WTF Actually Happened In 1987? - Black Monday: The Day Wall Street Sh*t Itself

Alright, buckle up and step into to the time machine because we are going back straight to October 19, 1987— Black Monday.

The day the stock market took the hardest nosedive in history and left every Wall Street suit pissing themselves. This wasn’t just some "bad trading day"—this was a massacre. Imagine waking up to see your portfolio down 23% in a single day I know for crypto traders that is just a regular Tuesday, but that’s 500 billion dollars vanishing into thin air. If that happened today, X would collapse under the weight of all the crying finance bros nowdays when something is down by 10% we lose our sh*t. (Me included if I am being honest)

So put on your suspenders, tie your tidied ties, slip into your polished shoes, roll up your striped shirts, and let's visit the roaring 80s' finance world.

I know there was a crash but how? why? and what does this all mean?

Markets had been pumping all year—stocks were mooning like it was crypto in 2021. Then, in one day, it all went to absolute sh*t. But why? Here’s a breakdown for those of you too lazy to attend finance history class:

Black Monday Scene from The Wolf of Wall Street

1. Program trading – the OG algo sh*tshow

The ‘80s were wild—cocaine, Wolf of Wall Street vibes, slicked-back hair, power suits, and phones getting slammed down harder than a junk bond scam. Trading was still mostly a human game, but then some finance nerds had a "brilliant" idea—what if computers could handle some of the trades automatically? Enter program trading, the first wave of algorithmic trading. This backfired harder than FTX in 2022. The idea was simple: when stock prices started falling, the computers would automatically sell positions to limit losses. In theory, this was supposed to be risk management on steroids. Instead, it was like giving a toddler a flamethrower—the moment things got shaky, the programs went full meltdown mode. The market started dipping and boom— even more sell orders flooded in. That triggered more selling, which triggered even more selling, and before you knew it, the entire market was in freefall. The computers didn’t care about fundamentals or rationality—they just followed the code, dumping stocks at insane speeds.

This self-reinforcing death spiral turned a regular correction into a historic crash. Traders on the floor were watching in horror as stocks nosedived, and nobody could stop it. By the time the day was over, the Dow was down 22.6%, wiping out half a trillion dollars. Wall Street got rug-pulled by its own tech, and for the first time, everyone realized that maybe—just maybe—letting machines run the show wasn’t the best idea.

2. Portfolio insurance – a fancy way to lose everything

Alright, so after handing too much power to computers with program trading, Wall Street’s brainiac quants (aka the guys who think they’re the smartest f*ckers alive) came up with another "genius" idea called portfolio insurance. It was supposed to be the holy grail of risk management, a strategy designed to protect investors from big losses. But just like every overconfident finance scheme, it worked perfectly... until it didn’t.

How it was supposed to work

The idea behind portfolio insurance was pretty simple:

1. If stock prices started dropping, the strategy would automatically short stock index futures (basically betting that stocks would keep falling).

2. This hedged investors’ positions, limiting their losses—in theory.

3. If the market recovered, the hedge could be adjusted, and everyone would be happy.

Sounds bulletproof, right? Wrong. Because in a panic, everyone was using the same strategy at the same time.

So how it backfired horribly?

On October 19, 1987, the market started slipping, and portfolio insurance kicked in—on a massive scale. That meant billions of dollars in sell orders flooded the market all at once. The more stocks dropped, the more the strategy kept shorting futures, and since futures drive stock prices, this created a death spiral. Nobody was buying—only selling. Portfolio insurance didn’t protect anyone—it nuked the market instead. The same firms that thought they were hedging against a small drop accidentally turned it into a full-blown financial apocalypse. When everyone is dumping stocks at the same time, the floor disappears—and that’s exactly what happened on Black Monday.

Real life CNN coverage from October 19. 1987, Black Monday

3. The market was on coke

Going into 1987, stocks weren’t just expensive—they were stupidly expensive. The price-to-earnings (P/E) ratios were completely out of whack, but nobody cared because stonks only go up, right? It was the same story as Tesla in 2021 or NVDA two months ago—everyone knew it was overvalued, but as long as the line kept going up, nobody wanted to be the first idiot to sell. The economy was booming, investors were euphoric, and the casino was in full swing.  (sounds familiar maybe?)

The problem is gravity is real, b*tch. Markets don’t just rise forever—there’s always a breaking point. Stocks had been running on hopium and Wall Street greed, and when things started to crack, the fall was fast and brutal. It turns out that when everyone is leveraged to the gills, meaning they took on huge loans and aksed for borrowed money to invest, even a small dip can turn into a goddamn landslide. And that’s exactly what happened—once the selling started, there was no bottom in sight.

4. Rising interest rates

The Federal Reserve is like that big d*ck energy boss that walks in and shuts down your weekend bender right when things are getting fun. In the lead-up to Black Monday, the Fed had been raising interest rates, which meant borrowing got more expensive, and the easy money train started to slow the down. When rates go up, bonds start looking a whole lot sexier than stocks, and suddenly, big investors start thinking, "Why the hell am I holding risky stocks when I can get solid returns on safe bonds?"

Once that mindset kicks in, liquidity dries up fast. The stock market is a confidence game, and when big money starts pulling out, panic spreads like a goddamn virus. Suddenly, the same investors who were YOLOing into overvalued stocks a few months earlier were scrambling to dump their bags, and with all the program trading and portfolio insurance sh*t going on, the market didn’t just correct—it imploded. If you want to understand how the FED really works check out our other deep dive.

Nobody, The Stock Market in 1987:

5. Trade deficit & weak Dollar

By 1987, the US trade deficit was out of control—America was importing way more than it was exporting, and foreign investors were starting to side-eye the dollar like it was a no-utility meme coin. A weak dollar meant that overseas investors were getting less bang for their buck, making US assets less attractive. When big money from Europe and Asia started feeling uneasy, they weren’t about to just sit there and hope for the best, they began pulling out of US markets.

And here’s where things gets nasty—when the selling pressure starts overseas, it spreads like a financial contagion. International investors dumping their holdings only accelerated the market collapse, turning what could have been a bad day into a full-on bloodbath. The US market wasn’t just crashing because of dumbass portfolio insurance and program trading—it was also getting rug-pulled by global investors who saw the writing on the wall and bailed early.

And now onto our favorite section that we like to do

Who got f*cked checklist?

✅ Stockholders: Obviously. If you were holding blue chips like IBM, you got your ass handed to you.

✅ Brokers: Ever seen a margin call wipe out a dude’s net worth in minutes? That happened.

✅Investors Who Bought at the Top: Imagine YOLOing your life savings into stocks on October 18… then waking up the next day down 23%. Congrats, you're the 1987 version of an FTX depositor.

But here’s the crazy part—it wasn’t the end of the world. The market actually recovered within two years. Unlike 1929, this crash didn’t lead to a Great Depression-level crisis. Instead, the Fed jumped in with a "Don’t Panic" bailout, and things stabilized.

Now to bust a huge myth: did people commit suicide on Black Monday?

Despite the widespread myth that Black Monday led to mass suicides, the reality is far less dramatic. Unlike the 1929 crash, where brokers literally jumped out of windows, there were no confirmed reports of traders or investors taking their own lives due to the crash.

That said, the day was still a brutal gut-punch for Wall Street. Traders lost fortunes in hours, firms went belly-up, and panic was at an all-time high. People were crying on the trading floor, phones were ringing non-stop, and brokers were having full-on breakdowns as stocks tanked with no bottom in sight. But as bad as it was, the market recovered within two years, meaning those who didn’t panic-sell ended up fine. So yeah, lots of stress, lots of ruined portfolios, but no flying bankers.

Here are some real life images from Black Monday

So what have we learned?

Computers can't trade for sh*t: Program trading made the crash 10x worse. That’s why today we have circuit breakers—so computers don’t rug-pull the market in seconds.

Markets can and will recover from absolute disasters: If you didn’t paper-hand your sh*t in 1987, you were back in the green in two years. Think about that the next time you panic sell.

The Fed will always step in (maybe): They let regular people get rekt, but if enough billionaires scream, they’ll print money faster than a sh*tty altcoin project.

What if this happens again?

Could we see another Black Monday? Absolutely. In fact, it’ll probably be worse. Trading today is faster, bigger, and more leveraged than ever. AI and algos control way more of the market than in 1987. The Fed’s already out of ammo—if a crash happens now, who the f*ck bails out the bailouts?

So yeah, strap in, stay hedged, and for f*ck’s sake:

Don’t panic sell.