A glitch-topped crisis

A trading glitch, perhaps computer-oriented, hit U.S. markets like a stun gun Thursday, shearing nearly 500 points off the Dow index in minutes.

The Dow Jones industrial average was already off nearly 500 points, when the bottom suddenly fell out at 2:42 p.m., The Wall Street Journal reported.

The glitch lasted five minutes -- just -- and in the space of that time some publicly traded companies could be had for the same price you would pay for a bucket of nails. Boston Beer Co. could be bought with a small child's allowance money. For just a penny: Accenture PLC.

In moments billions of dollars were gone, with the nation's top 30 companies -- and many more -- losing 9 percent of their value. Shares of Proctor & Gamble Co., dropped 35 percent in minutes, the Journal said. The iShares Russell 1000 Value Index Fund -- bundled securities that trade like stocks, but are connected to an index -- dropped from $59 to less than 10 cents all but instantly.

You sit on your porch in Topeka, Kan., and the wind picks up and before you can plant your feet a funnel of dust takes your house away. It was that fast and the cost was measured in billions.

With the precise computerized mechanisms unclear, the Securities and Exchange Commission and the Commodity Futures Trading Commission said they were investigating the matter. But from the street, the blame went out in two directions.

The first was the high volume of high-speed electronic trading that is set up as reactions to complicated buy and sell algorithms -- robotic decision-making, if you will -- that makes up 50 percent to 75 percent of a day's trading, The New York Times reported.

In simplistic terms, massive selling or buying can be triggered at various thresholds, with markets down 4 percent or 5 percent, for example. At the same time, idiot-proof overrides can shut markets down temporarily at other thresholds, which are linked to certain times of the day. A 10 percent drop in the Dow before 2 p.m. shuts down the New York Stock Exchange for an hour.

But the same skid later in the day is overlooked. It's like the market has pulled the goalie, to use a sports analogy.

"We have a market that responds in milliseconds, but the humans monitoring respond in minutes, and unfortunately billions of dollars of damage can occur in the meantime," James Angel, a professor of finance at the McDonough School of Business at Georgetown University, told the Times.

Fingers were also pointed at the European Central Bank. It was not overlooked that markets had already had the breath knocked out of them. Markets were reeling at 2:41 p.m., before the glitch took over.

On Thursday the ECB said it would keep bank-to-bank interest rates unchanged at 1 percent. It was a routine policy decision, more or less, and widely expected. In the explanation of the decision -- and in the general complacency -- President Jean-Claude Trichet explained that debt in Greece did not even come up in the monthly meeting that preceded the decision.

"Greece will not default," Trichet told a Lisbon news conference. But the debt crisis that investors fear will spread throughout Europe required bank intervention beyond the ECB decision to allow Greece's junk bonds to stand as collateral for bank loans.

Analysts expected the ECB to announce it would buy Greek bonds directly. The bank didn't. The market reacted as expected. Beyond the glitch, the debt crisis continued.

In international markets Friday, the Nikkei 225 index in Japan lost 3.1 percent, while the Shanghai index in China fell 1.87 percent. The Hang Seng index in Hong Kong lost 1.06 percent, while the Sensex in India lost 1.29 percent.

In Australia, the S&P/ASX 200 lost 2.02 percent.

In midday trading in Europe, the FTSE 100 index in Britain fell 0.19 percent, while the DAX 30 in Germany fell 0.73 percent. The CAC 40 in France dropped 0.87 percent, while the pan-European DJ Stoxx 50 lost 1.22 percent.