Contrary to what the talking heads are saying this morning, and contrary to all the finger-pointing and scapegoating you’ll hear in weeks to come, it was not a tiny computer glitch that caused yesterday’s Dow drop of a thousand points.
I have worked in information technology for twenty years. I spent the preceding fifteen as a hobbyist. My father bought his first computer for business use in 1979, and from that point on, I never used a typewriter again.
I’ve taken care of these systems. I was specifically in the banking industry for five years, taking care of banking computers, and occasionally did work for big financial companies.
It’s certainly true that every program has bugs, and that in some cases these bugs can cause costly errors. Financial systems are no exception — though there are both more and fewer safeguards that one might expect.
But a bug isn’t what happened yesterday. What happened yesterday was psychological.
Ultimately, the problem is simple: a century of collectivist government policy — worldwide — has finally come asking for the bill.
It’s just that simple. For a hundred years or so, every single nation on Earth has engaged in collectivist economic practices. The engine driving this foolishness was once the United States — an economic powerhouse itself driven by an intentional avoidance of collectivism.
However, beginning with Lincoln, massively accelerated under FDR, and finally realized under Reagan, collectivism became the official policy of the US Federal Government — and with its example, collectivism trickled into every other government. Then to companies and even individuals who should have known better.
The economic powerhouse gutted itself from within. Collectivist policy made innovation impossible unless you were a huge company that could pay government for exemptions. The only area that escaped regulation is the only area to see innovation — and I’ll give you one look at whatever monitor you’re reading this on to figure out which area that was.
The US could only last so long on momentum from thirty years past. The momentum has run out. The US can no longer afford to pay for its own collectivist follies, much less those of the entire rest of the world.
Anyone with the slightest bit of sense can see this. That certainly includes the big players on Wall Street, most of whom have a lot of sense or they wouldn’t be big players on Wall Street.
Those on Wall Street are totally aware that at any moment, now, the legal trickery that backs their fortunes is going to disappear out from under them.
No doubt they have plans in place to deal with that eventuality, which probably amounts to, “Sell everything I can before the market closes, and head for my mansion where I can pay people to guard me if I need to.”
What happened yesterday was that the people on Wall Street thought that this was probably it. The big IT. They saw big selling happening and decided that the shit had hit the fan.
Then, just before the market would have been closed automatically due to volume of trading, they said, “Wait, is this really it? What’s happening, exactly?”
It was decided that it could be milked a little longer, so naturally the market rebounded a bit. It’s by no means over — though it could go relatively dormant again for a while. Not long, a few months at best.
Understand that there was no secret cabal meetings. What happened yesterday was just psychology in action: individual Wall Street investors know things are about to go belly up, and they know what to do when it does. They just jumped the gun a little yesterday.