Remember the big stock market crash of 1987?
Remember how it was blamed on a variety of causes, ranging from over-priced stocks and speculative greed to the federal deficit.And remember how, once the plunge started, it was accelerated by computer-driven program trading, a relatively new procedure by which huge sums of money can be moved in and out of stocks almost instantaneously, creating great volatility?
At least, that's the conclusion reached by two different investigating panels, the Brady commission and the Security and Exchange Commission. Both looked into the 1987 crash, including the use of computers to enable traders to make a profit from small discrepancies between the prices of individual stocks and futures contracts tied to those stocks.
Yet those lessons and conclusions seem to have been forgotten even though those who overlook the mistakes of the past run the risk of repeating them.
Last week The Wall Street Journal reported that computerized trading, suspended after the big crash, is making a comeback even though some investment firms are reluctant to admit they are again engaging in the practice.
"The result," as the Journal warns, "could be more of the wild stock-price swings that critics have blamed on program trading in the past."
Even before the 1987 crash, Chairman John Phelan Jr. of the New York Stock Exchange was warning that program trading could lead to a "financial meltdown" that could drive the market down hundreds of points.
Yet Congress has steered clear of imposing regulations, partly because computers help professional investors get useful data and partly out of fear that too many restrictions in the aftermath of the 1987 crash could drive investors out of the United States and into foreign markets.
Fortunately, Wall Street has demonstrated that it can rebound even from as steep a decline as the one of Oct. 19, 1987. But the dangers inherent in computer-driven program trading are still as potent as before. Washington needs to monitor this practice as computerized trading gains new vigor. And Wall Street needs to make sure it uses computers only as tools to aid human judgment, not replace it. Otherwise, the nation could be treated to a repeat performance of what happened in 1987 when the stock market got away from the players.