After The Fall

By WALTER ISAACSON

Decades have a way of crashing to a close during the blink of an hour. The '60s ended at Altamont, when a knife-and-death climax to a Rolling Stones concert showed that the decade of love, peace and music had trouble, even with the music. The '70s limped along with an inner-directed malaise until Jan. 20, 1981, when the U.S. hostages lifted off from Tehran just as Ronald Reagan was taking office. The '80s, as befits their high-flying adrenaline, may have dissipated a few years early, sputtering to an end during the stock market's terrifying final hour of free fall on Monday. Although Wall Street may eventually stabilize, the tenor of the times will never be the same.

What crashed was more than just the market. It was the Reagan Illusion: the idea that there could be a defense buildup and tax cuts without a price, that the country could live beyond its means indefinitely. The initial Reagan years, with their aura of tinseled optimism, had restored the nation's tattered pride and the lost sense that leadership was possible in the presidency. But he stayed a term too long. As he shouted befuddled Hooverisms over the roar of his helicopter last week or doddered precariously through his press conference, Reagan appeared embarrassingly irrelevant to a reality that he could scarcely comprehend. Stripped of his ability to create economic illusions, stripped of his chance to play host to Mikhail Gorbachev, he elicited the unnerving suspicion that he was the emperor with no clothes.

Now it's the morning after, and the dream of painless prosperity has been punctured. But what a wild binge it was! Speculative fortunes built on junk bonds and stock manipulations helped paper over the cracks in an economy beset by sluggish investment and productivity. Some of the best minds of a generation marched off to make millions as market mavens, embracing the greed- and-glory smugness that suffused both Wall Street and Washington. An economy that was once based on manufacturing might and inventive genius began pursuing wealth through mergers and takeovers and the creation of new "financial instruments." Fortunes were conjured out of thin air by fresh- faced traders who created nothing more than paper -- gilded castles in the sky held aloft by red suspenders.

So when the fall came, so did a few smirks, along with jokes about yuppie brokers losing their BMWs. But mainly the reaction was personal: What did the crash mean for me, my pension, my mortgage, my business, my job, my tuition bills? Most of the momentous events that splash their headlines for history can be viewed dispassionately from afar. Not a Wall Street panic, however, not even for those who don't play the market.

For many of Wall Street's whiz kids, Monday was their first taste of financial fear, their first hard lesson that what goes up can come tumbling down. For others, it produced a gnawing unease about not only their investments but also the health of their nation. Just as the crash of the space shuttle Challenger was a blow to America's sense of technological grace, so the crash of the market shattered its sense of financial security.

There was an odd disjuncture: the market's implosion seemed to be a frightful rendezvous with reality and, at the same time, an unhinged flight of fantasy. On the one hand, fundamental economic problems appeared to be crashing home to roost. On the other, the panic within the looking-glass world of Wall Street produced wild price fluctuations that bore little resemblance to the fundamental value of the venerable industries involved.

But the stock exchange has never pretended to measure the underlying value of American companies. Instead, it produces a collective judgment about the future profits these firms will generate. By suddenly and wildly re-evaluating its expectations about the years ahead, the market may have helped fulfill its own gloomy prophecy.