Financial market melt-down (#346, Topic M)

The lead story in this morning's NPR program concerned a 9% decline in Shanghai Stock Exchange's index, said to be the most severe in a decade. This decline had a domino effect, affecting first European markets and then the Wall Street -- suggesting that (1) international financial markets are intimately linked, and (2) China is now a major player in these markets -- after all, its index showed an increase of some 48% in 2006, whereas that on Wall Street was only 14%. On Wall Street, not sure why the market dropped in China (as far as I could gather, it was due to the Financial ministry's invoking new rules to tighten margin-purchase of securities and, thus, to rein in rampant speculation), conventional wisdom seemed to attribute this drop to a slowing of China's industrial growth. If so, this would adversely affect the demand for raw materials -- particularly copper, aluminum, and oil. Thus, shares of companies producing these industrial materials led the market down -- slowly though consistently at first, relentlessly as it gathered steam, and dramatically when programmed trading took over at 2:59. At 2:59, before programmed trading kicked in, the market, as measured by the Dow Jones Industrial Average, was about 12,350, down by about 260 points, or 2%. As soon as programmed trading began, trading volume soared as to completely overwhelm NYSE's computer system -- the volume was over 2 billion shares, a record. But, even more dramatic was its effect on the DJIA -- in a matter of 60 seconds, at 3:00, the DJIA dropped by another 160+ points. At one point, the DJIA was down by 560+ points -- said to be the most severe after the market reopened on 9/17/2001, after the 9/11/2001 incident. As the market closed at 4:00, the market was down by a solid 416 points, slightly less than 4%. After the market closed, the financial punditry had a field day, asking one another what might be in store tomorrow. Their vagueness was matched only by their verbosity. At 8:00 pm EST (9:00 local time), the stock market in Tokyo opened (a leading stock was down by 3%); the Shanghai Stock Exchange opened at 8:30 (9:30 local time), but I did not hear anything. We'll wait for tomorrow's morning papers to find out -- whether the meltdown was a one-day event or whether it would last for a while. I suspect the former, but I am no financial pundit.