Friday, May 7, 2010

The computer did it!

Innovation in the financial sector is once again turning Wall Street into the biggest roller coaster in America. It was a "glitch," apparently, that sent the markets down a very steep trajectory yesterday.

According to the NY Times article on the crash, at least half of all trading is done via these "high frequency" trades. A computer is programed to do the buying and selling that once were the sole domain of the trader.

"'We have a market that responds in milliseconds, but the humans monitoring respond in minutes, and unfortunately billions of dollars of damage can occur in the meantime,' said James Angel, a professor of finance at the McDonough School of Business at Georgetown University"(as quoted in the NY Times.)

I love computers as much as anyone. But innovation coming out of the financial sector is a little scary these days.

From the Times story:

"The near-instantaneous swings left brokers dumbfounded."

Traders weren't the only ones shocked by the fall. So were retirees and families saving for college–Main Streeters whose finances have been savaged by the collapse of the economy.

Now this - the collapse of the markets because of a glitch in a highly sophisticated trading program. Like we need a computer malfunction to shock the markets even more these days.

Who benefits from such programs? Not sure. But for many people, the brilliance of the financial sector is getting very expensive.

Looking forward to the day when financial sector innovation creates growth for those outside of Wall Street!



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