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Chasing the Same Signals: How Black-Box Trading Influences Stock Markets from Wall Street to Shanghai by Brian R. Brown

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Chapter 12. Conclusion

On the morning of Monday, September 15, 2008, investors awoke to the news that Federal Reserve Department chairman Ben Bernanke, after a weekend of intense negotiations with senior bankers and government officials, was unable to mediate a solution that would give Lehman Brothers the necessary bailout funds to remain solvent. Just before 6am, investors would learn that Lehman, one of the most prestigious firms on Wall Street, would be the latest victim of the mortgage subprime crisis and would go into bankruptcy.

The S&P 500 index would not collapse on the morning of September 15, however. Despite the failures of Fannie Mae, Freddie Mac, AIG and Lehman Brothers, all within ten days from the Labor Day holiday, and former FED chairman Alan Greenspan's depiction of the crisis as a "once-in-a-century" event, the S&P would close with a modest 4.4 percent loss on September 15. Investors seemingly were not distressed by the collapse of Lehman Brothers.

What transpired in the global financial markets in the wake of the Lehman collapse is better described as a slow-motion crash. In the subsequent two weeks of trading, the S&P would post gains on seven trading sessions and loses on seven trading sessions, but the magnitudes of the daily price swings, gradually would become more amplified on the downside. It would take 16 trading days after September 15 for the Dow Jones industrial average to lose over 20 percent of its value. Investors were heading for the exits; it just ...

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