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Riding to the Economy's Rescue
In Days After Attacks, Bush Team Bent Rules to Stabilize System
By Glenn Kessler
Washington Post Staff Writer
Tuesday, September 25, 2001; Page E01
The day after the World Trade Center was destroyed by terrorists, White House economic adviser Lawrence B. Lindsey received a call from the chief executive of a major airline. The carrier's credit line was being yanked by a financial institution.
Lindsey is a fervent believer in free markets and market-driven solutions. But with airplanes grounded and the U.S. stock markets closed after the Sept. 11 attacks, he and other members of President Bush's economic team chose government intervention instead of a laissez-faire approach.
Lindsey called the head of the financial institution. "This is an issue of national importance," he told the banker. "You might want to think of the broader picture." He argued that this was only a temporary jam for the carrier and suggested that Congress would likely do something to assist the industry.
Lindsey put down the receiver. He didn't want to find out what happened to the credit line. There were limits to bending the rules of the free market.
The Bush economic team tested those limits in the first week after the attacks. Interviews with sources familiar with the events show that key members of the team involved themselves in details large and small in an effort to keep the economy from seizing up, even going so far as to urge Americans to buy stocks. What follows is an account of that first week -- from the day of the attacks until the next Monday, when the stock market reopened -- six days when the economic team focused not on the economy's long-term fundamentals but rather on the operational emergencies of the moment.
Tuesday, Sept. 11: Mitchell E. Daniels Jr., the White House budget director, sensed something was wrong during a morning staff meeting when his eyes flickered toward a television set in the reception area outside his office. Staffers, their backs to the TV, noticed Daniels's eyes were darting to the TV. Finally, he said, "I think the twin towers were hit by a plane." An aide got up and looked at the TV, and said, "Yeah, it has been." They assumed it was some freak commuter-plane accident and continued the meeting. Then Daniels said, "I think another one hit it."
R. Glenn Hubbard, chairman of the Council of Economic Advisors, began monitoring the television reports on the World Trade Center attacks from his office. He happened to glance out of one of his windows, which overlook the Corcoran Gallery of Art, and suddenly saw a huge fireball and smoke. The Pentagon had been hit.
Within minutes, the White House was evacuated. Lindsey and many other officials first went to the Washington offices of DaimlerChrysler on H Street NW, a few blocks away. A well-dressed man stood in front of the building and kept an eye out for key White House personnel. "Seventh floor, seventh floor," he urgently whispered.
After an hour, Lindsey departed for the White House's Presidential Emergency Operations Center, beneath the East Wing. Lindsey, who heads the National Economic Council, sat at a large table in a conference room and began working the phones, trying to find out what was happening in the markets and the banking system.
Treasury Secretary Paul H. O'Neill, meanwhile, was in Asia. He had just arrived from China at the Imperial Hotel in Tokyo, 9:15 p.m. local time, 13 hours ahead of the United States, intending to meet with the prime minister the next day. Most of his staff members had dropped off their bags and had gathered in the staff office to plan the next day. They had CNN on the TV and saw the first reports after the planes hit the trade center's twin towers.
O'Neill grabbed only a hour of sleep the rest of the night as he monitored the TV and fielded dozens of calls. New York Stock Exchange Chairman Richard A. Grasso called him almost immediately. He spoke to Canadian Finance Minister Paul Martin, who helped draft a statement by the Group of Seven finance ministers pledging to "provide liquidity to ensure the financial markets operate in an orderly fashion."
He didn't speak to his good friend Alan Greenspan, the Federal Reserve chairman, who was stuck on the other side of the globe in Switzerland. He had attended a meeting of international central bankers, and his plane home had been turned back to Zurich in mid-flight.
Back in Washington, Lindsey reached Greenspan. The Fed chairman desperately needed a ride home and so was ferried on a military flight.
Among their biggest worries was that the nation's banking and payment system would freeze up. The 12 Federal Reserve banks worked aggressively to make sure there was enough money in the system, even going so far as to keep filling ATMs in Lower Manhattan with fresh $20 bills.
Even relatively minor things required calls. The government had to cancel a bond auction, meaning it was temporarily short of cash. Lindsey checked with the Fed, just to make sure that wouldn't disrupt government operations.
They served sandwiches in the White House PEOC -- ham and cheese or tuna. They also had cookies and a bowl of M&Ms. Someone came around and passed out Certs breath mints -- a good idea, one official thought, when you're in an enclosed space and you've been talking on the phone all day.
Wednesday, Sept. 12: Officials kept discovering that the operational problems were much worse than they imagined.
Lindsey really wanted the stock markets to reopen on Thursday, a decision that rests with the individual exchange. But with each passing hour it became clearer that the obstacles could not be overcome so quickly. The phone systems were out. The electricity was sporadic. The air conditioning couldn't be turned on for fear that it would spread dust, asbestos and other particles. The transportation system was a mess; the World Trade Center had been a commuter train and subway stop.
Meanwhile, Lindsey began getting calls from U.S. auto manufacturers, which rely on imports of parts from Canada. U.S. plants were on the verge of being shut down across Michigan because the Level One alert imposed by the Customs Department, along with a serious accident near a major port of entry, had caused havoc at the Canadian border. There was an 18-mile backup at the tunnel connecting Detroit and Windsor, Ontario, and entry points at Port Huron, Mich., and Buffalo were also jammed; no auto parts were getting through.
Southern Ontario is closely integrated economically with Michigan, and all of the plants operate on a "just in time" basis -- that is, they ship parts only when they are needed rather than maintain costly inventories. That improved operating efficiency in the 1990s, but on this day it threatened to close an important segment of the U.S. economy. Ultimately, traffic was directed to other ports of entry, more customs agents were assigned and new signs directing traffic to nearby ports were erected.
Before noon in Japan, O'Neill and 20 staff members boarded a C-17 military cargo jet, normally used for carrying vehicles such as those used in a presidential motorcade. They arrived back in Washington about 6 p.m., and O'Neill began a series of phone briefings, with the most critical question being when to reopen the stock markets.
Thursday, Sept. 13: O'Neill pressed hard in meetings not to resume stock trading until Monday. O'Neill is a controversial figure outside the administration but widely admired inside, in part because he often comes up with creative solutions and in part because he isn't afraid to speak his mind. O'Neill is also a systems guy, someone who loves to figure out bottlenecks and logjams. All he saw was one big logjam if they tried to open the stock markets before they were ready.
"There were some voices who were clamoring for opening on Wednesday or Thursday or even Friday," O'Neill told Congress last week. "I think the right set of judgments were made. We made sure that we would not have a false start."
While most people focused on the New York Stock Exchange, the administration also spent a lot of effort to reopen what seemed like a relatively minor player -- the New York Mercantile Exchange, where oil contracts are traded. With the Nymex out of commission, trading in oil contracts was thin and oil prices were rising.
The Nymex needed a generator for electricity. So White House officials found themselves delving into the minutia of getting a generator for the exchange. They needed to get a permit to transport the generator. Then they had to truck in fuel. Then they discovered they had to get a permit to bring the generator into the disaster zone. And they had to obtain environmental waivers to operate the generator.
Friday, Sept. 14: Amid the technical questions of restarting the stock markets, there was a very real concern that there would be panic selling and too few buyers, that the markets would freeze up and stock prices would plummet. The Securities and Exchange Commission used emergency powers to lift rules that made it difficult for corporations to buy their own shares, and dozens of companies indicated they would buy back their shares in an effort to stabilize the markets.
Bush, preoccupied with national security issues, held his first, brief meeting on the economic situation. Hubbard described the nation's economic situation on Sept. 10 and then detailed what had changed after the attacks. Larger questions -- such as whether to bail out the airline industry or support congressional demands for a stimulus package -- would wait until the next week.
Sunday, Sept. 16: Vice President Cheney appeared on NBC's "Meet the Press" to make the case that Americans should buy American. "I'm not an investor anymore, because I had to get out of the market since I'm now a public official," he said. "But I would hope the American people would, in effect, stick their thumb in the eye of the terrorists and say that they've got great confidence in the country, great confidence in our economy."
O'Neill had issued a carefully worded statement Thursday expressing confidence in the U.S. economy that had been reviewed by the White House, but after that he was largely allowed to form his own message.
O'Neill is an eternal optimist; for months he had been convinced that the economic recovery was just around the corner, even as some private forecasters became increasingly pessimistic. A year ago, when O'Neill was chairman of an aluminum company, he had sensed the slump was coming when he started getting sales reports from his many overseas locations. Before the attacks, he had scoured the data and the tea leaves and became equally certain that others had missed signs that the economy was ready to rebound.
Back in March, after the securities markets suffered what was then their worst period in 11 years, O'Neill had heaped scorn on the idea of expressing faith in the fundamentals of the U.S. economy. "I think the markets go up and the markets go down," O'Neill sniffed.
But after the attacks, O'Neill decided to blanket the airwaves when the markets opened, spreading his message of hope and confidence. He wanted everyone to know that despite the naysayers, he knew the economy was on the mend. And O'Neill loves live television because viewers can hear everything he says, unvarnished and unedited.
Monday, Sept. 17: The Federal Reserve cut short-term interest rates minutes before the markets opened -- a move that in normal times provides at least a psychological boost to investors. But stock prices started plummeting from the opening bell, even as the Secret Service ferried O'Neill across Manhattan in a Chevrolet Suburban so he could appear on six television shows -- three in the morning and three in the afternoon.
Before the market opened, Charlie Gibson on "Good Morning America" tried to goad O'Neill into making a prediction. "What do you think is going to happen? Give me some scenario of what you expect at the open, first hours, end of the day, through the week," Gibson asked.
"I don't know," O'Neill averred. "I'm afraid that's a fool's game."
But then the secretary plunged forward. "In the long term, Charlie, this is a time to buy America. We're going to show resilience."
Back in Washington, Bush received a briefing from his economic aides in the Oval Office. It was clear that Bush had been keeping up with the markets. Lindsey and Hubbard stressed to him that the market drop was about the same as the whole previous week in the overseas markets -- and at least the U.S. markets kept functioning on a day of record trading volume.
By 2 o'clock, with the Dow Jones industrial average down about 500 points, O'Neill no longer hesitated. Appearing on CNN with Lou Dobbs, he predicted: "My guess is that when we look a year down the road, the people who bought today are going to be the happy people. The people who sold will be sorry they did it."
That wasn't quite good enough for Dobbs. He wanted to know when the Dow would hit a new record high.
O'Neill didn't flinch. "Well, I think it is conceivable we could be approaching the tops on the Dow side in another 12 or 18 months."
The Dow lost almost 685 points that day, to close at 8920.70, and then kept falling the rest of the week.
Fred |
