Mapping the paths of power and influence
Too connected? Hal gone haywire? What?s the diff?
By Laurie Bennett
May 7, 2010 at 9:01am
<!-- google_ad_region_start=article -->Economists and regulators have focused on ?too connected to fail? since the financial collapse of 2008.
Yesterday, the concept turned inside out.
Map inside
?Too connected? may have caused the failure, igniting a flash crash that drove stock prices toward zero.
The reasons for the freefall are still under investigation. The Securities and Exchange Commission and the Commodity Futures Trading Commission released a statement saying they were working with regulators and exchange authorities to get to the bottom of the ?unusual trading activity.?
Clearly, the crisis in Greece caused uncertainty that prompted selling.
The ?fat finger? phenomenon also may have played a part. Forbes reported that a computerized sell-off occurred after a trader mistyped an order to read ?billion? rather than ?million.?
In both scenarios, connectivity - without sufficient oversight - creates chaos.
Overwhelming debt in Greece sends shocks around the world.
A trader?s typo triggers algorithms used by high-frequency trading firms, bringing a cascade of sell orders.
We?ve drawn a Muckety map (above) that is deceptively simple. Doubleclick any box in the map, whether it?s the European Union, the World Bank or the IMF, and see what happens.
Increasingly complex computer and financial networks have overcome distance and time. Some would argue that they have also killed off human wisdom and considered choice.
As Tom Petruno blogged in the Los Angeles Times: ?The quest for speed has now caused the loss of confidence in the largest stock market in the world. This is not an isolated incident, it will happen again.?
Too connected? Hal gone haywire? What?s the diff?
By Laurie Bennett
May 7, 2010 at 9:01am
<!-- google_ad_region_start=article -->Economists and regulators have focused on ?too connected to fail? since the financial collapse of 2008.
Yesterday, the concept turned inside out.
Map inside
?Too connected? may have caused the failure, igniting a flash crash that drove stock prices toward zero.
The reasons for the freefall are still under investigation. The Securities and Exchange Commission and the Commodity Futures Trading Commission released a statement saying they were working with regulators and exchange authorities to get to the bottom of the ?unusual trading activity.?
Clearly, the crisis in Greece caused uncertainty that prompted selling.
The ?fat finger? phenomenon also may have played a part. Forbes reported that a computerized sell-off occurred after a trader mistyped an order to read ?billion? rather than ?million.?
In both scenarios, connectivity - without sufficient oversight - creates chaos.
Overwhelming debt in Greece sends shocks around the world.
A trader?s typo triggers algorithms used by high-frequency trading firms, bringing a cascade of sell orders.
We?ve drawn a Muckety map (above) that is deceptively simple. Doubleclick any box in the map, whether it?s the European Union, the World Bank or the IMF, and see what happens.
Increasingly complex computer and financial networks have overcome distance and time. Some would argue that they have also killed off human wisdom and considered choice.
As Tom Petruno blogged in the Los Angeles Times: ?The quest for speed has now caused the loss of confidence in the largest stock market in the world. This is not an isolated incident, it will happen again.?
