Local investors at a loss for what happened on Wall Street

Published 4:02 pm Thursday, May 6, 2010

Nobody locally seems to know what happened Thursday on Wall Street as stocks plummeted, then recovered most of what they had lost.

A check with several local institutions brought a good many “I don’t knows,” with nobody willing to talk on the record about the dive.

The Dow Jones Industrial Average lost 998.5 points, or 9.2 percent before it recovered a bit, losing 383.17 points before the close of business for the day. The Standard & Poor’s 500 Index dropped 8.6 percent, but gained ground back to a loss of 3.5 percent before the close of day.

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CNBC is reporting a trader error might have caused the massive drop.

“According to multiple sources, a trader entered a ‘b’ for billion instead of an ‘m’ for million in a trade possibly involving Procter & Gamble, a component in the Dow. (CNBC’s Jim Cramer noticed suspicious price movement in P&G stock on air during the height of the market,” CNBC reported on its website.

The Chicago Mercantile Exchange is examining trades, according to Allan Schoenberg, a spokesman for the group.

“Whenever the market moves up or down like the swings we saw today, we take a look to make sure everything’s operating properly. That’s exactly what we’re doing now,” Schoenberg told the Wall Street Journal. “If the exchange finds anything amiss, it would report its finding on its website.”

A floor trader with Seaport Securities told CNN that investors also reacted to problems in Greece and possibly to other issues in Portugal Spain and the United Kingdom.

Investors lost confidence in the Greek government’s ability to borrow money to cover its debt until revenues roll in. But the recession has seen falling tax revenues and rising welfare payments in Greece, where tax evasion is a common occurrence. Because of the loss of confidence, investors have demanded higher interest rates to compensate for the risk taken on the loans.

Experts say the more it costs to borrow money, the harder it is for the economy of Greece to stabilize.

On April 27, Standard & Poor’s downgraded Greece’s credit rating to junk status, forcing the country to turn to the European Union and International Monetary Fund for replacement lending. But the answer from the EU and IMF didn’t com without strings. Greese has to cut the public sector to show the international community it can become creditworthy.

At the same time, other European debt-ridden countries, such as Spain and Portugal, also have raised investor concerns.