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May 5, 2015

Celebrating the Flash Crash with a Wall Street Sales Tax

This week marks the fifth anniversary of the flash crash. For those who don't remember, the Flash Crash was when the stock market lost almost nine percent of its value from its opening level, with most of this decline occurring in a five-minute period. The market quickly recovered most of this loss. As long as you didn't sell stock in the 30-minute crash interval, you weren't affected by this plunge. But the crash did reveal the extraordinary instability in the stock market due to short-term trading. The issue of short-term trading is the key here. There was no event in the world that triggered the plunge. There was no outbreak of war, major terrorist incident, or natural disaster that sent stock prices plummeting. There wasn't even a bad profit report from a major company. The crash was based simply on program trading that fed back on itself, turning a downward blip into a major plunge.

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