Marketplace: News Archives

Tuesday, September 18, 2001
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It's Tuesday, September 18, 2001. I'm David Brancaccio

Key stock indexes were up for the first six hours of trading today before doubts seemed to overtake investors, pushing the Dow down 17 points or 0.2 and the Nasdaq down 24 points or 1.6 percent. The themes here are obvious: uncertainty with the country being place on a war footing and the extent to which the current mood will chill consumer activity. More on that in a moment. But first some very peculiar things happened today in the bond market, where the 10 year T note dropped with its yield rising to four point 72 percent. The 30 year treasury fell almost two points with its yield jumping to five point 54 percent. One reason is the realization the government will be borrowing more to pay for all that is following the terrorist attacks. Budget "surpluses are arrivederci," said one bond market observer today. The government has to sell bonds to raise the money for deficit spending and a bigger supply of anything means prices go down. Also, there's all that cash the Federal Reserve has been pumping into the economy so that credit didn't dry up following the disaster. When we reported yesterday that the Fed's key interest rate was lowered from 3 and a half to three percent, that three percent is a general target, not a hard and fast setting and the Fed actually effectively pushed rates much lower today.

Another question on the tongues of many market professionals today: Did Osama bin Laden or his associates try to use inside information to profit from the terror strikes? Some analysts are looking at the numbers and now say it's at least plausible. From New York, Marketplace's Bob Moon reports:

Moon: "News stories based on rumors are sweeping the world. But so far, there is little more than speculation about suspicious trading - and some experts who follow Osama bin Laden are more than a little skeptical:"

Hilton: "He’s obviously a dreadful person and he’s done some truly, truly dreadful things. But the idea that he manages his portfolio out of a cave in the Afghan desert, and has brokers working for him in Europe, and dealing on his behalf, just strikes me as such, such complete nonesense."

Moon: "Andrew Hilton heads the Center for Financial Innovation, a London-based think-tank. He concedes the numbers, at least, do look suspicious.

Bloomberg reports trading skyrocketed in options that bet on a drop in United and American Airlines stock in the days before the attack. The financial news service also says Morgan Stanley, with offices in the World Trade Center, and Merrill Lynch, with offices nearby, saw pre-attack trading of 12 to more than 25 times usual volume in so-called put options, which profit when stock prices fall.

But Hilton says there may be not so nefarious explanations:"

Hilton: "If it’s true, of course yes, it raises eyebrows, and you want to know why. How volatile is this kind of trading normally? You say, yes, it’s 12 times more than the average. But if you have extremely volatile trading all the time then the average doesn’t mean anything. You also want to ask what analyst reports were coming out at or about that time, which would explain that as well."

Moon: "Indeed, analysts point out some big European insurance companies that have asked for a regulatory review HAD released financial results to which investors were reacting. And the airline industry’s ongoing woes were well known before last week’s attack.

Still, Columbia University professor John Coffee says it’s too early to pass judgment one way or the other:"

Coffee: "We see good deal of sophistication in their efforts already. They shouldn’t be dismissed as mere third-world religious fanatics. They appear to be capable of a good deal of orchestrated, carefully-calculated conduct."

Moon: "Hilton, on the other hand, thinks such activity would violate the terrorists’ very religious principles, which forbid the collection of interest and shun insurance as gambling."

Hilton: "If I’m wrong it’s good news, actually. If there really was a concerted move to sell, to short these stocks, ahead of the terrorist outrage because there was some prior knowledge of the terrorist outrage, that makes it so much easier to get a handle on."

Moon: "Columbia’s John Coffee agrees:"

Coffee: "They’ve been able to escape our attention as they enter the U.S., but regulators are pretty good at following the money, and it may be easier to trace the flow of money across borders than to trace the flow of shadowy individuals."

Moon: "Indeed, this part of the investigation might just be a case of leaving no stone unturned, as Marketplace’s John Dimsdale reports from Washington:"

Dimsdale: "International securities regulators say there is a trail to follow, but it's going to take some legwork.

For one thing, to avoid calling undue attention to themselves, potential short sellers with advance knowledge of last week's attacks probably would have kept their transactions small and spread out over several different international markets.

Still, Jim Spellman of the Securities Industry Association, says trading patterns can easily be traced."

Spellman: "The market surveillance teams can look at the activity of securities, determine whether or not there's a pattern that's different from what has been occurring with that stock's trading patterns in the weeks or months past. And from that point make some phone calls to ascertain why this abnormality is happening.

However, in a case like this, the trail is likely to quickly lead to overseas banks with secrecy rules that prevent disclosure. Once transactions get into some Middle Eastern or Far Eastern banks, the U.S. has only limited access to information.

In Washington, I'm John Dimsdale for Marketplace."

From Washington, Marketplace's Steve Henn has this story.

Henn: "Without government help, airline industry leaders, like Delta Airlines chairman Leo Mullens warn an impending cash crunch could force up to 100,000 layoffs and push several carriers into bankruptcy."

Mullens: "There is no question this industry has suffered enormous financial damage. In the last three of the four days of last week, we had almost no revenue. And we would anticipate that in the next few days revenue would probably be operating at no more than forty to fifty percent of normal."

Henn: "Executives are asking for a $24 billion dollar bailout, that could include an immediate five billion dollar cash infusion...seven to eight billion dollars in tax breaks and refunds...and eleven billion more in guaranteed loans, plus possible legislation that would limit the liability airlines face because of the collapse of the World Trade Center Towers.

Even in light of last week's tragedy, it's hard to imagine how a short shut down could cripple America's airlines, and leave them teetering on the edge of collapse. Richard De Gritta is a professor at the University of Portland, who specializes in airline finances. He says so many airlines are in trouble because for years they have financed their operations with huge amounts of borrowed cash - close to $27 billion dollars across the entire sector."

DeGritta: "Fifty percent of their longterm capital is longterm debt. Which in this industry to me is dangerous."

Henn: "According to DeGritta, that kind of debt makes even a temporary interruption in cash flow perilous. While White House spokesman Ari Fleischer says the administration's commetted to substantial support - it still hasn't signed off on the industry's entire proposal."

DeGritta: "It's premature to know what the exact dollar amount will be."

Henn: "And with so many airlines wobbling on the edge of collapse, DeGritta says tax payers, Congress, and consumers are left with no attractive options."

DeGritta: "If you let the ones that could fail fail, then what's going to happen is you are going to have increased concentration in the airline industry. And that bodes ill for passenger fares in the long run. So it's really a difficult no-win situation."

Henn: "In Washington, I'm Stephen Henn for Marketplace."

Rundown

For our feature coverage of the World Trade Center disaster, please visit http://www.marketplace.org/features/unaccountable/.

Music Bridge: Byena & Eno: Regiment (My Life in the Bush of Ghosts)

America Arms Itself
Although retail sales are taking a beating during this crisis, one sector is seeing a spike in sales: military surplus. From gas masks to gun ammo, Americans are clearing the shelves of so-called "Army-Navy" stores and girding for a war on the home front. Melinda Penkava reports from Atlanta.

Cost of the Attacks
In our ongoing tally of the price tag attached to this unprecedented terrorist attack, reporter Adam Davidson looks at how a loss in consumer confidence, in strictly economic terms, could outweigh even the price of rebuilding the World Trade Center. The hard numbers are astounding.

Reich on Consumerism
With consumer confidence shaken to the core, former labor secretary and Marketplace commentator Robert Reich believes Americans might actually become more responsible in their spending and saving habits.

Music Bridge: de la Soul - Happiness

Look-Ahead

Coming up on September 19: Amid a swelling of patriotism, contributor Marty Goldensohn critically examines whether regaining national normalcy means returning to the shopping mall.