Yesterday’s market craziness and a solution

Yesterday, U.S. markets took a substantial plunge. In a 16 minute span, the Dow fell under 10,000 then rebounded to about 10,500. On Wednesday it had been in the 10,900 range. We’re talking about big money disappearing very quickly. Apparently it happened because of a mistaken trade which set off a bunch of computer automated systems to sell sell sell:

Many firms have computers that are programmed to automatically place buy or sell orders based on a variety of things that happen in the markets. Some of the simplest triggers are set off when a stock drops or rises a certain percent in the trading day, or when an index moves a specific amount. But these orders can have a cascading effect. For example, if enough programs place sell orders when the overall market is down, say, 4 percent in a single day, those orders could push the market down even more — and set off programs that do not kick in until the market is down 5 percent, which in turn can have the effect of pushing stocks down even more.

Remember, this is the market we’re supposed to trust with our retirement savings.

Mark Cuban, owner of the Dallas Mavericks, has an idea that just might curb the new high speed volatility in the market: Add a $.25 tax on every damn trade no matter how small.

If the NYSE, Nasdaq, Amex and OTC are trading 2 Billion shares a day or more , like today, thats $ 500 Million Dollars PER DAY. If there are 260 trading days a year. Thats about 130 Billion dollars a year. If volumes drop because of the tax. It is still 10s of Billions of dollars per year.

Thats real money for the US Treasury. Thats also an annual payment towards the next time Wall Street screws up and we have a black swan event that no one planned on.

[…] The stock market today is dominated by financial engineers and traders. Institutions who look for the loopholes and exploit them. Thats not a bad thing. There will always be loopholes, and they will always find them. But at least with the tax, when they do, we are protecting ourselves a little bit.

Sounds reasonable to me… that’s probably why it’ll never happen.