On May 6, 2010, the Dow Jones plunged 700 points in a matter of minutes. Nearly a trillion dollars in wealth disappeared. For a moment, it looked like the economy was doomed--but by the end of the day, the market had recouped most of its losses. It was a flash crash.
A year later, economic commentators warn that we haven't done much to prevent another flash crash from happening. "We haven't had a repeat," write Senator Carl Levin and former senator Edward Kaufman in The New York Times, "but algorithmic trading has caused mini-flash crashes since, and surveys suggest that most investors and analysts believe it's only a matter of time before the Big One."
The reason, say Levin and Kaufman, is that today's hyper-computerized market resembles a "lawless high-speed maze where prices can spiral out of control"--and the Securities and Exchange Commission has been dragging its feet on implementing measures to correct this. The SEC has introduced trading pauses, called "circuit breakers," to help check another runaway effect, and it's made what Reuters calls "some noncontroversial nips and tucks around the edges." But the problem remains in large part unaddressed.