History Today: When Wall Street witnessed 'Black Monday', its biggest ever crash

On October 19 in 1987, Wall Street suffered its sharpest single-day decline in history, an event forever remembered as Black Monday.

In 2005, Saddam Hussein stood trial in Baghdad for crimes against humanity, marking a turning point in post-war Iraq.

Back in 1943, scientists isolated streptomycin, the first effective antibiotic against tuberculosis, transforming global medicine.

And in 1985, Blockbuster opened its first store in Dallas, reshaping home entertainment for an entire generation.

We take a look at these events as part of Firstpost’s ongoing History Today series.

‘Black Monday’

October 19, 1987, is etched into financial history as Black Monday, the day global stock markets crashed with a speed and scale unseen in modern times.

On that fateful Monday, the Dow Jones Industrial Average (DJIA) plunged by 508 points, a staggering 22.6 per cent drop in a single day — the largest one-day percentage decline in US stock market history.

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The shockwaves from Wall Street reverberated around the globe, triggering simultaneous market collapses in London, Hong Kong, Sydney, and Tokyo.

The 1987 crash did not result from a single catastrophic event but was the culmination of numerous factors. The US economy in the mid-1980s had experienced rapid growth following the early decade’s recession.

However, rising trade deficits, an overvalued dollar, inflation fears, and geopolitical uncertainty were already creating unease among investors.

Tensions increased when then-US Treasury Secretary James Baker publicly criticised West Germany for not stimulating its economy, causing the US dollar to weaken further and heightening anxiety in global markets.

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The role of computerised trading

One of the key accelerants of the crash was the rise of computerised or programme trading, a relatively new innovation at the time.

This system allowed traders to use computer algorithms to execute large-scale buy or sell orders automatically when certain market thresholds were reached.

While intended to limit losses, this automated strategy instead led to a cascade of selling that spiraled out of control. As the Dow fell, computers triggered further sell-offs, creating a self-perpetuating cycle of panic selling.

Before Black Monday, Wall Street had grown increasingly dependent on portfolio insurance, a strategy that used derivatives to hedge against declines in stock prices.

In theory, the approach provided downside protection; in practice, it magnified volatility.

When markets began falling, portfolio insurance systems automatically instructed institutions to sell more stock index futures, deepening the decline.

By midday on October 19, liquidity had evaporated, and markets entered a free fall.

Global contagion

The collapse in New York soon spread across the world. The FTSE 100 in London fell more than 10 per cent, while the Hong Kong Stock Exchange plunged over 45 per cent in the following days.

The Australian and Canadian markets saw double-digit losses, and in Japan, the Nikkei index lost 15 per cent within days. In total, an estimated $1.7 trillion in market value was wiped out globally within a week.

The 1987 crash was unique not only for its magnitude but for its speed. In 1929, the Wall Street Crash had unfolded over several days; in 1987, the same magnitude of destruction occurred in hours.

Traders were inundated with sell orders, while phone systems, order-processing mechanisms, and clearing houses became overwhelmed.

Some markets, such as the Chicago Mercantile Exchange, briefly considered halting trading altogether as liquidity evaporated.

The US Federal Reserve response

The US Federal Reserve, under Chairman Alan Greenspan, moved swiftly to stabilise financial markets. In his first major test since becoming Fed Chair two months earlier, Greenspan issued a statement on October 20 declaring the Fed’s readiness “to serve as a source of liquidity to support the economic and financial system.”

This reassurance, coupled with aggressive short-term lending to banks and brokers, helped restore investor confidence and kept the financial system functioning.

Greenspan’s actions marked the beginning of the “Greenspan Put” — the belief that the Federal Reserve would always step in to rescue markets during crises.

This perception would influence monetary policy and investor psychology for decades, contributing to future asset bubbles.

Economic aftermath & recovery

Surprisingly, the 1987 crash did not trigger a recession. Although consumer confidence dipped and corporate profits were affected, the broader US economy remained relatively stable.

By early 1988, markets had recovered much of their losses, and GDP growth continued. Economists attributed the resilience to strong underlying fundamentals, low interest rates, and the Fed’s quick intervention.

Nevertheless, Black Monday changed financial regulation and risk management practices permanently.

The Securities and Exchange Commission (SEC) introduced measures to reduce volatility, including “circuit breakers” — automatic trading halts triggered by significant market declines.

These mechanisms were designed to give investors time to assess information before reacting to market shocks.

Additionally, risk models and portfolio insurance strategies were re-evaluated. Financial institutions began investing in better communication systems and coordination between stock and futures markets.

The 1987 crisis became a foundational case study in the interaction between technology, psychology, and financial markets.

Legacy of Black Monday

Black Monday demonstrated how technological innovation — while intended to increase efficiency — can also amplify systemic risk when unchecked.

It revealed the dangers of herd mentality and overreliance on automated trading systems, as well as the importance of central banks as stabilising forces in global finance.

The crash also reshaped investor behaviour. For years afterward, traders were wary of rapid market corrections, and regulators paid closer attention to derivatives and computerised trading.

Yet, in many ways, the lessons of 1987 echoed in later crises, including the dot-com bust of 2000 and the global financial crisis of 2008.

The trial of Saddam Hussein

On October 19, 2005, Saddam Hussein, the deposed president of Iraq, went on trial in Baghdad for crimes against humanity.

The proceedings marked a historic moment for both Iraq and international law, as the former dictator faced justice before the Iraqi High Tribunal.

The first case centred on the 1982 Dujail massacre, in which 148 Shiite villagers were executed following an assassination attempt on Hussein. The trial was broadcast on television, providing Iraqis with a glimpse into their former leader’s brutality.

Saddam maintained a defiant stance throughout, rejecting the court’s legitimacy and arguing that it was an extension of the US occupation.

Despite procedural delays and security challenges — several lawyers and judges were assassinated during the proceedings — the trial continued over the next year.

On November 5, 2006, Saddam was found guilty and sentenced to death by hanging. His execution on December 30, 2006, drew both praise and criticism; many Iraqis saw it as justice served, while others viewed it as victor’s justice in a politically charged climate.

Streptomycin isolated

On October 19, 1943, streptomycin, the first antibiotic effective against tuberculosis (TB), was successfully isolated by Albert Schatz, a PhD student working under microbiologist Selman Waksman at Rutgers University.

The discovery marked a turning point in medical science, as tuberculosis was one of the world’s leading killers at the time, responsible for millions of deaths annually.

Streptomycin was derived from the bacterium Streptomyces griseus, found in soil samples. Unlike penicillin, which was ineffective against TB, streptomycin directly targeted the bacterium Mycobacterium tuberculosis.

Clinical trials began in 1944, and by 1946, the antibiotic was being used successfully in hospitals. The breakthrough revolutionised infectious disease treatment, reducing TB mortality rates worldwide and opening new frontiers in antibiotic research.

In 1952, Waksman received the Nobel Prize in Physiology or Medicine for the discovery, though controversy later arose over Schatz’s exclusion from the award.

The case became a landmark in debates about scientific credit and ethics. Today, streptomycin remains an essential component in TB treatment regimens, particularly in cases resistant to other antibiotics.

Blockbuster opens its first store

On October 19, 1985, Blockbuster Video opened its first store in Dallas, Texas, launching what would become a global entertainment phenomenon.

Founded by David Cook, a computer software entrepreneur, Blockbuster revolutionised home entertainment by creating an organised, family-friendly environment for movie rentals at a time when most video stores were small, cluttered operations.

Cook’s use of a computer database to track inventory allowed Blockbuster to manage thousands of VHS tapes efficiently, ensuring popular titles were always in stock.

The business model proved instantly successful — by the late 1980s, Blockbuster was opening a new store every 24 hours.

At its peak in the early 2000s, Blockbuster operated more than 9,000 stores worldwide, serving millions of customers each week.

However, the company’s dominance began to fade with the rise of digital streaming and mail-order DVD services such as Netflix.

By 2010, the company filed for bankruptcy, and most of its stores closed soon after.

Despite its fall, Blockbuster’s legacy remains significant. It reshaped consumer behaviour, introduced generations to home movie culture, and symbolised the pre-digital era of entertainment — a reminder of how quickly innovation can render even the most dominant businesses obsolete.

With inputs from agencies