This book is about the transition from erratic policies and crisis-riddled securities markets in the 1970s to steady economic growth and attractive securities markets in the 1980s. The transition reflected conscious policy changes by the Federal Reserve and the Reagan administration, but also fortuitous changes, such as the decline in oil prices and the strong dollar. This theme is very much of a piece with contemporary economic theory of rational expectations under changing policy regimes, but I did not go looking for it; it forced itself on me. I began simply with the idea of chronicling the history of an interesting period in the securities markets.
The story parts with rational expectations notions, however, in that many markets reflected the new regime slowly, and in no case were the changes painless. The transition was punishing, and major sectors of American industry were permanently disrupted.
There is already an oversimplified image of securities markets in the 1980s that misses this transition. Investment lore, the media, and even presidential politics paint the decade as one of record stock returns, huge bond profits, and rampant mergers fueled by declining inflation, steady growth, lower taxes, and free markets in which financial buccaneers created some of the largest fortunes since the 1920s. This image reflects the last half of the 1980s rather than the first half of the decade, which began with financial markets in despair over accelerating oil prices, inflation, and a declining dollar that had produced almost ten years of persistently poor returns in the stock and bond markets. It took almost two years for the markets and the economy to evolve into the steady growth that characterized the rest of the decade.