From Black Monday and the Subprime Mortgage Crisis to the Basel “End Game”

The American people have suffered greatly at the hands of international bankers who have been allowed to manipulate economies within the United States and around the world for their own gain, with impunity.

Throughout the 1980’s, during a period of deregulation, J.P. Morgan analysts put the word out that they were looking for strategies to exploit the mortgage market sector while hedging risk. The problem they faced is that they lacked long-term data to quantify risks associated with bundling mortgage securities.

The proposed solution was credited to Robert Merton, a professor of the Sloan School of Management; and Mark Rubinstein, a Professor at UC Berkeley. Great risk could be taken with investments as long as a safety net, or “portfolio insurance,” was in place, they argued.

Fortune magazine’s “Businessmen of the Year” then proceeded to to market a computerized trading program that permitted institutional investors to use portfolio insurance to sell stock index futures. No human input or independent judgment was required. The program was idiot-proof – a veritable lazy man’s guide to investing. An algorithm would make decisions on whether to buy or sell a trade while investors, who lacked the data to predict markets trends accurately, sat back and raked in the cash.

On October 19, 1987, the market began to dip. Detecting the shift, the algorithm sold shares. Each sell led to another dip, prompting the algorithm to sell, and then sell again and again and again, until it entered a self-perpetuating feedback loop that tanked the stock market. In one day, the Dow Jones Industrial Average dropped 22.6 percent, the largest single day drop in Wall Street history.

Goldman Sachs, Merrill Lynch, and Bankers Trust, and First Boston relied upon portfolio insurance for their trades to hedge against “ risk.”

Read the rest on Susan’s Substack.

(c) 2025 Susan Bradford

www.susanbradford.org