Last Thursday, there was a sudden plunge in the DJII (Dow Jones Industrial Index). Within 10 mintues, there was about $700 Billion (US Dollars) loss in market value. The market dipped to 9,872 points before recovering 543 points in a minute and a half to attain 10,415.65. This is a very unique and extreme case of market correction. Till date, the SEC (Securities and Exchange Commission) failed to find any smoking gun. This implies there is not any explanation for this incredible fall.
With the lack of explanation, many analysts and layman have tried to come up with their explanations. Some involve conspiracies theories while others encompass slightly more logical reasoning. Some explanations consists of a mistake from traders hitting the “b” (billion) key instead of “m” (million) key and that made a huge mess. Another possible reason, which builds on the previous one, states the current fear and uncertainty of the market amplified the crash. This is because there have been talks of double dip recession – a fall in the markets before Wall Street starts to recover properly. Another possible rationale for the crash stems from the bad logarithms of trading machines. This was a mechanical failure rather than a manmade disaster. This is food for thought as they blamed machines not man, yet, it is man than created the machines. It seems this explanation is shifting blame away from the entire financial sector but it is the financial sector that made such logarithms possible.
Some less convincing, but possible, scenarios argue that America’s stock markets are controlled by some people and they were merely conducting a test. This raised much fear that America – and in the process the world – could be in controlled by a few powerful people as every portion of every economy relies on the financial sector. When one has the ability to dictate the fundamentals of the economy, they will control the entire economy.
I have no idea which is the truth and more often the ever, the real truth is buried. Yet, this event is highly interesting as 1. It is one of its kind and 2. It shows man need to explain all ongoing events around them.
http://www.businessweek.com/idg/2010-05-12/house-committee-fails-to-find-smoking-gun-on-market-plunge.html
http://www.businessweek.com/news/2010-05-06/nasdaq-to-cancel-u-s-trades-that-moved-more-than-60-update2-.html
I can't imagine such a dramatic swing in share values will comfort many investors. Don't you think such events will further discourage potential investors?
ReplyDeleteNBC News anchor offered a pretty clear analysis of the situation on the David Letterman show the same day as the plunge.
Request: could you post URLs as clickable links please?