RSS
The Dow Jones 'flash crash': 5 theories
The stock market lost more than $1 trillion in 15 minutes yesterday, before gaining most of it back. What triggered the "flash crash"?
What was behind the Dow's precipitous fall?
What was behind the Dow's precipitous fall?
Getty
T

he financial world is reeling after yesterday afternoon's "flash crash," which saw the Dow Jones Industrial Average plummet nearly 1,000 points in 15 minutes — erasing more than $1 trillion in market value — before it rebounded almost as quickly. Still unclear: What caused the erratic crash, which left the stock markets down 348 points for the day and has triggered an SEC investigation. Was it simply a reaction to turmoil in Europe, a typo — or a combination of all of the above? (Watch a CBS report about the stock market crash theories.) Here, 5 leading theories:

1. A computer glitch 
Some analysts trace the crash to a possible error in a Citigroup computer that performs complex electronic or "high frequency" trades, and may have triggered a "huge anomalous surge in selling" in a Chicago-based automated trade system, reports The New York Times. When traders saw this surge, the theory goes, they joined in the spree.

2. The world's most expensive typo
Rumors are circulating that an errant trader might have wiped billions off the stock market by typing "$16 billion" instead of "$16 million" in a trade involving Proctor and Gamble, reports The New York Daily News. The seemingly massive sale sparked an equally colossal sell off, with the multinational's share price dropping 37 percent in a matter of minutes. Financial insiders call this sort of typo trouble a "fat finger trade."

3. The Greek riots
Lost in the drama of the 1,000-point drop was the fact that the Dow had already fallen 631 points in the past three days on concerns over the crisis in Europe. As rioting in Greece continued into Thursday, jittery traders — worried that Europe's unfolding debt crisis would spread to U.S. markets — may have gone on a selling spree.

4. Unscrupulous securities traders
The SEC is also examining the possibility that securities traders "accidentally or maliciously" triggered the stock market crash by artificially inflating the number of sales. It has joined forces with the Commodities Futures Trading Commission to probe "unusual trading" on Thursday afternoon. 

5. Cyber-terrorism
Is it possible that cyber-terrorists — inspired (or not) by the Times Square bomber — attempted to undermine American interests via its stock market? "Rogue nations and terrorist organisations have been developing their 'cyber warfare' capabilities for some time now," says Michael Snyder at Benzinga. "We have been repeatedly warned that someday we will see an "Internet 9/11."

EDITORS' PICKS

THE WEEK'S AUDIOPHILE PODCASTS: LISTEN SMARTER

Subscribe to the Week