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Insight – Steadfast in America

A week after the tragedy in the US, the economic ramifications are still far from clear. Early indicators show a mix of truly awful prospects and some elements of hope. While concentrating resources clearly creates dangers that are greater than the inconvenience of having them more widely dispersed, some elements of the economy are certain to see more consolidation.

Consumer spending

America’s entrepreneurial spirit and all-round gung-ho attitude has already resulted in calls for the World Trade Center to be rebuilt exactly as it was. As TV schedules outside the metropolitan area start to return to normal, there’s the prospect that US consumers will spend their way out of their state of shock. The fall on Wall Street has not, so far, been as dreadful as first feared, and central banks in the US, Britain and Europe have cut interest rates to keep the lid on recession expectations. The wealth effect on consumer spending may not be so adverse, therefore.


Boeing announced tens of thousands of layoffs and the airline industry is heading for a series of failures and mergers. Continental Airlines started walking towards Chapter 11 bankruptcy protection within hours of the disaster, and many airlines have issued profit warnings.

There is some talk, however, of federal support for the industry. It is unlikely to be enough to make up for the tremendous number of tourists and businesspeople who will curtail air travel – especially trans-Atlantic.

Europe may not feel able to prop up its own flag carriers to the same extent.


Damage estimates range up to $100bn. Much depends on any litigation over whether the atrocity was a terrorist act – which is covered under US law – or, as President Bush called it, an act of war, which isn’t.

As the reinsurance spiral unwinds, there are bound to be casualties, failures and consolidation. Rates will soar for many risks – five-fold, warns Richard Hextall, FD of Lloyd’s business Amlin – while other risks will become uninsurable.

Commercial property

Some 15m sq ft of office space was destroyed in the collapse of the twin towers and the surrounding buildings (the main tower at Canary Wharf represents about 1.25m) and while many smaller businesses were destroyed in the attack, the larger ones will still need to rebuild much of the space they’ve lost. It was unfortunate timing from Canary Wharf which announced two days after the attack on the US that, because of uncertainty in financial services, it was ceasing speculative construction of skyscrapers. Whether financial services groups – or their employees – want any more skyscrapers remains to be seen.


Any venue with many thousands of people is going to suffer the effects of heightened fears of terrorism. How many days will it take the crowds to pour into and out of the next Superbowl game?

Information technology

Had this tragedy occurred 20 years ago it would have had far greater impact as most vital documents would have been in hard copy – and destroyed. Today, even the most mundane e-mail gossip is preserved on off-site back-up tapes; valuable work-in-progress and intellectual capital is safe and (relatively) easily retrieved.

Now that the impossible has happened, there will be even more focus on system security and disaster recovery.

Money laundering

The war against international terrorism will be waged in part in the unseen world of money laundering. Expect police authorities and financial services regulators to come down hard on victims of money launderers: know your clients.

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