If Twitter has an informational ancestor, it would have to be the ticker tape, the once-ubiquitous machine that sat on stockbrokers’ desks for decades, spewing out headlines in rapid fashion.
The headlines were short — far fewer than the 140 characters Twitter allows, and their brevity could often make them misleading.
And that’s where those who blame Twitter for the hash-tag crash that hit the market for three minutes on Tuesday afternoon have it wrong. There will always be new means of communication, Twitter just being the latest, but that isn’t the reason the S&P lost about $130 billion in value as liquidity dried up on a bogus report of explosions at the White House.
No, the first Twitter crash was aided and abetted by factors that have contributed to the handful of troubling flash crashes that go all the way back to 2007, before Twitter was even invented.
What’s menacing the market isn’t a bunch of rogue typists punching out twisted tweets (rumors and pranksters have been trying to manipulate stock prices for centuries) — it’s the proliferation of high-frequency trading that gives turbocharged computers a timely edge in executing trades.
Since a time advantage isn’t worth much without some information to trade on, these black-box traders employ computer algorithms to scour the Internet for market-moving words, such as “explosion” — hence a flash crash based on information that computers believe to be true, information most humans would question until seeing a live picture of the most-photographed building in the world.
But high-frequency traders are not in the business of waiting. When flash crashes evaporate and stocks bungee-jump back to where they started, as they did on Tuesday afternoon, the outrage subsides.
But one day stocks won’t make a five-minute round trip back to normality. Someday soon a flash crash will feed on itself and will just become a crash.
And we won’t be able to blame it on Twitter.