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Yesterday witnessed the largest one day decline in the stock market since the crash of October 1987. Folks are shaking their heads wondering, "What the hell happened?"

Larry Leibowitz, chief operating officer of NYSE Euronext, said trades sent to electronic networks fueled the drop. While the first half of the Dow Jones Industrial Average's 998.5-point plunge probably reflected normal trading, the decline snowballed as orders went to venues lacking liquidity to match them, he said in an interview with Bloomberg Television.

"If you look at the charts you can see fairly clearly where the trades came in," he said from New York. "It's that V-shaped drop where it came down and snapped right back up. You had some very high-cap stocks trading down 50 percent or large percentages in a split instant because there really was no liquidity in electronic markets."

Some of the biggest names plunged 90% in value before snapping back up!

Accenture Plc, Exelon Corp. and Philip Morris International Inc. were among 27 U.S. stocks with at least $50 million in market value that dropped more than 90 percent as U.S. equities tumbled, before recovering by the close, according to Bloomberg data excluding exchange-traded funds.

Most analysts are blaming electronic trading for the craziness:

A bad day in the stock market turned into one of the most terrifying moments in Wall Street history on Thursday with a brief 1,000-point plunge that recalled the panic of 2008. It lasted just 16 minutes but left Wall Street experts and ordinary investors alike struggling to come to grips with what had happened -- and fearful of where the markets might go from here.

At least part of the sell-off appeared to be linked to trader error, perhaps an incorrect order routed through one of the nation's exchanges. Many of those trades may be reversed so investors do not lose money on questionable transactions.

Nonetheless, the very fact that this sort of failure of the market mechanism shows you that when you let capitalism run crazy, crazy things happen. There has been absolutely zero regulation of how many exchanges can list a single stock, so when the New York Stock Exchange shuts down for 2 minutes, all the orders for those stocks get routed to other strictly computer-run exchanges, where there's very little liquidity, thus exasperating the down moves.

Wouldn't you have loved to buy a $40 stock like Accenture for ONE PENNY? ...

Crazy days, indeed.

~~~~~~

Here's the follow-up story from the NY Times as our government agencies try to track down what was broken:

A day after a harrowing plunge in the stock market, federal regulators were still unable on Friday to answer the one question on every investor's mind: What caused that near panic on Wall Street?

Maddeningly, the cause or causes of the market’s wild swing remained elusive, leaving what amounts to a $1 trillion question mark hanging over the world’s largest, and most celebrated, stock market.

But it does seem that the most likely culprit is NOT the "fat-finger" theory:

A government official who was involved in the investigation said regulators had moved away from a theory that it was a trading mistake -- a so-called fat finger episode -- and were examining the links between the futures and cash markets for stocks.

In particular, this official said, it appeared that as stock trading was slowed on the New York Exchange when big price moves started, orders moved automatically to other, electronic exchanges that did not have pricing restrictions.

The pressure in the less-liquid markets was amplified by the computer-driven trades, which led still other traders to pull back. Only when traders began to manually respond to the sharp drop did the market seem to turn around, said the official, who spoke on the condition of anonymity because the investigation was not complete.

Ironically, it's these same Wall Street traders who constantly berate our government as bloated and infringing on their freedoms that are now looking to that very same government to figure out what happened:

The two major regulatory agencies -- the Securities and Exchange Commission and the Commodity Futures Trading Commission -- have generated multiple memos detailing what they have found and offering possible causes for the market events. Among the issues discussed in the memos, the official said, were the disparate rules that different stock exchanges have for dealing with large price movements on the same securities and how prices on futures markets and stock exchanges appeared to lead or follow each other's movements down and back up.

The most probable culprit? Markets-Run-Wild:

Over the last five years, the stock market has split into a plethora of new competing hubs and trading outlets, a legacy of deregulation earlier this decade and fast-paced technological change. On Friday, the rivalry between the two main exchanges erupted into view as each publicly pointed the finger at the other for being a main cause of the collapse on Thursday, which sent shockwaves around the globe.

The absence of a unified system to halt trading in individual stocks led to bitter accusations between exchanges on Friday. Robert Greifeld, chief executive of Nasdaq OMX, appeared on CNBC to criticize the New York Stock Exchange for halting trading for up to 90 seconds in half a dozen stocks on Thursday.

"Stopping for 90 seconds in time of crisis is exactly equivalent to not picking up the phone," Mr. Greifeld said.

A few minutes later, Duncan L. Niederauer, chief executive of NYSE Euronext, responded in an interview on CNBC, blaming Nasdaq's computers for continuing trading while the market was in free fall.

"These computers go out and just find the next bid they can find," he said.

Here's Niederauer calling for less government intrusion in the life of American business:

Congress and the White House can use the opportunity of financial regulatory reform to ensure U.S. capital markets remain the global leader and guarantee that U.S. entrepreneurs and small businesses -- the main drivers of job creation in our economy -- have access to the capital they need to expand and grow.

Freeing smaller companies from the provisions of Sarbanes-Oxley -- ideally all companies below $1 billion in market capitalization -- would be a smart place to start.

Read more: http://www.politico.com/news/stories/0410/35865_Page2.html#ixzz0nJQ001V2

And now -- after yesteday's 1,000 point drop in the DOW - he's calling for greater regulation:

Mr. Niederauer acknowledged the need to introduce circuit-breakers along the lines of those already in place on the Big Board, and his views were echoed by some chief executives of the new exchanges.

Isn't it interesting that only when a calamity occurs do these same Wall Street executives clamor for more government oversight in their business.

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