I remember living through the 1987 stock market meltdown, the infamous Black Monday, caused by "programmed trading". A co-worker came to my office and told me that the market has fallen by over 20%. My immediate reaction was that this was the Great Depression all over again. You can't see that kind of wealth wiped out without people crawling into holes and refusing to come out. Luckily Black Monday wasn't an economic catastrophe: it was a technical glitch caused by letting machines make decision, idiotic decisions.
Well... it has all happened again. The crash on May 6th temporarily wiped out $1 trillion of wealth (see Wikipedia). What caused this? Apparantly somebody hit a sell order for a "billion" instead of "million" for Proctor & Gamble shares and that plunge in price because of the wall of selling triggered automatic (programmed) trading. It was 1987 all over again. While 1987 took the better part of a year to heal, this meltdown was mostly recovered in half an hour.
Here is a video of Brian Williams of NBC telling David Letterman his impressions of the day:
Here is a more technical discussion of the market collapse. He asks the reasonable question "How could Boston Beer Co. fall from $55 a share to one penny?":
Obviously the underlying computer system is broken. It is completely irrational. There is no reason why a solid company would see its asset value wiped out in a 30 minute "episode". This needs to be fixed because the fear and uncertainty that this kind of broken system creates leads to an environment in which markets fail. You can't have a healthy economy if your financial machinery is flaky and prone to crashes! Not only the banks need to be fixed to solve the 2008 crash, but the stock market mechanism itself needs to be fixedto solve the 30 minute 2010 crash.
Update 2010may09: This slide of the 3M stock shows that the market collapse was not a simple down & up: