As Dow Plunges, Investors' Mouths Agape

There's still no definitive answer for the cause of the roller coaster ride on Wall Street Thursday. At one point, the Dow lost nearly 1,000 points in just 15 minutes. It regained most of that ground in next 20 minutes. The markets closed with the Dow down 3.2 percent.

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RENEE MONTAGNE, host:

It's MORNING EDITION, from NPR News. I'm Renee Montagne.

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MONTAGNE: For 10 minutes yesterday afternoon, stocks plunged far and fast on Wall Street, and no one knew why. In fact, no one is yet sure why. Fears about Europe's debt crisis seem to have played a part. At its worst, the market was down almost a thousand points. Some stocks lost virtually 100 percent of their value and were changing hands for just a penny. The market improved by the end of the day, but still closed down 3.2 percent, making it a merely terrible day. But as Wall Street opened this morning, stocks edged up and stabilized.

NPR economics correspondent John Ydstie joined us to discuss what happened.

Good morning, John.

JOHN YDSTIE: Hi, Renee.

MONTAGNE: Let's begin, obviously, with that plunge. Was it human error, computer glitches, panic by investors? All three of these things are being discussed.

YDSTIE: Well, Renee, we still don't know for sure. The early reports suggested it might have been triggered by what's called a fat-fingered trade, a trader just hitting the wrong key on a keyboard. Initially, reports suggested a CitiGroup trader was involved. CitiGroup says there's no evidence of that.

But there's still some suggestion that such a trade on stock market index futures took place on the Chicago Mercantile Exchange, one of its platforms. But the Exchange says the market was operating properly.

I think the focus is now on high-frequency trading: high-speed, computer program trading that's responsible for about two-thirds of the volume on U.S. stock markets these days. There's some evidence that glitches in the programs created enormous - or erroneous, rather, trades that then sparked lots of automated cell programs, which caused the market to collapse, and at one point lose a trillion dollars in value at the bottom yesterday.

MONTAGNE: It's been suggested that one stock might offer some clues, and that's Procter & Gamble. Tell us what happened to its shares during the fall.

YDSTIE: Well, Procter & Gamble is, of course, a very stable consumer products company, whose stock is also very stable. But around 2:40 P.M. yesterday, its price suddenly dropped by 37 percent, from about $60 a share to under $40 a share. And there were other stocks like Accenture, the big consulting firm, whose stock went from $40 a share to a value of one penny during that same period.

MONTAGNE: Right.

YDSTIE: Now, even in a very unsettled climate, like the one surrounding the Greek debt crisis, those drops are crazy. So something else had to be going on.

MONTAGNE: Does this suggest that we're going to get some restrictions on computerized trading?

YDSTIE: Well, that's certainly going to get a close look. In a statement, Senator Edward Kaufman of Delaware said, quote, "The potential for giant, high-speed computers to generate false trades and create market chaos reared its head again." And he said the trading programs aren't even fully understood by the traders and aren't transparent to the regulators, either. So he called for congressional investigations.

MONTAGNE: So this historic drop, I mean, some could say we might think its merely an anomaly. But is it also maybe saying something ominous about the direction of the U.S. economy, now that there's all that economic turmoil in Greece, for starters?

YDSTIE: Well, I think it's unlikely this event would have happened if there hadn't already been stress on the market caused by concern about the Greek debt problem spreading to other countries in Europe. Ultimately, there's worry it could slow the European economy sharply and even push it back into recession.

That, in turn, raises questions about the resilience of the U.S. recovery, which certainly would suffer if a major trading partner like Europe went into the tank again. So we'll see how it plays out over the next weeks and months.

MONTAGNE: NPR's economic correspondent John Ydstie, thanks very much.

YDSTIE: You're welcome, Renee.

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