Thursday, May 6, 2010

Typo nearly wipes out your retirement savings

That 1,000-point drop on Wall Street today? Guess how it happened?

In one of the most dizzying half-hours in stock market history, the Dow plunged nearly 1,000 points before paring those losses in what possibly could have been a trader error. According to multiple sources, a trader entered a “b” for billion instead of an “m” for million in a trade possibly involving Procter & Gamble [PG 60.75 -1.41 (-2.27%) ], a component in the Dow.

That set off a chain-reaction panic on trading floors. As Daniel Foster at National Review noted:

P&G's 37 percent nosedive was only responsible for 172 points of the 992.60 the Dow lost in the slump. The rest was market reaction — and part of that was computerized and automated.

You know, capitalism and free trade generally make a lot of sense. But our current method of allocating capital -- Wall Street being the big mover in that process -- keeps finding new ways to make itself look dangerously insane. Terminator was about how computers and robots set off an apocalyptic attack on humanity; turns out they don't need nuclear weapons to do that, just mindless programming instructions to start selling if somebody else is selling -- even if that sale is the result of a "fat finger" typographical error. Holy crap.


Notorious Ph.D. said...

I'm totally safe from this kind of wackadoodlry as I have no retirement savings whatsoever. Take that, Wall Street!

J. Blessinger said...

Wait . . . when you input a trade (via software ) at that level, you *hand type the instruction* into the computer . . . LONGHAND? Reminds me of the early text-based computer games.

E-TRADE Automated Computer>> "hello, how many shares of P&G would you like to trade today"

USER >> 1,000,000

E-TRADE >> "I do not understand [1,000,000]"

USER >> 1,000,000 shares

E-TRADE >> "There was no verb in that sentence!"

USER >> Trade 1,000,000 shares

E-TRADE >> "There was no subject in that sentence!"

USER >> E-Trade, trade 1,000,000 shares

E-TRADE >> "Be polite."

USER >> E-Trade, please trade 1,000,000 shares.

E-TRADE >> "You want me to trade shares of what?"

USER >> Stock

E-TRADE >> "Whose stock?"


E-TRADE >> "I do not understand [P&G]."

USER >> Proctor and Gamble. Christ.

E-TRADE >> "Keep it civil, sir. Now, in sentence form, what do you wish to do today?"

USER >> E-Trade, please trade 1,000,000 shares of Proctor and Gamble stock.

E-TRADE >> "I do not understand [1,000,000]. Please enter numbers in longhand only."

USER >> Oh for the love of . . . one billion.

E-TRADE >> "Processing . . ."

USER >> Wait! Doh.