New Threat to the Financial System: Gravity

By James Kwak

Last week reminded everyone that the heart of our financial system remains in Lower Manhattan, just a few feet above sea level. Amid all the tragedy and hardship, Knight Capital—the firm that earlier almost collapsed because of a software glitch—had to shut down its trading operations on Wednesday when its backup generators ran out of fuel.

Why? The answer is so ridiculous you wouldn’t believe me if I summarized it, so here is the story, according to the Wall Street Journal:

The company calculated that its three fuel tanks held a total of 1,200 gallons, or enough to power the generators “past 2 p.m.” [CEO Thomas Joyce] wrote. But the generators unexpectedly shut down at about 11:45 a.m. The problem: Fuel still in the tanks was useless. “Turns out the intake pipes, which [get] the fuel from tanks to generators, are higher than the bottom of the fuel tanks,” Mr. Joyce wrote. “In short, we had fuel but the construction of the fuel tanks prevented it from getting to the generators.”

So somewhere in the operational chain of command, somebody overlooked the fact that the effective capacity of their fuel tank was less than its actual capacity, because fuel doesn’t levitate. It sounds crazy to me, too, but the alternative is that the truth is even more embarrassing, and this is the story they concocted to cover it up.

Let’s hope that Citigroup knows how to measure the capacity of its backup generators. Some Masters of the Universe.

18 thoughts on “New Threat to the Financial System: Gravity

  1. It was probably more by design, the fuel being sent into the tank is assumed to be unfiltered. This causes the sludge and heavier particles to settle harmlessly at the bottom of the tank. Where if the intake pipes had been there, they would have also collected anything, anyone with access to, could have sent in there and messed up the motor to the generator creating the power. Why the company was unaware of this design is an unknown, perhaps too many chiefs and not enough Indians.

  2. For all the insults I have hurdled on this site at TBTF bankers (and if you include my other alias ID that is quite a bunch), I have a shameful and embarrassing confession to make. When Knight Capital was near it’s lowest of lows right after their supposed “computer glitch” (I think it was one of their traders who had incorrectly sped-up some dumping of inferior securities/equities, and had mistakenly input trades which were supposed to occur over a period of weeks smushed into a single day), I actually contemplated picking up a wad of shares, Honestly I don’t remember the exact price but I wanna say it was at least under $3 and maybe a bit lower. I decided against it on the basis that there must have been some extremely poor human judgement at the top (a la Jamie Dimon and the whale trade). Based on the above it was the right call.

    Of course all of this poorly disguised and CNBC propagated SHAM of “Masters of the Universe” superior intelligence was a bad joke from the start. Even if your knowledge of business history only went back 5 years you would remember how James Cayne of Bear Stearns had one hand on bridge cards and the other hand playing with his cock while his company was going bankrupt in front of the world.

    “Master of the Universe”??? James Cayne isn’t even “master of his domain”. He’d fall off before Cosmo Kramer.

  3. For the too young to know or pop culture clueless who didn’t get the Cosmo Kramer reference:

  4. Once again physical reality trumps theory. Why the tanks were installed that way is the question both the capitalists and the commentator fail even to ask. In the absence of facts I like to hope it was some hard hat’s idea of payback for turning his old neighborhood into a haven for a-holes.

    Whatever the reality is, filbt’s wrong. Even lawnmower engines all have fuel filters in-line.

  5. These engines are more akin to diesels, which have sludge issues incorporated of many types. Yours may be powered by a lawnmower, the little engine that could, or not!

  6. Dear Morons,
    dump a few gallons of water in the tank, float the fuel up to the intake line, then let the water filter take care or any water going into solution.

  7. Of course with the threat of terrorism as well as the hurricane threat, and the relative cheapness of telecom, one wonders why the servers where not in say the Poconos in PA, which are not going to get flooded with seawater, and less likley to be attacked as it would be mostly machines with a few system admin folks. However from my time in IT there is a meme called a serverhugger that wants the server near to the person so they can work on it. However with the visualization of servers, the need to physically be at the server console to do anything is lessened, and in addition with the console server, the only real reason to touch the server is to fix the hardware, which corporate IT personnel are unlikely to do being rather done by mfg service reps. (Plus virtualization means that if one physical server fails you just move the instance to another physical server) At which point the idea of a server farm in Manhattan seems ludicrous in the extreme, with its expensive real estate.

  8. You forget the major reason that financial institutions want to be close to NYC: microseconds of trading advantage owing to shorter connections. Perhaps not as important for non-high-frequency traders, but important just the same.

  9. Be careful to whom it is you are referring to there red, you could find yourself the butt of your own joke.
    I would never purposefully add moisture to fuel to resolve a fuel pick up problem. Instead I would use marbles, or a clean smooth rock which won’t be fine enough to stir up as a sediment, or to large to clog the fuel intake line. So don’t dump away, and think twice before taking the advice of a rookie dog barking for attention.

  10. I read this great book called “The Nature of Life” by Anton Glotser, its packed with information socioeconomic issues and how our system is messed up and how we can fix it. Get it at and where ever else ebooks are sold

  11. Well to take a counter example Huffington Post is not in high frequency trading nor are a number of blogs, a few milliseconds when reading a blog is nothing. Of course the real HFT traders are in the exchanges computer rooms which were high and dry (the NYSE is 33 feet above sea level according to Google Earth) It is those buildings that a build where there was water when the Dutch arrived that have the problem. (Like the world trade center site which used to be quite wet 400 years ago)

  12. Hi there, Lyle. The WTC was actually built beneath the Hudson River.
    Large slurry walls were constructed the acted like a dike, and kept water out. Some people have called this the “bathtub.”
    Had these walls been seriously impaired, the subways would have likely been flooded, much as we have witnessed with that terrible storm Sandy.

    I would have loved to see Manhattan and Brooklyn at the time of the Dutch arrival, and into colonial era.

  13. I just found your blog unexpectedly from the search engine. First time I saw it, I know it’s a very informative blog. I got something new from here. Good work and thanks for that!

  14. “I would have loved to see Manhattan and Brooklyn at the time of the Dutch arrival, and into colonial era.” MANHATTAN” by Eric W. Sanderson covers the history of the developement, i.e. landfilling of Mahattan pretty well.

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