On the street where we live
All eyes are on the financial markets as the nation digs out and dusts itself off
And, Blinder notes, "the perverse bright side of disasters is a lot of building activity." Most of that will be concentrated in lower Manhattan, where reconstruction estimates run as high as $30 billion. "This is the world financial center and this will remain the world financial center," says Marc Goloven, senior regional economist with J. P. Morgan Chase. Most financial firms learned from the 1993 bombing to decentralize operations, and the Y2K computer bug crisis also prompted many to set up remote operations and contingency plans. The city's verve will spark a fast recovery, Goloven predicts. "There will be thousands of construction jobs and workers descending on the area."
More general, though gradual, stimulus will come from massive infusions of government money. Congress hurriedly prepared a $40 billion emergency spending bill as a start; the Federal Reserve, European, and Japanese central banks flooded markets with liquidity; analysts expect accelerated Fed interest rate cuts.
But immediate losses are staggering. Grounding all air traffic last week cost carriers some $2 billion, bringing to nearly $5 billion the industry's projected losses for the year. For the cargo carriers, losing even one day's business "obviously has a pretty horrendous impact," says Larry Coyne, CEO of Coyne Airways. "Your costs keep on mounting, because you pay for your aircraft even when they're not flying."
The insurance industry faces potential claims of $20 billion or more, topping the previous high of $15 billion from Hurricane Andrew in 1992. But the industry has $300 billion in capital. "We are well diversified," said American International Group Chairman M. R. Greenberg.
Chain reaction. Adding to the worries: Large companies, which were cutting back business travel before last week's hijackings, now have another reason to slash spending. "When you cut air travel, you're also cutting hotel stays, car rentals, and dinners out at restaurants," notes Kevin Mitchell, chairman of the Business Travel Coalition in Radnor, Pa. Transportation disruptions also halted production at firms such as General Motors and Ford that depend on just-in-time deliveries of supplies and parts. "For any company teetering on financial ruin, this accelerates the process," adds Scott Cleland, CEO of Precursor Group. Midway Airlines, for example, ceased operations last week.
Ironically, the terrorist attack may have the opposite effect on investors. At its core, investing is about two things: fear and hope. Until last week, investors' biggest fear was a recession. Now Wall Street just assumes a recession, and "that takes away one uncertainty," says Thomas McDowell, money manager with Rice Hall James. "Now, we can start to look across the valley for signs of hope."
With Matthew Benjamin, Joellen Perry, Katherine Hobson, Noam Neusner, Kit Roane and Leonard Wiener
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