On Wednesday, Oct. 14, there were widely discussed rumors of a new punitive tax on takeover profits. Selling turned a bit ugly, and the Dow fell 96 points by the close (a record point drop at the time). The next day there was no bounce and the Dow fell 58 more points.
Friday the 16th was an option expiration day. There was a very bad storm in London and that market closed, which forced more people to seek liquidity in New York. Stocks faced a steady wave of selling. As the close neared, rumors spread that first lady Nancy Reagan, the president’s right hand, might be admitted to the hospital with cancer. The selling intensified and the Dow closed down 108 points, a new record point drop.
The weekend was a rumormonger’s delight. The first lady was admitted to the hospital. Japan was considering a confiscatory 96 percent tax on real estate speculation. Germany proposed a change in taxes on some interest rates, which would make U.S. Treasurys unattractive to Germans. Rep. Richard Gephardt was talking about a trade bill that would freeze imports. Baker went on a Sunday talk show and openly challenged the Germans on currency. There were even rumors of U.S. planes engaging Iran.
At the time, I was running the floor for PaineWebber. Monday morning I got up well before dawn and saw that Hong Kong was down about 10 percent and other markets were looking equally weak before their openings. I headed for the NYSE to check on our systems and staffing. I reached out asking the team to get in early.
Once I had checked out the systems and verified staffing, I went with a partner up to the Luncheon Club for a quick coffee. With markets around the globe all down about 10 percent, I didn’t know if we’d get to a coffee — or anything else after we opened.
We sat about two tables away from a table where NYSE Chairman John Phelan sat with several directors and some staff. Every 10 minutes or so, someone would rush up to Phelan and slip him a note or whisper in his ear. It was evident that things were deteriorating. As I headed for the floor, I went past Phelan’s table, put my right arm across my chest and said — “Morituri Te Salutamus Esse.” It was the gladiator’s salute to the Emperor — “We, who are about to die, salute you.” Phelan nodded without a smile.