Finanical Crises of September 11th Essay

Better Essays

On September 11, 2001 (9/11) four planes were hijacked and three out of four crashed into buildings, killing more than 3,000 people. Economically the immediate consequences of 9/11 were a massive drop in the stock market, crippling losses in the airline and other transportation sectors, and widespread uncertainty. The Bush administration and Congress responded with a law that bailed out the airlines, and the economic issues temporarily receded politically. The Federal Reserve had a major challenge on September 11, 2001 as the attacks by terrorist on Washington, Pennsylvania and New York were disruptive on the U.S. financial markets. The Federal Reserve immediately issued a short statement (FRB, 2001) “The Federal Reserve System is open …show more content…

The supply chain of parts to manufacturers also was interrupted from dislocations in air transportation, as cargo was rerouted through ground networks. The weakness in the airline industry pre-9/11 was amplified by the attack that resulted in larger layoffs than previously anticipated. The impact was particularly evident in Manhattan’s real estate, retail trade and tourism. The New York Manhattan area lost roughly 7 percent of its office space in the 9/11 attack, mostly space that supported national and international financial industries. (Federal Reserve Board, 2013) The events of 9/11 further set back an already fragile economy (Figure 2). It heightened uncertainty, shaken confidence, and caused a widespread pullback from economic activity. Equity prices fell sharply for several weeks and credit risk spreads widened. The main focus of the Federal Reserve in the first few days following the attacks was to reinstate the infrastructure of financial markets and to provide massive quantities of liquidity to the functioning of those markets. The enhanced economic fallout from the events of 9/11 led the Federal Open Market Committee (FOMC) to cut the target federal funds rate through the end of the year. (Federal Reserve Board, 2002)
Monetary Policy after the Terrorist Attacks Liquidity evaporated from the financial system due to the communication systems and financial offices in lower Manhattan were physically destroyed. Liquidity problems were concentrated

Get Access
Get Access