The (Almost) Crash of Wall Street
Thursday 06 May 2010
by: Robert Reich | Robert Reich's Blog
Ninety minutes before the end of the trading day today, the U.S. stock market almost melted down The Dow Jones Industrial Average dropped nearly 1,000 points. The market regained ground before the end, like a giant 747 narrowly averting a crash landing, but the questions of the day are: What happened? And what does it mean?
At this point no one knows why. Some say it was sudden burst of worries about Greece's debt and the increasing possibility of a default that might cause a run by global investors. Others point to a "trading error." Giant high-speed computers generate millions of trade based on instructions embedded in computer programs designed to move fast enough to beat everyone else. So when there's a glitch in one of them it can immediately spread to all the other programs designed to move just as fast. Some say it was an erroneous trade entered by someone at a big Wall Street bank who mistyped an order to sell a large block of stock, and that the big drop in that stock's price (Procter & Gamble?) triggered "sell" orders across the market.
Regardless of why it happened, it's further evidence that the nation's and the world's capital markets have become a vast out-of-control casino in which fortunes can be made or lost in an instant — which would be fine except for the fact that most of us have put our life savings there. Pension funds, mutual funds, school endowments — the value of all of this depends on a mechanism that can lose a trillion dollars in minutes without anyone having a clear idea why. So much of the market now depends on computer programs and mathematical models that no one fully understands, so much trading is in the hands of a few people whose fat thumbs or momentary carelessness might sink the economy, so much of global wealth now depends on who can move their money quickest at the slightest provocation — that we are toying with financial disaster every day. The luck or foolishness of a few traders, and inside knowledge and information that some possess and others don't, combined with ultra high-speed computers, put us all at the whim of a system whose risk is way out of proportion to any public benefits.
The financial reforms being considered on Capitol Hill are steps in the right direction. But the "systemic risk" now embedded in our capital markets is higher than ever, and will require far greater understanding and vigilance than now being considered.
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Blame North Korea!
Fri, 05/07/2010 - 10:07 — Anonymous (not verified)Blame North Korea!
This is what happened:
Fri, 05/07/2010 - 10:32 — Anonymous (not verified)This is what happened: http://www.cnbc.com/id/36999483
The G 20+ needs to
Fri, 05/07/2010 - 11:55 — TomH in PA (not verified)The G 20+ needs to coordinate regulations that will slow this madness. Each country trying to regulate things on their own just means that some one else tips the trough their direction for a nanosecond and moves wealth off shore. The traders use this argument to keep the regs at bay.
The solution is simple. Once
Fri, 05/07/2010 - 13:19 — Carl (not verified)The solution is simple. Once a stock has gone down 5% for the day, trading is suspended for that day.
A bigger change would not allow a stock to be traded until it has "settled" meaning one must hold a stock three working days before it can be sold. Then I'd push that to 30 days. This would end the casino concept.
Carl is Spot on. He wrote:
Fri, 05/07/2010 - 20:57 — Anonymous (not verified)Carl is Spot on. He wrote:
"The solution is simple. Once a stock has gone down 5% for the day, trading is suspended for that day. A bigger change would not allow a stock to be traded until it has "settled" meaning one must hold a stock three working days before it can be sold. Then I'd push that to 30 days. This would end the casino concept."
That's half the solution though. The real solution will come when there is a 100% gold-backed currency with NO LEVERAGE! Leverage is what is killing the financial system today. It begins with fractional reserve banking that allows banks to create $10 of loans for every $1 of reserve deposits at the Central bank. Money is an illusion. The Onion spoof is spot on though. Whoever wrote this sees clearly the heart of the issue:
http://www.theonion.com/articles/us-economy-grinds-to-halt-as-nation-realizes-money,2912/
Also read the following:
http://www.uncommonwisdomdaily.com/speeding-toward-the-currency-graveyard-9109?FIELD9=4
http://www.uncommonwisdomdaily.com/dollar-doomsday-2010-protect-your-wealth-and-profit-9283?FIELD9=2
Two points: (1) this shows
Fri, 05/07/2010 - 21:37 — Don (not verified)Two points: (1) this shows that the stock market is much to fragile and open to manipulation, whether accidental or intentional. And (2) if someone were trying to achieve financial terrorism, wouldn't Thursday's glitch fit that scenario? Perhaps it was a trial run for a bigger attack.
whuh? "But the "systemic
Sat, 05/08/2010 - 03:14 — Anonymous (not verified)whuh? "But the "systemic risk" now embedded in our capital markets is higher than ever, and will require far greater understanding and vigilance than now being considered."
It requires abolishment, and nothing short of that. High-speed computers have zero reason for being traders; they and the high speed software must be abolished. Blackbox voting, blackbox betting; there is no difference. It is fraud.
Let them invent programs and models all they want; give them patents, trademarks, anything they like. But they cannot use the programs to trade with. This is the only answer and the only credible solution.
Market Maker of Last Resort:
Sun, 05/09/2010 - 10:37 — Scott ffolliott (not verified)Market Maker of Last Resort: "In the U.S. the Federal Reserve acts as the lender of last resort to institutions..."
Thus the Federal Reserve acted as the buyer of last resort through its accounts with institutions.
Market Maker of Last Resort:
Sun, 05/09/2010 - 10:41 — Scott ffolliott (not verified)Market Maker of Last Resort: "In the U.S. the Federal Reserve acts as the lender of last resort to institutions..."
Thus the Federal Reserve acted as the buyer of last resort through its accounts with institutions.
@02:37 its called cyber
Mon, 05/10/2010 - 18:57 — Anonymous (not verified)@02:37 its called cyber warfare. Let's recall how may wars the US is engaged in.
The thing that makes me
Tue, 05/11/2010 - 11:52 — Andrea Tanner (not verified)The thing that makes me laugh is this. People who are making money on the stock market always forget that those dollars are coming from somewhere--people who are losing or giving money. It's not a shock. It's been hiding in plain sight all along. Be it crooks stealing, gaming the system, folks throwing money at stocks hoping for the big win, or folks who are simply purchasing a product.
The stock market is a casino? It always has been! Remember what everyone tells you before you walk into a casino: NEVER BET MORE THAN YOU CAN LOSE AND DON'T BRING YOUR CREDIT CARDS. We are not doing that today on any level. I don't even have a choice on how to invest the retirement dollars my company gives me as a part of my compensation package. In fact at this point I would probably be better off to be asking them to take that money & use it to grow a forest of trees to sell when I retire. But I probably will have to cut them up and burn them to keep a house warm, if I even have a house in 30 years.
I don't know the official definition of a bubble (as in the recent housing or technology bubble of the late 90s) but it sure looks like our whole casino wall street system is in and of itself a bubble that's started to burst. That is what I am calling it. I am starting to do things like grow my own food and plan how my family & I are going to survive when it bursts for good.