10 years after attacks, US stockmarkets struggle

WASHINGTON — Just a few weeks after the September 11 attacks temporarily shut down the US financial machine, the key US stockmarkets roared back in seeming defiance.

But 10 years later, after a series of slumps and crashes, the markets are again struggling to demonstrate confidence and virility, and investors are hardly better than they were before Al-Qaeda’s assault.

On Friday, the last day of trade before Sunday’s anniversary commemorations, the Dow Jones Industrial Average closed at 10,992.13, 14.4 percent higher than the close the day before the 9/11 attacks.

The S&P 500, ending Friday at 1,154.23, was only 5.6 percent higher than that fateful day.

Figuring in the costs of inflation, stock prices on both indices are sharply lower.

When Al-Qaeda operatives crashed planes into New York’s World Trade Center, it was seen as an attack on a symbol of American banking and commercial might.

Home to hundreds of businesses and many thousands of people working in investment and finance, the massive twin towers crumpled, killing 2,753 people.

Prominent bond specialist Cantor Fitzgerald lost 658 employees, three-quarters of its staff.

Investment bank Sandler O’Neill lost 66 of 171 employees.

The attacks forced Wall Street’s stock markets, the world’s richest, to close, and many feared the shutdown could last weeks.

But after staying dark for four trading days, the New York Stock Exchange and the others reopened with a burst of pride on September 17, 2001.

They were immediately hit with selloffs: the Dow sank 14.3 percent in four days, and the S&P 11.6 percent.

But by November they were above the pre-9/11 levels and kept pushing upward to the end of the year.

The swift reopening of the exchanges in lower Manhattan were a powerful symbol of New York’s will to move on from the attacks, Rudolph Giuliani, who was mayor of New York City at the time, recalled.

“It was a miracle. And it showed that Americans can withstand an attack like that and still keep standing,” Giuliani told CNBC television in an interview from the New York Stock Exchange trading floor on Friday.

Giuliani joined US Secretary of State Hillary Clinton in leading a somber memorial at the exchange Friday, when the normally bustling trading floor fell quiet for a moment of reflection, and a singer gave a rendition of “God Bless America”, before the bell to begin the action rang.

But the decade since has not been a bold revival for the US economy or financial system.

In the short term, the markets and banks came back, boosted by a burst of government spending, interest rate reductions and tax cuts that especially benefited the finance industry.

Those were designed to counter the impact of the attacks on the economy, and they helped send the markets soaring to all-time highs in mid-2007.

But the effect was more a speculative financial bubble than a strengthening of the rattled economy, and the bubble burst, led by New York’s over-extended finance industry and the overblown housing industry.

In September 2008, seven years after the attacks, the markets took their worst plunge since the Great Depression, the Dow losing more than half its value when it hit bottom, and the economy sank into recession.

Economists Linda Bilmes and Joseph Stiglitz argued that the 2008 meltdown was due in part to the US spending of trillions of dollars in wars sparked by 9/11.

“As a result of two costly wars funded by debt, our fiscal house was in dismal shape even before the financial crisis — and those fiscal woes compounded the downturn,” they wrote in a study.

“It seems clear that without (the Iraq) war, not only would America’s standing in the world be higher, our economy would be stronger.”

Even after bouncing back somewhat, markets have given up gains. The Dow is off 5.1 percent so far this year, the S&P 500 8.2 percent.

Corporate profits have soared, but US banks are still struggling with the weight of the crash, and investment has dried up in the face of stagnated consumption, deeply depressed housing prices, and a stubborn 9.1 percent unemployment rate.