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Markets look ahead after Dow plunge
A stock prices on a news ticker in Times Square
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TEXT OF INTERVIEW
Stacey Vanek-Smith:: A lot of drama on Wall Street yesterday -- that was the biggest intra-day drop in history for the Dow. This morning, lots of speculation a technical glitch may have caused that precipitous plunge. Here to explain is our own Brett Neely coming to us live from Washington, D.C. Good morning, Brett.
Brett Neely: Good morning, Stacey.
Vanek-Smith: So Brett, what kind of glitch are we talking about?
Neely: Well I mean, think about it like this: a trader sitting at their desk somewhere and adds too many zeros to their orders or buys instead of sells. And the chaos really comes because there's so much automated trading out there. Those computer programs spot the large trade, see the price swing, and then go crazy buying and selling. So you know, that's basically how it works.
Vanek-Smith: Like the "oops heard round the world." How often does this kind of thing happen?
Neely: Not too often, but often enough that these things are known as "fat-finger" trades. As in "my fingers are clumsy and I hit the wrong key." Back in 2005, a Japanese trader wanted to sell one share of a company and ending up selling over 600,000 by accident. It cost the firm $350 million. A few years before that, a British trader was confused about whether the stock of a company was trading in pounds or euros and accidentally sent the share price up 61 percent.
Vanek-Smith: Wow.
Neely: Accidents happen.
Vanek-Smith: Indeed. Brett Neely in Washington, D.C. Thank you Brett.
Neely: Thank you.
So what if a trader made a "fat finger" error? (BTW, we should always be skeptical of such explanations.) Such error might be a trigger but it is never the CAUSE of the panic-based decline in the market. To find cause, you have to look at the entire structure of computer-based automatic buy-sell arrangements.
Odd ... has no one posited the concept that this could've been the result of economic terrorism? If one "fat fingered trade" might've caused this freefall, can we eliminate that this was a trade caused by a computer breach or other "jamming?" I'll be looking forward to the SEC's investigation report. ,:\
Let's assume that a data-entry error did cause or could have caused the panic yesterday. Then let's assume it caused or could have caused catastrophic losses for investors. In the free-market scenario, what is the remedy? Fire the guy who made the mistake. That's all? Yep. Shouldn't there be close regulatory oversight of the systems that allow this kind of human error to cascade through world financial markets? Yep.
