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Dow Jones Plunge Fueled by Overwhelmed Computers
cloudscout writes "The Dow Jones Industrial Average dropped over 400 points today. While there were various valid financial reasons for such a decline, some of the blame is being placed on computer systems that couldn't keep up with the abnormally high volume at the New York Stock Exchange and the resulting tremor as they switched over to a backup system."
It looks like somebody forgot to change the gigantic SQL batteries embedded in the side of the NYSE building...
In the 1929 crash the problem was partially blamed on the ticker tape running at times up to 1 hour late. Before computers there were people you could blame.
- Minutus cantorum, minutus balorum, minutus carborata descendum pantorum.
This is what happens when I sell one lousy share of google!
1. Computer switch-over is a bit slow
2. Market starts to waiver
3. Other parts of the market see this tremor so market waivers a lot
4. Panic ensues
5. Indices drop 10%
6. a pension company goes bust
7. my grandpa doesn't get to eat.
The last few steps are somewhat hypothetical, but still. The stock market must be one of the most immediately visible examples of chaos theory kicking humans in the nuts.
Peter
Considering the amount of, and importance of, data that flows through that system... I am surprised that it's not routinely well ahead of the needs at peak capacity.
I'd say that someone, likely the one in charge of the IT budget approval, keeps tight purse strings. Of course, he's not the one getting reamed, it's the CIO and his crew who are taking the blame even though they have repeatedly requested the funds to improve the system. Just speculation, but likely spot on.
Just another piece of ammo when I start a new job and demand a reasonable budget.
Sometimes the best solution is to stop wasting time looking for an easy solution.
I don't see how you could say that the computer problem fueled the plunge. My understanding of the events is that the only problem was with the system that calculated the Dow Jones Industrial Average Index (the number that is around 12,200). There wasn't a backup or delay in execution of trades or anything like that. The decline was real, but it was spread out over an hour instead of the 2 minutes reflected by the DJIA.
Traders still bought and sold stocks at their real value in real time. The calculation of the sum of their activity was the only thing delayed.
The computer systems weren't responsible for the overall drop, but rather the rate of the drop during the few minutes of switching over to the backup computers. This queued up trades, and at the current volume of the switchover, caused a large drop when they caught up. At least that's how I understand it.
The problem was obvious to anyone watching the markets. A trace of the Dow versus the S&P showed that the Dow's drop was NOT keeping pace with the drop in the S&P (they are normally tightly correlated, especially when big moves occur). It was clear that the NYSE's computers were woefully behind on reporting a much more orderly and steady drop. When that backup server cut in, the Dow data suddenly reflected the true state of affairs that was obvious from people watching the S&P and the broader market.
The Dow did NOT drop 200 points in minutes, the data simply caught up with the drop that had already occurred.
Two wrongs don't make a right, but three lefts do.
wonder what the reactions would have been like if a "computer glitch" knocked the thing up 500 points instead of down.
... *pulls aside*
Um
You mean like what happened two weeks ago?
Apology to Ubuntu forum.
The DOW is up today. Can't you at least get the most basic facts right? The drop was yesterday.
From what I read (NY Times, I believe) the system didn't really have a big an impact as some headlines would lead you to believe.
Apparently the system that computes and displays the current Dow couldn't keep up with the systems that process the transactions when the number of transactions became very large. The display system caught up a bit later making it *appear* that the market at suddenly dropped something like 250 points in a few seconds.
In reality, the decline was fast but steady. It was just the exchange's version of "Damn lag!"
Life is short: void the warranty.
As well as crashing planes into buildings, it seems "Debt of Honor" is getting good at being an oracle of modern times.
Donte Alistair Anderson Roberts - hi son!
Karma: Chameleon
Change in Chineese trading market regulations were the cause of this drop. A massive sell off occurred with the beginning of a crackdown on questionable and illegal trading on China's stock market. This rippled to every other market in the world. Asian, North America, South American and European markets were all affected. Blaming the computer systems is damage control.
The cancel button is your friend. Do not hesitate to use it.
Yep - that sounds just about right.
Imagine a series of database transactions, with each step getting queued up and waiting for the system to finish processing it. The actual DOW number reflects fully completed transactions, but not pending transactions that might impact the outcome. This is probably a good thing, as a transaction might end up being rejected, so you only want to show the outcome of completed transactions. Once the backup system came online, the transactions quickly finished being completed, resulting in the dramatic drop.
The amazing thing to me is that the system is robust enough that transactions can survive the loss of their main computer system and bringing up a secondary one. That's database, networking, and coding voodoo, all wrapped into something pretty awe-inspiring.
The drop was really fueled by a number of causes. China's 9% decline the night before was the primary trigger. Sub-prime loans have been leading to trouble for a number of firms lately with the housing decline fueling those problems. The market has been in bull form for quite some time with no corrections leading to a large number of stock prices not supported by their fundamentals. The durable goods sales reports are expected to show under 3% growth when it has been up in the 4% range and this always spooks investors. Any economic indicators showing any sign of change spark massive changes on the market.
The computer problems experienced were really just a lag between the DJIA being calculated and the massive volume of trades being made. Individual stock prices were being reported correctly but the index wasn't keeping up. When the computers caught up they did it over a single minute dropping about 300 points while in reality by the time the index caught up the market had started to rebound a bit. All of the value stock buyers saw the deals becoming available when the landslide hit and started buying a bit. Kind of like today, the market is rebounding because many are looking at stocks that were overpriced yesterday and thinking they are cheap. It's not really as big of deal as the press makes it out to seem. It's not like the '87 crash where 500 points was like 20% of the market. 500 points off th dow is under 4%.
Another trigger for the sudden decline could have been the headline on The Drudge Report (linking to the New York Times article by the same headline) stated that Greespan predicted an imminent recession when his words were as they always have been and that people should be carefull because the economy has been growing for longer than the average growth cycle by about 12 months. Greenspan didn't say anything about a recession being imminent.
if you actually bother to read TFA - you'll find they don't blame the computers for the drop. They blame the computers for creating the perception of a cliff rather than a steep slope.
This is actually something fairly important to consider as more and more of our life interfaces with displays mediated by computer. (Even down to the mundane. I've discovered the digital controls in my oven seem to use a time weighted average - which works fine in convection mode, but it enlarges the deadband in normal mode.)