Euromoney's September edition had already gone to press when news broke of the horriffc terrorist attack on the World Trade Centre in New York and the Pentagon in Washington, DC. The sheer scale of the destruction and loss of life numbs the mind, making rational analysis almost impossible. Financial markets consist of nothing more than men and women buying and selling. In the immediate aftermath few could turn their minds to anything so mundane as dealing or stock tipping. It's likely that every reader of Euromoney will have known people who worked in the World Trade Centre and it is with those unfortunate individuals that most people's thoughts now lie.
But capital and markets do not stand still for long. A flight to the safety of cash, short-term government securities and gold, the selling of equities, and other riskier assets, began almost at once in Europe and Asia.The immediate concerns are that, against an already gloomy background of economic slowdown across America, Europe, Asia and Latin America and with world stock markets already falling, this unforeseen horror - striking the heart of the US financial establishment - may cause institutions to fail, prompt further collapses in global markets and, by puncturing the optimism of the American consumer, prolong and deepen recession in the US and the world.
It need not be so.
It's easy to panic. Cool heads now need to prevail. Thankfully there are signs of this happening. The world's leading central banks, including the Federal Reserve, the ECB, the Bank of England and the Bank of Japan, swiftly announced their readiness to inject liquidity into financial markets and followed this up with decisive action. The ECB for example provided substantial liquidity to markets on the day after the attack and confirmed that the Target payment system was working smoothly for domestic and cross-border high value payments.
Such action and such reassurances are vital because the most immediate risk to the Wnancial system is of bank failures due to disruption of settlement processes, as large trading firms struggle to implement their disaster recovery plans and recommence orderly trading with senior staff lost and conventional back-offices destroyed. A second and linked danger is that banks may be hindered from rolling over much-needed short-term credit to struggling corporations
The power and influence of world central banks has diminished in recent years - notwithstanding the extraordinary, iconic status of Alan Greenspan - as many adopt merely technical mandates to meet inflation targets. It's in crises that central bankers really come into their own. World financial markets have had reason to be thankful for this many times in recent years, notably after the stock market crash of 1987, and the Russian and LTCM collapses of 1998. On each occasion the provision of liquidity through open market purchases, reductions in interest rates and, more intangibly, the ability to convene meetings of financial firms' most senior executives and to exercise leadership has prevented crises from becoming catastrophes.
It is to be hoped that, once again, the moral authority and financial resources of central banks will be sufficient to restore order to the money markets, to prevent short-term operational failures from escalating into systemic problems, and to dampen the panic. Insurance companies, airlines and the travel industry will undoubtedly suffer and their stocks fall. But even now, systemic risk is probably far less than three years ago when highly leveraged hedge funds exerted such extraordinary influence in financial markets.
What happens in the medium to longer term is harder to discern. America has seen nothing to compare with these atrocities in living memory, no world Wnancial centre has suffered such damage and useful analogies are hard to draw. Clearly one is with the Gulf War a decade ago - the terrorist attacks are widely being described as an act of war, albeit by an enemy unknown - when the high oil price, diversion of huge resources into military deployment and general hindrance to international travel and commerce, all contributed to a worldwide recession.
For now, it is simply impossible to predict the reaction of American consumers - data will not emerge on this for weeks - nor the political and military reaction of the US federal government. Clearly the US will feel a vulnerability that it has never experienced before, even during two world wars. Its people may feel an unwelcome sense of being connected to events in the rest of the world and an awful realization that events elsewhere can have consequences at home.
This comes at a time when George W Bush has shown himself resistant to shouldering many of the global responsibilities that his predecessor embraced. In contexts ranging from arms control to carbon dioxide emissions he has made it clear that US interests come first and that the rest of the world is just going to have to live with that.
It's a great leap from an unprecedented terrorist attack with all its attendant political, military and security issues, to the financial world. But this America-Wrst attitude has made it all the way to the top of the US financial system. The message from the US Treasury seems to be that there's no chance that the US is going to provide bilateral aid and when it comes to international aid packages, nothing ever gets done without US leadership.
The US government has seemed intent on a downsized IMF and World Bank where countries can no longer go running to Uncle Sam to bail them out when they get into trouble. But clearly the US cannot disengage itself from the rest of the world and should perhaps be seeking ways in which to revitalize these international Wnancial institutions - over which it exerts such influence - rather than diminish them, if they are to be an influence for good.
The US should be fiercely proud of its preeminent private sector financial institutions which have pioneered globalization and helped spread its benefits. Both rich and poor states have been recipients of lending and capital flows on a massive scale. When Manhattan cleans up and re-opens, choices made there will continue to have an impact on the everyday lives of millions around the world.