The SEC/CFTC report on the 2010 Flash Crash describes how it happened. Quote:
One key lesson is that under stressed market conditions, the automated execution of a large sell order can trigger extreme price movements, especially if the automated execution algorithm does not take prices into account. Moreover, the interaction between automated execution programs and algorithmic trading strategies can quickly erode liquidity and result in disorderly markets.
http://www.sec.gov/news/studies/2010/marketevents-report.pdf
Of course you can make a huge profit when a crash occurs, whether that crash is due to a vicious circle of algorithms, or a vicious circle of human psychology. There are algorithms out there that look to do just that, trying to profit from exploitable market anomalies, and it's great that those people have found a way to get paid for fixing some problems. But they're not HFT market-makers, they're a different group of quant/algo traders.
Personally I care little about HFT. The flaws in the technology will get ironed out; the competition for the low-hanging fruit will continue to intensify, and eventually many of the functions will become commoditized as they mature.
In the meantime, I think it makes sense for HFT market participants to be sensitive to the fact that many individual market participants have trouble identifying the value they've received because of HFT participation, but can clearly remember fears that have been induced by HFT driven events.
The HFT could have placed a passive buy order at $1.00 and a sell at $30.00 (or at $2.00, which he revised upwards as the price corrected).
http://online.wsj.com/article/SB1000142405274870395760457527...
Also, the main reason many HFTs pulled out of the market is the risk of broken trades (regulatory risk [1]). Staying in the market would have been a big moneymaker absent that risk - spreads were often huge.
But broken trades were dangerous. If you buy accenture at $1.00, and sell at $30.00, you've helped fix the flash crash. You also just lost $10.00 - your $1.00 trade was broken, and you now have a short position you bought at $30.00 (Accenture recovered to $40.00, so you lost $10.00/share).
[1] Regulation by the exchanges, not the SEC. Maybe there is an SEC regulation mandating they do this, but I have no knowledge on that point.