Let’s delve into the fascinating and, frankly, eye-opening story of Jay Yass and Susquehanna in August 1986, a period that truly illuminates the shifting sands of American finance and the powerful individuals shaping it. You see, this wasn’t just about making a profit; it was about mastering a system, much like the house always wins in a casino, as the source so aptly puts it.
Jay Yass, a name that many Americans have never heard of, is described as exerting more control over our future than “any other single individual”. His path to immense wealth began with a background in gambling. At SUNY Binghamton, Yass was known as a “big time gambler”. He doesn’t take it as an insult when people compare trading on the stock market to gambling; in fact, he sees the decision-making theory between a poker player and a trader as “very similar”. His philosophy, and that of his firm Susquehanna, is profoundly rooted in this mindset: “All options trading is making sure you’re betting against someone you’re smarter than”.
It was precisely in the same years that Susquehanna opened that Yass made his first significant “longshot bet”. This bet involved a newly introduced option, one based on the value of the top 100 stocks. Yass astutely noticed that “puts” on this option were “incredibly cheap” and proceeded to buy them up. What followed was a momentous event, vividly described in the sources: “They called it Black Monday”. On that day, the market plunged a staggering 508 points, marking the largest plummet since the crash of 1929. Susquehanna, thanks to Yass’s strategic bet, reaped “millions of dollars”. By the end of 1986, Jay Yass himself had made a remarkable $71 million. This wasn’t just individual speculation; the source emphasizes that Yass and his company control the availability of shares and influence prices, much like “the house” in a casino, and “the house always wins”.
This incredible accumulation of wealth by individuals like Yass was not an isolated phenomenon but rather a defining characteristic of the 1980s, an era often celebrated for its “feel-good economics” and a perceived return to prosperity. President Reagan himself explicitly stated, “What I want to see above all is that this country remains a country where someone can always get rich. That’s the thing we have and that must be preserved”. This sentiment fostered an environment where wealth accumulation and its public display became a celebrated norm, moving many middle-class Americans away from earlier political idealism toward “making money”.
The economic climate was ripe for such rapid wealth generation. In the year preceding Yass’s big win, 1985, the Dow Jones average surged by 27.66%, and 1986 continued to be a stellar year, with an average gain of 14% for Big Board stocks, leading to record high equity market indexes. This period saw “takeover fever” and lower interest rates, making it “easy” for investors to profit. It was a time when financiers were making staggering amounts of money, exemplified by Michael Milken, who, in 1987, awarded himself an astonishing $550 million in compensation. The sheer volume of money circulating was so immense that it was dubbed “green smog” in West Los Angeles, where the average house price in Bel Air had soared to $4.6 million.
This era was also marked by significant financial deregulation. Drexel Burnham Lambert, by 1986, had become the country’s most profitable investment bank, largely due to its innovative mass marketing of bonds, including “junk bonds”. The junk bond market itself exploded, growing from $7 billion in the mid-1970s to $125 billion by 1987, fundamentally reshaping corporate America and ushering in a new class of leaders with a different philosophy about power. Looser financial regulations and lax enforcement of existing laws played a crucial role in enabling this expansion. This included the transformation of the savings and loan (S&L) industry into “giant pools of unregulated government-backed money” through laws signed in 1980 and 1982, allowing S&Ls to enter any line of business they desired, all backed by the U.S. taxpayer.
Despite the immense profits and the “greed is healthy” declaration by Ivan Boesky in May 1986, which seemed to capture the era’s credo, the underlying weaknesses of this economic boom eventually became apparent. Just a year and a half after his famous quote, Boesky was convicted of insider trading and barred from securities dealing. This indicated that not everything was as “sound” as it appeared on the surface.
Interestingly, while Yass’s wealth soared and his business models were legally questioned, his political leanings are clear: he’s a “deep-seated libertarian,” with a strong “hatred of government programs” and a “total aversion to taxation”. He pays a mere 19% in income taxes, significantly less than most Americans and even his billionaire peers, a fact that ProPublica deemed “profoundly newsworthy”.
In sum, Jay Yass’s $71 million gain in 1986 through his strategic options trading, particularly around Black Monday, was a testament to his gambler’s intuition and mastery of a financial system that increasingly resembled a high-stakes casino. His success not only epitomized the “greed is good” ethos and the massive wealth accumulation of the Reagan era but also underscored the significant shifts in financial regulation and market dynamics that allowed such fortunes to be made, often with problematic implications for public policy and economic equality.