The Market Sent Its Message

More equity and less debt. That was one message the stock market has been sending America since Friday’s 190-point plunge in the Dow Jones average, a money manager told The Times. Surely the failure to get financing for the United Air Lines buyout was the trigger for the downturn. But there may be many other underlying reasons for the market dive Friday and the volatility since then.

In spite of the reforms since the October, 1987, crash, a good deal of trading still is done by computer, allowing huge blocks of stocks and futures to be traded almost instantly, thus whip-sawing prices in unpredictable combinations. This provided a measure of panic-like automated selling and buying that may have exacerbated a logical market reaction to the problems plaguing the American and United airlines buyout attempts.

There still is concern about how long the economy can plug along without a recession, and how companies bearing massive debt would fare in such a case. A big increase in the foreign trade deficit helped turn Monday’s 88-point gain into a 19-point loss on Tuesday. There was concern over threats in Washington to restrict airline takeovers and/or to reimpose some form of regulation on the air-travel industry.

And there should be worry over the continued inability to make headway against the federal budget deficit. Significant budget savings have been hard to come by. The debt is approaching $3 trillion, yet there was barely a mention of the deficit as a factor in the market’s problems.

The good news in all of this is that the market setback may have ended the 1980s takeover frenzy, financed by too much debt. In many cases, the successful corporate raider has been forced to dismantle portions of a healthy corporation just to reduce or pay off the debt burden.

Not all takeovers are bad. Some poorly managed companies make themselves targets for unwanted mergers and then benefit from the infusion of new blood. But one fallout from United Air Lines’ problem was a precipitous decline in the stock prices of other companies that had been considered ripe for buyout attempts, and now may not be. United stock had risen as high as $294 before falling to close at $197 on Tuesday.

A welcome contrast with 1987 was the quiet work of Federal Reserve Chairman Alan Greenspan and Treasury Secretary Nicholas F. Brady. By pumping $2 billion into the banking system on Monday, they made capital available to investors who wanted to buy stocks. Their action also helped avert panic selling designed to raise quick cash to cover margin--the money borrowed to buy stock. This, and the absence of any rash talk about halting trading in New York, had a calming influence on the market.

There was considerable relief on Monday that the market dive had turned around; considerable self-congratulation over the refusal to give in to panic. But the market remains jittery and America’s institutional leaders cannot afford to be complacent about the ever-increasing levels of debt that continue to erode the basic vigor of the economy.