They tested their software on 5 weeks of data from mid-2005, chosen because those weeks have no "atypical" movements. Which means that this algorithm would've

They tested their software on 5 weeks of data from mid-2005, chosen because those weeks have no "atypical" movements. Which means that this algorithm would've been just as cooked as any human being would, no more and no less. The problem is that there does not (currently) exist any entity or human being smart enough to price stocks correctly. The effect appears so dramatic simply because markets move quickly, and the low transaction costs do little to damp the oscillations taking place. The "pain" caused by such sudden oscillations is certainly real, and can be thought of as shear stress as the financial system pulls on a slow-moving economy. But rather than arguing for damping the financial system, as you do, I would prefer to lower transaction costs in the rest of the economy. At some point, this becomes difficult: the bottleneck is human beings' capability to respond at high speed (that the financial sector lets computers do most of the trading nowadays is clear admission of this weakness). The only solution, then, is to let computers make all the other decisions in the economy as well. Hence, I propose a tax on all financial firms, to be deposited directly to the accounts of the Singularity Institute. (You may decide for yourself how much of the above you consider to be serious..)