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Broker chiefs on the crash
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October 15, 1997: 12:15 p.m. ET
Chairmen discuss Black Monday and whether or not it could happen again
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NEW YORK (CNNfn) - Brokerage firms gave evidence of Wall Street's prosperity Tuesday when they announced favorable and sometimes record-setting third quarter profits. Bear Stearns and Merrill Lynch each reported a 49 percent increase in third quarter profits, while PaineWebber announced an increase of 41 percent. Donald Marron, Chairman and CEO of Bear Stearns, and PaineWebber Chairman Alan Greenberg appeared on "Moneyline with Lou Dobbs" to discuss their companies' recent gains. They also took a look back on the crash of 1987. A transcript follows.
LOU DOBBS: Joining me now are two of Wall Street's shrewdest most respect leaders, Don Marron, chairman & CEO of PaineWebber, and Ace Greenberg, chairman of Bear Stearns. Good to have you with us.
ALAN GREENBERG, CHAIRMAN, BEAR STEARNS: Hi, Lou.
DONALD MARRON, CHAIRMAN & CEO, PAINEWEBBER: Good to be here.
DOBBS: Let's cast back just quickly to 1987, and if I may, let me start with you, Ace. The sense on October 19th, 1987, in your office on that day as it began....
GREENBERG: Well, the problem was we didn't know exactly where we stood. We had an awful lot of clients that bought securities. Our hope was that five days later they could pay for them. Our fear was -- and we were right -- some couldn't. So we didn't know exactly where we stood, and we wouldn't really find out until delivery date, five business days later.
DOBBS: The idea of fear and greed moving the Street. How - what would you say the ratio was between fear and greed that day?
GREENBERG: I don't know.
DOBBS: Don?
MARRON: What had been building up over time was the feeling is, "Could 1929 happen again?" The market had been going up for years, although it had eased off. Could it happen? And that morning, as the market started to go down, 1929 became something on everybody's mind. Could it happen? How would it happen? Should it happen? The younger you were, the more you were surprised that the market could correct as much as it had, and everybody was focused not just on the transactions and how to balance the books but was this the beginning of the end.
DOBBS: What was the most difficult decision that either of you had to make that day, Ace -- Don?
MARRON: I think the biggest decision to make that day and the most important was stay in business, keep doing what you're doing, service your clients, give everybody some confidence that the markets would work out.
GREENBERG: Well -- and plus the fact that I think we tried to remind people that this wasn't the biggest break that most of us had seen because when the President was -- when Kennedy was assassinated, the market break then was much more severe, but they stopped trading, and people looked at the newspaper, and they said, "Oh, my stock only went down 3 points." They didn't know it really had gone down 10. It just hadn't traded. So the market was closed, so -- but we knew. We were there and, of course, it was a holiday for two days, and when the market reopened, it was very strong. So, once again, the panic went away, but we'd seen that.
DOBBS: Who or what do you credit principally for the market's turnaround the following day, Don?
MARRON: I think the market turned around the following day because the system worked, and the next day was really the serious day. Everybody came in saying, "Is this going to work? Is there going to be -- " the Fed had been cooperative and sensitive, all the firms worked together all night, the exchanges came together, and basically I credit it to the clients.
GREENBERG: Well -- plus the fact that the best companies in the world went down 32 percent in two days, and that was kind of -- rang a bell among a lot of people. They said, "Look at the opportunity we have," and I think that had a lot to do with it, and it's true. Thirty-two percent in two days in the blue chips.
DOBBS: Greed saved the day.
GREENBERG: Well, good sense.
DOBBS: Some are suggesting that the crash -- a crash -- a repetition in those dramatic terms is not possible today given the collars, the changing mix of financial instruments, the sophistication of the buyers and firms. What do you think, Ace?
GREENBERG: Absolutely it could happen again. Might happen again. People own securities. People panic. It's like a stampede out west. The fact that the institutions own so many stocks doesn't really mean much. If all the people call up and want to redeem, they have to get liquid, and that's what happened, of course, on that Monday when the institutions -- they -- you couldn't even get through on the telephone where people wanted to cash in. So it could happen again. I hope it doesn't, but it could. People are people. They don't change.
DOBBS: Do you agree, Don?
MARRON: It could happen for a couple reasons. One is we now have a global market, and while the market's global, liquidity is not global so that you have more money invested in more parts of the world. If things turned out and you had to realize in that money, you'd have to come to the most liquid market. That's the New York Stock Exchange and Nasdaq. That would have the effect of funneling the world's funds into those markets. Do I think it's going to happen? Probably not. Could it happen? Yes.
DOBBS: Give us your sense of this market right now. A quick -- we're basically out of time, but a quick characterization of this market.
MARRON: It's the decade of the individuals. The flow of funds in the defined contribution plans will continue. There will be fluctuations. It's at a high level, but, basically, the economy stays all right. The market's OK.
GREENBERG: Stocks that earn money will go up, and stocks that don't earn money will go down.
DOBBS: That's about all any of us could ask for.
MARRON: That's all. That's what counts.
DOBBS: Ace Greenberg, Don Marron, thank you both for being with us. Thanks. 
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