More panic attacks are certain to occur
by Rick Ackerman
Originally posted May 10, 2010
SO, WAS IT THINKING MACHINES THAT PUT STOCKS INTO A DEATH DIVE last week, or was it primal human fear? Either way, there’s a neurological disease at work and therefore little likelihood of a cure. Even worse, since these diseases tend to be degenerative, we should expect something still more disruptive in the future. Ham-handed regulations won’t be able to stop it, either. Let the exchanges install all the circuit breakers they want; supply will out someday, catastrophically overwhelming demand when buyers go AWOL. This is inevitable when you create a global electronic trading network connecting ten billion ganglions that at any given moment can channel the sum of all fears.
Thus enabled, the stock market is like a vast nervous system lacking a brain — kind of like Los Angeles, with mayhem always lurking just below the surface. Last week, for a few minutes, some large clusters of ganglions in the trading network got overstimulated, resulting in a five-alarm panic whose cause has so far defied forensic explanation. The sleuths should save their breath: It was an anxiety attack. Humans have them all the time. We once knew a guy who started having panic attacks whenever he dined in a restaurant 50 miles or more from home. If you’ve ever felt your scalp crawl, this is the sensation the guy said swept over his entire body, paralyzing him with a wave of cold fear.
He put himself through an endless battery of neurological tests, including an EEG, a brain scan, and all the rest. The results came back negative, but he kept having the attacks. Still more tests revealed nothing of medical interest. Finally, physically and psychologically depleted after being poked and prodded for months, having epileptic seizures induced by tormentors in white coats, and being treated like a lab rat for too long, he decided that the attacks were all in his head. He resolved to stop them by reassuring himself whenever he dined out that there was nothing wrong with his brain or nervous system. It worked. The attacks ceased, never to return.
Far less sanguine are we about Wall Street’s ability to heal itself; for, to believe the stock market capable of calming its own nerves is to believe the Frankenstein monster, with his diseased brain, can be made docile with herbal tea and Rosary beads. Not only will an accident such as we witnessed last Thursday happen again, it is bound to recur with sufficient violence to close the markets for more than a mere day or two. That is because it is not just New York and Chicago trading exchanges that have been imbued technologically with the ability to magnify panic a million-fold, but the entire global financial system. This problem cannot be fixed by regulatory tinkering at the margin because it is a disease now embedded in the financial system’s DNA.