What's Up With Wall Street?

Thursday, May 6, brought the New York Stock Exchange an eye opening shock that it hadn't prepared for. An afternoon drop of nearly 1,000 points on the Dow Jones Index sent traders scurrying, dropped some stock prices to zero while sending at least one other to the dizzying heights of 100,000, and transpired over a period of twenty minutes.

If you ask me, something stinks. A claim that the calamity was caused by a "fat finger" trade (a keyboard entry error) originating at Citibank does nothing to deodorize it. Representatives of Citibank have said that they can find no evidence of such an error. Even if Citibank is an innocent dupe in this, it still points up the financial sector's vulnerability to cyberagression or good old-fashioned fraud.

The confluence of algorithmic program trading and advanced computer system hacking opens huge possibilities for fraud in financial markets. A person or entity bent on enriching themselves could hack in, drop a selected victimized stock, buy big on the drop, sell it all on the correction and have their fingerprints camouflaged by the flurry of program trading that would be triggered. Any one of these transactions would take millionths of a second to execute with a trading program laid out, and by the time exchange security and the authorities sifted through the thousands of trades that were prompted, the perp could be knocking back umbrella drinks on a no extradition tropical island. Indeed, the perp could have executed the entire chain of events from that island.

It is not even stocks alone that were affected by this market anomaly. The price of gold rose to over $1,200/oz. on investors' fears.

The market settled down to a 300+ point drop, with bank issues dragging the market down with the Four Horsemen of the Apocalypse, JP Morgan/Chase, Bank of America, Wells Fargo and the ever present Goldman/Sachs leading the plunge. The litany seems incomplete without the inclusion of Citigroup, but maybe later.