ABSTRACT
On October 19, 1987, “Black Monday,” the Dow Jones Industrial Average plunged 508 points the largest one-day drop in history. The next day, Tuesday, raised the spectre of a disintegration of the market and with it a very serious threat to the functioning of the entire US financial system. But on October 19, order flows were grossly out of balance there were virtually no other buyers. That left the specialists at the end of the day with much larger inventories than usual. They had to pay for those purchases within five business days and needed credit to do so. Before the market opened on October 20, the Fed issued the following announcement: “The Federal Reserve System, consistent with its responsibilities as the nation’s central bank, affirmed today its readiness to serve as a source of liquidity to support the financial and economic system.”.
