Yesterday's astounding gyrations in US stock markets -- the DJIA fell almost 700 points in minutes, only to recover almost as abruptly -- are being attributed, even by usually sensible commentators like Daniel Gross, to fears of contagion from the economic crisis in Greece. Really? The most bizarre stock movements yesterday were exhibited by Proctor and Gamble, so if that was related to the Greek crisis, the good folk of Athens must use soap powder in unimaginably large quantities. Boeing and Hewlett Packard were two more stocks that took a beating. Greece-related? I don't think so.
Right after the mayhem, there were suggestions that a computer failure at the NYSE had caused the problem. That was quickly denied, to be followed by suggestions that a "fat fingered" trader had wrongly entered a deal that triggered all kinds of stop-loss trades. I don't suppose an individual culprit will ever be named, but this sounds feasible to me. The problem is that nowadays, the vast majority of stock trading is computerised, with "black boxes" reacting in microseconds to every tick of the index. Given the sheer speed of the decline -- and, for that matter, the subsequent reversal -- it's unlikely that more than fraction of the action resulted from human decision making at the time.
A lot of people must have lost a lot of money here, but it's unlikely that many of them will even question the wisdom of allowing computers to do their thinking for them. We discovered during the credit crunch that computer-designed securities could wreak havoc in the bond markets, so it's really no surprise to see the same now happening in the equity markets. Maybe techies need to be reminded of the mega computer in "The Hitch-hiker's Guide to the Galaxy" that took eons to decide that the answer to "life, the universe and everything" was 42. I bet it wouldn't have sold P & G, though.
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