The 1992 Great Chicago Flood
The event that showed why Chicago's futures and options markets were indispensable
Roaming the dry streets of Chicago’s downtown (called The Loop by locals) in the morning of Monday, April 13, 1992, you'd never know that 40 feet under the sidewalks, raging waters were about to bring the city’s futures markets and downtown commercial district to a halt.
The trouble surfaced early that day when the building engineer at Chicago’s Merchandise Mart toured his building’s sub-basement. He found it flooded, with fish swimming in the water. Both had entered through a long disused connection to the abandoned railroad system of the Chicago Tunnel Company.
It was an instant lesson in the folly of forgetting history.
The Chicago Tunnel Company railroad was built in the early years of the 20th Century. It carried coal, coal ash, mail, merchandise and other freight in an extensive network buried below the streets. Doors lining the tunnels lead into the basements of downtown Chicago’s railroad stations and office buildings. Customers included the Chicago Merchandise Mart, the Federal Reserve Bank of Chicago, City Hall, the Lyric Opera House, the Chicago Tribune, department stores Marshall Field & Co. and rival Carson Pirie Scott & Co., and the Chicago Board of Trade.
The roughly 60-mile railroad began operations in 1906. It was a busy system. In 1914, it employed 568 people. In 1915, during a typical 10-hour day the hidden system saw 500 to 600 train movements, Wikipedia said. The rise of trucking in the 1930s eventually led to its demise in 1959.
The railroad was abandoned and mostly forgotten. The tunnels continued to be used as conduits for telephone and electrical cables. (The original corporate force behind the system was the Illinois Telephone and Telegraph Co., then an independent telephone company.)
The system made a brief cinematic appearance in “The Blues Brothers” movie. One of it’s tunnels was the locale of the scene in which “Joliet” Jake Blues, played by John Belushi, has a final confrontation with his former fiancee, played by Carrie Fisher. The scene represented a tunnel underneath The Palace Ballroom. That’s where The Blues Brothers band played a concert to raise money to pay the tax bill on an orphanage where Jake and his brother, Elwood, grew up. (I recommend this Chicago classic.)
The seeds of the 1992 disaster were sown a year earlier, according to CBS News. Great Lakes Dock & Dredge was driving new pilings around downtown drawbridges. At the Kinzie Street Bridge, the pilings were relocated to avoid damaging the bridge-tender’s house. That adjustment resulted in the pilings being sunk closer to the tunnel wall than originally planned. Ultimately, that was the primary cause of a crack which formed in the tunnel wall.
In January 1992, a cable company employee inspected the tunnel. He made a video tape of the crack and leaking water. He then forwarded it to the City of Chicago. However, the city dragged its feet in addressing the problem. Un-repaired, the crack expanded. On April 13, the tunnel wall blew out. Water gushed unchecked into the tunnel system.
Many Loop building sub-basements housed electrical and telephone systems, heating and air conditioning plants and other utilities. Not all of them, especially newer ones, were connected to the system. Those that were saw rising water levels . . . threatening and drenching vital systems. Buildings started closing.
My uncle, Jerry Rozak, was head of food services at Chicago’s iconic Marshall Field’s department store. Its flagship State Street store once received freight via the tunnel railroad. On this day, the tunnel delivered liquid. The store housed multiple restaurants as well as a candy kitchen on the top floor. With no electricity to run refrigerators and freezers, the food supplies were going spoil. He told me the store hired several tractor trailer trucks to carry the food to the local food bank. Merchandise stored in the basement was ruined.
Meanwhile at 141 W. Jackson Boulevard, at the south end of the Loop, flood waters were sluicing into the sub-basement of the Chicago Board of Trade (CBOT).
Peering into the void, “was like looking at the Colorado River,” then-exchange spokesman David Prosperi told me this month.
Its markets could not open.
The building’s power was off. Elevators and escalators were out of commission. Neither the electronic quotation boards nor the trading floor air conditioning were operating. As described in an earlier post, the exchanges run their air conditioners run year round to keep the trading floors comfortable and to cool the computers that ran the quotation boards. Without AC, the trading floors would have been untenable and the prices would not be seen on the floor or through price reporting systems. Fortunately, the telephones still worked. The phone equipment room was high enough that it stayed dry.
Holding an emergency meeting, the exchange’s directors closed the floors for safety purposes. They also told, then-CBOT President Tom Donovan “do whatever was necessary to open the floor as soon as possible,” Prosperi said.
These were the days before businesses held regular crisis management drills. Everything was done on the fly. Probably the least likely crisis management scenario ever considered was a flooded basement.
Donovan had strong connections to City Hall. He was once administrative assistant to “The Mayor” — Richard J. Daley. In 1992, the Richard J. was dead. His son, Richie, sat in the big chair. Amidst this calamity, Richie’s summary of his priorities was succinct: The most important thing, after plugging the hole, was to open the CBOT.
He recognized that re-opening the trading floor was of crucial importance to global markets and Chicago’s economy.
His first contribution was assigning the Chicago Fire Department to help. The department sent over a pumper to the exchange and parked it on S. Financial Place. It started drafting water from the basement and pumping it into the storm sewer.
For a while, the pumper was mostly a gesture. The tunnel system hole was still open to the river. It would take days to plug the opening. The water in the basement wasn’t going to rise any more than it had. It had equalized with the level of the Chicago River. Still that red and black fire engine pumping away 24 hours a day was a visible sign of the exchange’s pull.
The person who did the most to get the CBOT trading floor back open was Phil Hannigan, vice president of operations and property management. He became the fixer.
Calls for help were placed.
Hannigan brought in portable generators and AC units from Ohio. (These were not your little Honda two-strokes.) These were big power plants from Caterpillar. Soon the east side of the building (on S. LaSalle Street) was jammed with tractor trailers sprouting cables and hoses snaking into the building.
At 30 S. Wacker Drive, home of the rival Chicago Mercantile Exchange (CME), the basement was bone dry. The twin-towered complex was a new building, completed in 1987. It was not connected to the tunnels. Yet, on that Monday, the exchange closed, too.
In New York a surprising thing happened. Trading in the interest rate and currency cash markets ground to a halt.
For years, New York disparaged Chicago’s markets. They blamed the town’s futures and options markets for the October 1987 Black Monday stock market crash. (A Blue Ribbon panel, absolved Chicago of much of that blame.)
Now, in the early 1990s, New York traders regularly hedged their positions in the CBOT’s Treasury futures and options and the CME’s short-term interest rate and currency futures and options. What was largely unacknowledged was how tightly connected the two market centers had become. During market hours there was always someone in Chicago’s pits making a market.
Without Chicago providing key market liquidity and price discovery the New York traders were reluctant to pull the trigger. New York needed Chicago. HA!!!
Overnight, futures and options trading swiftly moved to the London International Financial Futures and Options Exchange (LIFFE). The next day volume on that market was up 400%.
Chicago needed to get back into action.
With a dry basement, the CME opened on Tuesday. “The only reason we shut down was because of the common clearing member firms,” said Andy Yemma, then-CME spokesman.
The CBOT, with a wet basement, jury-rigged electricity and air conditioning, reopened at 12 noon on Wednesday.
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This blog is about more than my experiences. It is intended to be a collective experience of working on the commodity markets physical trading floor. If you or someone you know has a story please let me know I’d like to include it in this ongoing chronicle. I can be reached at linton122(at)gmail.com
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