On Oct. 19, 1987, the stock market fell 22.6 percent, the largest single-day loss in Wall Street history. Though the day became known as “Black Monday,” many of the details of what happened have been lost to history.

New York Times financial reporter Diana Henriques (@dianabhenriques) examines what led up to Black Monday and what lessons can be learned from it in “A First-Class Catastrophe: The Road to Black Monday, the Worst Day In Wall Street History.” She joins Here & Now‘s Jeremy Hobson to talk about the book.

Book Excerpt: ‘A First-Class Catastrophe’

By Diana Henriques

He was a towering six foot seven, his round, balding head perpetually wreathed in cigar smoke. Paul A. Volcker, the chairman of the Federal Reserve System, was formidable even when he was cheerful. On Wednesday afternoon, March 26, 1980, he was furious.

Volcker, in office for barely seven months, had been pulled out of a meeting by a frantic message from Harry Jacobs, the chairman of Bache Halsey Stuart Shields, the second-largest brokerage firm on Wall Street. The Fed had almost no authority over brokerage firms, but Jacobs said he thought “it was in the national interest” that he alert Volcker to a crisis in the silver market—a market over which the Fed also had virtually no authority.

Jacobs’s news was alarming. Silver prices were plummeting, and two of the firm’s biggest customers, a pair of billionaire brothers in Texas named William Herbert and Nelson Bunker Hunt, had told him the previous evening that they could not cover a $100 million debit in their Bache accounts, which they had used to amass millions of ounces of actual silver and paper claims on millions more. If silver prices fell further and the Hunts did indeed default on their debt to the firm, the silver they had pledged as collateral was no longer worth enough to cover their obligations. Bache was confronting a ruinous loss, possibly a threat to its financial survival. Jacobs suspected the Hunts also owed money to other major banks and Wall Street firms and may well have pledged more of their silver hoard as collateral.

Volcker immediately wanted to know which banks had made loans to the Hunts. He didn’t regulate Wall Street brokers or silver speculators, but he emphatically did regulate much of the nation’s banking system. There, at least, his authority to act was clear.

Indeed, Volcker had been responding to fire alarms in the banking system for weeks, as banks and savings and loans struggled with rising interest rates—themselves a consequence of Volcker’s attack on the raging inflation that had sapped the economy for nearly a decade. Confidence in America’s banks was as fragile as blown glass, and the last thing Volcker needed was a “bolt from the blue” like this. Yet, here was the head of Wall Street’s number-two firm warning him that some big banks were financing what sounded like wildly speculative silver trading by a couple of Texas plutocrats.

Within minutes, Volcker had reached out to Harold Williams, the urbane and seasoned chairman of the Securities and Exchange Commission, the primary U.S. government regulator of Bache and its fellow brokerage firms. Williams was at a conference in Colonial Williamsburg; he ducked into a side room, spoke with Volcker about Bache, and then phoned to tell his staffers to check immediately on the rest of Wall Street’s exposure to the silver speculators. Williams then hurried back to Washington. A senior Treasury Department official and the comptroller of the currency (another bank regulator) were also alerted to the potential crisis. Both headed for the Fed’s headquarters on Constitution Avenue. Together, perhaps they could cover all the financial corners of this unfamiliar crisis.

To do that, the group needed a regulator with some authority over the silver markets. Volcker called the office of James M. Stone, who had been tapped less than a year earlier by President Jimmy Carter to be the chairman of