Wall Street Plunge: What Happened?

MYFOXNY.COM - Thursday, May 6, 2010 will go down as one of the most volatile days in stock market history. The Dow Jones industrial average dropped by a record nearly 1,000 points in about 30 minutes.

A glitch-possibly caused by a mistaken trade for billions of dollars instead of millions- may have set-off the downward spiral.

But how? Good Day New York tackled the question on Friday with help from Dick Grasso, the former head of the New York Stock Exchange, and Russell Pearlman of SmartMoney magazine.

By 2:47 p.m., the stock market had dropped 300 points. It was the worst day for the Dow since February 2009. By the end of trading, the market regained two-thirds of its loss.

Regulators and big banks will be looking on Friday at what happened to spark the rapid drop. There are reports a trader mistakenly punched into a computer a trade for $16 billion instead of $16 million.

"It had to be something was systemically wrong and that something was designated market makers at the stock exhcange, seeing the market down, did what they had to do. They slowed everything down. Other markets traded right through their bids. We have the greatest technology but you also have to add human judgement to it," said Grasso said on Friday.

"The majority of trades are computerized. There are pre-programmed auto trades, but still sometimes traders need to use their fingers. One person may have hit billion instead of million," Russell Pearlman of SmartMoney magazine told Good Day NY on Friday.

"Yesterday, you saw Proctor and Gamble lose 30 percent of its value in seconds. It looks like just a mistake. Once that erroneous trade went in, it pushed the Dow down."

But a glitch isn't likely the sole reason for losses on Thursday.

"Greece outspent its ability to tax its people. They weren't thinking what it would cost. But we've got Portugal, Italy, Ireland, Greece and Spain. But the American economy is the linchpin for all global economy performances. I wouldn't be too worried about Greece, I'd be worried about the contagion that Greece might spread," said Grasso.

"Other more legitimate issues, if you're an investor, are the Greece debt crisis, the U.S. debt and the American economy. Ten percent of Americans are unemployed and another 7 percent are under employed," said Pearlman.

Despite the volatility, Grasso and Pearlman point out that investors who took a hit on Thursday shouldn't worry too much.

Graso: "Step back.. ask yourself the question: why are you in the market? If you are in the market to educated your four year old I wouldn't be too concerned. If you're a day trader, you had a bad day. The Dow has come off its bottom. Everyone has predicted we need a 10 percent correction. Markets don't go in straight lines. Are we in a recovering economy? Absolutely. Are we in peril? Absolutely. We can't let the United States spend the way those countries spend."

"You are (on Friday) three percent lower than you were at the beginning of yesterday.  We need to see if we're going to have more riots in Greece. We'll need to see the jobs report. The expectation is we're going to see more jobs," said Pearlman.