Several minutes later, the Dow Jones Industrial Average fell 143 points.
This in itself isn’t shocking considering the information sent via Twitter by the Associated Press, but there was one small problem…the ‘tweet’ was fake.
So after organizations like the SEC (Securities and Exchange Commission) and the CFTC (Commodities and Futures Trading Commission) supposedly mandated new financial regulations to thwart another financial crisis, what happens? The financial markets are nearly destroyed by a bogus, errant ‘tweet’.
What’s wrong with this picture people?
That same Tuesday by 1:18 p.m., after said tweet was deemed fake by the Associated Press, the stock markets rebounded and gained back its losses. Mind you, that fake tweet wiped out 136.5 billion dollars of the S&P 500’s index value.Yep…that’s billion with a ‘b’.
Talk about truth being stranger than fiction.
But wait, it gets worse; the reason the stock market crashed so suddenly, isn’t only because no one checked the veracity of said tweet, it’s because the problem wasn’t entirely caused by ‘people’. The market crashed behind ‘AUTOMATED’ trades as well. Yep, you read that right; nearly HALF these trades were made solely by computers.
High Frequency Trading (HFT) is a new-fangled method of stock trades that take flesh and blood humans out of the mix so these transactions can literally happen in seconds. HFT is wholly comprised of computer algorithms that not only follow the markets looking for ‘key words’ to follow trends, but these programs actually buy and sell stocks too. So there’s literally no one ‘minding the store’ as far as these trades go. On top of that, HFT computers are programmed to make ‘illegitimate trades’ to fool or sabotage other HFT computers into thinking certain trends are happening when they’re not. This is to cut down on the competition when other HFT-driven firms might take a piece of their action. If it sounds scary, that’s ‘cause it is. And to think, people have their life savings in the hands of these purposely corrupted computer programs.
Just when you thought ‘exotic financial instruments’ like the credit default swap were being tamed by the bureaucrats who run these markets, we’re finding out the financial industry’s ‘crap shoot’ stylings are alive and well. But in the case of HFT, you can skip the ‘alive’ part.
So what’s it gonna’ take to stop these corrupted computings? Hows about consumers who have money invested with these HFT firms pulling their capital out. Or swearing at your local politician in a Town Hall meeting to let them know the proletariat are done taking this corporate tomfoolery!
Until then, it’ll be more of the same casino-like behavior from the Wall Street bunch. But ultimately, they couldn’t do it unless we let them. So it’s time to get organized and get some results. And the sooner, the better.