn’t touched. I didn’t take out my money, because I knew things would come around, they always do…”