Wall Street at War

Confronting Calamity

The 9/11 atrocities overall killed nearly 3,000 people, more than 2,750 of them in the New York attacks. The financial industry was heavily represented among the victims. Cantor Fitzgerald, located just above the impact zone at One World Trade Center, lost 658 people. Marsh & McLennan, with offices on the impacted floors, lost 355 people. Keefe, Bruyette & Woods lost 67 people in the collapse of Two World Trade Center.

As the human catastrophe unfolded, there also was the danger of a massive economic and financial collapse. That collapse did not occur, however. America's economy and markets showed considerable resilience in sustaining the damage. Fast action by financial institutions to resume operations was a key reason.

For example, Merrill Lynch, which lost three people, evacuated some 9,000 employees from the area (most were at the World Financial Center, a block from the Twin Towers) and within minutes had transferred critical management functions to a New Jersey command center. The firm had most of its displaced employees working at remote locations within a week.

Lehman Brothers, with headquarters at the World Financial Center and offices in the World Trade Center, lost one person. The firm soon had its trading operations set up in Jersey City and was using other spaces around the metropolitan area, including the entire Sheraton Manhattan Hotel in midtown.

The Federal Reserve moved quickly to expand liquidity and keep payment systems functioning, despite the disruption of activities at the New York Fed's stone building on Liberty Street a few blocks from Ground Zero. The Fed's discount-window lending on Sept. 12 was more than 200 times the previous month's daily average, and the central bank's open-market operations and implementation of expedited check clearing helped stabilize financial institutions and money markets.

Government securities trading resumed within 48 hours.

The New York Stock Exchange reopened on Mon., Sept. 17, its columns draped in a giant American flag. The Dow dropped 685 points that day from its Sept. 10 close, a 7 percent fall, and it was 14 percent down at the week's end. Bin Laden gloated about this decline in a later-released audio tape, exulting that the market's fall was "equivalent to the budget of Sudan, for instance, for 640 years."

That downtrend, however, proved transitory. The Dow closed above its pre-crisis level on Nov. 9, less than two months after the attacks. The Nasdaq Composite and the Standard & Poor's 500 both were even quicker to recoup their losses, exceeding their Sept. 10 closes on Oct. 11.

Fears that the U.S. economy would tip into recession turned out to be unfounded. Gross domestic product expanded by 1.4 percent in the fourth quarter of 2001. The attacks caused an estimated $28 billion in property damage and $40 billion in insured losses, and additional effects included disruptions of air travel. A World Bank study estimated that national income dropped by $90 billion as a result of 9/11, a fairly small impact on what was already a $10 trillion-plus economy.

Some analysts argue that, in a broader sense, Al Qaeda succeeded in imposing huge costs on the U.S. economy, by triggering costly interventions in Afghanistan and Iraq and a slew of expensive policy changes. After bin Laden's death, a National Journal article assessed the terrorist's total toll on the U.S. as "at least $3 trillion over the past 15 years, counting the disruptions he wrought on the domestic economy, the wars and heightened security triggered by the terrorist attacks he engineered, and the direct efforts to hunt him down."

Such analysis, however, strays too far into unknowns. We will never know what human and economic costs would have arisen if 9/11 had not prompted a U.S. attack on Al Qaeda's base of operations in Afghanistan, or for that matter if Saddam Hussein and his sons had remained in power in Iraq. The debate over U.S. policy decisions made in 9/11's aftermath will continue for a long time, but it should not be set against an unrealistic baseline of some peaceful, untroubled alternative.

A few weeks after the attacks, Defense Secretary Donald Rumsfeld visited Sultan Qaboos bin Said of Oman, who suggested the atrocities might save lives by bringing a response that will prevent even worse terrorist attacks from occurring in the future. That too is possible.

From the perspective of a decade later, Al Qaeda appears to be a considerably diminished foe. It no longer operates freely in Afghanistan, its involvement in the Iraq insurgency fell short and it has failed to produce further attacks on U.S. soil. Bin Laden once described his movement as a "strong horse" that people would admire precisely for its strength. But that might-makes-right ethos turned out to be a weakness as Al Qaeda failed to live up to its pretensions of being a powerful entity.

There remains the possibility this brutal organization will pull off a new mass murder, but the current situation would have seemed an optimistic scenario in 9/11's aftermath. And a key reason for this favorable development of events is that the U.S. financial industry targeted in the attacks responded with adeptness and resilience.

Facing Future Crises