The Friday the 13th mini-crash, or Black Friday, was a stock market crash that occurred on Friday, October 13, 1989. The crash 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 the acquisition of a company using a significant proportion of borrowed money (Leverage (finance), leverage) to fund the acquisition with the remainder of the purchase price funded with private equity. The assets of t ...

deal for UAL Corporation, the parent company of

United Airlines United Airlines, Inc. is a Major airlines of the United States, major airline in the United States headquartered in Chicago, Chicago, Illinois that operates an extensive domestic and international route network across the United States and six ...

. 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 eve ...

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 (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 indice ...

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) is an American stock exchange based in New York City. It is the most active stock trading venue in the U.S. by volume, and ranked second on the list ...

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 leading companies listed on stock exchanges in the United States. It is one of the most commonly followed equity indices and in ...

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"), index ticker symbol DJT 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 ...

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 2022, he served as a Sterling Professor of Economics at Yale University and is a fellow at the Yale School of Management's International Center fo ...

, the author of '' Irrational Exuberance'', 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.

Aftermath

The crash is often pinpointed as the start of the early 1990s recession, but the surprisingly-low growth rates (almost 0 percent) during the summer months and the

savings and loan crisis The savings and loan crisis of the 1980s and 1990s (commonly dubbed the S&L crisis) was the failure of approximately a third of the savings and loan associations (S&Ls or thrifts) in the United States between 1986 and 1995. These thrifts were b ...

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 LLC (, ) is an American publishing house owned by Kohlberg Kravis Roberts since 2023. It was founded in New York City in 1924, by Richard L. Simon and M. Lincoln Schuster. Along with Penguin Random House, Hachette Book Group US ...

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

The close

Survey

Aftermath

See also

References