Yesterday’s terrorist attack on New York’s World Trade Center has thrown global financial markets into turmoil. Ron Synovitz examines the economic impact of the attack, which some suggest could further weaken an already weak global economy.
NEW YORK – The world’s financial markets are in turmoil following terrorist attacks yesterday that destroyed the twin towers of the World Trade Center in New York — a nerve center of international financial markets.
The attacks likely resulted in thousands of deaths and led to the temporary closure of the nearby New York Stock Exchange, the Nasdaq Stock Market and the American Stock Exchange. The exchanges are closed today and it’s unclear when they will reopen. Commercial air travel around the U.S. has been grounded, business meetings have been canceled and communication lines between Wall Street and the rest of the world have been degraded.
The World Trade Center towers were more than just a symbol of U.S. and global financial power. The towers housed the offices and Wall Street infrastructure of some 430 businesses, including some of the world’s leading financial institutions — such as the Bank of America, Switzerland’s Credit Suisse Group, and Germany’s Deutsche Bank.
The largest tenant at the towers, the New York-based brokerage Morgan Stanley Dean Witter and Co., had leased more than 25 floors. Spokesman Ray O’Rourke said yesterday he could not confirm the safety of the 3,500 employees of the firm who worked in the towers.
The impact of the attacks is being felt in markets across the globe. Share prices have fluctuated sharply on major exchanges in Europe and Asia, dropping in places to three-year lows as traders rushed to sell shares and reinvest their money in traditional safe havens like gold and oil. Oil prices initially surged.
Bond dealers around the world say their markets also have been paralyzed by the attacks. Bond traders are operating with little guidance today because there are no U.S. market statistics available from Wall Street.
U.S. Treasury Secretary Paul O’Neill, who cut short a trip to Japan, expressed confidence the U.S. financial system will withstand the crisis. He said U.S. financial markets are strong and resilient, and that he is confident the system will continue to function well.
U.S. President George W. Bush, in a speech last night, sought to reassure the American people that the country’s financial institutions will withstand the tragedy.
“Federal agencies in Washington, which had to be evacuated today, are reopening for essential personnel tonight and will be open for business tomorrow. Our financial institutions remain strong, and the American economy will be open for business as well.”
But despite Bush’s reassurances, economic analysts are warning the attack could push an already shaky global economy into recession, particularly if U.S. consumers react to the crisis by hoarding their money.
That said, economists have not been very successful in predicting economic trends in the last several years. At the beginning of this year many foresaw substantial growth for the world economy, but they have been forced to downgrade expectations several times as the economies of many developed countries have faltered.
In remarks to the European Parliament today, European Central Bank chief Wim Duisenberg urged central bankers around the world to implement policies aimed at boosting consumer confidence.
“It is essential that confidence of consumers and producers is maintained in the future, and I believe it is essential that central banks, including the euro system, exert an image that they can cope with this situation and that they can make a contribution to the maintenance of competence by pursuing [a] stability-oriented policy.”
Duisenberg also has been seeking to allay what he described as “panic” in Europe’s financial markets.
“The immediate reaction in the markets was somewhat panicky. There’s no denying that. And we saw to it that the systems — the payment and settlement systems — kept on working properly.”
Duisenberg said the European Central Bank has offered to help the U.S. Federal Reserve maintain economic stability if it is requested to do so, including intervention if necessary to support the dollar by purchasing large amounts of U.S. currency.
He said the European Central bank is reacting in an adequate way to “signs of fear” in the markets, which he described as “short-term, panicky reactions.”
Belgian Finance Minister Didier Reynders, whose country holds the rotating European presidency, said today the central banks of all European Union countries are ready to inject cash into the markets in order to protect confidence in the financial system.
“We stand ready to provide, in close cooperation with the United States, all support which might be needed. All necessary measures will be taken to ensure the proper functioning of markets and the stability of the financial system. The central banks in the European Union have declared that they will continue to provide liquidity for the smooth operation of payments and settlement systems.”
