Prospect Looking forward, we are better positioned today to absorb market shocks than we were prior to the 1987 crash. We undoubtedly, however, will have many different problems in future periods of volatility. Responses to events such as the 1987 crash tend to be crisis specific. One of our challenges is to make public policy responsive to changing market conditions rather than let it be driven solely by the most recent crisis. The circuit breakers put in place after the crash offer an interesting example of this phenomenon.
Circuit breakers are trading halts coordinated across the equity and equity derivatives markets.
They were first suggested by the Brady Task Force, and they are one of the more notable recommendations of that report. Circuit breakers are widely cited today as one of the successes of the crash post-mortems. But I, for one, question this evaluation. If circuit breakers have never been used to halt trading, it follows that we have never had the experience of trying to re-start trading either. To an economist such as myself, some of the scariest times during the market crash were those in which trading was not occurring.