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09.11.11

Al Qaeda’s Failure on Wall Street

By destroying the Twin Towers on 9/11, the terror group wanted to destroy the U.S. financial system—but it spurred an economic rebound. Zachary Karabell on how the attacks acted as a spur to succeed.

The World Trade Center was never seen as an overly attractive piece of architecture, but as a symbol of American economic might, it was undeniably powerful. Never mind that it was built just as New York was imploding financially in the mid-1970s; it still stood as a set of dual icons representing the economic primacy not just of the United States, but of Wall Street and the entire financial industry.

That’s what made it such an attractive target for Osama bin Laden and al Qaeda, just as it had for the like-minded plotters of 1993, who failed to accomplish what those two airliners would eight years later. Strike at the Twin Towers, show their fragility, so the logic went, and you would strike a blow at the financial infrastructure of America, at the hubris of Wall Street, and thereby undermine the ability of the American empire to function. The attack on the Pentagon was against the military might of the United States; the strike against the towers was against the economic.

The logic was flawed. For all the terror of that day, for Wall Street 9/11 was the Day That Nothing Changed.

The attacks and the destruction to Lower Manhattan did lead to a rare shutdown of the markets, which did not reopen until the following Monday. When trading resumed on Sept. 17, 2001, equity markets worldwide plunged—the Dow alone fell 7 percent—but within weeks those losses had been recouped. The exhortations of President Bush that Americans go out and spend, combined with the rapid response of the Federal Reserve and then Chairman Alan Greenspan to slash interest rates, meant that far from plunging the United States further into recession, the attacks may have triggered an economic rebound. The economic contraction that had begun in early 2001 ended in November 2001, two months after the towers fell.

The financial world at the time of the attacks was struggling. The 1990s stock market bubble had just burst along with the collapse of telecom spending that had underpinned it. The markets had already sunk from their highs of March 2000 and would not reach their nadir until October 2002, but the 9/11 attacks had little to do with that downward cascade. The scandals of Enron and WorldCom, as well as the famous Tyco imbroglios, dominated financial news in 2002, but those all predated the 9/11 attacks and were unraveling regardless.

More telling was that while the human toll of 9/11 deeply seared the consciousness of Wall Street, it did little to alter the way business was done or its scale. Tens of thousands of people in financial services worked downtown, and many had friends who died in the towers. Daily routines were disrupted for months. At the firm where I worked, Fred Alger Management, which lost 35 people that day on the 93rd floor of the North Tower, we worked out of our backup office in Morristown, N.J., until finally moving back to Manhattan in March 2002. But the warp and woof of the business changed hardly at all, nor should it have. The business of investing remained remarkably similar, and if anything, the human toll and the pain acted as a spur to succeed, not a deterrent.

The attacks were unprecedented for Americans, but they did not strike a blow against commerce, the world of capital, or the global economy as it was then evolving. Al Qaeda hoped that it could hobble the West by attacking its symbols at the Pentagon and the Trade Center, but those forces weren’t and still aren’t primarily geographic. The U.S. military is spread around the world, and the economic system al Qaeda hoped to destroy enveloped much of the world—just not al Qaeda. In short, with enough rage, you can cause immense pain, but you can’t disrupt global commerce by killing people and destroying buildings. There is no center to destroy; it was and is a decentralized system that has enriched much of humanity. Yes, the attacks succeeded in further polarizing the West and the Muslim world, but a decade later, in the wake of the Arab Spring, that seems more transitory than permanent.

Within weeks of 9/11, it was business as usual on Wall Street. The markets sank over the next year, yes, but not because the Twin Towers fell. And then they rose in 2003, and rose and rose. Easy credit and rising markets led to renewed appetites for risk, which coupled with the new technologies of the 1990s allowed for the proliferation of mortgage-backed securities and attendant derivatives, and that, as we know, led to the collapse of the housing market and then nearly the global financial system in 2008. Along the way, American became indebted and many millions of Americans fell from their tenuous position in the middle class. But there too, the issue was never al Qaeda and the towers and 9/11. It was older forces of greed, desire, unforeseen consequences of technology and global capital, new systems, the rise of China—all a product of the brave new world that al Qaeda tried and failed to disrupt on 9/11.

Given the degree to which Wall Street and the financial industry have been central to the economic hobbling of the United States (though truly, they are only the most obvious agent of a collective miasma that has seen the growth model of the United States reach its limits), perhaps it would have been better if more had changed in the wake of 9/11. There was a brief moment after the attacks where the talk was of new paradigms and a shifting focus, but that soon dissipated and Wall Street returned to doing what it does best: manufacturing and selling financial instruments, doing deals, facilitating commerce. It became ever more lucrative, and remains extraordinarily so even after the financial crisis of 2008-2009.

The attacks were direct and personal for Wall Street, yet oddly, the industry may have been less scathed than many other elements of American society that were less directly affected. It was a day no one in that industry or area can or should ever forget, but it was also a day that for Wall Street was terrifying sound and lethal fury, signifying nothing other than the rage of forces that utterly failed to derail it.