Connected Computing: From Modern Marvel to Stock-Crash Scapegoat

On this day in economic and business history...

The world's first demonstration of remote computing took place on Sept. 11, 1940. That day, George Stibitz, a researcher at AT&T's (NYSE: T  ) Bell Labs, set up his complex number calculator, a bulky typewriter-like device in his laboratory, and began to communicate with a nearby university. EDN's Suzanne Deffree explains what happened:

The demonstration occurred at a meeting of the American Mathematical Society at Dartmouth College in Hanover, New Hampshire, just a few hundred miles north of the Bell Labs building in New York, where the CNC sat.

The computer connected by telephone lines (28-wire teletype cable) to a teletype unit installed at the college. Attendees of the meeting entered equations into the teletype unit that were transmitted through the phone lines and calculated remotely. Answers were returned approximately a minute later to what was described as an astounded audience.

This first effort wouldn't be repeated for a decade, as World War II interfered with further connected-computing developments. AT&T may have been at the forefront of postwar computing innovation had a Department of Justice antitrust suit not barred the telecom monopoly from entering the fast-growing computer industry in 1956. Ultimately, ARPANET's design would become the foundational model for connected computing after it was activated nearly three decades after Stibitz's first demonstration. That foundation would have a part to play in another notable Sept. 11 event...

Look out below
The Dow Jones Industrial Average (DJINDICES: ^DJI  ) set new records for both the largest nominal decline and the largest trading volume in its history on Sept. 11, 1986. That day, $110 billion in value vanished when the Dow plunged 86.61 points, finishing 4.6% lower on a day that experienced trading in nearly 238 million shares. Interest rates, which had already declined markedly from their 1980 heights, were feared to soon be on the upswing, particularly if European nations and Japan were to ratchet up their own interest rates. Oppenheimer analyst Michael Metz gave the classic excuse for an unexpected drop: "There is a lot of uncertainty about what the outlook for the economy is." Isn't there always?

The Los Angeles Times accused "program trading" of causing the drop:

Aggravating the decline was computer-generated "program trading." These trades, which involve hundreds of stocks and millions of dollars, are triggered automatically by price disparities between the stock market and the market in futures contracts that are based on stock indexes.

This is one of the earlier examples of networked computers -- one legacy of ARPANET and connected computing -- taking the blame for a big stock-market drop. But the Dow's closing value of 1,792.89 points wouldn't even be a low for the coming year. The index soon rebounded to a 1987 high of 2,722.42 points -- a 51% gain -- by the following August. However, when Black Monday struck in October of 1987, the Dow returned to 1,738.74 points after losing 23% of its value in a single session. Many investors also blamed that massive crash on computerized trading, which has since become a common scapegoat for investors looking to find the reason for an unexpected plunge.

Bridging the continent
The Union Pacific (NYSE: UNP  ) and Southern Pacific railroads completed their $5.4 billion merger on Sept. 11, 1996. The two companies each had their roots in the Transcontinental Railroad, which had been completed more than a century earlier. Union Pacific had been established specifically to help construct the Transcontinental Railroad by building westward from the Mississippi; Southern Pacific, although formed before the Transcontinental Railroad project, had merged in 1959 with the Central Pacific Railroad, which had built eastward from California to meet Union Pacific in 1869.

This was actually Union Pacific's second attempt to gain control of the Southern Pacific: A 1901 acquisition was undone by trust-busters in 1913. The 1996 effort has held up without raising the ire of government regulators, and Union Pacific is now the largest independent railroad company in the United States, when measuring by both annual revenue and total route length.

Wall Street has been getting rich on the sort of high-powered computer trading that caused so many unexpected crashes in the 1980s -- and for decades, that power has been "for industry insiders only." But there's a way you can fight back with insight no computer can match. Our top technology analyst recently infiltrated one of the finance world's most exclusive gatherings and left with three incredible investment opportunities, straight from the CEOs. These are profit-building strategies Main Street isn't meant to hear about -- so act now before someone shuts us up. Click if you want "industry insider" earnings now.


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