Drawbacks of a connected world

Its usually believed that the more connected a system is, the stabler it is. Studies of network complexity suggest that the stability of a network of connected nodes usually falls when interconnections begin and then it increases.

However, there is also a theory that more connected systems are stabler than sparsely connected ones only with regard to regular shocks. They are however much more prone to complete and utter failure in case of extraordinary shocks (aka Black Swans, courtesy NN Taleb).

Therefore, one might infer that the increasingly globalized world is bringing lower volatilities in most aspects of our lives (however, this can also be debated ad inf.) but is in the process exposing ourselves to a very high degree of uncertainty in case of extreme events.

If you've been following the recent news, you might've seen that the stock of United Airlines was battered 76% intraday based on a news article suggesting bankruptcy filing by the company. The news dated Sep. 7, 2008 was from Florida Sun-Sentinel and later on carried by Bloomberg. There was however one small problem, and it was that the news article was some 6 years old!

Once it came on Bloomberg, and before anyone could figure this out, the stock was hammered down. With all the programmed trading these days, sell orders cascade onto more shorting of the stock leading to a downward spiral of death. The management was really hard pressed understanding what the **** hit them and trying to let the investors know the truth. Given the general swiftness of bankruptcies in America lately, no one wanted to be on the boat till the crack in the hull was confirmed.

Now, the best part is how did this happen? Google's beta product Google News is taking some flak for this. They've come out with their version here. They sort of want us to know that it is not their fault alone. They say that the news bot picked up a new link on the newspaper's website which had somehow appeared in the most read articles list and associated the only date available on the page (which was Sep 7, 2008) with the news. Then, a reporter from the Income Securities Advisors Inc. who wanted to do a quick report on bankruptcies did a google news search for "bankruptcies 2008". This unfortunately lead to the UA news article and was published as an advisory report from the firm. Things went berserk after this report was carried by bloomberg on their trading terminals worldwide. Connected world! It took half a day for matters to cool down. UA stock regained most of what it had lost during the day.

Google and Bloomberg have since then taken down the story. Read it here and here

One mistake by a completely unrelated bot lead to the decimation of the stock. Its not that some trading system failed and caused this. The point is that the error happened in a completely unrelated corner of the world.

"That's how much confidence people have in our system, when you can take the stock of a major corporation to zero in about 10 minutes," said Thomas Buffenbarger, president of the International Association of Machinists and Aerospace Workers, which represents mechanics and other employees at U.S. airlines.