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United it fell

An old bankruptcy story went online, sparking an investor panic. The lesson? Readers, be skeptical.

September 15, 2008

Doesn't this sound like a plot summary for an "I Love Lucy" episode? Somebody goes looking for information about airline cancellation policies late one night and stumbles across a nearly 6-year-old story about United Airlines filing for bankruptcy. That seemingly innocent act triggers a chain reaction that sends United's shares plummeting, wiping out $1.14 billion in value before the stock market halts trading. The mix-up is soon exposed and things return to normal, but the incident leaves United's shares 11% lower than they were when the day began. That's enough to prompt the feds to launch an investigation.

What happened to United last week, however, was a uniquely 21st century phenomenon. The mishap took place online, not on a soundstage, and there was no ditsy redhead to blame. Instead, it was a consequence of the Internet's deep integration into the global economy. The snafu serves as a cautionary tale because it illuminates some of the hazards of this new era of digital publishing. Old information never dies, it just gets tucked away. Machines can gather, analyze and re-contextualize it, frequently without human intervention. And they can spread it at the speed of light, regardless of its value or authenticity.

In this case, the single viewing of the 2002 United bankruptcy article on the South Florida Sun-Sentinel site automatically promoted it to the site's list of most popular business articles. From there, a series of machine-driven processes planted a fresh date on the story and pushed it onto Google News, through a South Florida securities research firm and onto a market information site operated by Bloomberg LP, where it launched an investor panic. None of this would have happened if, somewhere in the chain from the Sun-Sentinel to the Bloomberg site, a human being had been involved.

The incident prompted plenty of finger-pointing, but the solution isn't to block Google's software or stamp a date on every archived story. It's for consumers of information to be more skeptical. And with luck, that's just what episodes like this one will inspire. There's a trade-off between speed and reliability, and as much as investors crave the former, they depend on the latter. The outlets that pass along bad information won't hold their audience if they keep fooling the market.

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