• A Look Back: Working in Finance on 9/11

    by  • September 26, 2011 • Uncategorized • 0 Comments

    By MEGAN ANDERLE

    Kevin Byrne, vice president of Fidelity, a stock brokerage company in Manhattan, spent the hectic morning of Sept. 11, 2001, taking the train out of New York after finding out what happened. It wasn’t until the afternoon that he found out his brother-in-law, William Erwin, who worked at Cantor Fitzgerald in the World Trade Center, was missing.

    “It was his first day at work after a two-week vacation,” Byrne said of his deceased in law. “He was just a good guy trying to make a living for his family, and the timing didn’t work for him.”

    “Everyone who worked in finance in Manhattan has a story to tell,” Byrne added.

    The historic, tragic day sparked a new reaction from the finance world. Traders, brokers and bankers who typically are fiercely competitive on Wall Street united in the time of crisis and supported one another.

    The stock market was closed from Sept. 11 to Sept. 17 in 2001, the longest the period of time since the Great Depression in 1933. This was a time when many brokers were uncertain about the future. In one of the most cutthroat and isolating industries, individuals from all types of brokerage firms, banks and financial institutions supported one another after the 9/11 attacks.

    “Where there’s normally less emotion and more competition, a lot of people saw the fragility of life,” Bryne said.

    On the morning of Sept. 11, some brokers, like Carol Leone, vice president of CIS, a stock brokerage company in Hasbrouck Heights, New Jersey, were starting to pick up their phones to call people in the World Trade Center for regular early morning negotiations.

    Some of these calls were the last moments these brokers and bankers would have.

    “I was on the phone with my guy [who worked in the north tower] when he said that a plane had just hit the trade center,” Leone, who worked with several people in the trade center, said. “At the time, we just thought it was a small plane that ran off course and didn’t do much damage to the building. I was crying and shaking when I saw, from outside of our building in Hasbrouck Heights, what happened.”

    For those who worked closely with these victims for years, the event caused some long term trauma.

    “It was horrific, awful,” Leone said. “It’s not something you can get over. “

    The tragedy of 9/11 had a twofold effect on the world of finance: some of the best and brightest in the industry perished, leaving the industry at a significant loss. The second effect was the turmoil in the markets that followed, according to the Wall Street Journal. The silver lining, however, that came out of the disaster was the disaster recovery sites that were constructed for New York-based brokers and bankers in the event of future emergencies.

    photo by Megan Anderle

     

    The breakdown of financial losses; market comes to a screeching halt

    Aside from the market being closed for an unprecedented six days, the Dow Jones Industrial Average dropped 680 points, the single greatest drop in the history of the market at the time, the New York Times reported in 2001.

    A 2004 Federal Bureau of Labor Studies report established that that the attacks alone plunged New York into a deep recession, not associated with the economic downturn that was already affecting the city, as the highest-paying jobs that drove the economy were lost.

    According to a study in 2002 by NYC Comptroller, which manages the state’s treasuries and analyzes the economy, the total economic impact of the attacks, which includes lost capital, human losses and the city’s gross product, was upwards of $94 billion.

    It took months for the market to recover those points, and the drop cost $1.2 billion. Because brokers had never seen anything like this before, they didn’t know how to react.

    “No one knew what to expect in those days following, it was an extremely uncertain time – we hadn’t seen anything like it before,” Bryne said. “The effect was that a lot of my clients wanted to get out of stocks and into bonds, which were more stable.”

    Unlike the stock market, the bond market opened again the following day because bonds are more stable than stocks. However, even bond traders were unsure of how to proceed after the attacks.

    A lot of businesses, like CIS, which makes most of its profits by negotiating bonds and has been around since 1978, stopped negotiations in the days following the attacks.

    “After 9/11 happened, all negotiating stopped, and all banks, brokerage houses tried to help each other out by not negotiating prices, no matter what security or type of bond it was,” Leslie Alfano, a CIS broker, said.

    According to 911Research.com, at the time, American Airlines’ and United Airlines’ stocks surged days before the attacks. Some speculated this was a result of insider trading due to foreknowledge of the attacks. Stocks become cheaper when less people buy them and there isn’t as much confidence in the investment. Purchasing a number of cheap stocks can sometimes be a good business decision, but the investor runs a risk of the stock decreasing in value.

    If these stocks were surging unexpectedly, people thought bankers must have been aware of the attacks ahead of time. It was later determined by the National Commission on Terrorist Attacks that the surge was innocuous and unrelated to insider knowledge.

    Even though CIS was open for trading and some brokers came to work on Sept. 12, there wasn’t much going on.

    “Those days in the office were like pins and needles,” Chuck D’Angelo, president of CIS, said.  “Over the years we were told to leave investments alone and let them be, which is what we did immediately after the attacks.”

    This affected America, as a whole, and their outlook on the economy, according to Murray Sabrin, a professor of Economics at Ramapo College.

    “The attacks added fuel to the American people’s pessimistic outlook for the economy and their individual situation,” Sabrin said.

    This caused a “knee jerk reaction,” Sabrin said, as Americans sold their stocks and put money in the bank or in riskless investments like U.S. Treasury bills or money market funds.

    “Some people waited a long time to get back into the market, as a result,” he said.

    Many people working in finance felt like they needed a saving grace to establish confidence in the market again.

    After the attacks, many banks were unable to send payments through the Federal Reserve, which is how they transferred money while trading bonds and stocks. This caused shortfalls among banks’ liquidity, as it was harder for banks to redistribute across the banking system quickly.

    The Federal Reserves had to lend banks the liquidity necessary to resume normal payments.

    “It was necessary for the Federal Reserves to intervene, to reduce disruption as much as possible,” Leone said. “They did everything they could to bring the market back in line.”

    How finance has changed, Freedom Tower and the future

    A big advancement that many firms have seen is emergency recovery sites, regulated by the Federal Reserves. Every firm in New York has a second location in the tri-state area in the event of another emergency. This would help firms resume trading quickly, and the market wouldn’t be as significantly affected.

    Fidelity, the company Byrne works for, has a site in Jersey City, N.J.

    “Every month we send someone to make sure all of the computers are running and everything is in order,” Bryne said. “If a disaster of that magnitude were to happen, we have the ability to resume business.”

    Some businesses had disaster recovery sites prior to 9/11, but the level of sophistication has increased tremendously in the past 10 years, Leone said.

    “Some sites had these rinky-dink operations with a few telephones and quote screens, because they never thought they would need them,” Leone said. “That changed pretty quickly.”

    Another change to the finance world has been that a lot more trading is occurring electronically, whereas in the past it was done on the floor of the New York Stock Exchange.

    “I don’t know if it was a direct effect of the attacks or if it has been natural maturation of technology,” Byrne said.

    In the place of the famous towers will stand the Freedom Tower, located a 1 World Trade Center in lower Manhattan. The 1,776-foot building is a tribute to America’s independence. The building is expected to be completed in 2013.

    “I think we’re doing the right thing in rebuilding it,” Leone said. “Anytime something like this has happened in the past, we’ve never been the ones to bow down and say, ’Okay, you’ve got the better of us.’ The skies are safer now than they have ever been.”

    To donate to families to 9/11 victims or for more information, click here

    For information about 9/11 charities, click here.

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