Commentary: Natural Causes
Why Dead Presidents Are Worse Than Hurricanes
Traders Magazine Online News, December 21, 2012
Are we a bunch of wimps?
Did we shirk our responsibility to the public?
On Monday, Oct. 29, and Tuesday, Oct. 30, U.S. stock markets were closed because of bad weather. As Hurricane Sandy barreled up the East Coast, a decision was made Sunday evening to close the markets after many banks and brokers expressed concerns for the safety of their people. As 90 mph gusts took down electric power and cell service for most of the region and an unprecedented tidal surge submerged the tunnels and streets of lower Manhattan, it looked like a wise decision.
Yet before the floodwaters of Sandy had fully receded, criticism began to pour in. Arthur Levitt, the former chairman of the SEC, was the most pointed, saying in a Bloomberg Radio interview on Oct. 30 that the decision to close the New York Stock Exchange was "a body blow that will really shake the image of that institution for a long time to come."
Levitt followed up his comments with a scathing op-ed piece in The Wall Street Journal on Nov. 6 titled, "Why Couldn't Wall Street Weather a Storm?" in which he blasted the industry for not being able to remain open during Sandy.
Levitt said that closing the markets unnecessarily would scare away investors. Our irresponsible actions would hurt our reputations, would hurt the economy, would hurt America itself. In his own words, "Trillions of dollars are at stake. The reputation of the U.S. as the world's financial capital is at stake."
Even though I was a participant in the decision to close the markets, I have to admit Levitt's criticism made me feel good. After all, just a few years ago New York Times columnist Paul Krugman accused traders of having jobs that were "socially useless."
I didn't like being useless. But now, just a few short years later, I was learning that what we do is so critically important that taking off work for just a day or two was a travesty that could eventually cost the nation trillions of dollars. Embracing Levitt's view of our societal importance, I decided it was our patriotic duty as market professionals to ensure the market is never again closed for any day other than the nine scheduled holidays we enjoy each year.
The first step toward bulletproof markets is for all the major players to have redundant computers and backup trading desk facilities set up outside of Manhattan. All the major U.S. market centers and banks already do this. But these backup sites are really designed for situations where a single participant gets knocked out due to, say, a building fire or a water-main break.
The backup plans were not designed for situations where the entire region's communications infrastructure is blown out. The markets themselves are essentially a giant exercise in communication, with equity markets being the aggregate of millions of little negotiations between tens of thousands of people. Trading desks are not like a nuclear reactor that can and must keep operating even if entirely cut off from the outside world. A trader without a working phone or a functioning computer connection is as useless as Paul Krugman says we are.
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