Fairly interesting post and thoughts. i was caught by this one: This causes a flash crash in the stock as smart investors pull out large amounts first based on the uncertainty. i disagree, for the sake of productive discussion let me elaborate a little bit more:

• Disclaimer: Although i have not the absolutely truth, i am also have not data-validated every single statement in the following sources, i think we can find a more coherent approach of why do flash crashes happens.

• Reason: High Speed Trading: High speed trading fueled Twitter flash crash. Basically was because of week or not deep enough market microstructure, in other words the buy and sell orders are not enough or not smartly enough collocated, so cumulative effect is possible to be developed started by a simple big trade triggered artificially by an algorithm.

• Reason 2: False Information: False White House explosion tweet rattles market But, again, there was a major role played by quick response triggered by algorithms, since the whole movement took less than 3 minutes, during lunch time.

And so there are other examples and data for support that hypothesis of the machines and algorithms, somewhat poorly secured and stress tested by humans and regulators. like this article The perils of program trading at Forbes, And this more eloquent post in resemblance to the "Too big to fail" lemma of the 2008 crisis, but now, reggarding to Algo trading Too Fast to Fail: How High-Speed Trading Fuels Wall Street Disasters

Conclusion

So, @bitcoinflood , I think your ideas of how about a financial market can and will be affected by fundamental news around it, are generally accepted, and, you see, precisely because of that exists panic and euphoria regarding the price of something in representation of its value, it does generally happens that people think like that. What comes to my mind is Daniel Kahnmean, renowned psychologist and Nobel awarded by his work on human decision making. In his prospect theory he has documented tests where people do weight more loses over gains, and that our decision process is far from efficient, also that we will favor premises that favor our previously and arbitrarily made conclusions that we liked, about something similar that already happened or that "makes sense" for us, instead doing the opposite and use a scientific approach: Gather data, make an hypothesis and test the hypothesis against the data to finally draw a conclusion.

I think you liked the idea of being able to explain a Flash Crash by what you know and whatever ideas you are comfortable with, "Smart people acting based on uncertainty", that could be right in other context, but you see my friend, in this particular one that idea is biased.