The Way It WasRob Curran reports:

Almost every generation, it seems, has its October stock-market crash.

The cumulative losses of stocks since the plunge on Sept. 29 are comparable with those suffered in the October stock-market crashes of 1987 and 1929. The Dow Jones Industrial Average is down about 9% this week, after a loss of 7.3% the week before.

By comparison, in the worst week of the 1929 stock market crash, the week ended Oct. 19 that year, the Dow took a loss of 8.2%; the blue-chip index lost 13% on the week that started with Black Monday, Oct. 19, 1987. So far in October, the Dow is off 14%, compared with a loss of 20% in October 1929 and a loss of 23% in October 1987.

And neither the week nor the month are over yet. The market has hardly been on firm ground Wednesday, though stocks are higher. Still, the middling reaction to a barrage of worldwide interest-rate cuts suggests that the selling may not be over. It may feel more like a tumble down the stairs than a jump from an airplane, but the end effect is the same.

Selloffs of this nature feed on themselves. The record 777-point drop last Monday “destabilized the market,” said Lorenzo Di Mattia, manager of hedge fund Sibilla Global Fund. The Chicago Board Options Exchange volatility index, known as the market’s fear gauge because it measures the premiums paid to protect against market swings, is trading at its highest level in its current form, around 58. That gauge dates back to 1990.

Both institutional and retail traders reached a “pain threshold,” said Peter McCorry, senior equity trader at Keefe Bruyette and Woods, where they were unwilling to continue holding stocks so deep in the red.

One hedge fund manager in Chicago said people he knows who trade on their own accounts are throwing in the towel. “A lot of friends of mine say ‘I can’t take it, I’m selling my stocks,’” said Jeffrey Pavlik, head of hedge-fund firm Pavlik Capital Management.

Losses are also likely feeding on themselves because of “stop losses,” or levels where traders automatically sell to limit their down side. Chatter is mounting that clients are demanding cash back from hedge funds, forcing them into the market. Whenever a trader is forced to sell, they do so at a lower price.

Amid uncertainty in their own industry, brokers increased margin requirements, or the amount of capital funds needed to underpin their positions, one hedge fund manager said. For these reasons, many funds may be selling holdings in a hurry.