Anyone who's ever seen a Terminator movie knows that civilization ended when a computer system called "Skynet" came alive and tried to terminate the human race by starting a nuclear apocalypse. After last week's "flash crash" on Wall Street, they might have wondered if Skynet wasn't working on a financial apocalypse instead.
We still don't know what happened more than a week later, and a new SEC study will probably raise more questions than it answers. Here's what we do know: Wall Street has become such a high-speed, high-tech gambling house that it can be plunged into chaos without anybody having a clue what's happening or the wherewithal to prevent it. "Real time" - where the effects of ultrafast computer events are perceived at human speed - is never less "real" than it is where Wall Street is concerned.
As a reggae rapper named Big Youth once said, "If you ride like lightning you'll crash like thunder."
You probably know the story by now: In a few short minutes the stock market - supposedly protected by both regulations and sophisticated software - lost 9.2% of its value. There was wild trading in Proctor & Gamble, once the target of 'satanic cult' rumors. (Hmm ...) Boston Beer Company, which opened at $59.44, dropped to zero. Everything returned to something like "normal" eventually, after the "ghost in the machine" returned to its lair.
According to the FOX Business Network, the SEC is about to release a report saying that the 17-minute plunge was caused primarily by "human error." But a number of other theories have also made the rounds, and the SEC report is unlikely to end the speculation. In the past week there has been speculation that:
This mystery has more suspects than an Agatha Christie novel. And, like an Agatha Christie novel, more than one of the suspects may be guilty. Now some people are pointing fingers at Chicago traders Waddell & Reed, saying that their sale of 75,000 "e-mini futures" contracts could have triggered the plunge. Maybe. But we don't need to name a guilty party to understand the basic facts at work here: First, that computerized trading has turned Wall Street into an uncontrolled computer game, a runaway bullet train with no engineer at the controls. As DK Matai observed, most trades no longer take place in that famous physical edifice on Wall Street. Today 60% of "Wall Street" trades occur in cyberspace, not Manhattan.
And secondly, as Janet Tavakoli put it, deregulating the market lets speculators "bang" or manipulate it, which may have been the point all along. The stock market, once seen as a way to assess the real value of functional businesses and fund them accordingly, has instead become a place where high-speed electronic avatars gamble with real people's dollars.
This is the same fantasy world where four financial giants - Bank of America, Citigroup, Goldman Sachs and JPMorgan Chase - went an entire quarter without losing money in their trading operations for a single day. The chances of that happening by chance in a legitimate system are infinitesimal. But in today's electronic high-speed casino these guys are the "house" - and you know what they say about betting against the house.
John Connor's new assignment: head of the SEC!
Meanwhile the original Terminator, Arnold Scharzenegger, is proposing a California budget that shows how this virtual reality can affect the lives of real people. California -- whose fundraising bond initiative was handled by Goldman Sachs even as Goldman secretly undermined it - is now considering cuts to schools, mental health, aid to the poorest of the state's citizens, state employees' benefits, and home health care for the ailing elderly (which, ironically, will force them into costlier nursing homes). Not under consideration: new taxes on the wealthy, which would affect some of those who profited most from the electronic Wall Street casino.
Why, it's almost as if he's been sent from the future to ... never mind. We do know that his would-be successor, Meg Whitman, spent some time in the gleaming futuristics confines of the Goldman Sachs fortress (until she was forced to resign from the Board over ethical issues).
Wall Street's been a high-risk thrill ride for years, enriching for some but empty of deeper meaning and divorced from underlying value. The "flash crash" didn't break the market, but it did reveal fault lines, especially in the highly speculative nature of so much massive trading. As for those digital or algorithmic trades, they're the dark matter of the economy, making up most of the mass of the market but invisible to the human eye. They race through the Wall Street nervous system as fast as lightning, carrying their owners' bets instantaneously throughout the system. But when the market "crashes like thunder," the big banks and the speculators behind them don't have to pick up the pieces.
We do.
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Richard (RJ) Eskow, a consultant and writer (and former insurance/finance executive), is a Senior Fellow with the Campaign for America's Future. This post was produced as part of the Curbing Wall Street project. Richard also blogs at A Night Light.
He can be reached at "rjeskow@ourfuture.org."
Website: Eskow and Associates
Follow Richard (RJ) Eskow on Twitter: www.twitter.com/rjeskow
Of course, anyone that's been sensible and prudent or the years - stashing away savings in the bank - gets rewarded by having the interest rate that they earn on these savings slashed SIGNIFICANTLY in the last several years (along with repeated promises by Bernanke that those same interest rates will continue to be miniscule "for an extended period of time" (going on three years now). If you thought you could rely on the interest to pay your living expenses in the future, you've basically been told that you'd better be prepared to gamble it in the stock (and/or housing) markets...or else learn to live on 1-1.5% return on their capital.
Thanks Ben.
David http://wyld-about-technology.blogspot.com/
The very same budget the governator proposes is the least amount of spending in California in 6 years and it still leaves the state with a deficit. Meanwhile you have the conservatards saying that out of control spending is the root of all California problems EVEN THOUGH WHEN ADJUSTED FOR INFLATION CALIFORNIA SPENDING HAS DECLINED. Of course taxes have declined too and so things are going downhill. Again the conservatards blame ballot props, pensions, social programs anything, but the fact that California has been taking in less and less revenues . If things continue with less revenue and less spending, California will become like a 3rd world country with only very rich people and very poor people.
Hey rest of America, want to come along with us for the ride down? Vote Republican.
As for all you "tax cuts are good for the economy" people. Bill Clinton raised taxes and the economy exapanded and thrived. Bush cut the dickens out of taxes and the economy tanked.
That’s the sizzle u will sell, should u decide to take this mission, so park that for a nanosecond.
Now, to your discussion, if u boil the damn chicken, till there is absolutely no flavor left in that conversation, u are left with a “prizefight.”
Featured event, the FED with Goldman Sacks as corners, - VS Zeitgeist, with ET3 Maglev as corners - Promotor (RJ) Eskow [we’ll just have to get u a Don King hair do, or spring a loan for a wig which would be a hair due, now wouldn’t it?]
Now back to “Paris to New York”; Goldman’s corner not to be made immediately aware of the main event.
(RJ) Eskow, to research what the entry level dollar, enticement to get ET3 up and functioning. You encourage your followers to invest say $500 million, a solid, well researched, investment; enough to get Goldman’s salavatating, whatever the threshold.
Once u get goldman in the ring, the goal would be somewhere around 1 trillion, enough insure success and get the process really rolling. Eskow/Zeitgiest takes out options on all, soon to be vacated, airport real estate on the world market, well in advance.[who knows, u might get me a job sweeping a vacated airport parking lot in the Bahamas?]
No matter who wins, (RJ) Eskow has made the world a better place, do to massive amount of polution eliminated.
Their rules are usually simple, buy/sell this stock if it gets above/below a given price.
Anybody can do that, I can do it through Fidelity, my broker.
There are lots of those orders in the system right now.
Some are "buy if price below X". Those limit market drops; people buy when the price gets low.
But most are "sell if price below X". Those trigger market crashes.
"Buy on the uptick, sell on the downtick" is the rule, and it's what causes panic crashes.
Greece caused this panic, it's just computers panicked faster than people can.
"To err is human; to really F up takes a computer."
Our country's desperate for leaders that'll stand up to Banksters and tell them that not only is it not true, but even if it is, TOO BAD....
It's why we're hurting so bad, with no jobs, so many businesses closed. Banks WON'T LEND. They won't help . Won't offer easier approvals to homebuyers.. .... They're cherry picking their loans, assuming absolutely no risk. We're in slow death...
The only way to get them back to making money lending is to SLAM SHUT the door on trading and force it on them anyway... Except that they OWN our leaders!. They'll scream saying the economy will tank... That's a bluff and we all know it. Remember the 90's? What a great economy we had then. This would've been an excellent foundation for our country to grow on, but no... Our lobbied leaders had to let "Genie" out of the bottle.
So what a tall order... Getting this change and Glass -Seagal re-applied will never get done without strong leadesrhip.They obviously intend taking America down if they don't get their way. This must stop.
“It is prior art, which keeps anyone from patenting fire, or the wheel”
Life itself is the prior art. Where money is everything, it is a travesty that the patent of life for homo sapiens is an unauthorized proxy, owned by the Federal Reserve Bank and Goldman Sachs.
The only thing that could save us from this fate would be an open-source movement in the science of behavioral economics --an exploratory to open the alternates as a vast public trust. When u care about the monetary system, u care about the wrong system. As for human flourishing, a resource based, system, that we are designed to deal with should be our focus. We have never been more capable. TICK – TOCK
Consider: By 2007 Fannie and Freddie had purchased $4.9 trillion of the mortgages outstanding as of the end of 2007, and they took 70% of those mortgages had packaged and sold them to investors with a guarantee of payment, and they kept the remainder for their own portfolios. The fraction of outstanding home mortgage debt that was either held or guaranteed by the Freddie and Fannie rose from 6% in 1971 to 51% in 2003.
These facts are a matter of easily verfiable public record. Yet, most liberals, following the lead of quacks like Paul Krugman and the Center for American Progress, continue to ignore or deny them. That's why so many Democrats are dragging their feet about reforming Freddie and Fannie, even as they scream to reform private banking.
So for you to make up your spin and try to put that on Barney Frank in 2007 is completely disingenuous.... {An actual LIE} Most of all that had already happened.... Things first started to fall in early March of 2007 when the Shanghai Market fluctuated severely and everybody started to wonder how deep is that hole, so that's another reason why Chairman Frank did not do this "packaging " that had been going on for years already..
You Repugs are desperate to try to blame all this on anyone but yourselves, but we know what happened... Sorry, your lies don't work this time. You're actually trespassing on the Sanctuary of history, trying to re-write it. How dare you.
Now... Get out.
In 2008, both companies went into conservatorship of the federal government, which will be temporary, until they get their act together.
Why would Democrats care anymore about reforming Freddie and Fannie than they would Goldman Sachs or Citigroup? They are, for all practical purposes, the same.
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Good observation. In my view this all didn't happen by coincidence. Electronic trading was a means to an end, namely to increase control and maximise profits (for a few, not for everyone, of course).
I don't buy the Waddel hypothesis for one minute. Even if they did cause it, it would mean that the whole world financial system would be susceptible to the trade of a single entity and might just crash at any time. If that would be the case the problem is still with the system and not with Waddell.
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Shouldn't this read "billion" rather than "million"?
Wall Street is essentially the same now as it was 200 years ago. The belief in a free, unregulated market is just as old. And the consequences; the obliteration of savings, retirements, homes and living standards are just as sure as they have always been. Our political leaders either have no appreciation of history, are deeply corrupt or both.
This may be, may be, true, in certain circumstances. But it would require a true outside threat, like the sovereign debt threat lurking in the shadows, to erupt suddenly on a given day.
This was nothing like that.
This was market manipulation to prove a point. And to believe that these acts are unknowable, untraceable, beyond our puny powers of understanding is to play right into the hands of the manipulators.
This was a warning. We know it. Let's do something about it.