When Money Gets Frightened

Sebastian Külps swirls around in his deep desk chair and leans back, a ges­ture that makes him look the young, pro­sperous and gene­rally hard­wor­king man that he is. Like most of his colle­agues, he is in his early thir­ties, male and con­fi­dent. His busi­ness card says vice pre­si­dent, and his clothes say relaxed, yet pro­fes­sional. He throws a glance at the clocks on the wall, showing the time around the world.

His local time there on the tra­ding floor of J.P.Morgan’s Frankfurt office is 14.30 and in New York the time is 8.30. In another half an hour Wall Street will be open for tra­ding. The mar­kets will then pro­bably slide a bit lower, as they have been doing for some months now. Fairly soon the last months’ rate cuts by the American and European cen­tral banks should start having an effect on the mar­kets, but that won’t happen today, nor will it happen tomorrow. There’s still a little way down before the bottom is reached and the tide turns, so for the moment it might be smart to be somewhat cautious.

It’s a fairly quiet after­noon, as could be expected. He could cold-​call some pro­s­pec­tive cli­ents, pitch some invest­ment ideas, but it would hardly be worth it before he sees how New York per­forms. Sebastian is obviously not the only one having a calm day. A couple of guys are stan­ding around a com­puter screen chat­ting; the Swede next to him is tal­king leisurely on the phone. He scans through the news on his Bloomberg and Reuters screens, but there’s not­hing much inter­e­s­ting enough to keep his atten­tion. He types an instant mes­sage into his Bloomberg key­board and sends it to his cousin, best friend and fellow equities broker Max in New York. He should be at the office about now.

Sebastian spins around in his chair and looks up at the clocks again. Only ten-​fifteen min­utes left. He turns back to the screen. Instead of a reply, a news item rolls onto the lower of the two Bloomberg screens. Apparently a plane has crashed into the north tower of the World Trade Center a couple of min­utes ago. Wow, that’s pretty sad, he thinks. A guy would have to be very drunk or very crazy to fly his little plane into one of those buildings.

More news rolls in, and now Reuters has picked up the story, too. The image on the TV screens han­ging from the cei­ling sud­denly changes from studio view to a long dis­tance shot of a smo­king World Trade Center. Somebody turns up the volume, and in a matter of seconds 70 chir­ping bro­kers, 210 key­boards, and 560 phone lines go quiet. The voice of a stunned CNN anchor domi­nates the room.

In the world of finance, only those who can pre­dict the future have a future. That’s the neces­sary con­se­quence of the rule of thumb Sebastian out­lines six months after the September 11 attacks: «Everything hap­pens six months before the actual event.» If there’s a boom in June, all the money was already made in January.

But September 11 was unpre­dictable. In half a wor­king day, USD 16 bil­lion worth of pro­perty was destroyed and USD 5 bil­lion worth of insured fri­ends and family died. In the first moments after the attacks eve­ryone was in shock, until, all of a sudden and simul­tane­ously, people around the world decided to catch up.

«We could see the mar­kets cor­rec­ting mas­sively,» Sebastian says. With a few clicks on the black key­board, he brings up a snap­shot of September 11 on the top Bloomberg screen. It’s a black screen on which a slo­ping green line abruptly goes into a free fall. He uses the end of his pen to point out a piece of the ver­tical line.

«This is September 11,» he says, then moves his pen lower. «And this is the twelfth, the thirteenth…»

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A stone’s throw from Sebastian’s desk lies the Deutsche Börse, the stock exchange. A few dozen people in suits are walking around leisurely, chat­ting to each other, throwing glances up at the big board that Sebastian’s little screen imi­tates in design. This calm atmosphere is quite common these days; the digital age has moved most tra­ders and bro­kers to com­pu­ters in nearby offices. On the fatal day, how­ever, there were more people on the floor, more action, and a ver­tical line split the big, black board in two. By some accounts it was «hectic.» Dr. Ronald Weichert, spo­kesman for Deutsche Bank, doesn’t quite agree.

«Hectic? When there’s an eart­hquake or when a vol­cano erupts, and people know it won’t happen again. That’s hectic,» he says. «This was total insecurity. Everyone was scram­bling to close their positions, as we say; to get out of the market. People would rather take a loss and know what they have lost, than to sit on somet­hing they don’t know what’s hap­pe­ning to.»

When a billion-​dollar invest­ment can turn to smo­king rubble in min­utes, and not­hing seems to be cer­tain, people scramble for that which they can trust. The price of gold, everybody’s favou­rite crisis com­mo­dity, climbed almost twenty U.S. dol­lars in the hour and a half following the first attack, and cash was king.

When the World Trade Center col­lapsed, it took with it the Bank of New York, the world’s lar­gest sett­le­ment bank, and much of the infra­struc­ture needed to move money. Millions of dol­lars were stopped in mid-​transaction, mis­sing in action. Tens of mil­lions of dol­lars couldn’t be used for the pay­ments, purchases or pay­che­ques for which they were intended. Hundreds of mil­lions of dol­lars couldn’t find their way back home. Everyone wanted cash, but there wasn’t much to get a hold of.

To pre­vent the price of cash, the real short-​term inte­rest rate, from sky­rock­eting, the European Central Bank stepped in, giving out short term loans, put­ting liquidity back in the mar­kets and kee­ping the inte­rest rate down. Two days later, on September 13, the Federal Reserve and the ECB entered into a swap agreement, a move that ensured that Europe didn’t run out of dol­lars, and that inter­na­tional trade stayed on track. But with the scare Finance had taken, big money was still hesitating.

On ECB President Wim Duisenberg’s desk in the shiny Frankfurt skyscraper sits a white phone. Despite its common appea­rance, it is not a common phone. Operating out­side the normal network, it is abso­lutely safe against wire tap­ping, and with it, the cen­tral bank pre­si­dent can reach the mem­bers of the gover­ning council when deci­sions have to be made out­side of sche­duled meetings, under extra­or­di­nary cir­cums­tances. This hot­line stayed cool, how­ever, when the need arose on September 17. The ECB pre­si­dent was in Helsinki and had to borrow his Finnish colleague’s similar white phone for that day’s urgent business.

That Monday, with unpre­ce­dented syn­chro­ni­city, the ECB and the Fed both low­ered the inte­rest rate with half a per­cen­tage point to give the mar­kets con­fi­dence and increase invest­ment incentive.

«The first recovery came a couple of days later,» Sebastian says. «The value players started to buy first. People were asking them­selves, ‘which prices have fallen too far?’ I mean, some com­pa­nies had dropped incre­dibly. Some of the air­lines, for instance: Looking at the num­bers you’d think they were all on the verge of bankruptcy.»

«Many people were still uncer­tain, how­ever,» Sebastian con­ti­nues to explain, «and con­sump­tion num­bers were still low. But in the end eve­rything smoothed out. We’re defi­nitely at levels like before September 11 now. I think the market used the opport­u­nity to find the bottom and then recover.»

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Does this mean that eve­rything is back to normal in the world where normal means nine digits or more?

Among fourte­enth– and fifteenth-​century buil­dings in idyllic Zurich, the third lar­gest finan­cial centre in the world, Citibank’s local lod­gings in a com­pa­ra­tively bland low-​rise are quite low-​profile, and seem an unlikely target for ter­ro­rism. Managing Director Per Etholm, Citibank’s man in charge in Switzerland, greets the English-​deficient guard and passes through the turnstile.

Along with all the other country mana­gers for Europe, he dealt with the unfol­ding events of September 11 telep­ho­ni­cally from the thirty-​fourth floor of the Warsaw Marriott Hotel, the Polish capital’s tallest building.

«I orga­nised stricter security, eva­cua­tions, extra security guards,» Per says. «It’s not like you can do very much about a plane coming toward you, but you can at least make sure that nobody comes through the door with a bomb.»

«Please excuse the extra security,» is a common gre­eting these days. In down­town Frankfurt am Main, for instance, other­wise called «Mainhattan» for its sky­line, Deutsche Bank’s Twin Towers have armed guards out­side every entrance, and guarded turnstiles in front of the elevators.

A five-​minute walk away, the armed guard out­side the ECB’s pre­sti­gious skyscraper will show visi­tors to the armed guard inside, who will check their iden­ti­fi­ca­tion against a list of expected visi­tors before sen­ding them on to the recep­tion desk. The same list appears, and phone calls are made before the visitor is given a badge that acts as a key to the heavily guarded, bullet-​proof glass doors that pro­tect the wai­ting area.

«It good for morale too,» Per con­ti­nues, «that emp­loyees see that the com­pany cares about them and pro­tects them.»

There’s a gloomier side to the finan­cial world after September 11 than the all-​too visible security. Manhattan is the heart of a global environ­ment in which you clo­sest colle­ague and best friend sits half-​way around the world.

On September 11, Per says, «there was a senior mana­ge­ment telecon­fe­rence going on when New York sud­denly went silent. They had just wit­nessed the first plane hit the buil­ding.» When ana­lysts talk about «insecurity in the mar­kets,» it is the players and not the mar­kets who are insecure.

«The people we had eva­cuated from [World Trade Center] no. 7,» Per goes on to describe, «had to run to avoid get­ting hit by fal­ling people and con­crete.» Is it strange that some emp­loyees feel uncom­for­table going to work in the skyscra­pers on Mainhattan?

«We had tra­ders in London tal­king to bro­kers in the World Trade Center,» he finishes. «Live, after the planes had hit. Nobody knew what was hap­pe­ning, but they were screaming over the phones. We’re dying! We’re dying!»

«The eco­nomy is begin­ning to grow at a normal rate again,» says Niels Bünemann of the ECB, indi­ca­ting that the finan­cial world has recovered. «Connections to September 11 are get­ting more and more obscure. We’re too far rem­oved from it now to know what’s a con­se­quence of September 11, and what would have hap­pened anyway.»

CNN is still showing on the screens of J.P.Morgan’s tra­ding floor in Frankfurt, and the busi­ness news sup­ports the the­ories of recovery. But on the per­sonal switch­boards of Sebastian and his colle­agues, a button is now dedi­cated to transfer all calls to their cell phones in case they have to eva­cuate. It’s a precau­tion, one of many small signs in the offices of global finance that there are people who still have pro­blems sle­e­ping at night.

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