Dow Drops 1000 Points! Oops.
Posted on May 7, 2010
Filed Under The Economic SceneYesterday we saw one of the most bizarre stories ever to hit the financial news wires.
Multiple sources, including The Wall Street Journal, said a major firm may have inadvertently released an errant program, when a trader accidentally placed an order to sell $16 billion, instead of $16 million, worth of e-minis, the futures contracts tied to equity indexes.
Some of the stories referred to the “fat finger” theory as to why a wrong number was entered.
Regardless of the explanation, the fact is that a chart of yesterday’s Dow Jones Industrials Average looks as if a knife had been dropped into the line – a steep drop followed by an equally steep rise.
Here was my highly personalized reaction when I first started to hear those strange explanations: when I want to email a not-very-large Excel spread sheet, a warning box pops up, asking me if I really want to send this “large file.” Yet apparently no such warning emerged when some errant trader, intern, squirrel, or whatever, wanted to sell SIXTEEN BILLION DOLLARS!
Something is very wrong, and scary, about the lack of safeguards in our country’s financial trading markets. Mindless computer programs seem to react with little or no checks on their behavior.
Already this morning we saw that studies are underway to fix this obvious lapse. The changes cannot come too soon.
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