9 11 Economics

[Donahue Granados]

TheSeptember 11 attacks in 2001 were followed by initial shocks causing global stock markets to drop sharply. The attacks themselves resulted in approximately $40 billion in insurance losses, making it one of the largest insured events ever.[1]

On Tuesday, September 11, 2001, the opening of the New York Stock Exchange (NYSE) was delayed after the first plane crashed into the World Trade Center's North Tower, and trading for the day was canceled after the second plane crashed into the South Tower. The NASDAQ also canceled trading. The New York Stock Exchange Building was then evacuated as well as nearly all banks and financial institutions on Wall Street and in many cities across the country. The London Stock Exchange and other stock exchanges around the world were also closed down and evacuated in fear of follow-up terrorist attacks. The New York Stock Exchange remained closed until the following Monday. This was the third time in history that the NYSE experienced prolonged closure, the first time being in the early months of World War I[2][3] and the second being March 1933 during the Great Depression. Trading on the United States bond market also ceased; the leading government bond trader, Cantor Fitzgerald, was based in the World Trade Center.[4] The New York Mercantile Exchange was also closed for a week after the attacks.[5]

The Federal Reserve issued a statement, saying it was "open and operating. The discount window is available to meet liquidity needs."[6] The Federal Reserve added $100 billion in liquidity per day, during the three days following the attack to help avert a financial crisis.[5] Federal Reserve Governor Roger W. Ferguson Jr. has described in detail this and the other actions that the Fed undertook to maintain a stable economy and offset potential disruptions arising in the financial system.[7]

Gold prices spiked upwards, from $215.50 to $287 an ounce in London trading.[4] Oil prices also spiked upwards.[8] Gas prices in the United States also briefly shot up, though the spike in prices lasted only about one week.[5]

Currency trading continued, with the United States dollar falling sharply against the Euro, British pound, and Japanese yen.[4] The next day, European stock markets fell sharply, including declines of 4.6% in Spain, 8.5% in Germany,[4] and 5.7% on the London Stock Exchange.[9] Stocks in the Latin American markets also plunged, with a 9.2% drop in Brazil, 5.2% drop in Argentina, and 5.6% decline in Mexico, before trading was halted.[4]

In international and domestic markets, stocks of companies in some sectors were hit particularly hard. Travel and entertainment stocks fell, while communications, pharmaceutical and military/defense stocks rose. Online travel agencies particularly suffered, as they cater to leisure travel.

Insurance losses due to 9/11 were more than one and a half times greater than what was previously the largest disaster (Hurricane Andrew) in terms of losses. The losses included business interruption ($11.0 billion), property ($9.6 billion), liability ($7.5 billion), workers compensation ($1.8 billion), and others ($2.5 billion). The firms with the largest losses included Berkshire Hathaway, Lloyd's, Swiss Re, and Munich Re, all of which are reinsurers, with more than $2 billion in losses for each.[10] Shares of major reinsurers, including Swiss Re and Baloise Insurance Group dropped by more than 10%, while shares of Swiss Life dropped 7.8%.[11] Although the insurance industry held reserves that covered the 9/11 attacks, insurance companies were reluctant to continue providing coverage for future terrorist attacks. Only a few insurers continue to offer such coverage.

Flights were grounded in various places across the United States and Canada that did not necessarily have operational support in place, such as dedicated ground crews. A large number of transatlantic flights landed in Gander, Newfoundland and in Halifax, Nova Scotia, with the logistics handled by Transport Canada in Operation Yellow Ribbon. To help with the immediate needs of victims' families, United Airlines and American Airlines both provided initial payments of $25,000.[12] The airlines were also required to refund ticket purchases for anyone unable to fly.[12]

The 9/11 attacks compounded financial troubles that the airline industry already was experiencing before the attacks. Share prices of airlines and airplane manufacturers plummeted after the attacks. Midway Airlines, already on the brink of bankruptcy, shut down operations almost immediately afterward. Swissair, unable to make payments to creditors on its large debt was grounded on 2 October 2001 and later liquidated.[13] Other airlines were threatened with bankruptcy, and tens of thousands of layoffs were announced in the week following the attacks. To help the industry, the federal government provided an aid package to the industry, including $10 billion in loan guarantees, along with $5 billion for short-term assistance.[1]

Tourism in New York City plummeted, causing massive losses in a sector that employed 280,000 people and generated $25 billion per year. In the week following the attack, hotel occupancy fell below 40%, and 3,000 employees were laid off. Tourism, hotel occupancy, and air travel also fell drastically across the nation.[citation needed] The reluctance to fly may have been due to increased fear of a repeat attack. Suzanne Thompson, Professor of Psychology at Pomona College, conducted interviews of 501 people who were not direct victims of 9/11. From this, she concluded that "Most participants felt more distress (65 percent) and a stronger fear of flying (55 percent) immediately after the event than they did before the attacks."[15]

In New York City, approximately 430,000 jobs were lost and there were $2.8 billion in lost wages over the three months following the 9/11 attacks. The economic effects were mainly focused on the city's export economy sectors.[17] The GDP for New York City was estimated to have declined by $30.3 billion over the last three months of 2001 and all of 2002. The Federal government provided $11.2 billion in immediate assistance to the Government of New York City in September 2001, and $10.5 billion in early 2002 for economic development and infrastructure needs.[18]

The 9/11 attacks also had great impact on small businesses in Lower Manhattan, located near the World Trade Center. Approximately 18,000 small businesses were destroyed or displaced after the attacks. The Small Business Administration provided loans as assistance, while Community Development Block Grants and Economic Injury Disaster Loans were used by the Federal Government to provide assistance to small business affected by the 9/11 attacks.[18]

The September 11 attacks also led directly to the U.S. war in Afghanistan, as well as additional homeland security spending. The attacks were also cited as a rationale for the Iraq war. The cost of the two wars so far has surpassed $6 trillion.[19][20]

Not surprisingly, airlines and the insurance industry suffered the hardest losses immediately following 9/11. Similar steep declines hit the travel, tourism, hospitality, entertainment, and financial-services sectors. In the financial-services sector, Merrill Lynch lost 11.5% and Morgan Stanley lost 13%.

The initial impact was huge with stock markets nosediving and most business sectors taking an immediate hit. The U.S. economy was already suffering a moderate recession following the dot-com bubble, and the terrorist attacks added further injury to the struggling business community.

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In New York City as a whole, the attack caused an additional loss of about 143,000 jobs per month over a three-month period beyond the trend in job losses already occurring as a result of the economic recession of 2001. The effect of September 11th was concentrated on the finance, professional services, information, arts, entertainment, management, and manufacturing industries that make up the "export" sector of the New York economy. About two-thirds of the attack-related job losses were in the export sector.

Reflecting both the locus of the terrorist acts and the industrial distribution of the ensuing job losses, the borough of Manhattan lost jobs as a result of the attack over a slightly longer period. Job losses in Manhattan were about 60,000 per month and continued for four months.

The data in this report were collected in conjunction with the Quarterly Census of Employment and Wages. The job loss figures are estimates based on a deviation-from-trend methodology. For more information, see "9/11 and the New York City Economy: A borough-by-borough analysis," by Michael L. Dolfman and Solidelle F. Wasser, in the June 2004 Monthly Labor Review.

By law, the VCF can only compensate for losses caused by eligible conditions related to the events of September 11, 2001. In addition, the law requires the Special Master, in each case, to take account of the harm to the claimant, the facts of the claims, and the individual circumstances of the claimant. Our claim analysis therefore always begins with three essential questions: was there a demonstrable loss, can we reasonably conclude the loss was caused by a WTC-related eligible condition, and what makes sense in the context of this claimant and the individual circumstances of this claim?

Three principles guide this inquiry. First, the VCF strives to be fair to all claimants. This means that we consider both fairness to the individual claimant as well as fairness to the entire claimant population, with priority given to those who suffer from the most debilitating physical conditions. Second, everything we do must be faithful to the statute that authorizes our work, the VCF Act (codified at 49 USC 40101 Note, Title IV). And third, because we are spending public funds, we must ensure that every aspect of the award is adequately justified and documented.

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