Market Crash – Did Wall Street Blink?

When the Dow Jones Industrial Industrial Average plunged almost a thousand points within a period of 15 minutes on Thursday, May 6, 2010, the credibility of Wall Street should have come into question. Should have because to this point there has been little in the way of hard information to go by in assessing the full extent of the problem. There has been discussion in the media of a “fat finger” trade by a human trader as being the possible source of the problem — something about someone entering the number of shares to be sold in billions instead of millions. Stupid, error prone human. Wasn’t the machines fault.

The reality is that our financial institutions are led by unscrupulous individuals who put the interests of their firms ahead of the interests of their customers. We found that out as they hedged against their investors, hid massive losses from regulators and stockholders, and brought the world financial system to the brink of collapse. Now we know something else about the leadership on Wall Street — they are nowhere near as smart as they, or we, seem to think they are.

When you peel back the onion on what occurred on May 6, 2010, what you find should scare all of us. Think about it. If the reporting is true, a human being makes an error, predictably so, and there isn’t even a simple computer limit check in place to ensure that trades of billions of shares in a single transaction are automatically rejected. Let’s hope it wasn’t as simple as a “fat-fingered” trade because if it was the cause of the problem, we should be very, very afraid for the future. Limit checks are computer controls 101.

The problem is of course much bigger than that. The problem is that our stock market exchanges are increasingly in the hands of the machines. It apparently took the humans who oversee the machines a few minutes to realize something was wrong. And their solution was to halt the machines for 90 seconds. Unfortunately, more than 60 percent of New York Stock Exchange listed stocks are traded on separate computerized exchanges, over which their is even less control and oversight. Continued trading in these separate exchanges may have made the problem worse.

We will have to wait to see what our federal government regulators find. Will they get at the truth? Do we want to hear the truth? Would we have the political will to force Wall Street to change its ways? So far we haven’t heard the truth on either the 2008 financial meltdown or on this most recent single day event. Could we handle it?