If Sept. 11th 2001 is a day that will live in infamy, September 12th is one that writhes with uncertainty. Investors and business executives are trying to grasp how profound the impact of the destruction of the World Trade Center in New York City will have on global economic health.
Not since World War II has the New York Stock Exchange been closed for this long. Banks and other companies across the globe with offices in the Twin Towers and the World Financial Center struggled to take account of the massive loss of life and property. Many major firms in Tokyo could not, or would not, comment on how the disaster would affect markets worldwide.
But the markets themselves spoke. The Nikkei stock index here careened below 10,000 yen for the first time in 17 years. European stocks markets also went into a sales panic. Japanese banks - 36 of which had major offices in the World Trade Center - plunged 6 percent, while investors went into a selling frenzy and sought the relative safety of cash, gold, and government bonds.
"Technically, it's a minor crash," Brandon Ginsberg, the managing director of Nikko Solomon Smith Barney in Tokyo, says of the yesterday's near freefall in stocks. "Everything has been sold off like crazy."
Whether the plunge in the stock prices - and the concurrent jump in the price of oil and gold - signals the start of a global recession is a forecast few experts are keen to make. But the consensus that does emerge is the following: History holds no equivalent precedent to use as a guide by which to judge whether this attack has set in motion a global financial collapse, nor whether one could be halted in its tracks. Analysts are concerned that US consumer confidence - a key factor now underpinning the US economy - may not recover soon, dashing hopes around Asia and Europe that American purchasing power would rescue world markets from their doldrums.
An analyst at the brokerage Exane, Emmanuel Ferry, told Agence France Press that US consumer spending represents 15 percent of world GDP, and has been driving international trade for five years. Other analysts say that Tuesday's attack, in all its horror in human terms, could not have come at a worse moment economically.
"We were already extremely oversold before today," says Mr. Ginsburg, looking at the year's skid in share prices. "It's tough to grasp, because there just aren't any similar situations. Perhaps it's almost better that they keep the markets closed for a week, but then it's hard for the economy to function at all."
Fearful of statements that might exacerbate the market shock, many observers chose to say nothing at all.
"One of the problems all of us are having is to try to keep a sense of perspective and not overreact," says Bruce Gale, the Singapore director of Control Risk Group, whose headquarters is in London.
In one respect, the 1929 stock market crash that triggered the Great Depression - much less the more recent crash of 1987 -can't be compared to the damage caused by Tuesday's attack.
"From a historical perspective, Black Monday was just a balance-sheet issue, but this is a collapse at the heart and core of international transactions," says Tokyo University economics professor Toru Nakakita, a former Japanese Ministry of Finance official. Since all international trades and currency exchanges need to be cleared in New York, he says, the world's markets cannot function for long without their most important link.
"Almost all the countries in the world depend on the dollar. All the transactions of stock all over the world are settled in New York, and this function cannot work without New York," he adds. Some banks were able to resume clearing services, he says, but the volume was extremely tiny and dangerous currency fluctuations are feared.
In Japan, the world's second-largest economy, an air of relative calm prevailed around the Tokyo Stock Exchange despite the bleak dismal outlook the prevailed even before the attack: that the world's second-largest economy is shrinking at more than 3 percent a year, the government had announced on Friday.
"I believe that this shock is temporary," says Yoshinobu Ikeda, a securities company employee lingering after lunch outside the stock exchange.
In Europe, markets seesawed on Wednesday, in some cases picking up some ground lost the day before. Just after the attack, investors sold stocks, causing prices to plunge. Within minutes of the catastrophe, the London FTSE-100 lost 200 points, and by the end of the day, Europe's leading stock exchange suffered a record one-day point drop. The German index Dax fell 8.4 percent, the biggest loss in 12 years, and in Amsterdam, Milan, and Zurich, the markets fell 7 percent. The biggest losers were insurance companies, while airlines also took heavy losses.
"It's obvious that a market left without Wall Street is a market without guidance," says Norbert Walter, chief economist for Deutsche Bank Group in Frankfurt. "The center of the trouble is the US, therefore it would be very important to see the reactions of Wall Street in order to derive what it implies for other places."
Adds Mr. Walter, "In my view, we've been in a recession anyhow. This will make sure that the recession is deeper and more prolonged."
When compared with past economic downturns, there are reasons to believe that this one could be better managed. For one, there are price restraints in place that prevent the stock market from falling too much in one day. "In the old days, they could just go into freefall, so they've imposed these limits," says Ginsberg in Tokyo. But that can only prevent the market from losing
STOCKS PLUMMET: A passerby watches the Hang Seng Index in Hong Kong yesterday, which saw its biggest one-day drop since the Asian financial crisis.
more than 10 to 15 percent in a day. That means that the market may not crash all in one dark day, but it easily could take a slower, equally disturbing fall over the space of days or weeks.
In times of crisis, money may leave the stock market, but it doesn't disappear. Instead, it flows into liquid assets with which people feel safe, such as government bonds, cash, and gold.
"We are likely to see a flight to quality, a flight to cash and government stock," says David Brickman, a credit strategist with PaineWebber in London. "How long this sort of liquidity crunch will last, we can't say, but this is the gut reaction. It's natural for people to prefer the safest haven."
The leap in oil prices, which jumped by about 10 percent after news of the incidents, indicates what investors expect will happen: The Bush administration may find a group or country that is directly or indirectly responsible for the terrorist attacks and hit hard.
With most fingers pointing in the direction of Islamic radicals in the Middle East, that raised concerns that oil shipments or production may be affected.
"It does imply," says Gale, "that people are expecting the US to retaliate somewhere in the Middle East."
While the fears are many - more bankruptcies, market volatility, and a sharp rise in interest rates due to a rise in insurance premiums - there are also hopes that intelligent management could stop a financial crisis from mushrooming.
Some analysts trust that central banks will add to the money supply to prevent demands for liquidity from wreaking more havoc.
A crisis-management office was set up at the Bank of Japan, which promised to provide ample cash in the money market. The European Central Bank acted in the same way for the 12 nations that share the common euro currency, boosting European markets that had opened lower early Wednesday.
Many advised investors to wait and see. "It's obviously a very dodgy time for markets," says Mike Lenhoff, chief portfolio strategist for Gerrard, an asset management company in London. Trading in Europe was slow yesterday as investors waited for a US response.
"Unless the world goes down the plughole, I would have thought people are going to just sort of sit on it, and wait and see how things develop."
Hana Kusumoto in Tokyo and Lucian Kim in Berlin contributed to this report.