The Big Plunge: Views From the Treasury to Harry’s Bar

Some comments on the causes of Friday’s stock market plunge and predictions for what will happen Monday: Nicholas F. Brady

Secretary of the Treasury:

“Today’s stock market decline doesn’t signal any fundamental change in the condition of the economy. The economy remains well balanced, and the outlook is for continued moderate growth.”

John McGillicuddy

Chairman, Manufacturers Hanover:

“Any time you have the market drop 190 points and you’re not concerned, there’s something wrong with you.”

Kenneth R. French

Finance professor, University of Chicago business school:

“My view is the market is taking (the failure of the proposed buyout of United Airlines’ parent) as a strong signal about the prospects about future LBOs and takeovers. That’s what we’re seeing--a revaluation based on that lower probability. The market didn’t have a lot of time to think this one out. My belief is when it reacts, it gives us an unbiased estimate. It’s as likely to have a correction upward as a correction downward Monday.

“They gave their best shot, and now they’re going to go home and sit back and think about it over the weekend. Sometimes when they do that they discover they’ve overestimated, and sometimes they go home and discover they’ve underestimated. I’m quite surprised by the magnitude of the response.”

James M. Benham

Chairman, Benham Capital Management Group:

“There’s a huge calendar of junk bonds that want to come to market before year-end. And the marketplace has been very cool to recent offerings of junk bonds. A lot of stocks in the stock market have been bid up in price in anticipation of buyouts. When they stopped trading the ones that were in play for merger, it caused a selloff in everything. I think that’s what caused the widespread panic in the last hour. People knowing they were going to get margin calls had to sell something.”

Harry Poulakakos

Owner of Harry’s Bar, a favorite of Wall Streeters:

“When the market went down 500 points, we were full at 4:30 and it kept going until two o’clock in the morning. Last time at this time, we had 10 television stations here already. Today everybody took it a little bit easier.”

Eugene Peroni

Analyst, Janney Montgomery Scott:

“It’s total emotional and psychological chaos. People are dumping everything. . . . A great deal of money is being lost.”

Jerry L. Jordan

Chief economist, First Interstate Bank, and member of President’s Council of Economic Advisers 1981-82:

“We’ve seen a succession of things in recent weeks. The Campeau deal came unraveled, several of the (leveraged buyout) deals are now in trouble, the MGM/United Artists thing came unraveled, and now United Airlines. And people are seeing that the arithmetic necessary to justify these deals isn’t there. And the arithmetic is you’ve got to have either high inflation, raise the price of your products, or you’ve got to have real volume increases or you’d better be able to sell a bunch of assets to somebody and get your debt down. And if you have a weak economy, you can’t sell your subsidiaries and things and get your debt down--there are no buyers out there.

“We’ll all be watching Monday morning. . . . What happened two years ago was Friday, we got hit in New York, and then Monday, Tokyo opened very weak and started falling all day. And then it hit Frankfurt, Paris and London. New York just continued the process, and at the end of the day, 28 stock markets around the world all got hit. So if this is a localized phenomenon, people changing their view about the U.S. economy, or if it’s strictly UAL, then there’s no spillover Monday morning. But if it was strictly UAL, there’s no reason why the bond market should rally or the dollar should fall. It’s these sympathy moves that you want to try to interpret for additional information, rather than merely the stock market slump. I would not be surprised to see (a further decline on Monday.)”