With the usual 20-20 hindsight, many stock market experts have said that the ''meltdown'' of Black Monday, Oct. 19, was not only inevitable but predictable. What the experts never seem to explain, though, is why they failed to predict the $500 billion drop in stock prices.
Well, actually, the dramatic collapse was predicted with uncanny accuracy -- by unsung analysts in the Securities and Exchange Commission. In two reports prepared earlier this year, they provided a description of what would occur -- and why. The reports were published. But nobody paid any attention.
The SEC analysts were investigating two earlier Wall Street shocks. One occurred on Sept. 11 and 12, 1986, when the Dow Jones average fell 120 points in record trading volume. The second occurred on Jan. 23 of this year, when the Dow made a sickening free fall of 115 points in little more than an hour of trading.
The SEC detectives studied the circumstances of these two warning shocks and identified a potential threat. They concluded that computerized trading -- used by huge institutional investors and professional speculators -- increased the volatility of the market to such a degree that in a situation of falling prices they could lead to a crash.
Alerted to these earlier drops in the Dow, Congress had asked the SEC sleuths to investigate. They were told to be on the lookout especially for any signs of illegal manipulation of the market.
They warned that ''specific scenarios may warrant further analysis.'' Why? Because, the SEC report explained, there was a possibility that the new trading techniques, such as portfolio insurance and stock index features trading, ''could trigger selling that temporarily exceeds market liquidity.''
This, the SEC analysts warned, could create a ''cascade effect'' of falling stock prices. The resultant plunging stock prices could trigger stop-loss sell orders in individual stocks,'' the analysts warned, ''and force additional liquidations to meet margin calls and broker-dealer capital requirements, finally leading to a market collapse.''
This is an almost eerily letter-perfect description of what happened on Oct. 19.
Unfortunately, instead of proposing regulations to curb the dangerous high-tech stock-trading techniques, the SEC investigators went to the seven big brokerage firms whose operations they had studied on the minicrashes and asked for their opinions. Not surprisingly, the brokerage firms defended their practices.
While they found no evidence of illegal manipulation, the SEC investigators did recommend that surveillance capabilities be improved. In the wake of Black Monday's cataclysm, a presidential commission, two congressional committees, the General Accounting Office, the New York Stock Exchange and the U.S. Commodity Futures Trading Commission in Chicago have all launched investigations. Their various reports are expected by year's end.
Already several members of Congress have called for more market regulation. But any constraints, particularly on the free-wheeling Chicago futures exchange, will face stiff opposition. The attitude in both New York and Chicago is: ''Do something -- but not to us.'' Exchange officials insist that the October crash was caused mainly by the failure of Congress and the White House to cure the budget deficits.
''If it ain't broke, don't fix it,'' one market insider told our reporter Frank Byrt. The market, he said, has worked the way it was designed to. As for Black Monday, ''it was scary,'' he said, ''but the system held together, though there were some rips.''