For a little under 30 minutes today, the New York Stock Exchange became the center of the Twilight Zone.
During that period, roughly between 2:28 PM and 3:00 PM EDST, the Dow Jones Industrial Average plunged hundreds of points, paused briefly - (down 998 points, just above the trading-suspension level) - and then roared back. It ended the day down 347.80, but the real story is the mystery that swirls around those 28-or-so minutes.
For example, in just four minutes, Proctor & Gamble fell from 62.68 to 53.99, but that was nothing. One of the largest utilities in the world, Exelon Corp., a company worth around $30 billion, saw its stock drop to zero before gaining back most of its loss. The “flash crash” similarly took several other companies briefly down to the zero level. Curiously, one stock ran away in the other direction. Sotheby’s went from 34.61 to 100,000 before settling at $33.
Initially, the villain was said to be computer trading, then the wild gyrations were blamed on a typo in a Citigroup order. Citi, however, said it couldn’t confirm that. The NYSE said it was the electronic trading and Senator Ted Kaufman (D-Del.) told CNN it could have been caused by any one of twenty possible reasons. The lawmaker said that the situation had been watched closely by Congress and there was grave concern that no one knew how it happened.
The “twenty reasons” cited by Senator Kaufman may have included a cyber attack on the financial markets as one possibility. Such an act has been recognized as a realistic threat for some time now. Computer hacking by sovereign nations has been described as the WMD for the very near future.
According to official comments made at one time or another, cyber attacks launched by foreign countries can block out our corporate communications, crash our stock market, disable our banking system, interrupt our domestic supply chains, including food deliveries, paralyze our nuclear defenses and shut down our government. Planes can be stalled in flight and drones can be taken over and redirected.
In February, National Intelligence Director Dennis Blair told a Senate panel: "Malicious cyber activity is occurring on an unprecedented scale with extraordinary sophistication." He went on to say that the nation's communications infrastructure is "severely threatened."
Unfortunately, the United States was late grasping the significance of the threat. It wasn’t until June of last year that the Pentagon announced the creation of a military command to oversee cyberspace from both a defensive and offensive standpoint.
Eleven days later, on July 4th, a brazen cyber attack knocked out the very websites the Pentagon had just created to prevent such a contingency. In addition, the attack disabled communications in the Treasury Department, the Secret Service, the Federal Trade Commission and the Transportation Department. It took several days for the various agencies to recover.
This event not only occurred on the nation’s birthday but also soon after President Obama had given a speech in which he had described Russian Prime Minister Vladimir V. Putin as having "one foot in the old ways of the Cold War." Consequently, the attack was seen by some as a retaliatory shot.
This nation’s seemingly slow reaction to the general cyber-threat was certainly not due to our government being unaware of the advances being made by nations such as Russia, China and North Korea. We knew, for example, that Russian cyber attacks had shut down the government computers in Estonia in 2007 and disrupted the government’s communications in Georgia during the Russia/Georgia war in August of 2008.
Further, on April 8, 2008, the Pentagon admitted it had spent $100 million over the preceding six months to repair the damages from cyber attacks. One assault had caused the Department of Defense to take 1,500 computers offline and ban the use of flash drives, a move that made the sharing of information more difficult in the war theaters. Air Force General Kevin P. Chilton, head of the U.S. Strategic Command, acknowledged, at that time, that the mayhem included attacks from "sophisticated nation states."
Then, in November, 2008, a widespread attack on our key Defense Department sites was reported to have come from inside Russia. Without revealing details, the Pentagon said it struck hard at networks within the U.S. Central Command, the headquarters that oversees our involvement in Iraq and Afghanistan. The attack was reported to have affected computers in the combat zones and penetrated at least one highly protected classified network.
Today’s stock market mayhem may or may not have been the result of a cyber attack, but it very well could have been. We may never be advised of the real cause, especially if it would impact on the integrity of the economy. In all likelihood, many of the trades will be cancelled, traders will attribute the situation to a fluke, and good old greed will creep back into the picture, especially if the April jobs report is favorable tomorrow and if Germany approves the aid package for Greece.
So, life will go on. But, as in the aftermath of an earthquake, will our confidence in the financial sector be, once again, shaken?
Dave McGill, News Correspondent
Dave’s column, "The Contrarian," generally published every Friday, to Gather Essential News and other groups will sometimes present a contrary view to various aspects of the news, or an alternate take on the conventional wisdom of the day. It will also often appear on other days of the week
Dave has been a senior officer of an eastern insurance company, involved in economic projections and investment strategy, president of a Midwestern mortgage banking company, and a financial consultant in Southern California, serving clients in the field of commercial real estate development.
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