Four minutes. That's all it took for the stock price of consultancy Accenture to plunge from $40 to 1 cent yesterday. It recovered nearly all of those losses in just two minutes, epitomizing one of the wildest and scariest trading days in Wall Street history.
Some blame machines: The rise of automated computer trading, where sophisticated algorithms make decisions in nanoseconds, raises the risk of a "cascade effect" like the one that happened Thursday afternoon, causing mayhem in moments.
Others blame people: Perhaps someone's "fat finger" pressed "b" for "billion" instead of "m" for million.
Even as investigators sift for clues to explain the turmoil, the larger lesson is as ancient as an abacus: markets depend on credibility. And credibility depends on the integrity of prices. A price is a remarkable thing. It's a universal coordination tool, a promise, and a truth-telling device. When prices accurately reflect the desires of buyers and sellers, they coordinate billions and billions of human decisions harmoniously. When prices lie – whether through trading errors, government subsidies, inflation, or failure to pay up or deliver services – problems multiply.
Greece's debt problems go way beyond algorithms and fat fingers. But amid all the talk of austerity measures, bond ratings, and government bailouts, bear in mind Thursday's lesson: what markets value most is credibility. "Let's do whatever it takes to become trustworthy borrowers!" will never be a catchy protest slogan, but what a difference it would make if the Greek protesters who stormed the Acropolis this week shared its sentiment.