2001

Attacks on WTC, D.C. Hit Financial Industry

Sept. 12 — It was impossible to estimate the loss of life Tuesday when two planes crashed into the twin towers of New York's World Trade Center. But when those giant buildings crumbled to the ground, it's likely many people in the financial services business were killed.

Companies with offices in the World Trade Center include boutique investment banks Sandler O'Neill & Co. and Keefe Bruyette & Woods and the Federal Home Loan Bank of New York.

Morgan Stanley had 3,500 people in the complex. "We are all saddened and outraged by the attack on America today, and extend our deepest sympathies and prayers to all the people affected," chairman and chief executive Philip J. Purcell said in a statement. "We have limited information about the disaster… and we are working diligently with local authorities to determine the facts regarding their safety.

"We want our clients to know that, in spite of this tragedy, all of our businesses are functioning and will continue to function. We are committed to resume full operations as exchanges and markets reopen. All our clients should rest assured that their assets are safe."

The banking system seemed steady throughout the dramatic day, which also included a third plane that crashed into the Pentagon building here. L. William Seidman, former FDIC chairman, attributed the stability to federal deposit insurance. "Always the great fear is that people will panic and want to get their money out of the banks," he said. "Once again deposit insurance will prove how valuable it is in times of uncertainty."

While many banks closed offices in New York, Washington, and beyond, there were no reports of disruptions to the payments system and the Federal Reserve remained open and ready to provide cash where needed. Some banks, particularly those on the East Coast, did experience a greater volume of withdrawals, but most bankers said business was relatively normal.

"I have no information about any problems now," a Federal Reserve Board spokesman said late Tuesday afternoon. "The Federal Reserve banks are processing checks today."

However, Tuesday's devastation could have long-term repercussions, including tipping an already shaky economy into a recession.

"This act has the potential to bring the economy down into a serious recession," said Anthony Chan, chief economist at Banc One Investment Advisors in Columbus, Ohio. "It's clear that economic activity will come largely to a standstill for quite some time. This is a terrible tragedy that will hurt the U.S. and many other people around the world in a way that we will remember forever."

Sung Won Sohn, Wells Fargo's chief economist, in a research note Tuesday compared the effects on the economy from the attacks to the impact of the 1990 Gulf War, when the economy contracted for three quarters. The Gulf War hurt consumer confidence, retail sales, and the value of the dollar, and the price of crude oil rose.

"Recently, the economy has been on a high wire act straddling between a recession and an anemic growth," he wrote. "The damage to confidence will push us into a recession." Mr. Sohn, among other economists, predicted the Fed will continue to cut interest rates.

The stock and bond markets were closed. "As a safety precaution while the tragic events of today are sorted out, the securities markets have decided not to open for trading today," Securities and Exchange Commission chairman Harvey Pitt said in a statement.

Mr. Sohn said there may be a stampede of selling when the financial markets reopen, and the system may have trouble handling orders. In addition, insurance companies will receive claims amounting to tens or even hundreds of billions of dollars, he estimated.

"At least temporarily, the financial system could be frozen, further damaging the economy," he said.

Kenneth H. Thomas, a lecturer in finance at the Wharton School in Philadelphia, said the tragic event came at a bad time for banks that are already struggling with a raft of bad loans. "Those businesses that were slow on their loan payments, we're likely to see even more deterioration," he said. "We're likely to see continued impact on credit quality in loan portfolios.

"This can cause a lot of uncertainty, like in the presidential election where everything came to a halt," he said. "It won't be clear in dollars and cents what the impact is, but financial markets don't like uncertainty. This is "Uncertainty" with a capital U."

Major financial institutions took precautions in light of the uncertainty, particularly institutions with tall buildings in major cities.

For example, all these buildings were evacuated: the Sears Tower in Chicago; the two tallest buildings in Boston, the John Hancock Tower and the Prudential building; and the Transamerica Pyramid, one of San Francisco's most notable landmarks.

At ground zero in New York, most banks closed for the day. J.P. Morgan Chase & Co. shut all its branches and reported long lines at ATMs while FleetBoston Financial Group closed its branches in the city. Commerce Bancorp in Cherry Hill, N.J., is expanding into New York City, but canceled its "grand opening" scheduled for Thursday.

After years of industry consolidation, Charlotte, N.C., now ranks as the nation's second-largest banking center, and officials apparently feared the city might become a target as well.

Wachovia Corp. evacuated its headquarters there and closed all 2,900 branches in its 11-state territory to protect customer and employee safety, a spokesman said. All back-office systems, ATMs, and online banking sites were functioning normally. "We're not aware of any impact on customer accounts," he said.

Bank of America also evacuated its 60-story headquarters in Charlotte, and a spokesman said office towers in other major cities, including Atlanta and Seattle, also were evacuated. BofA closed several hundred branches in northern Virginia and Washington, D.C., as did SunTrust Banks Inc. of Atlanta.

Spokesman Scott Scredon said he had heard no reports of runs on any bank branches. Aside from the Washington-area offices, more than 4,000 other B of A retail offices nationwide remained open, and the bank's ATM network was functioning. "We're taking appropriate steps to provide normal service to as many customers as possible. We expect to return to business as usual tomorrow in the majority of our markets," he said.

Bank of America had about 150,000 square feet in the World Trade Center complex, but Mr. Scredon said he was unsure how many employees worked there or what may have happened to them Tuesday. Another source said a Bank of America employee said about 600 people worked there, and all were evacuated. Mr. Scredon was unable to confirm that information. Most of Bank of America's New York-based employees work in two buildings in Midtown Manhattan, which were unaffected.

Joseph J. Caldas, vice president in the municipal department at Hartfield, Titus & Donnely LLC in Jersey City, N.J., across the Hudson River near lower Manhattan, said he saw a plane flying near lower Manhattan suddenly turn and crash directly into one of the World Trade Center Towers.

"The plane just suddenly turned and flew right into the building," he said. "Flames shot out and it looked like a bomb exploded. I was looking through a telescope and saw people falling out of the building. There's a lot of dead people over there. It's like a war."

Sandler O'Neill was on the 102nd floor of Tower Two of the World Trade Center. Approximately 175 of the company's 200 employees occupied the space. Staff started to evacuate the building after a plane crashed into the first tower, and smoke started to infiltrate the building, said a source who asked not to be named. When the second plane crashed, Sandler O'Neill was holding its morning meeting by conference call and employees in other cities heard a boom and then communication was cut off.

Keefe Bruyette, a 212-person investment bank that specializes in the financial services industry, had more than 100 people on 88th and 89th floors of tower 2. A source in one of KBW's other offices said some employees managed to get out of the building in time, but he did not know how many.

Malin Jennings, spokeswoman for the Council of Federal Home Loan Banks, said she called the Federal Home Loan Bank of New York — located on the 22nd floor of the World Trade Center — right before the second airplane hit. "It would have been a little before 9 this morning and they were just evacuating. At the time, I heard things were OK," she said.

The National Association for Business Economics was beginning the final day of its four-day annual meeting at the Marriott hotel in the World Trade Center Tuesday. Among those expected to speak were Richard B. Berner, chief U.S. economist for Morgan Stanley and president of NABE; Richard D. Rippe, chief economist for Prudential Securities; Diane Swonk, chief economist at Bank One Corp., and Mark Vitner, a Wachovia economist.

A family member of Mr. Vitner said he got away with only scratches, and former NABE president, Maureen Haver, president of Haver Analytics, said everyone was able to get out before the building collapsed. "Fortunately for us, we were sort of in the basement," she said. "We had plenty of time to evacuate."

Merrill Lynch & Co. was scheduled to begin the second day of an investor conference featuring executives such as Citigroup chief Sanford I. Weill, PNC chairman James E. Rohr, and Capital One Financial Corp. chairman Richard Fairbank. It was canceled.

This story was reported by Erick Bergquist in New York, David Boraks in Charlotte, N.C., Ben Jackson in Chicago, Laura Mandaro in San Francisco, and Alan Kline, Barbara A. Rehm and John Reosti in Washington. Sean Monsarrat from the Bond Buyer contributed to this story.

1946

Political War to Decide Fate of Investments

Aug. 9 — The future of trust investments — the future of personal wealth of any kind — will depend upon the outcome of the great world struggle between totalitarianism and democracy in Government, Thomas H. Beacom, vice-president of the First National Bank of Chicago, told the 20th annual Regional Trust Conference of Coast and Rocky Mountain States, sponsored by the American Bankers Association.

"The great fallacy of the day," he said, "is the thought that the State is something remote and distinguishable from the people who live in it. Government is not something up in the sky endowed with supernatural power to order the lives of its citizens. Government is, on the contrary, according to our creed, a composite of the people who ordain it. It has, and can have, in justice, only such power as may be freely granted to it.

"A power that is supported by guns rather than by the will of the people, may compel but it cannot comfort. Soon or late, some men with a love of liberty in their hearts will defy it. Such men will make their own destiny. They will count death in the cause of freedom more vital than life in an unfree world.

"It is impossible, I think, to be an American and to believe that men like these will not be with us always. In '64 it was decided we could not endure half slave and half free; it is equally true in '46 that liberty is indivisible and that freedom for some cannot survive unless there be freedom for all.

Totalitarianism Will End All Investment

"We have already retreated far down the road that leads away from self-reliance. Security in this insecure world is a mirage. But it has become the compass of our thoughts and the lodestar of our actions. Pursued, this chimera can lead us, before we know it, into the authoritarian State and if that comes, our all will be invested in nothing."

"Trust Investments Now — And Forever," was the subject taken by Mr. Beacom. In his opinion, he said, the largest question mark that will be faced as we look to the future is not in the area of economics but in the realm of political science.

"There is danger," he said, "that we, habitually thinking as trust investors, may confuse the two. Any theory that happens to be current in the field of economics is too often labeled orthodox before it is well tested.

"Perhaps we can afford, in the name of progress, to experiment here and there with price and money controls. The country is still rich in natural resources. But we cannot afford indefinitely to embrace the seductive idea that a Government can lift itself by its boot straps any more effectively than men can lift themselves from the mire of mistakes by denying that mistakes have been made.

"We ought not to fool ourselves into thinking that we can get something for nothing merely because we would rather do nothing than work for something. Not should we deceive ourselves that we can owe ourselves a public debt without owing anything to anybody. The fact that we cannot see the bookkeeping does not prove the books do not exist.

Who Holds the Mortgage on the U.S.?

"We have a huge internal debt pressing close to $270 billion; it was $41 billion less than nine years ago. And I can remember the general alarm that roared over the land when a Presidential candidate said about 12 years ago he had been advised by some unidentified bankers that the country could stand a debt of $55 billion to $75 billion.

"The tumult and the shouting we no longer hear. That does not mean that anyone yet knows what debt the country can bear. Who holds this mortgage? Eighty-five million people bought the bonds (according to Treasury estimates). Seventy-one million of these (or other) people who are paying insurance premiums own indirectly what the insurance companies hold. And bank depositors have a stake in more than $100 billion held by the nation's banks.

"Somehow the idea has taken root in the land that investors are some kind of low, calculating, fabulously rich men (or corporations existing in a vacuum without men) who, if they paid enough taxes, could support the rest of us in idleness. Actually, of course, a corporation is merely a legal device that permits millions of people to carry on together an enterprise that none of them could manage alone.

American Investors are the "Plain People"

"The 'despised investors' are the plain people who have put their savings at work in the corporations, hoping for a profit but risking a loss. We, as trustees, know it would be hard to pick out anybody outside an almshouse and guarantee that he isn't in some respect an investor.

"We all have an interest and a stake in what has been invested in the American economy. If our assets were collectivized tomorrow we would still have the same interest — thought maybe not the same stake. The difference would be that some career man at the seat of Government would do the investing for us, leaving us no choice of risks. As the 'London Times' put it recently, when the State has a monopoly of employment, the worker will be up against a power that he can 'neither emulate nor fight.'"

A strong contrast was drawn by the speaker between the Communist and the American theories of Government. Under the Communist system, he said, "costs and prices are fixed by governmental fiat. When competing in world markets the collectivist State, speaking of its exports, can say, and does say, 'nothing costs anything.'

Who Holds the Reins Is Basic Question

"The chief difference between Russia and America, we are told, is a difference in economic theory. That seems to me highly questionable. The greater difference is in the area of political science. Basically the question is one of power and its exercise. Who ought to hold the reins? Who does?

"Our country, with its republican or representative form of Government, was built on certain truths regarded by the founding fathers as self-evident. Our heritage is a belief in man as a creature endowed by his Creator with certain inalienable rights. Of these the fundamentals are the rights to life, liberty, and the pursuit of happiness.

"Our ancestors thought that our system of Government would endure because it was erected on immutable principles; it was their belief that it is in the nature of man to demand freedom for himself. Anyone who has tasted freedom knows what a precious thing liberty is.

"Disciples of Karl Marx and evangelists of Lenin deny the validity of our principles. In their view, the world consists not of equals but of classes — the exploiters and the exploited. The cure, they say, is simple: Put ownership of all means of production in the State. Their reasoning is equally simple: Since the State includes all citizens, the citizens all will be owners of capital and, because they will not exploit themselves, there will no longer be an exploited class.

"An obvious corollary they overlook: The whole is greater than any of its parts. And parts are never independent of the whole.

Comparison Drawn Between Russia and U.S.

"Their doctrine conveniently simplifies the problems of management. Anyone, presumably, who can manage to get elected can manage anything, including the national economy. And if control can be perpetuated without the inconvenience of elections, the management of affairs can be simplified even more. In geometry this would be a theorem — to be proved. In the Socialist State it is an axiom — to be accepted.

"There, in the United States, we permit business to grow big but we demand competition and restrain monopoly. Elsewhere, State monopolies or private cartels operate without restraint. Here, Government itself is big business, and the business of all of us, but it is not all of our business.

"Elsewhere, Government is bigger business because it is the business of everybody in Government business. Economic powers and political powers are joined together in the State instead of being divided among the people.

"All this bears on the thesis that for you and for me and for our children, the thing that will count most in the future is not whether we are orthodox in our economics but whether we are unorthodox about our political science. I use the term 'orthodox' because I think there can be only one orthodoxy for Americans, and that is the faith that free people can work out their own destiny better than any Government administrators can work it out for them.

"The great necessity of our time is that we so conduct our affairs as to vindicate that faith. The test of our republican form of Government is going to be, in the next 100 years, its ability to survive in a world that seems determined to go back to the tyranny of the Caesars."

Points to Threat in Power to Tax

The Communist program, the speaker said, called first for "abolishing property in land" so that the other benefits could follow. "In our system of private enterprise, without destroying the concept of the dignity of man and without abolishing the right of private property, we have achieved most of the ends the Socialists desired a century ago," he said.

"There has never been any secret about the goal of the collectivists. They want the State to be the sole owner of land and tools. They want to control production and distribution. We have not yet surrendered this last vast power because we have not yet lost our power to elect a representative Government.

"The power to tax, we have always known, is the power to destroy. Graduated income taxes can be the means of destroying private enterprise. It is conceivable that if taxes are high enough and defaults frequent enough, the Federal Government can say it has to take over American industry in satisfaction of unpaid taxes. Death taxes are levied on the theory that succession is a "privilege." We are subject to progressive rates of tax even as we die.

"A 'social objective,' however, has been achieved. The Government shares, with the testator, choice of the persons entitled to benefit from the redistributed wealth. It may well be that 'abolition of the "right" of inheritance' is closer than we now think.

Reiterates Faith in Power of Ballot Box

"Actually, how close is the final goal of the collectivist? As near as the ballot box? Or as remote as the mythical box of Pandora? Who knows? History is not predetermined. It is written by the passing days. We like to think of ourselves as masters of events, not as slaves of circumstance. So long as we retain the power of the ballot, we should be able to make our peace with destiny.

"From Pandora's box of old some said that only blessings escaped of which all but hope vanished. Hope is what mankind so desperately needs now that the atom bomb has blasted open an all too real box of Pandora. For my part, I have that hope. Without it I should expect to see the world, in its present trend, move full circle back to the days of the feudal kings when all land was in the Crown and all men were serfs. With it, I am sustained in firm faith that all the world will yet be free.

"Then, and only then, can we plan for today as though there could be safety in anything forever."

1933

Mitchell Subpoenaed in Senate Inquiry

Feb. 3 — Charles E. Mitchell, chairman of the Board of the National City Bank of New York City, and other officials of the bank, have been subpoenaed to testify on February 21 in the Senate stock market investigation. A third personal statement given out by Senator Norbeck, said:

"Senator Norbeck confirms the report that Charles E. Mitchell and other high officials of the National City Bank, New York, which claims to be the largest bank in the world, have been subpoenaed to appear in Washington the 21st, in connection with the Senate Banking Committee's stock market investigation especially concerning the marketing of their own bank stock to the public at phenomenally high prices which dropped to less than a twentieth of its high price.

Accuses Large Banks

"The investigation so far shows that some of the large banks were highly responsible for the wild stock market boom. All banks did not take part, but some banks were in on the promotion scheme and gave strong recommendations for stocks which quickly broke down in price and seemed to have had little intrinsic value or earning power. It was just a polite way of robbing the public.

"When the stock market boom was wild, the Federal Reserve Board in Washington made an offer to slow down, and sought the co-operation of Mr. Mitchell, who was then director in the New York Federal Reserve Bank.

"He defied the board and speeded up the boom. He took a 'go-to-hell' attitude toward the board and got away with it."