The Economic Fallout

With the linked global financial markets plunged into chaos following the horrific terrorist attacks on Washington and New York, nervous investors, seeking a safe haven, sent the price of gold skyrocketing in the aftermath of the attacks.

While U.S. financial officials scrambled to assure the public that markets and money supplies would be protected, there was concern about the lasting impact of the attacks. With the U.S. economy already teetering on the edge of recession, some traders worried that the devastating assault would act as a negative catalyst, further depressing global markets and economic activity.

The attacks destroyed one of the most prominent architectural symbols of global finance and trade. U.S. securities markets came to a complete halt on Tuesday, and stocks plunged across Europe. It's not clear when trading can resume; the rubble of the collapsed World Trade Center is located only a block or so from Wall Street, the epicenter of world finance, through which at least one-third of the nation's daily financial transactions flow. In a statement, Securities and Exchange Commission Chairman Harvey Pitt said trading would begin again "as soon as it is practicable to do so." One major complication to overcome will be to replace the New York Stock Exchange's clearing operations, which were located in the World Trade Center.

Treasury Secretary Paul O'Neill quickly canceled an official trip to Tokyo and the Fed said it would take steps if needed, to keep banks supplied with money. But investors bet on continued chaos, as the price of gold futures soared to $390 an ounce and oil futures reached levels not seen since the Gulf War. Traders speculated that the oil price rises reflect possible concern about shortages, though an OPEC official announced that the cartel would ensure uninterrupted supplies.

Meanwhile, nearly every other sector was under attack as major financial indices all over the world plunged. The Frankfurt DAX fell nearly 10 percent and in the U.K., the FTSE 100 index fell 5.7 percent, which Reuters reported was the worst one-day decline since the international market crash of October 1987. Not surprisingly, insurance stocks posted the biggest declines as investors considered the likely mammoth damage claims resulting from the seemingly deliberate attacks. Airlines were also hammered-British Airways stock took a 21 percent hit with the news that all its U.S. flights would be grounded. The dollar began tumbling almost immediately after news of the World Trade Center incident broke.

The World Trade Center catastrophe has not only panicked investors-it has raised questions about the security of other global financial capitals, such as London and Frankfurt. "We just don't know what else is going to happen," said a spokesperson from Barclays Bank, which employs around 1,000 people in lower Manhattan, and several thousands more in the UK. In London, the London Stock Exchange evacuated as many as 600 employees from its Exchange Tower location to another unnamed location. Several banks in Canary Wharf, one of London's main financial areas, also evacuated thousands more staff, and it's unclear whether or not business will continue as usual tomorrow. Sarah Marrington, a Canary Wharf spokeswoman, said "There's been no intelligence from police or security agents that we should be worried, and there have been no bomb threats." But banks such as Barclays, which evacuated 3000 people from its headquarters in London, are watching the situation carefully. "We're still assessing the impact of what's happened in New York, and our main priority right now is the welfare of our people," says spokesperson Caroline Roufe. In Frankfort, one Deutsche Bank executive said that the company was preparing a "catastrophe scenario." If the downturn in the global financial markets continues, investors might want to start preparing one, too.

Since they were erected in 1973, the distinctive Twin Towers have become a landmark feature of lower Manhattan's landscape, almost as familiar to visitors as the Statue of Liberty. A tony restaurant known for its first-rate wine list sat atop one of the towers, along with an observation deck that was visited by thousands of tourists a year. Some of the world's largest financial services firms, including Morgan Stanley, Bank of America and Deutsche Bank, leased office space in the center. Morgan Stanley was one of the center's largest tenants. The concourse of the towers was recently spruced up with the addition of stylish retail shops including Coach and Banana Republic. The center was crowded each morning with throngs of commuters who rode subways and trains into stations in the basement of the buildings. None of it remains.