An Urban's Rural View

There are no doubt lessons to be learned from the "Tweet That Sank a Thousand Stocks." When a hacked AP computer spits out a phony report that the White House has been bombed and the stock market plunges 150 points in a matter of seconds, the news agencies and the exchanges have some reflecting to do.

It doesn't take away from the need for an investigation to point out that while the technology is new, the problem of false reports moving markets is ancient. By coincidence I stumbled onto a wonderful example in my reading the other day.

In 1873, George Armstrong Custer, still three years away from his last stand, fought some Sioux Indians in what today is Wyoming while guarding an expedition of surveyors working on the Northern Pacific Railroad. He then wrote about the skirmish in the New York Tribune.

The fighting was, in the words of one of the participants, "a small affair." But General Custer's report made it seem large. According to M. John Lubetkin's book "Jay Cooke's Gamble: The Northern Pacific Railroad, the Sioux and the Panic of 1873," Custer overstated the Indians' prowess and magnified the dangers he'd faced in a battle in which a total of four people had died.

The consequences on Wall Street were enormous. "Custer's facile writing damned the Northern Pacific," Lubetkin argues. "Custer's rousing descripting of events that would not have merited coverage during the Civil War was so vivid and the colorful enemy so valiant and determined, that most of the public and NP bondholders likely believed that it was too dangerous to build a railroad through the Yellowstone Valley."

As a result, Cooke's banking house collapsed, setting off a financial panic that led to an economic depression that lasted for seven years.

Say what you will about the damage caused by the bogus Tweet, the AP was able to get out a correction that quickly turned the market back around. There was no such rescue for Wall Street in 1873.

(CZ)

© Copyright 2013 DTN/The Progressive Farmer. All rights reserved.