Dear Valued Clients and Friends,
It has proven to be a tough week to write the Dividend Cafe. Not only did the assassination of Charlie Kirk severely disrupt my mental flow and energy, but other economic and market topics have surfaced that have tempted me away from what I intended to write. I eulogized Charlie the best I could, and I plan to address some CPI/inflation updates in the Monday Dividend Cafe, and through everything else in the current news cycle (economic or otherwise), the fact remains that this week is the 24th anniversary of the fateful events of 9/11, and there exists a message about this I want to tell today that I believe is highly relevant for the Dividend Cafe.
I have written in the past about my experience on 9/11, but also the reality of post-9/11 financial markets. That 9/11 was one of many, many, many events in market history where markets declined substantially, and then subsequently recovered, is not a particularly unique story. It is manifestly true and should be remembered for its impact on our behavioral tendencies as investors. Awful things happen, they sometimes tank markets, and markets are more resilient than awful things. That much is true, important, and undeniable throughout history.
But today’s Dividend Cafe is not about the impact of 9/11 on the stock market and the stock market’s known resilience. The subject of today’s Dividend Cafe, following up on last week’s vital message about America’s free enterprise system as a driver of investment opportunity, is why those who wished harm on America in the 9/11 attacks were specifically focused on our financial system.
You cannot hate America and love our financial markets. But you also cannot love America and hate our financial markets.
In today’s Dividend Cafe, we will look at the heart of the matter in the 9/11 attacks, beyond the human tragedy, beyond the foreign policy implications, beyond the geopolitics, and even beyond the market lesson about investor response … and into the principal takeaway that they attacked our financial capital, because to destroy our financial markets is to destroy America. And they failed. They did. They failed. But we simply must draw the logical conclusion that if those who want to destroy America want to destroy our capital markets, then those who love America must want to defend and promote flourishing capital markets. And that’s what we are going to do, in the Dividend Cafe …
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The Target
The twin towers, the north and south towers of what constituted the World Trade Center, were built from 1966-1973 in the heart of the financial district of lower Manhattan. The most comprehensive history of the Twin Towers can be found in episode eight of the Ric Burns/PBS 18-hour documentary series on the history of New York City. The history of the towers, their architectural majesty, their cost, their construction, and the urban renewal objectives behind the concept are all a fascinating part of the story. But getting beyond the minutiae of its history, construction, and metropolitan lore of the whole thing, the World Trade Center represented a global symbol of American financial markets.
The World Trade Center buildings were filled with American financial giants. Cantor Fitzgerald, Morgan Stanley, Bank of America, Credit Suisse First Boston, Salomon Smith Barney, Aon Corp, Fiduciary Trust, Deutsche Bank, Marsh & McClennan, Blue Cross Blue Shield, and Standard Chartered Bank were but a few of the specific investment banks, commercial banks, and insurance industry tenants that occupied the buildings. If we added the law firms, global banks, government agencies, and regulators, and boutique investment banks in the buildings, the list would become even longer.
But 107 floors of two towers going 1,350 feet in the air (more than four football field-lengths in height) provided more than just actual physical space to financial companies, but it towered over a part of the world that also represented the greatest of world financial markets. The New York Stock Exchange, the New York Federal Reserve Bank, American Express, Merrill Lynch, Bank of New York Mellon, Fidelity Investments, Goldman Sachs, Oppenheimer, and more small and mid-sized firms than one could count all existed (or had substantial presence) in the shadows of these giant towers. Lower Manhattan was the home of Wall Street (quite literally), and the World Trade Center was the physical powerhouse of Lower Manhattan. Any “close your eyes and visualize the capital of American financial markets” exercise conjured the imagery of the Twin Towers, period.
The height of the buildings gave depraved madmen easy targets for an airplane being used as a missile. The significant capacity for human workers in the buildings gave the jihadists an opportunity for mass casualties. But the symbolic and literal role the buildings played in American financial markets represented the underlying thrust of these targets.
Their Words, Not Mine
Before I make the case for the symbolic significance of the World Trade Center as a 9/11 target, let’s understand the basic economic impact the terrorists, themselves, said they were after.
In his 1996 fatwa, Osama bin Laden wrote (“Declaration of War Against the Americans Occupying the Land of the Two Holy Places), he specifically said:
“We call on every Muslim who … wishes to be rewarded to kill the Americans and plunder their money … We want to make them taste the bitter consequences of their occupation and to drain them of their money as we drained the Russians before them.”
The context in that latter statement is the belief that forcing a country to spend a lot of money in repairs and on war would devastate their economy from the inside out:
“The collapse of the Soviet Union came as a result of the spending of enormous sums on an unjust war … We call on every Muslim to fight against the Americans … until they are defeated and drain their wealth and resources.”
This 1996 fatwa was filled with the explicit intent of damaging America economically (jihad positioned as warfare of economic attrition).
In his 1998 fatwa, he got more specific about the economic nature of his intent:
“We aim to make pay a heavy price and to bleed them to a point of bankruptcy. Just as they plunder our wealth, we shall drain theirs.”
After the 9/11 attack, the world heard nothing from Osama bin Laden for several years as he fled from cave to cave in Tora Bora, avoiding capture, until a video he released in October of 2004 via Al Jazeera. The explicitly economic nature of the attacks was proclaimed to the world:
“We are continuing this policy in bleeding America to the point of bankruptcy … This is in addition to our having experience in using guerrilla warfare and the war of attrition to fight tyrannical superpowers, as we, alongside the mujahidin, bled Russia for 10 years, until it went bankrupt and was forced to withdraw in defeat.”
He taunted the United States that they were attempting to bait them into wasting money:
“All that we have to do is to send two mujahidin to the furthest point east to raise a piece of cloth on which is written al-Qaida, in order to make the generals race there to cause America to suffer human, economic, and political losses without their achieving for it anything of note other than some benefits for their private companies.”
The underlying economic aim, largely connected to the desire to make America squander economic resources, was foreshadowed by the 9/11 masterminds before the attack and reiterated after the attack. It was always a bloodthirsty and murderous attack, but it was not only that … it was also connected to a specifically economic context of warfare.
A Second Monster
For some reason I do not fully understand, the operational mastermind of 9/11, Khalid Sheikh Mohammed (KSM), is still alive. He is imprisoned at the U.S. naval base in Guantanamo Bay, Cuba. He has had a few things to say about their agenda on 9/11, as well.
Quoting from the 9/11 Commission Report itself, KSM told interrogators that: “[they had] long been interested in striking high-profile American targets, especially those with economic or symbolic significance.” He and bin Laden identified the World Trade Center as “the symbol of U.S. economic power.” It was KSM’s nephew, Ramzi Yousef, who had bombed the trade center in 1993. KSM claimed to be “motivated by Yousef’s conviction that these spectacular attacks would strike at the economic and symbolic heart of the United States.”
The rhetoric of the attack’s perpetrators leaves no ambiguity around the foresight that went into the terrorist attacks as violent and economic acts intended to (a) do economic violence to America, and (b) undermine the symbols of American prosperity and economic strength that the Twin Towers represented.
A Tally Not Recorded
The loss of human life on 9/11 was unprecedented for a domestic attack on U.S. turf. It was incalculable for its tragedy, for the loss it represented to families, friends, and loved ones of these fallen heroes. It also resulted in a massive loss of economic value due to the destruction it fomented. The audacity of this terror attack and the pain it created in America can never be understated.
But did the attack destroy American financial markets? Did they succeed in striking at the heart of our economic system? Did its symbolic value work, meaning, did the destruction of these buildings in Lower Manhattan undermine the capital markets infrastructure of the American economy?
No, no, and no.
Resilience by Any Other Name
I spent January 2002, a few months after the terror attacks, in Weehawken, New Jersey, just a short ferry ride across the Hudson River from Manhattan, as part of an advisor program at UBS PaineWebber. My colleagues and I spent most nights at the hotel bar, discussing our work, and I met a local who was a high-level IT executive at a major financial firm. I remember him walking me through one night the unbelievable story of how his firm was re-opened for trading just days after the attack … the technological prowess that went into the transition … the sophistication of preparation that existed before the attack, but also the motivated activity in the aftermath of the attack that allowed them to be plugged in and functioning days after what could have been existential. American investors and their psyches were understandably damaged for a short while after the attacks. American financial firms and their functions in capital markets were not. Trading was up and running. The ability to make markets in financial instruments was uninterrupted. The need to be a liquidity provider to institutions impacted by the attacks was not disrupted. Capacity for advice on capital allocation was not diminished.
Asset prices were temporarily down, yes. Loss of life and property was a national tragedy, yes. But the attempt to undermine American economic power (symbolically or otherwise) failed. Call it resilience. Call it American exceptionalism. Call it whatever you want. But don’t call it surrender, because it wasn’t.
American [Economic] Exceptionalism
America’s ideals transcend the aspirational nature of our economic framework. The entire system of natural rights embedded in our founding, the contrarian view that government secured but did not create those rights, and the vision of civil society embedded in our Bill of Rights are all unique propositions in the American experiment. Many Americans can point to many different things that they particularly love about being American. I, myself, am sympathetic to the view that our unique synthesis of religious and economic freedom is the secret sauce of our exceptionalism. I am sure many people could articulate or identify many different things in their own expression. But our economic freedom and commitment to an aspirational society is, for anyone interested in a remotely accurate understanding of how America became the land of opportunity it became, table stakes. It is the sine qua non of the American success story. And while we made mistakes, including some awful ones, we cured those, even if not quickly enough. The ideals, though, remain the north star for a free and prosperous society.
I would love to leave it there and say that, in the annals of history, all that mattered to American success was our philosophical idealism. Actually, the piety required technique. What needed to happen, and what did indeed happen, was not merely an ideal for economic opportunity, but a commitment to a wide array of conditions that would drive America into new world preparedness. Out of the Industrial Revolution, and throughout the 20th century, and into the challenges of this new millennium (including the challenge of the 9/11 terror attack), a major component of American exceptionalism has been the exceptional nature of our financial markets. We have ideas, we have risk-takers, we have an educated and literate population (for now), we have private property, and we have the rule of law – all of which have been necessary but not sufficient conditions for what we would become. The other ingredient has been robust capital markets that are, without question, the envy of the world.
Nothing I ever say is going to solve the human covetousness at the root of demonizing Wall Street. The easy target that bad financial actors represent is what it is, and the innate desire to demonize all forms of financial activity is as old as civilization. It is not rational, it is not moral, and it is not sustainable, but it is understandable.
I thank God that for all the tragedy unleashed on 9/11, the jihadist barbarians did not succeed in destroying America’s economic supremacy, symbolized, if not embodied, in our great financial habitat. I know what the terrorists wanted to do on 9/11, but I also know what they failed to do.
The challenge before us in a post-9/11 world is not merely to defend ourselves and our way of life (our civilization) against those external enemies who wish us harm, including our economic symbols and way of life. It is surely that, yes, but it is more. We must also defend our financial markets against internal forces – ideological ones – that believe you can have capitalism without capital markets.
You can’t, and you won’t.
The 9/11 terrorists knew this. They tried and they failed. May those of us who create wealth, steward wealth, take risks for wealth, act for the purpose of productivity, engage in acts of commerce and investment, partner with others in the aforementioned acts, and otherwise function day by day as economic actors, rationally striving for a better life for ourselves and our loved ones, never forget that our way of life involves “markets,” and those “markets” are worthy of being defended.
Some people know this so much, that they actually thought they were worthy of being attacked.
Quote of the Week
“It will take a long time. Meanwhile, it’s still possible to live well.”
~ Irving Kristol
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I am off to Houston Monday, Nashville Wednesday, and Washington, D.C., Friday next week, with a little New York in between (where I am now). There is a lot of travel and client visits in the months ahead. We are also two weeks away from our annual money manager week, where Brian, Kenny, and I have a couple of dozen meetings with key asset management partners. I am excited (as always).
I pray for a weekend of peace, rest, and decompression for all who need it. And I hope you know how unbelievably committed The Bahnsen Group is to your well-being. To that end, we work.
With regards,
David L. Bahnsen
Chief Investment Officer, Managing Partner
The Bahnsen Group
thebahnsengroup.com
This week’s Dividend Cafe features research from S&P, Baird, Barclays, Goldman Sachs, and the IRN research platform of FactSet
