Eagle, I don't want to form an alliance anymore.

The capitalist world will once again experience the pain of 1929!

This time, however, it was Sprinkler who sat in the chair of the Federal Reserve.

After all, Hayek was a good leader. His monetarist doctrines made him believe from the bottom of his heart that the market must clear itself, and that central banks would create risks whenever they intervened.

Although he issued a statement, the wording was vague, saying "We are closely monitoring the situation," rather than the definitive "We are committed to providing liquidity" that he has used in the past.

Even more critically, he had absolutely no connection with the president of the New York Federal Reserve, and the New York Fed's life-saving call did not receive any explicit endorsement from Washington.

With no clear answer from the top leadership, who would dare to issue loans?

Everyone knows that if an economic crisis occurs, banks will experience panic runs, liquidity will be disrupted, and the crisis will spread rapidly. Many borrowers will go bankrupt due to broken cash flow, and the money they lent out will become a bad debt!

Without the central bank's backing, anyone who continues to lend is a fool.

So the CEOs instinctively chose to protect their balance sheets: withdrawing loans instead of renewing them.

As the big bosses start withdrawing from the market with millions of dollars, what will happen to the general public? Only God knows.

This drastic move was too ruthless; the funding chain collapsed immediately. The New York Stock Exchange opened at 9:30 AM.

The Great Crash Has Begun.

Sigrún has taught at the Iceland University of the Arts as a part-time lecturer since and was Dean of the Department of Fine Art from -. In – she held a research position at Reykjavík Art Museum focusing on the role of women in Icelandic art. She studied fine art at the Icelandic College of Arts and Crafts and at Pratt Institute, New York, and holds BA and MA degrees in art history and philosophy from the University of Iceland. Sigrún lives and works in Iceland.

Panic spread from east to west, like blood dripping into clear water, across time zones.

Hong Kong markets opened first this Monday morning, and red instantly spread across the screen;

Tokyo followed suit, and the Nikkei index plummeted like an elevator with its cable cut.

Before the market opened, London traders were leisurely chatting about their weekend golf games while sipping coffee. Fifteen minutes after the market opened, some were already retching in the toilet.

When the New York market opened, the entire Western Hemisphere knew something terrible was about to happen, but no one could escape it—

They had to press that button, had to answer that phone, and watch helplessly as they followed the predictable path into that devastating, chilly night.

In the lobby of the New York Stock Exchange, first the telephones rang incessantly, and the red lights on every line lit up. Then the keyboards were pounded away like a sudden downpour.

Then a scream suddenly erupted from the crowd, followed by a sudden and chilling burst of laughter.

The first person to break down is often the one who laughs.

Then came an eerie silence. Everyone's hands stopped, and everyone's eyes were glued to the screen—because the system had frozen!

The overwhelming sell orders, coupled with the algorithmic trading system that seemed to be dragging itself into the abyss, effectively shut down the entire system. The numbers on the screen either plummeted or froze, refusing to move any further. This machine-like silence, unique to the electronic age, was ten times, even nine times, more terrifying than the bustling clamor of 1929!

All the numbers on Quetron's price terminal were glaringly red, but nobody was looking at them anymore.

Sigrún has taught at the Iceland University of the Arts as a part-time lecturer since and was Dean of the Department of Fine Art from -. In – she held a research position at Reykjavík Art Museum focusing on the role of women in Icelandic art. She studied fine art at the Icelandic College of Arts and Crafts and at Pratt Institute, New York, and holds BA and MA degrees in art history and philosophy from the University of Iceland. Sigrún lives and works in Iceland.

The Ames family stumbled upon the chaos as they were approaching the New York Stock Exchange.

The streets ahead were in complete chaos. The sirens of ambulances, the wailing of police cars, and the muffled, chilling gunshots echoed between the towering buildings of Wall Street.

The crowd surged about in a chaotic manner; some people squatted by the roadside with their heads in their hands, while others frantically pounded on a public telephone.

Even in this dire situation, many people still held onto a glimmer of hope, comforting each other by saying that it was just a temporary market adjustment and that it would pass if they just held on.

Optimism always dies slowly.

The Ames family didn't approach; they stopped in an apartment building on the street corner—Ames's place in the city, with windows facing the financial district.

The sky gradually darkened.

The blood-red sunset stained the glass facades of the skyscrapers on Wall Street a dark crimson. Within this crimson hue, Ames, looking out his window, saw figures beginning to gather on the rooftops of the buildings across the street.

One by one, the desperate people went up to the rooftop and lined up in silence. Then, facing the blood-red setting sun, like a flock of weary birds returning to their nests, they fell from the height one after another.

He heard no struggles or cries, only watched the empire's twilight under the blood-red setting sun, watching the scene reveal a cold, poetic beauty filtered through the twilight.

The exchanges had already halted trading. Goldman Sachs, Salomon Brothers, Merrill Lynch, and other top Wall Street brokerages were facing billions of dollars in client withdrawals; the bank run had become public knowledge!

Ames was all too familiar with this scene; his father had told it to him countless times at the dinner table, and he knew what it meant—once the run on the bank spread like a plague, America would face its doom.

His son was lying on the edge of the bed by the window, staring blankly at the aerial performer on the roof of the building across the street.

Those financiers who were so glamorous and arrogant on television and in newspapers during the day were now falling from tall buildings one by one—the shock of this scene completely stunned the ten-year-old child.

Ames walked over, stood behind his son, and said softly:

"Child, this is an economic crisis."

The son's lips trembled, and after a long while, he managed to squeeze out a few questions through his teeth. His confidence and disdain from earlier in the day had vanished without a trace.

"Then...what about the Soviet Union? Didn't the Soviet Union experience an economic crisis?" He turned his head, his eyes filled with panic.

"Will our country...the United States collapse? The Soviet Union will help us, right?"

The Soviet Union also had computers. I heard from my teachers at school that the Soviets used computers to manage their economy, just like we do. They must have done it the same way! After all, if we collapsed, their market would collapse too!

Ames did not answer immediately. He gazed out the window at the blood-red, sinking financial empire, remained silent for a moment, and then placed his hand on his son's shoulder.

“This is a complicated issue, son,” he said slowly. “But I think we should start by talking about what computerized planned economy is.”

Sigrún has taught at the Iceland University of the Arts as a part-time lecturer since and was Dean of the Department of Fine Art from -. In – she held a research position at Reykjavík Art Museum focusing on the role of women in Icelandic art. She studied fine art at the Icelandic College of Arts and Crafts and at Pratt Institute, New York, and holds BA and MA degrees in art history and philosophy from the University of Iceland. Sigrún lives and works in Iceland.

The next day, October 21, the New York Stock Exchange did not open.

This is a collapse far more devastating than a price crash—all U.S. stocks lost their fair value overnight. And prices are the lifeblood of the entire financial system; all stock-backed margin loans, all brokerage repurchase financing, and all interbank lending lost their pricing benchmark!

At this point, the market no longer has prices.

Under normal circumstances, when people see Apple stock at $190, they would think it's an attribute of Apple, an objective number like its market capitalization and price-to-earnings ratio. But actually, this $190 is an abbreviation for something very special:

It is short for "At this moment, someone is willing to buy at $190, someone is willing to sell at $190, and both parties can complete the transaction."

Normally, all three conditions are met simultaneously, so $190 appears to be just a number, the price of a stock.

However, if any one of these three conditions fails, the price will no longer exist. What's the point of a high price if the transaction cannot be completed?

For example, a two-bedroom apartment in Beijing's East Third Ring Road costs 800 million yuan. Where does this 800 million yuan come from? It comes from a recent transaction where someone bought a similar apartment at that price.

If suddenly no one buys a house in a certain month, whether the agent lists it for 1000 million or 500 million, these are not prices, they are just asking prices—because no one is actually making a transaction based on these figures!

If another quarter or even a year passes, and there are buyers but no bank to process the transfer or a real estate agent to facilitate the transaction, then that house will have no price at that point. If you ask how much it's worth, the honest answer is, "That question cannot be answered under current conditions."

This situation doesn't usually occur in the stock market because it has a dedicated role in maintaining prices: market makers.

Market makers are the bearers of prices. The core of the New York Stock Exchange's operation in 1987 was that each stock had a designated market maker.

For example, the market maker for IBM stock is a trader at a market maker company. He sits at a fixed workstation inside the stock exchange, and all IBM buy and sell orders are gathered at his desk.

The job obligation of a market maker is to maintain an orderly market: regardless of market sentiment, they must always provide both buy and sell quotes simultaneously.

If buyers flock to the market but sellers disappear, he must use his own funds to sell the shares from his own inventory to the buyers. If sellers flock to the market but buyers disappear, he must use his own funds to buy those shares.

He is using his own capital to assume the responsibility of maintaining the market, and in exchange, he can profit from the bid-ask spread.

This mechanism is usually very profitable because most of the time the buying and selling sides are roughly balanced, and he only needs to make small adjustments.

However, in the event of a market crash, this mechanism can turn into a death trap for market makers.

The current problem facing stock exchanges is that sell orders triggered by portfolio insurance are flooding in like a tidal wave, with all stocks having only sell orders and no buy orders at the same time!

Market makers are required by the rules to take over the shares, so they must use their own funds, leverage, and inventory to absorb these shares. At the end of the day:

The capital of an American research firm (one of the designated market makers) went from several hundred million dollars at the time of the opening to a negative number. The capital of several mid-sized market makers, such as Sun Securities and Robertson Stephens, was wiped out in a single day. AB T.P. Penney needed to be urgently acquired by Merrill Lynch to avoid bankruptcy.

Of the more than 2,000 stocks listed on the stock exchange, one-tenth were unable to open for trading that day—market makers had run out of capital and could no longer take orders.

This is only the first day of the collapse.

The one-tenth of stocks unable to open for trading include IBM (one of the world's largest publicly traded companies by market capitalization), Merck, Procter & Gamble, Sears...

These stocks had no price on the morning of October 20th—it wasn't a question of how much they had fallen, it was that there was no price left, and transactions could not be completed!

If only a few stocks were suspended from trading, this wouldn't be a serious issue. The problem lies in the fact that the entire infrastructure of the US financial system at the time was built on the assumption that "prices always exist." Once prices disappear, everything else simultaneously fails:

First, margin lending collapsed.

Stock traders or financial professionals borrow money from brokerage firms to buy stocks, with the stocks themselves serving as collateral. Brokerage firms calculate the value of your collateral daily, and if the price drops significantly, they require you to replenish your margin. If you fail to do so, the brokerage firm has the right to forcibly liquidate your position.

The premise of this entire mechanism is that the collateral has a fair value. On the morning of October 20th, IBM had no price. What was the value of your IBM collateral? The brokerage didn't know, so it couldn't determine whether you needed to add margin, nor could it determine how much money you could recover if forced liquidation occurred.

This leads to two chain reactions. One is that brokerages conservatively value the stock at the "worst-case price," which forces a large number of clients who would not normally need to add margin to replenish their positions, resulting in a run on brokerages by clients withdrawing their funds.

Another scenario is that securities firms are unable to calculate their overall risk exposure and cannot answer the question, "Can I continue lending now?"—their instinctive reaction is to completely stop lending.

Second, the inter-brokerage repurchase market collapsed.

As is well known, buybacks are the lifeblood of the financial system. Brokerages need short-term financing every day, and the usual practice is to use their stocks or bonds as collateral to borrow funds from other financial institutions, typically redeeming the collateral overnight or a few days later.

In 1987, this market was worth hundreds of billions of dollars per day. If market liquidity were to freeze, everyone would be wiped out.

The entire repurchase mechanism relies on the fact that the value of the collateral is readily available. On the morning of October 20th, if Brokerage A wanted to use IBM stock to repurchase shares from Bank B, and Bank B asked, "How much are these IBM shares worth?", no one could answer!

Bank B's instinctive reaction would be to reject this collateral, which means that the amount of money that Brokerage A can borrow will be greatly reduced, completely insufficient for its funding needs that day, and it will face overnight default.

In the financial market, credit is more important than life!

As the stock market crashes, the banking sector will also be affected, and interbank lending will be frozen.

The interbank lending market itself does not directly use stocks as collateral, but the credit assessment between banks is highly dependent on the health of each other's balance sheets, and one of the core items of a balance sheet is the market value of various financial assets.

On the morning of October 20, no one knew how much the stocks in JP Morgan's trading account were worth, nor did anyone know whether its clients (the brokerage firms) could repay the loans owed to JP Morgan.

Since banks don't know each other's true financial situation, their instinctive reaction is to stop lending to anyone!

This is capital, and this is human nature.

As banks collapse, things will begin to spread to ordinary people because the balance sheets of pension funds and insurance companies will also be paralyzed.

These institutions hold substantial stock holdings and are legally required to report asset values ​​quarterly or monthly, managing risk according to asset-liability matching principles. If a significant proportion of their assets lacks valuation, their solvency calculations collapse, and state insurance regulators may require the companies to cease accepting new business, potentially forcing pension plans to suspend payments.

This is a crisis that ordinary people will truly feel!

PS: So the financial market is really a terrifying thing, dragging everyone down to hell.

From the 21st to the 22nd, one after another, top securities firms experienced bank runs. EF Hutton, which was already on the verge of collapse, was the first to fall, followed closely by Kidd Peabody, a subsidiary of General Electric. Salomon Brothers and Bear Stearns had their share buyback financing abruptly cut off.

The bank run began to spread, and by the evening of the 22nd, the liquidity of the Illinois State Bank and Bank of America had completely dried up. Bank of America, already weakened by the Latin American debt crisis in the mid-to-late 1980s, had capital as thin as paper. If it collapsed, it would be the largest bank failure in U.S. history.

Following closely behind, even money market funds fell below net asset value. Money market funds like the "Prime Reserve Fund" hold massive amounts of commercial paper, but once large companies like General Electric, Ford, and Chrysler ran out of short-term financing, the fund's net asset value plummeted below the one-dollar threshold.

Retail investors are now frantically trying to withdraw their money from money market funds, and at this point, the United States doesn't even have a federal deposit insurance mechanism for money market funds, so it's completely doomed.

On October 26th, the United States experienced its first true "bank holiday" since 1929.

The federal government ordered the closure of commercial banks across the country for three to five days and attempted to pass emergency legislation authorizing the Federal Reserve and the Federal Deposit Insurance Corporation to provide necessary bailouts.

But the legislative process takes time in a parliament that is already divided and in disarray. And during these precious few days, the country's economic activity is almost frozen.

Sigrún has taught at the Iceland University of the Arts as a part-time lecturer since and was Dean of the Department of Fine Art from -. In – she held a research position at Reykjavík Art Museum focusing on the role of women in Icelandic art. She studied fine art at the Icelandic College of Arts and Crafts and at Pratt Institute, New York, and holds BA and MA degrees in art history and philosophy from the University of Iceland. Sigrún lives and works in Iceland.

While the United States was busy dealing with its own problems, the collapse had already broken free of North American borders and was spreading rapidly throughout the world along the lines of capital.

It first crossed the Atlantic and hurtled towards Europe. In London, traders who were bullish yesterday lost all face today, seeing their screens filled with red; the stock exchanges in Frankfurt, Paris, and Zurich fell one after another.

One of the triggers that brought this collapse was the disagreement between West Germany and the United States over interest rate hikes. Now that the world has collapsed, the United States will never forgive West Germany, and West Germany will not buy into the United States' demands. The already taut string between the United States and Germany is about to snap.

Then came Latin America. Countries like Mexico, Argentina, and Brazil, which had been severely damaged in the 1982 debt crisis and were barely surviving on bailouts from American banks, now had their lifelines suddenly pulled!

The US banking system is bleeding itself dry, so how can it possibly care about others?

The chain reaction of sovereign defaults is like a toppled domino, falling one after another. The Argentine peso and the Mexican Cruzeiro plummeted overnight, and an engineer in Mexico City saw the imported baby formula his child wanted suddenly become an unaffordable luxury.

The authority of the Washington Consensus of the International Monetary Fund collapsed amidst the ruins of defaults in the Third World.

From Hong Kong to Tokyo, from London to Mexico, panic relentlessly pushed westward across time zones, leaving devastation in its wake!

The once arrogant Western world, which thought history had ended beneath its feet, is now watching its proud financial edifice crumble layer by layer from the very top.

Meanwhile, on the other side of the world, a celebration is taking place in the Kremlin in Moscow.

Chapter 78 The Soviet Union's 10 Billion Dollar Evacuation, and in US Dollars

On October 23, as the fire that started on Wall Street traveled westward along the time zone, igniting London, Frankfurt, Hong Kong, Tokyo, and Mexico City one after another, there was one place on Earth that remained untouched by the flames.

That was the Soviet Union, which watched the whole thing unfold, along with its ring of staunch allies.

This is no miracle. Slava knew better than anyone that the Soviet Union was able to stand firmly outside the eye of the storm this time, instead of being swept into it, thanks to two things.

The first one was oil. On another timeline, the oil price collapse in 1986 halved the Soviet Union's hard currency income from $14 billion to $7 billion, and the entire chain of foreign debt, food, and imports began to break down little by little from that year onwards.

This time, however, the Iran-Iraq War escalated further – Iran actually blocked the Strait of Hormuz, the US Navy actually attacked, Iraq bombed all of Iran's offshore oil platforms, and Saudi Arabia cut production ahead of schedule.

These factors combined put the Gulf region, which accounts for a quarter of the world's oil supply, in a precarious situation. Instead of collapsing, oil prices stabilized at $25 a barrel in the latter half of 1987.