NBN Explainer: the DOW gets down?

    While we snoozed through lectures this afternoon, traders on Wall Street were in a panic (yet again) as the Dow Jones Industrial Average dropped 9.2 percent, nearly a thousand points – the highest percentage it’s dropped in one day since 1987. The DOW, made up of 30 companies considered to be “major players” in their respective industries, is intended to be a reflection of the market-at-large. If the DOW is up, then, in theory, so is the market. And when it’s down — well, you get the idea.

    But today something in the system faltered, sending shockwaves of concern across the trading floor. The question is: what happened and perhaps more importantly, why?

    According to an article posted on Bloomberg this evening, the first half of the drop can be attributed to “normal trading” – i.e. things are shaky in Europe right now and some of that fear is spilling over into US markets. The latter half, which took place around 2:30 p.m., may have been caused by automated trading – sort of an overload of the system, compounded by a human error somewhere along the way, said an article by the Washington Post.

    The DOW rebounded to close down 3.2 percent.

    Sure, this may not affect our day-to-day life as students. But there’s a “real world” waiting for us, so we might as well try to understand some of the problems that come with it. Take it from Andrew Kang. Kang is the vice president of Administration in the Alpha Kappa Psi business fraternity. He cites the alleged technological blunder as the real cause for concern.

    “Today there’s such a huge amount of technology out there,” he says. “Within a short amount of time you can see your life savings dwindle.”

    We may not be that entwined in the stock market just yet, but we attend a University that is, says Weinberg sophomore Brian Levin, who founded and operates the hedge fund BLD Capital Advisors. According to Levin, there was a lot of potential for the uncertainty to have a much broader-reaching effect, had everything not happened so quickly. Although Levin finished the day “unscathed” in his own investments, he’s still found a lesson in this afternoon’s events.

    “People should be a lot more concerned about this type of thing than things like Goldman Sachs,” he said. He explained that the amount of market value lost in such a quick period of time makes this afternoon’s events a much more pressing issue.

    The scale of the event, combined with the accessibility brought on by new technologies can make this kind of situation dangerous.

    “Information is big in the business world today,” says Kang. “At the end of the day a small error … can take the whole market.”


    blog comments powered by Disqus
    Please read our Comment Policy.