The Friday the 13th mini-crash was a

stock market crash A stock market crash is a sudden dramatic decline of stock In finance, stock (also capital stock) consists of all the shares by which ownership of a corporation or company is divided.Longman Business English Dictionary: "stock - ''especia ...

that occurred on Friday, October 13, 1989. The crash, referred to by some as "Black Friday", was apparently caused by a reaction to a news story of the breakdown of a $6.75 billion

leveraged buyout A leveraged buyout (LBO) is one company's acquisition of another company using a significant amount of borrowed money ( leverage) to meet the cost of acquisition. The assets of the company being acquired are often used as collateral for the loa ...

deal for

UAL Corporation UAL Corporation is the former name of United Airlines Holdings, an airline holding company, incorporated in Delaware with headquarters in Chicago, Illinois. UAL held a 100 percent controlling interest in United Airlines, Inc., one of the worl ...

, the parent company of

United Airlines United Airlines, Inc. (commonly referred to as United), is a major American airline headquartered at the Willis Tower in Chicago, Illinois.

. When the UAL deal fell through, it helped trigger the collapse of the

junk bond In finance, a high-yield bond (non-investment-grade bond, speculative-grade bond, or junk bond) is a bond that is rated below investment grade by credit rating agencies. These bonds have a higher risk of default or other adverse credit events ...

market. The deal unraveled because the Association of Flight Attendants pulled out of the deal when management, in negotiations over an

Employee Stock Ownership Plan Employee stock ownership, or employee share ownership, is where a company's employees own shares in that company (or in the parent company of a group of companies). US employees typically acquire shares through a share option plan. In the UK, Emp ...

(ESOP) designed to fund the leveraged buyout, refused to agree to terms.

The close

Moments after the UAL deal fell through, the indices began their plunge. When the closing bell rang, the

Dow Jones Industrial Average The Dow Jones Industrial Average (DJIA), Dow Jones, or simply the Dow (), is a stock market index of 30 prominent companies listed on stock exchanges in the United States. The DJIA is one of the oldest and most commonly followed equity inde ...

had dropped 190.58 points, or 6.91 percent, to 2,569.26; the

NASDAQ The Nasdaq Stock Market () (National Association of Securities Dealers Automated Quotations Stock Market) is an American stock exchange based in New York City. It is the most active stock trading venue in the US by volume, and ranked second ...

Composite had shed 14.90 points, or 3.09 percent, to 467.30; and the

S&P 500 The Standard and Poor's 500, or simply the S&P 500, is a stock market index tracking the stock performance of 500 large companies listed on stock exchanges in the United States. It is one of the most commonly followed equity indices. As of D ...

Index had fallen 21.74 points, or 6.12 percent, to 333.65. The

Dow Jones Transportation Average The Dow Jones Transportation Average (DJTA, also called the "Dow Jones Transports") is a U.S. stock market index from S&P Dow Jones Indices of the transportation sector, and is the most widely recognized gauge of the American transportation sector ...

fell 78.05 (5.26%) on the 13th, and fell another 102.04 (7.26%) on the 16th for a total decline of 12.13%. The major indices had closed at all-time highs as recently as Monday, October 9.

Survey

Many investors were left stunned. Since most market participants blame the UAL deal as the culprit, survey researcher William Feltus and

Robert Shiller Robert James Shiller (born March 29, 1946) is an American economist, academic, and author. As of 2019, he serves as a Sterling Professor of Economics at Yale University and is a fellow at the Yale School of Management's International Center for ...

, the author of ''

Irrational Exuberance "Irrational exuberance" is the phrase used by the then-Federal Reserve Board chairman, Alan Greenspan, in a speech given at the American Enterprise Institute during the dot-com bubble of the 1990s. The phrase was interpreted as a warning that the ...

'', conducted a telephone survey of 101 market professionals in the business days following the crash, asking if they had heard about the UAL news before or after the crash: 36% surveyed said they had heard about it before the losses set in, and 53% said afterwards. The market professionals also believed that the UAL story was just an attention-grabber, with traders trying to find a reason to sell: 50 percent believed that was the reason while 30 percent believed the news would reduce future takeovers.Harvard International Review - Exuberant Reporting Media and Misinformation in the Markets

Aftermath

The crash is often pinpointed as the start of the

early 1990s recession The early 1990s recession describes the period of economic downturn affecting much of the Western world in the early 1990s. The impacts of the recession contributed in part to the 1992 U.S. presidential election victory of Bill Clinton over incu ...

, but the surprisingly-low growth rates (almost 0 percent) during the summer months and the savings and loan crisis earlier in the year had triggered the crisis almost concurrently with the mini-crash, which, in turn, got blamed by the public (the memory of the 1987 crash still being fresh) as the true culprit of the recession.

References

*{{cite book, last=Woodward, first=Bob, author-link=Bob Woodward, title=Maestro: Greenspan's Fed and the American Boom, year=2000, publisher=

Simon & Schuster Simon & Schuster () is an American publishing company and a subsidiary of Paramount Global. It was founded in New York City on January 2, 1924 by Richard L. Simon and M. Lincoln Schuster. As of 2016, Simon & Schuster was the third largest publ ...

, place=New York, page
63–64
isbn=978-0743204125, url-access=registration, url=https://archive.org/details/maestrogreenspan00wood 1989 in economics 1989 in the United States Stock market crashes October 1989 events in the United States Friday the 13th

The close

Survey

Aftermath

See also

References