Sept. 11’s Financial Heroes

And why they have flopped since then.

Though it’s scarcely been mentioned in the fifth-anniversary commemorations, the 9/11 attack was a significant economic event. The World Trade Center may not have been home to many huge corporate headquarters or trading floors, but it was an important financial symbol. The affected area surrounding the complex was—and is—home to key global financial institutions: Merrill Lynch and Dow Jones, the Federal Reserve and the New York Stock Exchange. And, most of all, the attacks seemed designed to sap confidence from the entire U.S. economy.

Thousands of individuals at hundreds of companies worked heroically, and under extremely difficult conditions, to get downtown New York up and running. Companies throughout the region devoted resources to helping competitors and colleagues recover. And from Washington to Detroit, leaders of important institutions took extraordinary, sometimes self-abnegating steps to help jolt the economy and the nation out of a state of shock. In the weeks after Sept. 11, heroes emerged among the financial and executive first-responders. But what’s interesting is how poorly those business heroes have fared ever since.

Richard Grasso, chairman of the New York Stock Exchange was perhaps the most visible financial first-responder. The NYSE, which stood at the literal, symbolic, and geographic heart of the nation’s—and the world’s—financial system, closed for trading for four days, its longest closure since 1933. But as the Trade Center site smoldered, Grasso led a round-the-clock effort to get the exchange up and running—and to allow the world’s financial markets to price in the shattering events. The re-opening of the NYSE on the morning of Sept. 17, with firemen and police officers ringing the open bell, showed that the effort to destroy New York’s financial center hadn’t succeeded. The trading—hectic and negative, but orderly, given the circumstances—demonstrated the capital markets’ resilience. Grasso was justly lionized for his role. But his status didn’t last long. Exactly two years later, on Sept. 17, 2003, Grasso resigned after questions were raised about the enormous compensation he earned for running a not-for-profit organization. He’s still fighting a 2004 lawsuit filed by New York Attorney General Eliot Spitzer.

Alan Greenspan, then at the zenith of his powers as chairman of the Federal Reserve Board of Governors, was another financial first-responder. On Sept. 17—the day the markets opened—he slashed the federal-funds rate significantly from 3.5 percent to 3 percent. He followed with two more 50-basis-point cuts on Oct. 2 and Nov. 6. By mid-December 2001, the rate stood at 1.75 percent, half the pre-9/11 rate. The rapid-fire rate cuts helped shock the economy, which had slipped into recession earlier in the year, back into life. Falling rates allowed companies and consumers to refinance their debt, freeing up cash to spend and invest.

But Greenspan may have overstayed his welcome, as a Federal Reserve chairman and as an interest-rate slasher. In the years after 9/11, Greenspan cut rates further, then held them at emergency levels, unleashing a tidal wave of liquidity into the global economic system. Now Greenspan is less likely to be remembered for his 9/11 savvy than for  encouraging a real-estate bubble in the current decade, suggesting people switch into adjustable rate mortgages at precisely the wrong time, and for helping create the conditions that have stimulated inflation, which his successor is struggling to control.

Greenspan’s interest-rate cuts helped make possible the most significant business response to 9/11: the introduction of zero-percent financing by U.S. automakers. Spurred by a mixture of patriotism and a desire to clear inventory, General Motors—and then Ford and other manufacturers—launched the Keep America Rolling program. It was a brilliant, seemingly selfless move. Lured by the free money, millions of Americans rushed buy American cars at zero-percent interest. But the program had some pernicious long-term effects. Consumers became conditioned to the availability of financing gimmicks, rebates, and incentives, which has killed margins at GM and Ford. And the efforts didn’t succeed in stopping the firms’ continuing slide in market share. The result: this depressing five-year chart of General Motors and Ford compared with the Standard & Poor’s 500. Ultimately, the corporate bosses who helped keep America rolling have seen their careers sputter. Ford CEO William Clay Ford Jr. last week essentially fired himself. GM CEO Rick Wagoner still has his job, but since last year has been under assault from shareholder agitator Kirk Kerkorian.

Oddly, the business people who have done the best since 9/11 are some of the hardest-hit victims. The investment bank Cantor Fitzgerald, whose headquarters were on the upper floors of the North Tower, lost 658 employees; no other institution was hit so hard. Today, Cantor Fitzgerald is larger than it was before the attacks. The investment bank Sandler O’Neill lost 66 employees, more than a third of its total, including two of the top three executives. This weekend, Joe Nocera of the New York Times wrote a poignant article ($ required) about the transformed company, which now employs 25 percent more people than it did on 9/11.