So we knew we were in for a rough ride and our clients were selling. The overall feeling was, holy crap, what's going on?>> So you could tell right away that it was gonna be ugly, but I still wasn't prepared for 22.5%.>> I would say that day the trading floor was as close to a panic environment as any day I had ever seen prior to that and any day I've ever seen since.
>> It was tremendous in terms of, you could feel it, you could hear the panic in the voices of these people entering these orders. But it was still only 8 o' clock, 8:15, 8:30. But yet the market wasn't even anywhere near opening.>> It was an emotional time.
People were concerned. They were anxious. There was a lot of aggressive trading and when in those days when that happened, yeah, there was a lot of yelling, there was a lot of screaming, a lot of fighting.>> I think it was a combination of the portfolio insurance. Clearly there was an absence of buyers and no bids.
So if you have all sellers and no buyers, stocks are only going one way cuz in a very simplistic analysis, stocks go up and down based on supply and demand. If there's no demand and there's plenty of supply we all know where the stocks are going.>> It was this risk management software designed by non-business people.
They were physicists, they were engineers, they were quants. They were such as computer geeks, right, that's what they were. And they designed this risk management product called Portfolio Insurance. And they ended up selling this product to asset managers not only in this country but around the world. So here's the problem.
Well over the weekend of October 17th and 18th after we had those really three bad down days not only in the US market but Asian markets and European markets had also come under pressure and everybody gets the same message, right? You gotta sell, say 2%, you got to sell 2%, you gotta sell 2%.
>> At the time my wife was pregnant with our first child and we had just bought a house in Long Island. And I went to bed that night and I said I don't really know what's gonna happen>> I remember going home to my wife and going, I think it's over.
I think it's over because, I don't know, it just felt like it. Listen, I was just married
just bought a house, my daughter was just born. I mean, my life was good. And all of a sudden it wasn't.>> It had gone well past just this room.
It wasn't like you walked outside and all of a sudden all was forgotten, all was forgiven. You went outside and there were furtive looks. Guys that know you worked on the floor, on the train and stuff. They just come up to you like what's going on down there?
>> With the benefit of 20/20 hindsight, a lot of the blame was based on Portfolio Insurance. Today we call it high frequency trading and derivatives. The more things change, the more they remain the same. Could it happen again? You bet it could happen again.