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Financial crisis: London stock exchange suffers worst fall in history - Telegraph

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Will there be an Economic Depression, Recession, or Stock Market Crash in , ? - How will the World Economy do? A New Age / Astrology / Prophecy Discussion

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If you continue without changing your settings, we'll assume that you are happy to receive all cookies on the BBC website. However, you can change your cookie settings at any time. These are external links and will open in a new window. It raised fears about this being a repeat of the stock market crash of and a harbinger of an economic depression to follow.

In fact the share index, the main measure of stock market value, ended the year higher than it had started. So anyone who had sat on their hands during the crash saw the value of their investments recover swiftly. However the experience of provided lessons, not all of which have been taken on board even 25 years later.

There was a strong suspicion that a stock market bubble was appearing, with valuations out of line with the economic reality of the time. Wall Street had begun to weaken through the summer months and was particularly weak on the Friday before "Black Monday". Also, many in the City were unable to get to their trading desks that day because of the disruption caused by the storms over the previous night.

Monday morning, 19 October , therefore began with London catching-up with Wall Street's weakness. Renewed selling pressure, particularly after lunchtime when it became clear that Wall Street was again going to open well down, caused many to panic. The tide of sell orders turned into a flood as investors tried to cash in on the profits made over the previous years.

The selling continued on the Tuesday and the markets remained weak into November, until the combination of sharp falls in interest rates and more realistic valuations tempted investors to return. As mentioned, the market ended the year higher than it had begun, despite this turmoil, and there were few signs that the real economy had been negatively affected by these stockmarket gyrations. The authorities introduced "circuit beakers" to suspend trading in share prices that have become extremely volatile.

These have been used several times since and serve to limit any potentially negative secondary affects of excessive stockmarket volatility. However some lessons have not been taken on board, as became even more obvious during the later stock market boom and bust of to Central bankers still do not seem convinced that asset prices, as well as consumer prices, should be taken into account in setting interest rates and monetary policy during the boom years.

For instance, Alan Greenspan, then the chairman of the US central bank the Federal Reserve, famously dismissed the stock market bubble of as "irrational exuberance". However he did nothing about it, arguing that central banks cannot predict financial bubbles and should react to busts rather than booms. In my view, he and other central bankers could have done more to limit the periods of cheap money and east credit that have fuelled stock market booms. When you have a prolonged setback in the stock market it can in fact have an impact on the economy.

We have seen, since , that the fall of the stock market - and also house prices - has had a major impact on consumer confidence in the UK and hence spending in the economy.

They received another reminder that shares are for the long-term and should be avoided if you cannot live with short-term volatility.

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The stock market crash of What have we learned? Money Talk by Michael Hughes Former chief investment officer, Barings Asset Management. These are external links and will open in a new window Share this with Facebook Share this with Twitter Share this with Messenger Share this with Messenger Share this with Email Share Share this with These are external links and will open in a new window Email Share this with Email Facebook Share this with Facebook Messenger Share this with Messenger Messenger Share this with Messenger Twitter Share this with Twitter Pinterest Share this with Pinterest WhatsApp Share this with WhatsApp LinkedIn Share this with LinkedIn Copy this link http: This sharp correction was outside the experience of most City professionals.

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