Terrorists and the Market Selloff, A Wake-up Call

A week removed from the worst intraday stock-market selloff on record, market participants have no answers as to the cause. That in itself has led to one more question:

Given the frenetic-pace of computer-based trading that last week’s dive exposed, are the U.S. financial markets also susceptible to attacks by evildoers?

As stock exchanges, regulators and investors continue to scratch their collective heads over what caused the 998-point drop on the Dow last Thursday, the incident should serve as a reminder that U.S. financial markets are in fact vulnerable to a cyber attack that could cause even more damage to investor psyche, consumer confidence and the real economy.

There is little evidence suggesting last week’s scary plunge was caused by cyber warfare. U.S. officials have shot down that theory and are focusing on potential glitches in electronic trading systems. But that doesn’t mean terrorists, hackers or state actors can’t cause a similar panic.

“You can actually see how easy it would be. We don’t even have to wait for the terrorists. We did it to ourselves,” said James Rickards, who has done paid consulting work in this field for the Department of Defense and National Counter Terrorism Center. “This is something the terrorists can go to school on. They’ve now learned about potential vulnerabilities.”

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