As Dow Plunges, Investors' Mouths Agape
RENEE MONTAGNE, Host:
It's MORNING EDITION, from NPR News. I'm Renee Montagne.
(SOUNDBITE OF BELL)
MONTAGNE: 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: 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.
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: 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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