Stock Market Sell-Off Might Stem From Trader's Fat Finger 643
s122604 points out a CNBC story according to which "the catalyst for today's extraordinary price swing (at one point the Dow lost almost 9 percent in less than an hour) may have been because a trader entered a 'B' for billions instead of an 'M' for millions on a trade of Procter and Gamble: 'According to multiple sources, a trader entered a "b" for billion instead of an "m" for million in a trade possibly involving Procter & Gamble, a component in the Dow. (CNBC's Jim Cramer noted suspicious price movement in P&G stock on air during the height of the market selloff).' Unbelievable there are no safeguards to protect against this."
He, was from Europe/ non UK ! (Score:3, Informative)
NYSE Spokesman Disagrees (Score:5, Informative)
Re:SELL! (Score:5, Informative)
http://en.wikipedia.org/wiki/Trading_curb
The first circuit breaker gets tripped at -10%. Today's fall wasn't quite -10%
Re:SELL! (Score:3, Informative)
Clippy: "Hi, I noticed you were trying to buy one billion shares of Proctor and Gamble even though there are less than a billion in existence. Would you like me to make that a shortcut for you?"
For the record there are approx 2.88 billion shares of PG in existence.
Rubbish (Score:5, Informative)
15 billion dollars cannot move the markets that way, even if it was an accident. That's like trying to blame 2008 on the fraudster at "Societée Generale". It wasn't just the US stock market, it was all the currency markets too. This is trillions of dollars we're talking about, moving away from the Euro and the US dollar and into Asian currencies. The trouble in Greece and the uncertainty about the UK elections were the excuse. The Chinese made a major move into the Japanese Yen yesterday, strengthening it. Today european bankers followed suit. As a result the Yen gained nearly 10% against the dollar, with Cable (GBP.USD) and Fiber (EUR.USD) dropping quite a bit too. This panicked the equities markets.
Re:SELL! (Score:5, Informative)
Unless you're due to retired today and your pension just got blown out of the water.
Put it all under the mattress. Seriously.
Generally, it is recommended that as you approach retirement age, you start moving more and more of your retirement savings out of stocks and into bonds. (Bonds are much less volatile.)
Re:SELL! (Score:3, Informative)
I tried valiantly to buy in. Sadly, a limit order had already been placed that tapped my reserve cash. I tried to cancel, but after 15 minutes of 'cancellation pending' the event was over. Damn.
Re:SELL! (Score:3, Informative)
This doesn't deserve "Troll"!
Somebody mod this back up. He hasn't written anything that is incorrect.
Gold Prices [goldprices.com] - Gold hasn't ever gone to zero.
Fiat Currency [wikipedia.org] - US Dollars are a fiat currency.
No, No, No.... (Score:5, Informative)
? The Fed's books are already open and reviewed by accountants regularly.
Really? Then please direct me to the assets in Maiden Lanes 1,2,3. Now, I don't mean the 'extend and pretend' valuations they report. Any external reporting is sent over with a topline valuation. Period. They do not provide enough information for any external party to establish values.
Please direct me to FRB NY's communications, oh let's go back 5 years. I don't want it all, just the stuff where it was decided AIG's creditors were paid 1:1 for debt obligations where a haircut (pennies on the dollar) is the norm. And... what about all those side bets that were made good?
Finally, it's not an either 'Business As Usual' or 'Politicize the Fed.' choice. That kind of rhetoric, by design, goes nowhere. Discarding the whole notion of greater transparency for the Fed has already cost us a trillion or so dollars. I'd like to use that money for other things.
Then the PHBs misapply their work, and KABOOM. (Score:5, Informative)
Wall Street has attracted the best and the brightest of all of our people, math PhD's, ... Our most brilliant citizens are pulled into Wall Street as "quants" ... And to do what? To game the system in favor of their wealthy masters at the expense of the middle classes.
Then the PHBs misunderstand and misapply the PHDs' work, and the whole thing comes crashing down on them.
Case in point: Mortgage-backed securities.
Risk on such things is hard to estimate, because it takes a lot of investigation and skull-sweat to evaluate the risk on each mortgage. Evaluating the risk on a bundle of mortgages was so much work it was not practical.
Then the young math whiz proved that price of mortgages was very strongly correlated with risk, and came up with a formula that, given price, estimated risk very well. (Well, DUH! They're correlated because smart buyers and sellers were researching the mortgages, determining the risk, and basing their trading prices on them.)
THen the PHBs came up with something like bonds backed by a "basket of mortgages" (to "average out the risk of individual defaults). Buy the bonds (to finance the mortgages), get paid dividends from the borrowers' payments. Sell THREE sets of bonds against each "basket" of mortgages, with missed payments coming out of the dividends of the third, then the second, then the first, so investors could get different prices and risk/reward tradeoffs from the same basket. So far so good...
But to sell these bonds they needed a rating. So they talked the rating companies into using the shiny new risk-estimating tool to rate them. Oops! Any controls engineer who understands these bonds and the market will recognize that this substituted a positive feedback loop for the signal from the real world. Higher price -> lower risk estimate -> higher price... (The guy who did the original work said not to use it this way - but nobody listened. And he moved on to other things.)
And now that they could get a rating they could get a rating from reputable companies they could sell a bunch of these bonds. So they could buy up mortgages to make more. So this raised the demand for mortgages, which raised the price. The positive feedback loop was kicked off with a big up-push, the ratings went sky high, the prices of the bonds climbed, and the bubble was on.
With the price skyrocketing more people wanted to buy in. So the demand for mortgages went through the roof. Banks and the like could sell any mortgage they could write, even to "NINJA" borrowers with no income, job, or assets. Who cares if some of the loans in the basket are "subprime"? The price says the aggregate risk is low and it will all average out, right?
So the bubble blew up bigger and bigger, with developers building more houses that were bought by more subprime borrowers with more and more unconventional mortgages - until finally there were enough defaults to actually cause problems.
The last straw was probably because a gas price hike made the commute expensive enough that people commuting between big cities and the "executive homes" tightly clustered in former farmers' fields a two-hour commute away from their job could no longer afford both the gas and the payments.
So enough mortgages defaulted that some of the bonds were doing worse than expected. So the demand for them went down. Oops! The positive feedback loop was still in place and it finally got a signal strong enough to get it out of saturation. Lower demand -> lower price -> higher risk estimate -> lower rating -> lower price. Rinse and repeat. Prices for mortgages drop, interest rates rise, more defaults, more positive feedback.
And thus the subprime mortgage market collapsed.
(Then the government throws a trillion or so of our money into pumping it back up...)
Now stock market guys are used to this sort of thing: It's the old chartist vs. value investor dichotomy. Every so often somebody finds a
Pay does not determine nobility (Score:4, Informative)
I know far more people who have been screwed over by doctors, mechanics, and contractors than by accountants or investors.
I am a certified accountant. If you believe that, you don't understand accounting at all. I have a textbook downstairs which is all about how accountants can fudge the numbers. Even the best financial records have a lot of slop in them and it is REALLY easy to commit fraud as an accountant often on a very large scale. Even if no laws are broken, finance experts can seriously screw you, often without you even being aware of it. I'm not required to take classes on ethics every year because accountants have been so honorable in the past. If accountants were so honest there would be little need for audits.
No, I'm afraid accountants and finance professionals are no more ethical than anyone else.
Yes, teachers should be paid more, but there should be higher standards for teachers as well.
You get paid more for doing things that either A) other people can't do or B) other people don't want to do. Teaching generally falls into neither category. The ability to teach is not a rare ability and plenty of people chose it as a career. (note that I did not say teach well - that's a different issue) Ergo supply being relatively high compared with demand dictates that teaching will not be a lucrative profession.
There's no reason that teaching should be any less a noble profession (as determined by the general population, not Slashdotters) than being a doctor or professor.
Who said it is less noble? It just pays less. Being a college professor or a doctor requires a PhD or an MD and there are fewer people who have the brainpower and dedication to earn those degrees. Nobility of a profession isn't determined by pay and being a teacher is generally quite well respected.
Comment removed (Score:4, Informative)
Re:SELL! (Score:3, Informative)
You say "yes" with such authority, and yet are so completely and utterly wrong, it's ok though matters of "irrational" behaviour are generally completely out of the grasp of people on this site (Ipod: no wireless, less space than a Nomad, LAME).
The value in gold comes in the form of 2000+ years of inertia. If a collapse came it would find a value as a method of exchange. If you could say to someone I'll give you 1oz, 10oz, 100oz for a gun, that person would be reasonably confident that they could do the same thing for something else of use to them. Not everything, but something as someone *will* accept it as a form of payment.
Gold has intrinsic value to humans. Now whether that's irrational or not (which is why people around here just can't seem to understand it), gold has value to people simply because it *always has been a symbol of value*. If there's a crash it will retain *some* value, it'll have different value to everyone but nearly everyone will accept that it has some sort of value either now, or in the future or maybe if they just go over the border where things are better they can sell it there...
So you're not going to get rich holding gold in the event of a crash, but your paper money will be completely valueless (except as fuel for a fire). Gold on the other hand, will retain some value to some people, and in the future as the country rebuilds (or you use your gold to get out of the country and go to a country where it's still valuable) it will eventually become valuable to you again. So even if it does go to zero for a while to the people in your situation and area, you can still use it to get to a better place where it holds its traditional value.
Finally crashes never just happen, the government always devalues the paper money first (you got a $100 bill...it's now worth $20 of this new currency) gold and silver are almost completely immune to government meddling that bonds, shares, paper money and real estate are subject to.
*Me has some silver and gold in a safe and likes the fact that it makes the people who told me (on this very site) ten years ago that "lol gold is dead, get into shares your going to lose" burn. They've been very quiet for the last few years.
Re:SELL! (Score:4, Informative)
Gold never went over $500 an ounce in 1982. That's $1096 today, and gold's current price is $1202. That's almost a 10% gain.
The equivalent of $2000 in today's dollars in 1982, the price you claim gold reached, was $911.59, a much higher figure than what the data shows. This can be verified by looking at current and historical gold prices and using an inflation calculator, which is exactly what I did.
What would prompt you to make up other numbers?
Re:Correct, but also incorrect (Score:3, Informative)
You can't print gold so the government has to try a lot harder to spend money it doesn't actually have.
That's the real point of a hard money currency system, the fact that you hear gold (and silver) all the time is that it's just a convenient, historic store of wealth, if there was something more convenient the argument would be made for that.
There may be other ways of solving the wasteful government problem. One is currently being tested in Germany:
One year ago, our politicians wrote a pretty stringent limit on new public debt into the constitution. One may suspect the sincerity of their intentions, but the debt limit is in the constitution now. Let's see how it works out ;-)
Re:No, No, No.... (Score:4, Informative)
What you're asking for is not an audit, it's more like a criminal investigation or maybe a snipe hunt.
The company I work for has its financial statements audited by an outside firm every year. At no point does that firm ask for or review 5 years worth of communications so they can see why we made the decisions we did. Strategic decision-making is management, not financials. The purpose of an audit is to make sure the numbers add up, not to second-guess management.
You can look at the audited financial reporting of any public company and you won't get access to information like that. Why does Apple prohibit Flash on its phones? Why did Microsoft make a bid for Yahoo? Why did Google buy YouTube? The answers are not in the audited financial statements.
People say "audit the Fed" but the Fed is already audited. What they really mean is "control the Fed" or "scapegoat the Fed" IMO.
Re:Then the PHBs misapply their work, and KABOOM. (Score:3, Informative)
Heh, and I thought I understood what happened pretty well, but you've managed to explain the part I never understood: Why on earth anyone in the banking industry thought that these were good deals?
I could see why banks were making such NINJA loans (They could sell them), I could see why banks would purchase them and repackage them into such instruments (They could sell them.), I just couldn't see why other banks would buy them. Nor could I figure out why rating agencies thought these were reasonable. (Hey, how did that union lawsuit against the rating agencies work out?) I heard about a 'mathematical formula', but didn't really understand.
So you're essentially saying that the ratings of such instruments became based on...nothing at all. Or, rather, the price was (Like always) based on the estimated risk, but this time the (misestimated) risk was based on the price.
The real joke, of course, is that such instruments didn't even need to exist at all. They serve no purpose at all. Non-risky mortgages are already handled by the market quite well (Often bought by Freddie and Fannie) and mortgages that are too risky for that should be traded only individually because there are too many factors to have a 'market' for them. Inventing a new market to 'trade stuff we can't assess the risk of' seems, um, stupid.
Of course, they thought they could assess the risk. I mean, they were willing to buy it, and pay X dollars for it, so logically it couldn't be that much riskier than other things they pay X dollars for. Man, that sounds even stupider when I say it like that.
The real real joke is, unlike previous market stupidity that just affects people in the market, this stupidity resulted in a bunch of people with who got mortgages they couldn't pay. In fact, even if this had worked, those mortgages would still be as bad.
I think a lot of people missed that. The market created a demand for bad loans. These loans did not subsequently fail because of the market, they failed because they were bad loans. They would have failed regardless of what the market did...the market just, delusionally, thought that the playing around with 'bad loan securities' was smarter than it was. They're arsonists who didn't make it out of the house they lit on fire...burning down the house was part of the plan.
This rather clearly shows the ruthlessness of the market, and how they should be kept the hell away from anyone who doesn't choose to play their stupid little games. Which is why I'm in favor of separating out investment banks again, and why I'm in favor of not letting banks resell risky mortgages.(That is, if a mortgage doesn't fit within certain parameters, even if it's legal to make, they can't actually sell that mortgage to another bank, they have to hold it themselves. If they want to make 'exceptional' mortgages, fine...it's their neck on the line if there's a default.)
All you 'incredibly smart people who invent nonsense out of thin air and make money of it' stay the hell away from my actual money.
Re:SELL! (Score:4, Informative)
He got the year wrong - 1980 was the high. The peak was Jan. 18- 20 1980, $830-$850 = $2146 - $2184 in 2009 CPI- adjusted dollars.
Last 6 months gold has been $1100 - $1200. In highly understated 1980 CPI adjustments, that is about $430 - $470 in 1980 dollars. The price of gold was nearly always higher in real terms from about 12/79 to 6/81. See kitco.com and http://www.westegg.com/inflation/infl.cgi [westegg.com] for documentation.
As you said: "What would prompt you to make up other numbers?"