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Stocks Tumble, Uncertainty Rises

Stocks Tumble, Uncertainty Rises

The U.S. stock market took a wild ride Thursday as the DOW index of stocks fell 1,000 points at its lowest and ended the trading day down 347, or more than 3%.  The economic concerns of the day centered on the turmoil in Europe as Greece needs a bailout to avoid default on its public debt.  However, the Securities and Exchange Commission (SEC) is investigating unusual trading activity to determine whether mistakes or manipulation caused a rapid drop of stock prices shortly after 2:30 p.m. 

The crisis in Europe is serious.  Greeks have been rioting for several days over the economic hardships that are being imposed, as the government seeks to rein in public spending and convince European nations that it will show fiscal discipline, if given a new loan package.  Skeptics believe that even with new loans and belt tightening, Greece will eventually have to restructure its debt.

However, Greece is a small nation and its economy is only a small fraction of Europe’s economic power.  The market’s concern is that Greece’s problems might also surface in larger European economies such as Portugal, Italy or Spain.  Not unlike the U.S. bailouts to financial institutions in 2008, European governments today are stepping in to stop Greece’s failure from spreading. 

While the decline in Greece is in itself too small to negatively impact the U.S. economy, greater weakness in Europe could hurt U.S. export sales and overall confidence in the recovery.  On the other hand, the U.S. stock market has risen dramatically since the financial crisis abated, 23% in the past year.  It may simply have been due for a correction.

Also by Marc Seltzer:  Don’t Be Too Sure — Questioning Conventional Wisdom on the Economy and What Can Canada Teach Us about Banking Regulation?

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29 comments

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12:26PM PDT on May 26, 2010

markets are very manipulated

12:20AM PDT on May 13, 2010

And just how different from the Greek economy is the US situation? Unsustainable practices create manmade disasters.
Every economy in the world will follow this pattern. It's guaranteed by the rules of the economics 'monopoly game' played by nation states, corporations, and their lackeys. It's basic maths which most people just don't get.

2:17PM PDT on May 10, 2010

Thanks for the info.

12:52PM PDT on May 10, 2010

Thanks for your post.

11:16AM PDT on May 10, 2010

The mini-crash was caused by High-Frequency-Trading programs which were pioneered a couple years ago by Renaissance Technologies and made their founder billions. These things take advantage of microsecond execution and enormous volume (though very few firms are involved, these trades account for over 70% volume) to make their profits. Like algorithmic programs before them, they can develop glitches which spiral out of control (Black Monday).

Again, the average investor and mutual fund is left out in the cold with no resources to compete against this kind of technology. There is NO regulation, a huge oversight by our government. At the very least these guys should pay a surcharge or licensing fee. Worse, there is no-one holding them truly accountable not only for potential glitches but 'black-box' trading where insider manipulation is undetectable because nobody else even understands the programming.

9:37PM PDT on May 9, 2010

WTF, Wall St.? Whether it was a human mistake or an automated "mistake", we would be well-justified in looking at this as a warning to the small investors. It's just a good thing there were some automated programs sniffing around for bargains at that moment, or we all would've lost billions (or trillions).

It's clear there are other financial "weapons of mass destruction" than just subprime mortgages, derivatives, and collateralized debt obligations.

9:18PM PDT on May 9, 2010

This country has been selling a b.s. story for years. Investors, your neighbors, want greater and greater profit and they want guarantees they can recoup their money if they game players lose. The bail outs gave them the assurance they needed.
The working people in this nation have been losing ground since the very early 1970'S. Back then, few invested in the stock market and the focus wasn't so intense on making more and more wealth, as it is today.
Deregulation, adverse trade agreements, and myriad of other policies have wasted the middle class who have continued to support politicians to their own detriment.
With the US Supreme court ruling (citizens united) it will only make thing worse for the common folk, unless and untill the people get some balls and inform themselves before they run to the poles to support the crap that has and continues to be a detriment to anything good.

6:15AM PDT on May 9, 2010

Funny how the same people whom caused this mess are still running wallstreet and the corporations, but notice how quick on the lawsuiy they are on the little guy or how they have polluted are land and water and its us who have to pay for the clean up, or my fav is the give me tax break or i will leave your town or state we go to jail for blackmail for them its good ole red white and blue capitalism.
the tea baggers should be ready to battle wallstreet (oops i forgot the cowards rather fight the little guy)we need to fight the big guy with the vote-civil disobedience-and yes force if need be.
the rich steal from you through the law we have no moral or ethical obligation to support a corrupt system.

11:35PM PDT on May 8, 2010

When nobody is willing to pay their debts who is extending credit?
It does seem as though anyone who takes a loan gets to owe a good deal more than he thought he signed on for.
I see nobody debt-free these days.

9:27PM PDT on May 8, 2010

The explanation is simple, the PARASITICAL (Wall Street) Status-Quo, is trying to control its HOST, the Blue-Collar Workers. If the Value-Producing Blue-Collar-Workers wake-up in time, this parasitical blood-sucking will be reversed.

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