Friday, May 7, 2010

Stock Explosion, A Real Who Dunnit?

Have you wondered as I have how in this computerized society of technological miracles that our nation's major stock market exchanges can crash and rebound in 20 minutes with the players involved acting like the Keystone Cops comedy films of yesteryear?

"Who, me?" asks

trades more than 500 structured products with a market value in excess of $200 billion. Combined with the other major trading markets, the paper loss from peak to trough Thursday was $500 billion in that infamous span of 20 minutes.

Not a single person admits they caused the crash. The computer did it, they all say, forgetting the fact the computer only knows what man programs it to know.

Mikkel Fishman, Economics Editor of The Moderate Voice, says the devise in question is the High Frequency Trading computer consisting of algorithms and code talk which automatically buys and sells stocks based on price movements. Transactions can be completed in nanoseconds and 70% of all trading is done by these robotic monsters. The solution is to ban them by making execution time as “long” as a second or two, he urges.

Says Peter Costa, president of Empire Executions, who has 30 years of experience as a New York Stock Exchange broker:  "They’ve written a lot of computer programs to buy but they haven’t written them well to sell. If the market is up, these programs do very well and it’s very orderly. ... They don’t know how to write something for the sell side." Ergo, yesterday's dive bomb.

Hell, I don't even know if Fishman and Costa are talking about the same thing.

Whatever, the most bizarre explanation -- which doesn't mean it is not true -- came from television's most reliable (their words, not mine) CNBC business channel, that some broker at CitiGroup had what is called "fat fingers" and pushed the "B" button for billions rather than the "M" button for millions. Citi said it had no evidence of a bad trade but was looking into the situation, a spokesman said.

Two hours after the markets closed Thursday, Nasdaq, which claimed no disruptions in trading, said it was cancelling all transactions between 2:40 p.m. and 3 p.m. it called "clearly erroneous." The news made investors who lost their cookies feel much better. But what about those who made a killing?

My god, are they telling me a clumsy keystroke on a computer can send the global markets amounting to trillions of dollars into the tank? No matter how briefly before cooler heads prevail?

President Barack Obama stuck his nose into the Wall Street Keystone Cop caper with these comments Friday at a Rose Garden gathering on the nation's unemployment situation.

 "The regulatory authorities are evaluating this closely with a concern for protecting investors and preventing this from happening again and they will make findings of their review public along with recommendations for appropriate action." 



Is America great, or what?

Readers comments are welcome as long as they remain civil. We reserve the right to delete any comments that are vulgar, libelous and totally irrelevant to this posting. -- Jer

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