• Fri. Sep 24th, 2021

World Observer

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9/11 Trained The Market And The Economy To Face Catastrophes

BySam Brad

Sep 11, 2021

The “ashfall” is the stamp engraved in the memory of Peter Tuchman, director of operations for Quattro Securities on the New York Stock Exchange, before the building temporarily sheltered those present. That September 11, 2001, the New York parquet bell never rang. It was closed for four days along with other stock exchanges, in its longest hiatus since 1933.

Shortly before, Ken Polcari, managing partner of Kace Capital Advisors, left the 55th floor of the South Tower of the World Trade Center, where he had his office, at approximately 8:20 on that Tuesday morning to have breakfast in the Members Lounge in New York. Stock Exchange (NYSE).

The collision of the first plane in the North Tower was never felt on the seventh floor of the building. However, later, already on the floor, Polcari was trying to calm his wife over the phone when the impact of the second aircraft reverberated in the New York Stock Exchange.

Still today he appreciates his stroke of luck and remembers “the intense selling pressure” that marked the reopening the following Monday. Although the New York Stock Exchange building was not damaged, many communication links were rendered useless by the fall of the two towers. The return to negotiation was hampered by the ground zero recovery efforts.

After a repair “with pins,” Polcari recalls, the Dow Jones fell 684 points, or about 7.1%, setting a record at the time as the largest daily loss in history. While this figure has since been dwarfed by the market reaction during the coronavirus pandemic, the close on that Friday ended a week in which the largest losses in history occurred on the New York Stock Exchange. The Dow fell more than 14%, the S&P 500 tumbled 11.6% and the Nasdaq fell 16%. It is estimated that an approximate value of $ 1.4 trillion was lost during this period.

During the years that followed, it did not take long for traders and the exchanges themselves to move many of their key systems out of Manhattan. Regulators forced companies to carry out additional tests to ensure that markets could remain open in the event of an unexpected catastrophe. The last time a catastrophe caused the New York Stock Exchange to close was in 2012, when Hurricane Sandy caused a two-day closure. Supervisory agencies also reviewed regulations that in the mid-2000s ended the NYSE-Nasdaq duopoly and facilitated competition from new stock exchanges.

9/11 instigated a wave of changes to ensure market operability
Currently, the trading volume of both the NYSE and Nasdaq is largely electronic and takes place in tightly protected data centers in New Jersey. While fully electronic trading has made US markets less vulnerable to physical attacks, they are more exposed to a major cyber attack. The NYSE, now owned by the Intercontinental Exchange, maintains its trading floor but when it closed last year for two months due to Covid-19, its impact was rather symbolic.

The macabre episode of 9/11 in turn instigated an immediate response (later repeated and increased during the financial crisis and pandemic) from both the Federal Reserve and the US government to shield the economy. The attacks reduced consumption and investment. This situation exacerbated the economic slowdown that was already taking place. At that time, the central bank carried out an emergency cut in interest rates of 50 basis points, to 3%. The Federal Open Markets Committee (FOMC) cut federal funds rates four times in total (175 basis points total to 1.75%) in the three months following the attacks.

Tax cut
Market and business activity in general recovered in a relatively short time. This was helped by the fact that three months before the attacks, then-president, Republican George W. Bush, approved a $ 1.35 trillion tax cut – which included refund checks worth up to $ 600 ($ 1,200 per family). In addition, Congress approved $ 5 billion in direct federal aid to airlines and another $ 10 billion in loan guarantees for the sector.

It is estimated that US GDP growth slowed by three percentage points in 2001, and insurance claims for damages ended up totaling more than $ 40 billion, a small fraction of what was then an economy of just over $ 10 trillion. of dollars. The lessons learned back then proved useful in the years after.

The reaction of the Fed and Congress to protect the economy served as a precedent
The junk mortgage debacle, culminating in the collapse of Lehman Brothers and sparking the Great Recession, forced the Federal Reserve to slash the price of money to 0% and 0.25% for the first time in history. The central bank used its experimental tools to initiate three rounds of debt purchases, which swelled its balance sheet from $ 900 billion in August 2008 to $ 4.4 trillion in October 2014.

For its part, the central bank Democrat Barack Obama’s administration and Congress activated the Emergency Economic Stabilization Act of 2008 (TARP), a $ 700 billion program that authorized the US Treasury to buy “troubled assets” from institutional investors. The US Recovery and Reinvestment Act was also approved,

Last year, the scourge of the Covid-19 pandemic triggered one of the most important fiscal outlays on this side of the Atlantic. The two stimulus packages approved by Republican President Donald Trump in 2020 and the one initialed by Democrat Joe Biden last March accumulate a bill of more than 5 trillion dollars, which has included two rounds of direct checks to consumers.

The Fed returned in March of last year to take interest rates to the range of 0% and 0.25% in addition to doubling its balance sheet to exceed 8 trillion dollars. At the same time, it created a dozen emergency programs, some of them already launched in the financial crisis, to guarantee the flow of credit.

In the 20 years since 9/11, the S&P 500 has nearly quadrupled, despite multiple debacles, including the financial crisis. For its part, the economy enjoyed its longest period of expansion in history until the scourge of the pandemic, breaking the previous record of 120 months that separated March 1991 and March 2001. As of June 2009, this streak The record was 25% cumulative GDP growth, much slower than previous expansions.

That said, although the US government financed the already concluded wars against Afghanistan and Iraq by issuing debt, not with taxes, taxpayers have already had to shell out nearly a trillion dollars in interest, according to the Watson Institute at the University of California. Brown. These interest costs are expected to skyrocket to $ 2 trillion in 2030 and to $ 6.5 trillion in 2050.

Sam Brad

The Great Writer and The Passionate Poet As Well, He Graduated from University Of Florida in Journalism and Brad have around 12 years of experience in news and media section.

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